QUATTLEBAUM, GROOMS,
TULL & BURROW PLLC
A PROFESSIONAL LIMITED LIABILITY COMPANY
ARKANSAS COMMERCIAL LENDING LAW
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The following pages are excerpted from:
Commercial Lending Law, A State-by-State Guide
©2009 by the American Bar Association. All rights reserved. Printed in the
United States of America.
This information or any portion thereof may not be copied or disseminated
in any form or by any means or downloaded or stored in an electronic
database or retrieval system without the express written consent of the
American Bar Association.
71
Arkansas Commercial Lending Law
Timothy W. Grooms, Partner
Quattlebaum, Grooms, Tull, & Burrow PLLC
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
I. Basic Legal Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
A. General Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
B. Procedural Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
C. Administrative Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
D. Local Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
E. Arkansas Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
II. Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
A. Required Qualifications to Do Business: The Arkansas Foreign
Corporations Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
B. Licensing Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
C. Taxation of Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
III. Fundamentals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
A. General Arkansas Contract Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
B. Arkansas Promissory Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
C. Statute of Frauds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
D. Arkansas Guaranty and Suretyship Law . . . . . . . . . . . . . . . . . . . . . . . . . 77
E. Arkansas Electronic Transactions Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
IV. Interest and Usury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
A. Interest Rate and Usury Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
B. Post-Judgment Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
V. Conflict of Laws Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
A. Arkansas Choice of Law Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
VI. Types of Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
A. Corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
B. Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
C. Arkansas LLCs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
D. Proprietorships and Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
E. Tenancies of Married Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
F. Arkansas Dower and Curtesy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
G. Arkansas Homestead Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
H. Marital Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
I. Adverse Possession in Arkansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
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VII. Real Estate Lending. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
A. Property Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
B. Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
C. Arkansas Mortgages and Deeds of Trust . . . . . . . . . . . . . . . . . . . . . . . . . 86
D. Recording Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
E. Statutory Form of Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
F. Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
G. Satisfaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
H. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
I. Remedies upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
J. Deficiency Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
K. Redemption Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
L. Deed in Lieu of Foreclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
M. Mechanics’ Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
N. Assignment of Leases and Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
O. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
VIII. Personal Property Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
A. UCC Article 9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
B. Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
C. Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
D. Deposit Accounts and Investment Property . . . . . . . . . . . . . . . . . . . . . . . 95
E. Agricultural Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
F. Commercial Tort Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
G. Real Estate Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
H. Financing Statement Formalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
I. Filing Fees for Financing Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
J. Fixture Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
K. Reasonable Identification of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 99
L. Name of Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
M. Where to File Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
N Collection and Enforcement by Secured Parties . . . . . . . . . . . . . . . . . . 101
O. Right to Possession upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
P. Acceptance of Collateral in Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . 103
Q. Right to Redeem Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
R. Transition Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
IX. Other Laws of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
A. Arkansas Fraudulent Transfer Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
B. Arkansas Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
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73
Arkansas Commercial Lending Law
Timothy W. Grooms, Partner
Quattlebaum, Grooms, Tull, & Burrow PLLC
Introduction
This survey is designed to provide commercial lenders and businesses contem-
plating the extension of credit to Arkansas borrowers a general overview of var-
ious issues of Arkansas law which affect commercial lending relationships.
Neither Arkansas law governing consumer lending transactions nor issues of
federal law are addressed in this survey. Because of the breadth of the topic, we
cannot in this limited survey deal comprehensively with every issue that may
arise in the context of a commercial lending transaction. Therefore, lenders
should not rely solely on this survey for answers to questions involving the
application of Arkansas law to a specific set of facts.
I. Basic Legal Structure
A. General Law
The law of Arkansas is contained in its constitution, the Arkansas Code of 1987
Annotated, Administrative Code, and common law. The Constitution contains
basic foundations of law, including the establishment of a homestead exemp-
tion of any Arkansas resident who is married or the head of a family from le-
gal process and a usury provision providing that the maximum lawful rate of
interest on any contract entered into within the State of Arkansas shall not ex-
ceed five percent per annum above the Federal Reserve Discount Rate at the
time of the contract. Statutes and regulations, however, provide specifics.
The Arkansas Code of 1987 Annotated consists of twenty-nine titles,
each divided into chapters and sections and arranged by subject. Relevant
titles include
• Title 2—Agriculture
• Title 4—Business and Commercial Law
• Title 11—Labor and Industrial Relations
• Title 18—Property
• Title 26—Taxation
• Title 27—Transportation
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B. Procedural Law
Arkansas procedural laws are contained in the Arkansas Inferior Court Rules,
Administrative Code, Rules of Civil Procedure, Rules of Criminal Procedure,
Rules of Appellate Procedure, the Rules of the Supreme Court and the Court of
Appeals of the State of Arkansas, and the Arkansas Rules of Evidence.
C. Administrative Law
A number of Arkansas agencies have rule-making and regulatory authority,
including the Arkansas Department of Finance and Administration, Motor Ve-
hicle Commission, Savings and Loan Association Board, Commissioner of
State Lands, and the Arkansas Development Finance Authority. Administrative
rules and regulations are codified in Code of Arkansas Rules and Regulations
published by Weil Publishing Company, Inc. Weil’s Code of Arkansas Rules
is the complete collection of Arkansas’ administrative rules. The Code of
Arkansas Rules, published since 2000, is the only complete edition of the rules
available, in print or online.
D. Local Law
Arkansas is a Dillon’s Law state. Dillon’s Law requires that localities must
obtain express permission from the state before enacting certain kinds of leg-
islation. Legislation required by Dillon’s Law is often called “enabling” legis-
lation, meaning local governments have limited autonomy, and therefore, the
exercise of power by municipalities is limited to self-government, local po-
lice, sanitary, and other similar regulations, which means local law is unlikely
to affect commercial lending practices.
E. Arkansas Courts
The judicial power of the state is vested in the Arkansas Supreme Court, circuit
courts, district courts, and justices of the peace.
The jurisdiction and power of the Arkansas Supreme Court is controlled
by article 7, section 4 of the Arkansas Constitution. Under this section, the
Arkansas Supreme Court generally has only appellate jurisdiction, meaning it
typically hears cases that are appealed from trial courts. The Arkansas Supreme
Court also has general superintending control over all inferior courts of law and
equity. Until 2000, Arkansas remained one of the few states with separate
courts for law (circuit court) and for equity (chancery court). In November
2000, the voters of Arkansas approved amendment 80 to the Arkansas Consti-
tution. The Circuit and Chancery Courts were merged into Circuit Courts, and
Municipal Courts were given countywide jurisdiction and were renamed Dis-
trict Courts.
Circuit Courts are general jurisdiction trial courts. Effective January 1,
2002, Circuit Courts shall consist of five subject matter divisions: criminal,
civil, probate, domestic relations, and juvenile.
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District Courts, formerly known as Municipal Courts before passage of
amendment 80 to the Arkansas Constitution, exercise countywide jurisdiction
over misdemeanor cases, preliminary felony cases, and civil cases in matters of
less than $5000. A small claims division of District Court provides a forum in
which citizens represent themselves to resolve minor civil matters. The city
courts operate in smaller communities where District Courts do not exist and
exercise citywide jurisdiction.
II. Authority
A. Required Qualifications to Do Business:
The Arkansas Foreign Corporations Law
Lenders and businesses not based in Arkansas generally do not need to qual-
ify to “do business” in Arkansas to
• sell goods to Arkansas customers through the mails and other means
of interstate commerce;
• make loans or extensions of credit to Arkansas debtors or create or ac-
quire security interests in real or personal property, as long as the lender
or business is not continuously carrying on or transacting through them
some substantial part of its ordinary or customary business;
• collect debts owed by Arkansas debtors or enforce mortgages and secu-
rity interests in property located in Arkansas (See Ark. Code Ann. §§ 4-
27-1501(B)(8), 4-31-201, and 4-33-1501 [1987]); or
• own real or personal property in Arkansas, without more.
Lenders and businesses not based in Arkansas generally do need to qualify to
do business in Arkansas to have access to Arkansas courts. This can be ac-
complished by requesting from the Arkansas Secretary of State a certificate of
authority as a foreign corporation, general partnership, limited liability com-
pany (LLC), limited partnership (LP), limited liability partnership (LLP), lim-
ited liability limited partnership (LLLP), or business trust doing business in the
State of Arkansas.
B. Licensing Requirements
As a general rule, out-of-state commercial lenders and equipment lessors doing
business in Arkansas are not subject to any special licensing requirements.
Licenses are required for the following within the state of Arkansas:
• a real estate broker (Ark. Code Ann. § 17-42-101, et seq. [1987]);
• a mortgage broker, mortgage banker, loan officer, or mortgage servicer
(Ark. Code Ann. § 23-39-503 [1987]);
Arkansas Commercial Lending Law 75
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• a captive insurance company, if permitted by its articles of incorpora-
tion or charter (Ark. Code Ann. § 23-63-1602 [1987]);
• a motor vehicle manufacturer, distributor, second-stage manufacturer,
importer, or converter (Ark. Code Ann. § 23-112-310 [1987]).
C. Taxation of Entities
No corporation, institution or entity confining its business operations in
Arkansas to the types of activities provided in Arkansas Code of 1987 Anno-
tated section 4-31-201 is required to qualify to do business in Arkansas or to
pay any tax or fee required to be paid by foreign corporations under any law
of this state.
However, the exemption does not include (1) ad valorem taxes assessed
against any real property that the corporation, institution, or entity may own in
the State of Arkansas; (2) Arkansas income, franchise, and privilege tax that
may result from the sale, ownership, or control after acquisition of the property
by foreclosure, or acquisition in lieu of foreclosure, either by virtue of the value
of the specific piece of property so foreclosed or to which title is taken in lieu
of foreclosure, or by virtue of the rental or other income realized from the prop-
erty; or (3) Arkansas income taxes that may be levied upon financial institutions
pursuant to section 26-51-1401 et seq. Ark. Code Ann. § 4-31-205 (1987).
III. Fundamentals
A. General Arkansas Contract Law
Basic contract law in Arkansas derives from common law principles and is
similar to the law of other common law states. As in most states, the Uniform
Commercial Code (UCC) establishes basic rules in the areas of sale and leas-
ing of goods and secured transactions. Arkansas has adopted all of the UCC,
including the most recent revisions of articles 3, 4, 5, 8, and 9, with only slight
variations from the uniform laws.
B. Arkansas Promissory Notes
The Arkansas law applicable to negotiable promissory notes is found in revised
article 3 of the Arkansas UCC. See Ark. Code Ann. § 4-3-101, et seq. (1987).
Commercial promissory notes in Arkansas customarily include provisions re-
garding the recovery of reasonable attorneys’ fees (Ark. Code Ann. § 4-56-
101 [1987]), acceleration, late charges, delinquency fees, default interest, and
prepayment penalties.
C. Statute of Frauds
Under Arkansas law, no claim can be brought on any agreement or promise to
lend money between a financial institution and a debtor unless the agreement is
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in writing and signed by the party to be charged or by the debtor and accepted
by the financial institution.
D. Arkansas Guaranty and Suretyship Law
General principles of the common law of guarantees and suretyship apply in
Arkansas. For purposes of commercial paper, the Arkansas UCC establishes
that the term surety includes a guarantor. See Ark. Code Ann. § 4-1-201(40)
(1987). Regarding the issue of release of a guarantor from his obligation, un-
less the guarantor is notified and consents to any material changes, the deter-
mining factor in Arkansas is whether there was a “material alteration” of the
agreement, to discharge the guarantor. Worthen Bank & Trust Co. v. Utley, 748
F.2d 1269 (8th Cir. 1984).
E. Arkansas Electronic Transactions Act
Article 4A of the Arkansas UCC provides the rules for wholesale wire trans-
fers of funds between business and financial institutions. See Ark. Code Ann.
§ 4-4A-101, et seq. (1987). Additionally, Arkansas enacted the Uniform Elec-
tronic Transactions Act, as approved and recommended for enactment in all of
the states by the National Conference of Commissioners on Uniform State Laws
in 1999. Its purpose is to facilitate electronic commerce and to ensure that con-
tracts and signatures that are executed electronically have the same legal effect
as paper contracts and pen and ink signatures. This chapter does not apply to a
transaction to the extent it is governed by a law governing the creation and ex-
ecution of wills, codicils, testamentary trusts, or the UCC other than sections
4-1-107 and 4-1-206, chapter 2 and 2A. See Ark. Code Ann. § 25-32-103(b)
(1987). Pursuant to section 102(a) of the Electronic Signatures in Global and
National Commerce Act, this Act modifies, limits, or supersedes the provisions
of section 101 of the Electronic Signatures in Global and National Commerce
Act to the extent therein authorized. Ark. Code Ann. § 25-32-103(e) (1987).
IV. Interest and Usury
A. Interest Rate and Usury Law
Arkansas has strict usury laws. Article 19, section 13 of the Arkansas Constitu-
tion, as amended by Arkansas constitutional amendment 60 in 1982, provides
in relevant part that “[t]he maximum lawful rate of interest on any contract
entered into after the effective date hereof shall not exceed five percent per
annum above the Federal Reserve Discount Rate at the time of the contract.”
However, under amendments to Regulation A of the Federal Reserve Board
(12 C.F.R. 201), which became effective January 6, 2003, the Federal Reserve
Board discontinued the Federal Reserve Discount Rate, and in its place im-
plemented a multitiered interest rate structure, with a “primary credit” rate
and a “secondary credit” rate. The term “Federal Reserve Discount Rate” is not
Arkansas Commercial Lending Law 77
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utilized in amended Regulation A. The Arkansas Supreme Court, in Pakay v.
Davis, 367 Ark. 421, 2006 WL 2884473 (2006), held that the “primary credit”
rate should be applied in place of the Federal Reserve Discount Rate for de-
termination of the maximum available rate of interest.
The Gramm-Leach-Bliley Act (GLBA, 15 U.S.C. § 6801, et seq.) pro-
vides a rate override for state and national banks if the bank’s principal place of
business is located in Arkansas. GLBA allows qualified banks to charge sub-
stantially higher interest than Arkansas usury law allows a nonbank to charge.
Under Arkansas law, many items characterized as “fees” may be classi-
fied as interest for purposes of calculating usury. Depending on the context, the
following could be classified as interest: application fees, commitment fees,
rate-lock fees, lender points, loan fees and discounts, title abstract fees, title ex-
amination fees, title insurance fees, closing costs, credit report fees, document
preparation fees (this term should be used only if an attorney is preparing the
documents), official fees, notary fees, certain insurance premiums, appraisal
fees, survey fees, escrow fees, flood certification fees, appraisal fees, mortgage
broker’s fees, late charges, insufficient fund fees, deferral fees, assumption
fees, collection costs, attorneys’ fees incurred to collect/foreclose/repossess
(customarily, these fees are limited to ten percent of the debt), pay-by-phone
fees, overnight shipping fees, fees to obtain tax searches and bills at con-
sumer’s request, payoff statement or expedited payoff statement fees, fees to
provide consumer requested additional information, or name change fees. As
a general rule, if a fee is paid to a bona fide third party, then the fee will not
be considered interest for purposes of usury calculations. All fees retained by
the lender or a subsidiary run the risk of being classified as interest.
B. Post-Judgment Interest
Interest on any judgment entered by any court or magistrate on any contract may
bear interest at the rate provided by the contract or ten percent per annum,
whichever is greater, and on any other judgment at ten percent per annum, but not
more than the maximum rate permitted by the Arkansas Constitution, article 19,
section 13, as amended. Notwithstanding the fact that article 19, section 13 of the
Arkansas Constitution makes no reference to post-judgment interest, “[I]t is clear
from a review of § 16-65-114(a)’s history, the plain language of the statute, and
the emergency clause of Act 782 of 1985 that the General Assembly intended to
limit the amount of interest awarded in all judgments by the rate set forth in the
constitution.” Hartford Fire Insurance Co. v. Sauer, 358 Ark. 89, 97 (2004).
V. Conflict of Laws Rules
A. Arkansas Choice of Law Covenants
Arkansas choice of law is governed by common law and by statute. When a
transaction bears a reasonable relationship to this state and also to another state
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or nation the parties may agree that the law either of this state or of such other
state or nation shall govern their rights and duties. Where one of the following
provisions specifies the applicable law, that provision governs and a contrary
agreement is effective only to the extent permitted by the law (including the
conflict of laws rules) so specified:
• rights of creditors against sold goods;
• applicability of the chapter on leases;
• applicability as to bank deposits and collections;
• governing law in the chapter on funds transfers;
• letters of credit;
• applicability of the chapter on investment securities; and
• law governing perfection, the effect of perfection or nonperfection, and
the priority of security interests and agricultural liens.
See Ark. Code Ann. § 4-1-301 (1987). In determining whether a multistate con-
tract is usurious, it is proper to apply the law of the state that the parties in-
tended to govern the contract, provided that state has a substantial connection
with the contract. U.S. Manganese Corp. v. Merrill Lynch, Pierce, Fenner, &
Smith, Inc., 576 F.2d 153 (Arkansas 1978).
VI. Types of Borrowers
A. Corporations
Arkansas corporations are subject to either the Arkansas Business Corpora-
tion Act of 1965 (Ark. Code Ann. § 4-26-101, et seq. [1987]) or the Arkansas
Business Corporation Act of 1987 (Ark. Code Ann. § 4-27-101, et seq. [1987]).
The 1965 Act applies only to business corporations existing prior to midnight,
December 31, 1987, that do not elect to be covered by the 1987 Act. Ark. Code
Ann. § 4-27-1701 (1987). Title 4, subchapter 3 of the Arkansas Code of 1987
Annotated also contains separate chapters applicable to foreign (Ark. Code
Ann. § 4-27-1501, et seq. [1987]) and nonprofit (Ark. Code Ann. § 4-28-201,
et seq. [1987]) corporations.
No domestic or foreign corporation may conduct any business in Arkansas
under a fictitious name unless it first files with the Secretary of State, and, in case
of a domestic corporation, with the county clerk of the county in which the cor-
poration’s registered office is located (unless it is located in Pulaski County), a
fictitious name form. See Ark. Code Ann. §§ 4-26-405, § 4-27- 404 (1987).
Arkansas profit and nonprofit corporations must file articles of incorpora-
tion with the Arkansas Secretary of State. Lenders customarily obtain a cer-
tificate of good standing and a certified copy of the articles of incorporation
from the Secretary of State before making a loan to a corporation organized un-
der Arkansas law. The Arkansas Secretary of State does not maintain copies
of corporate bylaws of Arkansas corporations. Lenders also customarily obtain
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a resolution of the board of directors, certified by the secretary of the corpora-
tion, authorizing the corporation to borrow funds.
If a borrower is incorporated under the laws of another state, lenders cus-
tomarily obtain from the Arkansas Secretary of State a certificate of good
standing, as well as formation documents and a certificate of good standing
from the state of its formation.
B. Partnerships
Arkansas recognizes four types of partnerships: (1) general partnerships,
(2) LPs, (3) LLPs, and (4) LLLPs. Title 4, subtitle 4 of the Arkansas Code of
1987 Annotated covers these types of partnerships. The law governing foreign
partnerships doing business in Arkansas is addressed in Arkansas Code of 1987
Annotated sections 4-46-1101 and 4-47-901 for foreign LLPs established af-
ter September 1, 2007. Before transacting business in this state, a foreign LLP
must file a statement of foreign qualification. Ark. Code Ann. § 4-46-1102
(1987). For those foreign LPs filing after September 1, 2007, a certificate of au-
thority must be filed with the Secretary of State prior to transacting business
in the state. Ark. Code Ann. § 4-47-904 (1987).
Lenders to a partnership customarily obtain a copy of the partnership
agreement, if any. If fewer than all of the general partners execute a loan doc-
ument or an instrument, lenders customarily obtain the consent of all of the
partners to the loan.
Lenders to an Arkansas LP, LLP, or LLLP customarily obtain from the
Arkansas Secretary of State a statement of qualification along with a copy of
the partnership agreement from the partnership. In the case of a foreign part-
nership, lenders customarily obtain a copy of the partnership agreement from
the partnership, a statement of foreign qualification from the Arkansas Secre-
tary of State, and appropriate certificates from the partnership’s home state.
No domestic or foreign registered LP or LLP may conduct any business in
Arkansas under a fictitious name unless it first files with the Arkansas Secre-
tary of State a fictitious name form. See Ark. Code Ann. §§ 4-42-707, 4-47-
201 (1987). This certificate lists the fictitious name under which business is
being, or will be, conducted by the applicant registered LLP, a brief statement of
the character of business to be conducted under the fictitious name and the name
of the registered LLP, state of organization, and location, giving city and street
address, of the registered office in the state of the applicant partnership.
C. Arkansas LLCs
Arkansas LLCs are governed by the terms of the Small Business Entity Tax
Pass Through Act codified in Arkansas Code of 1987 Annotated section 4-32-
101, et seq. One or more persons may form a LLC by signing or causing to be
signed articles of organization and delivering the signed articles to the
Arkansas Secretary of State for filing. The person or persons who sign the ar-
ticles of organization causing the formation of a LLC need not be members of
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the LLC at the time of formation or after formation has occurred. Ark. Code
Ann. § 4-32-201.
Arkansas LLCs can be managed either by their members or by one or more
managers, who may or may not be a member. Ark. Code Ann. § 4-32-204. Un-
der either structure, management can take many forms, including election of a
board of directors and election of officers. The LLC’s operating agreement
should explain the manner in which the company is managed should the arti-
cles of organization fail to do so. Lenders customarily require an Arkansas
LLC to provide a resolution authorizing the borrowing, signed by all of the
members (if the LLC is managed by the members) or signed by all of the man-
agers (if the LLC is managed by one or more managers).
Regarding the agency powers of members and managers, Arkansas Code
of 1987 Annotated section 4-32-301 establishes the following:
(a) Except as provided in subsection (b) of this section, every member
is an agent of the LLC for the purpose of its business or affairs, and
the act of any member, including but not limited to the execution in
the name of the LLC of any instrument, for apparently carrying on
in the usual way the business or affairs of the LLC of which he or
she is a member, binds the LLC, unless the member so acting has, in
fact, no authority to act for the LLC in the particular matter, and the
person with whom the member is dealing has knowledge of the fact
that the member has no such authority.
(b) If the articles of organization provide that management of the LLC is
vested in a manager or managers: (1) No member solely by reason of be-
ing a member is an agent of the LLC; and (2) Every manager is an agent
of the LLC for the purpose of its business or affairs, and the act of any
manager, including but not limited to the execution in the name of the
LLC of any instrument, for apparently carrying on in the usual way the
business or affairs of the LLC of which he is a manager binds the LLC,
unless the manager so acting has, in fact, no authority to act for the LLC
in the particular matter, and the person with whom the manager is deal-
ing has knowledge of the fact that the manager has no such authority.
(c) An act of a manager or a member which is not apparently for the car-
rying on in the usual way the business or affairs of the LLC does not
bind the LLC unless authorized in accordance with an operating
agreement, at the time of the transaction or at any other time.
(d) No act of a manager or member in contravention of a restriction on
authority shall bind the LLC to persons having knowledge of the
restriction.
Regarding liability of members to third parties, generally a person who is
a member, manager, agent, or employee of a LLC is not liable for a debt, obli-
gation, or liability of the LLC, whether arising in contract, tort, or otherwise
or for the acts or omissions of any other member, manager, agent or employee
of the LLC. Ark. Code Ann. § 4-32-304 (1987). Lenders looking to individual
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members of a LLC in Arkansas for full repayment of a LLC loan must have the
members separately obligate themselves with respect to the loan.
No LLC, domestic or foreign, shall conduct any business in Arkansas un-
der a fictitious name unless it first files with the Secretary of State a fictitious
name form. Ark. Code Ann. § 4-32-108 (1987).
A LLC organized under the laws of another state is required to register
with the Arkansas Secretary of State to do business in Arkansas. Ark. Code
Ann. § 4-32-1002 (1987). Lenders customarily obtain a certified copy of the
foreign LLC’s application for registration from the Arkansas Secretary of State,
as well as a copy of the company’s formation documents and, if available, a
certificate of good standing from the state in which it is organized.
D. Proprietorships and Individuals
Arkansas law treats loans to sole proprietorships in the same manner as loans
to individuals. An Arkansas sole proprietorship that operates under an as-
sumed name or under any designated name or style, corporate or otherwise,
other than the real name of the individual conducting or transacting such busi-
ness must file a certificate in the office of the county clerk of the counties in
which the person conducts transactions or intends to conduct the business.
The certificate shall set forth the name under which the business is, or is to be,
conducted or transacted and the full name or names of each person conduct-
ing or transacting the business, with the post office address of each. Ark. Code
Ann. § 4-70-203 (1987). Lenders may obtain certified copies of the certificate
from the county clerk located in the counties where the business is or is to
be conducted.
E. Tenancies of Married Borrowers
Real property held by married persons as “joint tenants” or “tenants in com-
mon” can be reached by creditors of either of the spouses. In addition to ten-
ancy in common and joint tenancy, Arkansas recognizes tenancy by the en-
tirety. See Kinghorn v. Hughes, 297 Ark. 364, 367 (1988). Tenancy by the
entirety is a method of owning property available to only married persons.
When a married couple owns property by the entirety, the law essentially rec-
ognizes ownership in the husband and wife as singular unit rather than two
individuals with rights of survivorship. Arkansas law presumes any conveyance
to a married couple is a conveyance to the entirety unless the conveyance in-
cludes specific language to the contrary. See generally Gardner v. Bullard, 241
Ark. 75, 79-81 (1966). Under Arkansas law, each of the tenants by the entirety
is secure against the impairment of their property rights through the sole act
of the other. See Kinghorn at 367. This means, as a general rule, a lender must
have rights against both the husband and the wife before a lender may enforce
a judgment against property owned by the entirety.
Under Arkansas law, a tenancy by the entirety is not exempt from bank-
ruptcy but is, however, subject to the rights of a non-debtor spouse. This can
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have profound implications in a debt collection setting where only one spouse
is liable for the debt because the other spouse can effectively shelter property
owned by the entirety since a spouse cannot unilaterally terminate a tenancy
by the entirety during marriage. See Morris v. Solesbee, 48 Ark. App. 123, 125
(1995). Execution against a spouse’s interest in a tenancy by the entirety is
permitted even though partition is not. Id. Real property owned by entirety
may be sold under execution to satisfy a judgment against one spouse, sub-
ject to the other spouse’s right of survivorship. Id. A purchaser of the interest
of one tenant by the entirety cannot oust the other tenant from possession and
can claim only one-half of the rents and profits. Id. at 126. Therefore, while a
lender may be entitled to one-half the rents and profits deriving from prop-
erty held by the entirety, the non-debtor spouse is entitled to retain posses-
sion (the property cannot be partitioned and sold), the right of survivorship is
not extinguished and, if the debtor spouse dies first, the lender’s interest is
extinguished. See Sieb’s Hatcheries, Inc. v. Lindley, 111 F. Supp. 705, 716
(W.D. Ark. 1953).
Therefore, under Arkansas law, a lender should require both the husband
and wife to sign all mortgage related documents. Lenders should also be mind-
ful of the rules set forth in the Federal Equal Credit Opportunity Act (15 U.S.C.
§§1691, et seq.), and Federal Reserve Regulation B (12 C.F.R. §§202.1,
et seq.), which restrict the ability of lenders to require the signature of non-
applicant spouses on loan documents.
F. Arkansas Dower and Curtesy
Arkansas law recognizes dower and curtesy. Technically, common law dower
and curtesy have been abolished in Arkansas. In its place, Arkansas has
adopted statutory dower and curtesy. Unlike common law dower and curtesy,
husbands and wives are treated identically under Arkansas law. Dower and cur-
tesy extends to all property of an estate of inheritance owned during a marriage.
See Ark. Code Ann. § 28-11-301 (1987).
Under Arkansas law, no act, deed or conveyance by one spouse without
the assent of the other spouse, evidenced by an acknowledgment, escapes
dower or curtesy. Ark. Code Ann. § 28-11-201(a) (1987). No judgment, de-
fault, or crime of one spouse prejudices the right of the other spouse to curtesy
or dower. Ark. Code Ann. § 28-11-201(b) (1987). A conveyance by one
spouse, without the signature of the other spouse, does not extinguish dower
or curtesy. See Ark. Code Ann. § 28-11-301 (1987). However, the inchoate
right of dower or curtesy of any spouse in real property is barred in all cases
when the real property is conveyed by the husband or wife without the signa-
ture of the other spouse and the conveyance has been of record for a period
of seven years or more. Ark. Code Ann. § 28-11-203 (1987). If a mortgage ex-
isted on property before marriage, the surviving spouse is entitled to dower
or curtesy as against every person except the mortgagee and those claiming
under the mortgagee. Ark. Code Ann. § 28-11-303(a) (1987). If a married per-
son receives a purchase money mortgage to purchase land without the other
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spouse’s joinder, the surviving spouse is entitled to dower or curtesy as against
every person except the mortgagee and those claiming under the mortgagee.
Ark Code Ann. § 28-11-303(b)(1) (1987). However, in such a case, after the
death of the mortgagor, the mortgagee must sell the mortgaged property either
under a power contained in the mortgage or by the decree of a circuit court.
After the payment of money due on the mortgage and the costs of the sale,
the surviving spouse shall be entitled to the interest or income of one-third of
the surplus for life, as his or her curtesy or dower. Ark. Code Ann. § 28-11-
303(b)(2) (1987). Nevertheless, all mortgage documents should require a spe-
cific waiver of all dower and curtesy rights.
A dower or curtesy interest is an inchoate interest and does not become
possessory until the death of one spouse. The extent of a person’s dower or cur-
tesy interest depends on whether the decedent spouse was survived by descen-
dents. If a spouse dies leaving descendents, the surviving spouse is entitled to
a one-third life estate in all real property and one-third absolute in all personal
property. See Ark. Code Ann. §§ 28-11-301 and 28-11-305 (1987). If a spouse
dies leaving no descendents, as against creditors, the surviving spouse is enti-
tled to one-third of all real estate, except ancestral estates, in fee simple plus
one-third absolute of all personal property. Ark. Code Ann. § 28-11-307(a)(2)
(1987). For ancestral real property, as against creditors, the surviving spouse
is entitled to a one-third life estate. Ark. Code Ann. § 28-11-307(b) (1987). The
surviving spouse’s share is higher as against non-creditors (i.e., other family
members) of the deceased spouse.
G. Arkansas Homestead Exemption
Under Arkansas law, a person who is married or the head of a family is enti-
tled to a homestead exemption for owned property which is occupied as the
person’s residence. See Ark. Const. Art. 9 § 3. The size of the homestead is
equal to the greater of (i) $2500 in value (but in no event to exceed one urban
acre or 160 rural acres); or (ii) one-quarter acre of urban property or 80 acres
of rural property without regard to value. See Ark. Code Ann. § 16-66-210
(1987). Municipal limits do not control the determination of whether property
is urban or rural, but rather, the use and character of the property is usually
determinative. Id. and Farmers Cooperative Assoc. v. Stevens, 260 Ark. 735,
736 (1976).
The law shelters homestead property from any lien arising from any judg-
ment or decree of any court. See Ark. Code Ann. § 16-66-210 (1987). However,
homestead property is not exempt from purchase money liens, tax liens, la-
borers’ or mechanics’ liens for improving the homestead and certain limited
fiduciary liens. Id. Furthermore, a conveyance, mortgage, or other instrument
executed by one spouse, without the joinder or acknowledgment of the other
spouse, is invalid as to homestead property unless the conveyance, mortgage,
or other instrument creates purchase money liens, tax liens, laborers’, or me-
chanics’liens. See Ark. Code Ann. § 18-12-403 (1987). Nevertheless, all mort-
gage documents should require a specific waiver of all homestead rights.
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H. Marital Property
Arkansas is a separate property state. Property that a married person owns at
the time of marriage; that comes to the person by gift, bequest, descent, or
transfer from any other person; or that the person has acquired by trade, busi-
ness, labor, or services carried or performed on the person’s sole or separate ac-
count, and income and proceeds from all such property remains his or her sep-
arate property. See Ark. Code Ann. §§ 9-11-503–505 (1987). The separate
property may be used, collected, and invested by the spouse, in his or her own
name, and is not subject to the interference or control of the other spouse and
is not liable for the spouse’s debts, except as may have been contracted for the
support of the spouse, or support of the children of the marriage by the spouse.
Ark. Code Ann. § 9-11-505 (1987).
However, property received by both spouses, or conveyed from one spouse
into the joint ownership of both spouses becomes marital property. Marital
property means all property acquired by either spouse after marriage except:
property acquired by gift, bequest, devise, or descent; property acquired in
exchange for that acquired before marriage or in exchange for that acquired
by gift, bequest, devise, or descent; property acquired after a decree of divorce
from bed and board (which is a unique form of quasi-divorce recognized in
Arkansas); property excluded by valid agreement of parties; the increase in
value of property acquired before marriage or by gift, devise, or descent, or
in exchange therefor; benefits received or to be received from a workers’ com-
pensation claim, personal injury claim, or social security claim when those
benefits are for any degree of permanent disability or future medical expenses;
and income from property acquired prior to marriage, or by gift, devise, or
descent, or in exchange therefor. Ark. Code Ann. § 9-12-315 (1987). In Schu-
macher v. Schumacher, 66 Ark. App. 9, 18-19 (Ark. App. 1999), the court held
that credit card debts incurred by a spouse during legal separation were mari-
tal debts that the chancellor had the discretion to divide among the parties.
However, Arkansas courts frequently find commingled property becomes
marital property. Arkansas presumes property titled to both spouses is marital
property unless the challenging spouse can rebut the presumption by clear and
convincing evidence. See Jablonski v. Jablonski, 71 Ark. App. 33, 39 (2000).
Furthermore, whenever one spouse deposits funds into a joint account, a pre-
sumption, which can be controverted only with clear and convincing evidence,
arises that the spouse made a gift to the marital entirety. See Creson v. Cre-
son, 53 Ark. App. 41, 45 (1996). To overcome either presumption, the party
seeking to rebut the presumption
must do so by proof so clear, direct, weighty, and convincing that the
fact finder is able to come to a clear conviction, without hesitation, of
the matter asserted. Clear and convincing evidence is that degree of
proof that will produce in the trier of fact a firm conviction respecting
the allegation sought to be established.
Id.
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I. Adverse Possession in Arkansas
Arkansas has an unusually short period for adverse possession. Without un-
due elaboration, it is sufficient to note adverse possession in Arkansas requires
only seven years for real property and three years for personal property. See
Ark. Code Ann. §§ 18-61-101, 16-56-105 (1987).
VII. Real Estate Lending
A. Property Rights
Rights in real property generally are governed by title 18 of the Arkansas
Code of 1987 Annotated and by common law. Arkansas real property law
closely follows common law real estate principles, with certain modern mod-
ifications and improvements. Title 18 covers conveyances, horizontal property
regimes, eminent domain, landlord/tenant, personal property, mortgages,
liens, and foreclosures.
B. Leases
Arkansas has adopted without material variation the 1990 Official Text version
of article 2A of the UCC (which governs leases of personal property). Article
2A is comprehensive and applies to “true” leases. It incorporates the detailed
definition of “security interest” set forth in Arkansas Code of 1987 Annotated
sections 4-1-201(b)(35) and 4-1-203 (UCC §§ 1-201(b)(35) and 1-203), which
distinguishes between a true lease and a security interest.
C. Arkansas Mortgages and Deeds of Trust
Arkansas follows a title theory of mortgages. See Norton v. J. T. Fargason Co.,
166 Ark. 455 (1924). Therefore, Arkansas lenders typically use mortgages as
opposed to deeds of trust. Deeds and mortgages must be recorded in the county
where the property lies. See Ark. Code Ann. § 18-40-101 (1987).
It is important to note that Arkansas has ten counties with two county seats.
In these ten counties, one must be sure the documents are recorded in the proper
county seat having jurisdiction over the property. Otherwise, the documents
are not properly recorded. The ten counties and county seats are as follows:
1. Arkansas County—DeWitt and Stuttgart
2. Carroll County—Berryville and Eureka Springs
3. Clay County—Corning and Piggott
4. Craighead County—Jonesboro and Lake City
5. Franklin County—Charleston and Ozark
6. Logan County—Paris and Booneville
7. Mississippi County—Blytheville and Osceola
8. Prairie County—Des Arc and Devalls Bluff
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9. Sebastian County—Fort Smith and Greenwood
10. Yell County—Danville and Dardanelle
Deeds and other instruments conveying an interest in real estate must be
executed in the presence of two disinterested witnesses or acknowledged by a
notary public. See Ark. Code Ann. §§ 18-12-104, 18-12-203 (1987). Unless the
spouse is also a grantor, special mention should be made in a deed releasing
dower or curtesy and homestead rights.
Arkansas is a race-notice state for deeds, but a pure race state for mort-
gages. Therefore, to be effective as against third persons without notice, a deed
must be recorded. See Ark. Code Ann. § 14-15-404 (1987). Furthermore, to
be effective against third persons, a mortgage must be recorded prior to the
recording of another interest, regardless of notice. Except for mortgages and
deeds of trust, when a person files a conveyance of real estate, the county
recorder must obtain from the person tendering the instrument the name of
the grantee and the address to which the grantee wants future tax statements
mailed. See Ark. Code Ann. § 26-26-709 (1987). The first page of the deed
must contain the name and address of the person who prepared the deed. Ark.
Code Ann. § 14-15-403 (1987). Furthermore, mortgages must contain a matu-
rity date or third parties may assume the mortgage has expired after being of
record for five years. See Ark. Code Ann. § 18-40-103 (1987). See also Clark
v. Shockley, 205 Ark. 507, 508 (1943).
The term heirs, or other words of inheritance, are not necessary to create or
convey an estate in fee simple, but all deeds are construed to convey a complete
estate of inheritance in fee simple unless expressly limited by appropriate
words in the deed. See Ark. Code Ann. § 18-12-105 (1987). The words grant,
bargain, and sell are an express covenant to the grantee and his or her heirs,
and assign that the grantor is seized of an indefeasible estate in fee simple,
free from encumbrance done or suffered from the grantor, except rents or serv-
ices that may be expressly reserved by the deed, as also for the quiet enjoyment
thereof against the grantor and his or her heirs, and assigns and from the claim
and demand of all other persons, unless limited by express words in the deed.
Ark. Code Ann. § 18-12-102 (1987).
D. Recording Fees
Arkansas has a statute establishing uniform recording fees. For recording
deeds, deeds of trust, mortgages, release deeds, powers of attorney, plats, sur-
vey plats, notary bonds, foreign judgments, writs of execution, writs of garnish-
ment, materialman’s liens, and other recordable instruments, with a few excep-
tions, the cost is fifteen dollars for the first page (one side only) and five dollars
for each additional page. Ark. Code Ann. § 21-6-306 (1987).
E. Statutory Form of Instruments
Recorded instruments must have an area reserved on the top right of the first
page for the file mark of the recorder and contain the title of the document
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and the name of the grantor and grantee. Ark. Code Ann. § 14-15-402 (1987).
All recorded instruments must be legibly printed on eight and one-half by
eleven inch–paper, have a two and one-half–inch margin at the right top of the
first page, a half-inch margin on the sides and bottom of all pages, and a two
and one-half–inch margin at the bottom of the last page. Id. Presumably, the
statutory margins are “minimum” margins. However, the statute is phrased as
“shall have,” which could be interpreted as absolutely mandating the stated
margins. Id. The statute has only been in effect since January 1, 2004, so there
are no judicial interpretations, and the local legal community has not developed
a clear course of performance.
F. Transfer Taxes
In addition to recording fees, Arkansas requires the payment of transfer taxes
for certain transactions. With a few exceptions, any transactions involving con-
sideration in excess of $100, except transactions solely for the purpose of se-
curing a debt, require the payment of transfer taxes. See Ark. Code Ann. § 26-
60-105 (1987). The total tax rate is $3.30 per $1000 of consideration, or
fractional portion thereof. Id. Unless otherwise agreed by the parties, the seller
is required to pay one-half of the transfer taxes and the buyer is required to
pay the other one-half. See Ark. Code Ann. § 26-60-106 (1987).
Documentary stamps must be affixed to the instrument, prior to record-
ing, evidencing the amount of transfer tax paid. See Ark. Code Ann. §§ 26-
60-107, 26-60-110 (1987). Unless an instrument is on its face clearly exempt
from transfer taxes, the instrument must be accompanied by either (i) three
copies of an officially prepared affidavit available in the recorder’s office; or
(ii) a statement on the instrument itself stating, “I certify under penalty of false
swearing that the legally correct amount of documentary stamps have been
placed on this instrument.” Id. Such statement must include the grantee’s ad-
dress and be signed by the grantee or the grantee’s agent. Ark. Code Ann. § 26-
60-110 (1987).
Besides transactions involving consideration of less than $100, the fol-
lowing transactions are exempt from transfer taxes:
1. Transfers to or from the United States, the State of Arkansas, or any
of the instrumentalities, agencies, or political subdivisions thereof;
2. Any instrument or writing given solely to secure a debt;
3. Any instrument solely for the purpose of correcting or replacing an
instrument that has been previously recorded with full payment of tax
having been paid at the time of the previous recordation;
4. Instruments conveying land sold for delinquent taxes;
5. Instruments conveying a leasehold interest in land only;
6. Instruments, including timber deeds, that convey or grant the right
to remove timber from lands if the instruments grant or convey the
right to remove the timber for a period of not to exceed twenty-four
months;
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7. Instruments given by one party in a divorce action to the other party
to the divorce action as a division of marital property whether by
agreement or order of the court;
8. Instruments given in any judicial proceeding to enforce any security
interest in real estate when the instrument transfers the property to the
same person who is seeking to enforce the security interest;
9. Instruments given to a secured party in lieu of or to avoid a judicial
proceeding to enforce a security interest in real estate;
10. Instruments conveying a home financed by the Federal Housing Ad-
ministration, the United States Department of Veterans Affairs, or the
United States Department of Agriculture (USDA) Rural Develop-
ment, if the sale price of the home is $60,000 or less and the seller
files with the county recorder of deeds a sworn statement by the
buyer stating that neither the buyer nor the spouse of the buyer has
owned a home within three years of the date of closing and also stat-
ing the sale price of the home;
11. Instruments conveying land between corporations, partnerships, LLCs,
or other business entities or between a business entity and its sharehold-
ers, partners, or members incident to the organization, reorganization,
merger, consolidation, capitalization, asset distribution, or liquidation
of a corporation, partnership, LLC, or other business entity; and
12. A beneficiary deed under section 18-12-608.
Ark. Code Ann. § 26-60-102 (1987).
G. Satisfaction
Once a mortgage is paid in full, the mortgagee must cause an acknowledg-
ment of satisfaction to be recorded within sixty days of receipt of a request for
acknowledgment by the party who paid the mortgage in full. Ark. Code Ann.
§ 18-40-104 (1987). If any person receiving satisfaction does not, within sixty
days after being requested, acknowledge satisfaction as stated in Arkansas
Code of 1987 Annotated section 18-40-104(a), he or she shall forfeit to the
party aggrieved any sum not exceeding the amount of the mortgage money, to
be recovered by a civil action in any court of competent jurisdiction. Ark. Code
Ann. § 18-40-104(d) (1987). Lenders and borrowers usually contract for the
mortgagor to pay the recording fees for the acknowledgment of satisfaction.
H. Assignment
Arkansas mortgages are typically assigned by a separate instrument that in-
cludes an acknowledgment. The assignment must be signed by the transferor
or assignor, giving the name of the transferee or assignee, together with the
date of the transfer or assignment, the signature to be attested and dated by the
clerk. Ark. Code Ann. § 18-40-106 (1987). The assignee’s mailing address
must be included.
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A note and mortgage are inseparable and an assignment of the note will
carry the mortgage, although an assignment of a mortgage alone is a nullity,
and accordingly, a garnishment may take priority over an assignment only of
a mortgage without the accompanying note. See Bryan v. Easton Tire Co., 262
Ark. 731, 561 S.W.2d 79 (1978) and Ark. Code Ann. § 18-40-109 (1987). In-
clusion of a legal description of the property on the face of the assignment is
recommended. The instrument must be recorded in the county where the orig-
inal mortgage was recorded.
I. Remedies upon Default
Foreclosures in Arkansas may be done judicially or statutorily. The procedure
for judicial foreclosure in Arkansas is found at Arkansas Code of 1987 Anno-
tated section 18-49-101, et seq. An action to foreclose a mortgage or deed of
trust must be brought within the period of limitation for a suit on the underly-
ing obligation. Ark. Code Ann. § 18-49-101 (1987). Foreclosure is an equitable
action that, in Arkansas, is filed in the county in which the property, or some
part thereof, is located. Ark. Code Ann. § 16-60-101 (1987). If the mortgaged
lands lie separately and distinctly in two different counties, the mortgagee
should obtain judgment in one of the counties and request foreclosure of both
properties with appointment of a commissioner in each county to sell the re-
spective properties at separate sales. See Steelman v. Planters Production
Credit Association, 287 Ark. 464, 701 S.W.2d 119 (1985).
In conjunction with the foreclosure action, the filing of a notice of lis pen-
dens in the land records of the county in which the property is located is
deemed to be constructive notice of the pendency of the suit to any subsequent
purchaser, mortgagee, or other such person. See Ark. Code Ann. § 16-59-101
(1987). All persons known to have a legal or equitable interest in the property
must be named as defendants in the foreclosure action if their interests are to
be foreclosed or otherwise determined. Porter v. Clements, 3 Ark. 364 (1841).
Any heirs of a deceased mortgagor should also be named if their interests are
to be foreclosed. Hill v. Brittain, 178 Ark. 784, 12 S.W.2d 869 (1929). Prior
mortgagees are not necessary parties to a foreclosure, but holders of subse-
quent liens or the right of redemption are. White v. Holman, 32 Ark. 753
(1878); Dickinson v. Duckworth, 74 Ark. 138, 85 S.W. 82 (1905). The fore-
closure complaint should assert the execution of the note and mortgage along
with the terms thereof, including any provisions for attorneys’ fees and other
expenses, recordation of the mortgage, the debtor’s default, acceleration of
the indebtedness and amounts due, and the interests that might be claimed by
other named defendants. The prayer for relief should ask for monetary judg-
ment against the debtor, for declaration of priorities, that the debtor’s interest
be foreclosed, and for sale of mortgaged property.
Arkansas law provides for statutory foreclosure (i.e. nonjudicial foreclo-
sure) in Arkansas Code of 1987 Annotated section 18-50-101, et seq. pursuant
to a power of sale if the mortgagee or the beneficiary under the deed of trust is
a mortgage company, bank, or savings and loan and if the mortgaged property
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is not used primarily for agricultural purposes. See Ark. Code Ann. § 18-50-
116 (1987). A power of sale is implied in every mortgage. Ark. Code Ann.
§ 18-50-115 (1987). The power of sale may be exercised by a qualified trustee
under a deed of trust or a mortgagee under a mortgage once certain conditions
have been met: (1) The deed of trust or mortgage, any assignment thereof, and
any substitution of trustee must be filed of record in the county in which the
property is located; (2) a default must have occurred in the underlying obliga-
tion on which the sale is authorized; (3) the trustee or mortgagee must file for
record in the county in which the property is located an acknowledged notice
of default and intention to sell containing the information required by Arkansas
Code of 1987 Annotated section 18-50-104; (4) no action may previously have
been instituted to recover on the secured obligation or, if instituted, the action
has been dismissed; and (5) a period of at least sixty days has elapsed since
the recording of the notice of default and intention to sell. See Ark. Code Ann.
§ 18-50-103 (1987).
The duly acknowledged notice of default and intention to sell must be filed
within the time that a judicial foreclosure could have been filed. Ark. Code
Ann. § 18-50-116(b) (1987). The notice must include the names of the parties
to the mortgage or deed of trust; the legal description of the property; the book
and page number (or document number) where the mortgage or deed of trust
is recorded; the nature of the default; the amount due; the time, date, and place
of sale; and a warning, in conspicuous type, stating, “You may lose your prop-
erty if you do not take immediate action.” Ark. Code Ann. §§ 18-50-103(3),
18-50-104(a) (1987). The filing of the notice has the same effect as the filing of
a lis pendens in a judicial proceeding. Ark. Code Ann. § 18-50-108(c) (1987).
The notice must be mailed within thirty days of recordation by certified
mail, postage prepaid, and by first-class mail, postage prepaid, to the last known
address of the following persons: the mortgagor or grantor; any successor in
interest to the mortgagor or grantor; any person having a lien or interest subse-
quent to the interest of the mortgagee or trustee; and to any person properly re-
questing notice. Ark. Code Ann. § 18-50-104(b) (1987). In this context, thirty
days constitutes thirty consecutive calendar days. See Union Nat’l Bank v.
Nichols, 305 Ark. 274, 807 S.W.2d 36 (1991). The notice must also be pub-
lished in a newspaper of general circulation in the county in which the prop-
erty is located or in a newspaper of general statewide daily publication once a
week for four consecutive weeks prior to the date of the sale, the last publication
no more than ten days prior to the sale. Ark. Code Ann. § 18-50-105 (1987). A
duly acknowledged affidavit of the mailing and publication of the notice must
be filed for record with the recorder of the county in which the property is lo-
cated on or before the date of sale. Ark. Code Ann. § 18-50-106 (1987).
A case was recently decided by the Arkansas Supreme Court that is worth
noting. In Bevans v. Deutsche Bank Nat’l Trust, 373 Ark. 105 (Ark. 2008), the
plaintiff, Deutsche Bank, filed a complaint in foreclosure against defendant,
Jane Bevans. Bevans then filed several compulsory counterclaims against
Deutsche Bank, which were later nonsuited without prejudice by Bevans. Id.
Following a trial on Deutsche Bank’s claims, the court entered an order and
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decree of foreclosure. Bevans appealed. Id. The Arkansas Supreme Court de-
termined that the circuit court’s order and decree of foreclosure was not a fi-
nal and appealable order because Bevans had nonsuited all of her compulsory
counterclaims against Deutsche Bank and the court’s subsequent order ad-
dressed only Deutsche Bank’s claims against Bevans. An order or judgment is
not considered final and appealable unless it disposes of all the parties and all
the claims. See Ark. R. Civ. P. 54 (2007). Pursuant to Rule 41 of the Arkansas
Rules of Civil Procedure, a claim may be dismissed without prejudice to a fu-
ture action by the plaintiff before final submission of the case to the jury. Plain-
tiff has the right to file a new action within one year following the dismissal.
In Bevans, the Court reasoned that the order and decree of foreclosure was
not a final, appealable order because Bevans had nonsuited her compulsory
counterclaims and she could have refiled her claims. Bevans v. Deutsche Bank
Nat’l Trust, 373 Ark. 105 (Ark. 2008). Therefore, if a borrower files a coun-
terclaim in a foreclosure action that is later nonsuited without prejudice, the
lender’s order of foreclosure will not be a “final” order and the lender will have
to wait for a year for the foreclosure sale or the foreclosure sale could be im-
pacted for up to a year after completion.
J. Deficiency Rights
For judicial foreclosure, if the whole of mortgaged property does not sell for a
sum sufficient to satisfy the amount due, an execution for the deficiency may
be issued against the defendant as on ordinary judgments. See Ark. Code Ann.
§ 18-49-105 (1987).
For statutory foreclosure, at any time within twelve months after a sale, a
money judgment may be sought for the balance due on the obligation for which
a mortgage or deed of trust was given as security. See Ark. Code Ann. § 18-
50-112 (1987).
K. Redemption Rights
In all cases where real property is sold under an order or decree of the circuit
court or a court exercising circuit jurisdiction in the foreclosure of mortgages
and deeds of trust, the mortgagor or his heirs or legal representatives shall have
the right to redeem the property so sold. This may be done at any time within
one year from the date of sale, by the payment of the amount for which the
property was sold, together with interest thereon, at the rate borne by the decree
or judgment, and the cost of foreclosure and sale. The mortgagor may waive
the right of redemption in the mortgage or deed of trust so executed and fore-
closed. Ark. Code Ann. § 18-49-106 (1987).
L. Deed in Lieu of Foreclosure
A deed may be given in lieu of foreclosure. The mortgagee should consider that
such an act will discharge the entire debt if not otherwise agreed and that there
may be liens against the property that may follow the property.
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M. Mechanics’ Liens
Every contractor, subcontractor, or material supplier who supplies labor, serv-
ices, material, fixtures, engines, boilers, or machinery in the construction or re-
pair of an improvement to real estate, or any boat or vessel of any kind, by
virtue of a contract with the owner, proprietor, contractor, or subcontractor, or
agent thereof, on compliance with applicable guidelines, shall have, to secure
payment, a lien on the improvement and on up to one acre of land on which the
improvement is situated, or to the extent of any number of acres of land on
which work has been done or improvements erected or repaired. Ark. Code
Ann. § 18-44-101 (1987).
Under Arkansas Code of 1987 Annotated section 18-44-110(a)(1), the liens
for labor performed or material or fixtures furnished have equal priority toward
each other without regard to the date of filing the account or lien or the date
when the particular labor or material was performed or furnished. All such liens
shall date from the time that the construction or repair first commenced.
Mechanics and materialmen who have a lien, as set forth, in property being
foreclosed under the lien of a mortgage, should be named as defendants in
any foreclosure action so that their interests might be foreclosed or otherwise
determined.
N. Assignment of Leases and Rents
The right to collect rent is considered an interest in realty under Arkansas law.
See First Federal Savings of Arkansas v. City Nat’l Bank of Fort Smith, 87 B.R.
565, 566 (W.D. Ark. 1988). An assignment of rent is perfected either by tak-
ing possession via appointment of a receiver or through a mortgage of rent.
Id. at 566–567.
Prior to passage of revised article 9 of the UCC, prudent real estate lenders
for income properties obtained and recorded an assignment of rents and leases,
particularly after amendment to the United States Bankruptcy Code sections
363 and 552, to allow for post-petition lien perfection in “rents,” if the lender
had a perfected security interest in rents prior to the bankruptcy filing. Re-
vised article 9 became effective in Arkansas on July 1, 2001. Revised article 9
altered the definition of the term “account” to include “a right to payment of a
monetary obligation, whether or not earned by performance, (i) for property
that has been or is to be sold, leased, licensed, assigned, or otherwise disposed
of.” Ark. Code Ann. § 4-9-102(a)(2) (1987).
For all loans after July 1, 2001, real estate lenders must consider “rents”
as possibly subject to revised article 9 and perfect security interests in rents
by complying with the revised article 9 filing requirements. Continuation of the
practice of filing is recommended within the mortgage or deed of trust or by
recording a separate instrument, such as an assignment of rents and leases filed
in the county real estate records, in addition to the specific description of rents
being pledged, and the UCC category of “accounts” in a financing statement
filed with the Secretary of State. Revised article 9, as with the former article 9,
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typically governs interests in personal property. Arkansas Code of 1987 An-
notated section 4-9-109(d)(11) may exclude real property rents from the scope
of revised article 9, but the suggested filing procedure should be considered un-
til clarification from an Arkansas court is obtained.
O. Title Insurance
The usual title evidence in commercial lending transactions is a loan policy of
title insurance, also called a mortgagee’s title insurance policy. The American
Land Title Association (ALTA) 1970, revised 1984, and ALTA 1992 forms of
title insurance policies and endorsements are currently in use in Arkansas.
Also, the ALTA 2006 policy and endorsements are now available.
VIII. Personal Property Lending
A. UCC Article 9
Arkansas has adopted the UCC including the most recent version of article 9,
with only minor variations. Revised article 9 establishes the rules for acquir-
ing and perfecting a lien on personal property. See Ark. Code Ann. § 4-9-101,
et seq. (1987).
B. Attachment
Under the UCC, a security interest attaches to collateral when it becomes en-
forceable against the debtor unless an agreement expressly postpones the time
of attachment. Ark. Code Ann. § 4-9-203 (1987). With a few exceptions, a se-
curity interest is enforceable against the debtor and third parties only when
the lender has given value, the debtor has rights in the collateral or the power to
transfer rights in the collateral to a secured party, and one of the following con-
ditions is met: (1) The debtor has authenticated a security agreement provid-
ing a description of the collateral; (2) the collateral is not a certificated security
and is in the possession of the secured party under Arkansas Code of 1987
Annotated section 4-9-313 pursuant to the debtor’s security agreement; (3) the
collateral is a certificated security in registered form and the security certificate
has been delivered to the secured party under Arkansas Code of 1987 Anno-
tated section 4-8-301 pursuant to the debtor’s security agreement; or (4) the
collateral is deposit accounts, electronic chattel paper, investment property, let-
ter-of-credit rights, or electronic documents, and the secured party has control
under Arkansas Code of 1987 Annotated sections 4-7-106 or sections 4-9-104
through 4-9-107 pursuant to the debtor’s security agreement. Ark. Code Ann.
§ 4-9-203 (1987). Once a lender has an attached and enforceable security inter-
est, the lender must perfect the security interest to preserve the security interest
as against third parties.
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C. Duration
With a few exceptions, under revised article 9 a filed financing statement is
effective for five years after the date of filing. See Ark. Code Ann. § 4-9-515
(1987). The effectiveness of a filed financing statement lapses on the expiration
of the period of its effectiveness unless before the lapse a continuation state-
ment is filed. Id. Upon lapse, a financing statement ceases to be effective and
any security interest or agricultural lien that was perfected by the financing
statement becomes unperfected, unless the security interest is perfected other-
wise. Id. If the security interest or agricultural lien becomes unperfected upon
lapse, it is deemed never to have been perfected as against a purchaser of the
collateral for value. Id. A continuation statement may be filed only within six
months before the expiration of the five-year period already specified. Id.
Upon filing of a continuation statement in a timely manner, the effective-
ness of the initial financing statement continues for a period of five years com-
mencing on the day on which the financing statement would have become in-
effective in the absence of the filing. Id. Upon the expiration of the five-year
period, the financing statement lapses in the same manner as provided, unless,
before the lapse, another continuation statement is filed. Id. Succeeding contin-
uation statements may be filed in the same manner to continue the effectiveness
of the initial financing statement. Id.
D. Deposit Accounts and Investment Property
Revised article 9 includes “deposit accounts” within the scope of revised arti-
cle 9. Ark. Code Ann. § 4-9-102(29) (1987). Inclusion of deposit accounts
(along with the similar “investment property,” concerning brokerage accounts)
provides specific requirements for creation and perfection of a security interest
in a deposit account or brokerage account. See Ark. Code Ann. § 4-9-102(49)
(1987). Under prior law, lenders had to rely on common law, which varied from
state to state, and the terms of deposit agreements, signature cards, and simi-
lar documents to determine rights and interests in these accounts, often leading
to uncertainty and, in some cases, harsh results for misunderstanding lenders.
Under revised article 9, a lender wishing to perfect a security interest in in-
vestment property may do so by filing a financing statement or by obtaining
“control” of the collateral. See Ark. Code Ann. §§ 4-9-312(a), 4-9-314(a)
(1987). A lender wishing to perfect a security interest in a deposit account must
take “control” of such collateral. See Ark. Code Ann. § 4-9-312(b)(1) (1987).
As to deposit accounts, “control” is obtained in one of three ways: (1) the
lender is the bank where the deposit account is maintained; (2) the debtor,
lender and the bank where the account is maintained enter into a “control
agreement,” where the bank agrees to hold the account for the benefit of and
subject to direction of the lender; or (3) the lender becomes the bank’s cus-
tomer with respect to the deposit account, and the bank agrees to hold the
debtor’s account pursuant to a “lock box” arrangement for the benefit of the
lender. See Ark. Code Ann. § 4-9-104 (1987). Similar rules apply to investment
property accounts. See Ark. Code Ann. §§ 4-9-106, 4-8-106 (1987).
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E. Agricultural Liens
The Arkansas Acts of 2003, act 32, section 1, effective February 3, 2003,
provided,
The General Assembly has determined that by the enactment of Act
1439 of 2001 it inadvertently changed the law regarding landlords’
liens on crops. It is the intent of this act to correct that inadvertent
change, remove landlords’ liens on crops from the application of the
Uniform Commercial Code, reestablish Arkansas Code 18-41-101 and
18-41-103 as the law applicable to landlords’liens on crops, and there-
by make landlords’ liens under Arkansas Code 18-41-101 and 18-41-
103 superior to all other liens on the same collateral.
Landlords relying on statutory liens for unpaid crop land rental “shall have a
lien upon the crop grown upon the demised premises in any year for rent that
shall accrue for the year.” See Ark. Code Ann. § 18-41-101(a) (1987). The lien
is perfected and shall have priority over a conflicting security interest in or agri-
cultural lien on the crop regardless of when the conflicting security interest or
agricultural lien is perfected. Ark. Code Ann. § 18-41-101(b)(1) (1987). The
lien shall continue for six months after the rent shall become due and payable,
and no longer. Ark. Code Ann. § 18-41-101(b)(2) (1987). Landlord advances to
tenants or employees are covered in Arkansas Code of 1987 Annotated sec-
tion 18-41-103.
As to equipment used in farming operations, farm products, or accounts
arising from the sale of farm products, the Arkansas General Assembly decided
to require a filing of a financing statement in the office of the circuit clerk in the
county where the debtor is “located” to perfect an agricultural lien. Ark. Code
Ann. § 4-9-501(a)(2) (1987). This requirement seems simple; however, revised
article 9 provides specific rules to determine where a debtor is “located,” but
makes such rules applicable to portions of revised article 9 other than the part
dealing with farm filings, and does not identify a “location” of farmer debtors.
See Ark. Code Ann. § 4-9-307 (1987). For farmer debtor filings, it is recom-
mended the creditor file a financing statement: (1) in all counties where the
debtor has a farming operation, (2) with the Arkansas Secretary of State, and
(3) if the debtor is an entity formed by filing (e.g., corporation, LLC, etc.), with
the Secretary of State in the organizational state of the debtor. Compare to In re
Curtis, 363 B.R. 572 (Bkrtcy. E.D. Ark. 2007) discussing under Arkansas law
creditors properly perfected their security interest in debtors’ farm equipment
and crops; each county in which debtors’ farming operation grew crops con-
stituted a “place of business,” and creditors perfected their security interest in
the county that was considered the operation’s chief executive office.
F. Commercial Tort Claims
For years, Arkansas lenders faced difficulty in obtaining and perfecting a
security interest in lawsuits involving borrowers. See Arkansas Code of 1987
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Annotated section 16-65-120 (replacing Ark. Stat. Ann. § 29-123), interpreted
by the U.S. Court of Appeals for the Eighth Circuit in Brown & Root, Inc. v.
Hempstead County Sand & Gravel, Inc., 767 F.2d 464 (8th Cir. 1985). Revised
article 9 may supersede section 16-65-120, but cautious lenders may wish to
comply with the provision.
Revised article 9 specifically provides for attachment and perfection of a
security interest in “commercial tort claims,” defined as suits (other than suits
involving contracts) by organizations or individuals that arose in the course of
business (as to individual plaintiffs, such claims cannot include damages for
personal injury or wrongful death). See Ark. Code Ann. § 4-9-102(13) (1987).
Lenders wishing to obtain and perfect a security interest in commercial tort
claims must take particular care to specifically identify the claim, because re-
vised article 9 disallows “generic” descriptions. See Ark. Code Ann. § 4-9-
108(e)(1) (1987). Presumably, if a suit has been filed, description of the case by
inclusion of the pleading style and case number will suffice. In other instances,
legal counsel should be obtained to reasonably identify the cause of action.
Banks should be aware “after-acquired property” clauses are ineffective as to
future commercial tort claims, necessitating new or amended security agree-
ments and financing statements for each new cause of action (and perhaps even
variations from the initial claim) acquired by the borrower. Ark. Code Ann.
§ 4-9-204(b)(2) (1987).
G. Real Estate Lending
Prior to passage of revised article 9 of the UCC, prudent real estate lenders
for income properties obtained and recorded an assignment of rents and leases,
particularly after amendment to the United States Bankruptcy Code sections
363 and 552, to allow for post-petition lien perfection in “rents,” if the lender
had a perfected security interest in rents prior to the bankruptcy filing. Re-
vised article 9 became effective in Arkansas on July 1, 2001. Revised article 9
altered the definition of the term “account” to include “a right to payment of a
monetary obligation, whether or not earned by performance, (i) for property
that has been or is to be sold, leased, licensed, assigned, or otherwise disposed
of.” Ark. Code Ann. § 4-9-102(a)(2) (1987).
For all loans after July 1, 2001, real estate lenders must consider “rents”
as possibly subject to revised article 9 and perfect security interests in rents
by complying with the revised article 9 filing requirements. Continuation of the
practice of filing is recommended within the mortgage or deed of trust or by
recording a separate instrument, such as an assignment of rents and leases filed
in the county real estate records, in addition to the specific description of rents
being pledged, and the UCC category of “accounts” in a financing statement
filed with the Secretary of State. Revised article 9, as with the former article 9,
typically governs interests in personal property. Arkansas Code of 1987 An-
notated section 4-9-109(d)(11) may exclude real property rents from the scope
of revised article 9, but the suggested filing procedure should be considered un-
til clarification from an Arkansas court is obtained.
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H. Financing Statement Formalities
According to Arkansas Code of 1987 Annotated section 4-9-502, a financing
statement is sufficient only if it provides the name of the debtor, the name of the
secured party or a representative of the secured party and indicates the collat-
eral covered by the financing statement. Except as otherwise provided in
Arkansas Code of 1987 Annotated section 4-9-501(b), to be sufficient, a financ-
ing statement that covers as extracted collateral or timber to be cut, or which
is filed as a fixture filing and covers goods that are or are to become fixtures,
must satisfy the above requirements and also indicate that it covers this type
of collateral, indicate that it is to be filed for record in the real property records,
provide a description of the real property to which the collateral is related suf-
ficient to give constructive notice of a mortgage under the law of this state if the
description were contained in a record of the mortgage of the real property
and if the debtor does not have an interest of record in the real property, provide
the name of a record owner. Ark. Code Ann. § 4-9-502(b) (1987). A financing
statement may be filed before a security agreement is made or a security in-
terest otherwise attaches. Ark. Code Ann. § 4-9-502(d) (1987).
I. Filing Fees for Financing Statements
According to Arkansas Code of 1987 Annotated section 4-9-525, the fee for fil-
ing and indexing a financing statement or termination statement, other than an
initial financing statement described in Arkansas Code of 1987 Annotated sec-
tion 4-9-502(c), with the Secretary of State of Arkansas will cost sixteen dol-
lars from July 1, 2001, through June 30, 2013, if the record consists of one
page. On and after July 1, 2013, the cost will be twelve dollars, for filing and
indexing the initial financing statement and termination statements, if the
record consists of one page. Ark. Code Ann. § 4-9-525(a)(1) (1987).
Records filed with circuit clerks pursuant to Arkansas Code of 1987 Anno-
tated section 4-9-501(a)(2) will cost twelve dollars, for filing and indexing the
initial financing statement and termination statements. Ark. Code Ann. § 4-9-
525(a)(2) (1987).
If the record consists of more than one page, the fee is $0.50 per addi-
tional page up to a maximum of $100. Ark. Code Ann. § 4-9-525(a)(3) (1987).
The fee for filing a continuation, whether with the Arkansas Secretary of
State or a circuit clerk, is six dollars. Ark. Code Ann. § 4-9-525(b)(1) (1987).
The fee for filing a termination statement, whether with the Arkansas Sec-
retary of State or a circuit clerk, is six dollars if it pertains to the filing of a fi-
nancing statement before July 28, 1995. Ark. Code Ann. § 4-9-525(b)(2)
(1987). There is no fee for filing a termination statement if it pertains to the
filing of a financing statement on or after July 28, 1995, the fee for filing the
termination having been incorporated into the fee for the initial filing.
The fee for each separate search, whether by the Arkansas Secretary of
State or a circuit clerk, is six dollars. Ark. Code Ann. § 4-9-525(b)(3) (1987).
The fee for filing an assignment, whether with the Arkansas Secretary of
State or a circuit clerk, is six dollars. Ark. Code Ann. § 4-9-525(b)(4) (1987).
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The fee for filing a release, whether with the Arkansas Secretary of State or
a circuit clerk, is six dollars. Ark. Code Ann. § 4-9-525(b)(5) (1987).
The fee for filing an amendment, whether with the Arkansas Secretary of
State or a circuit clerk, is six dollars. Ark. Code Ann. § 4-9-525(b)(6) (1987).
The fee for issuing a certificate or for furnishing a copy of any record on file
naming a particular debtor, is $6 if the record consists of one page and $0.50
per page for each additional page up to a maximum of $100. Ark. Code Ann.
§ 4-9-525(d) (1987).
Arkansas Code of 1987 Annotated section 4-9-525 does not fix the fee with
respect to a record of a mortgage which is effective as a financing statement
filed as a fixture filing or as a financing statement covering as extracted collat-
eral or timber to be cut under section 4-9-502(c). However, the recording and
satisfaction fees that otherwise would be applicable to the record of the mort-
gage apply. Ark. Code Ann. § 4-9-525(e) (1987).
J. Fixture Filings
Revised article 9 allows a mortgage to be effective as a financing statement
filed as a fixture filing or as a financing statement covering as extracted collat-
eral or timber to be cut only if (1) the record indicates the goods or accounts
that it covers; (2) the goods are or are to become fixtures related to the real
property described in the record or the collateral is related to the real property
described in the record and is as extracted collateral or timber to be cut; (3) the
record satisfies the requirements for a financing statement in section 4-9-502
other than an indication that it is to be filed in the real property records; and
(4) the record is recorded. Ark. Code Ann. § 4-9-502(c) (1987).
K. Reasonable Identification of Collateral
Specific collateral descriptions are preferred in security agreements and financ-
ing statements. As for security agreements, Arkansas Code of 1987 Annotated
section 4-9-108(a) states that a description of personal or real property is suf-
ficient if it reasonably identifies what is described. Collateral, except as other-
wise indicated, is reasonably identified if it identifies the collateral by specific
listing, category, or type of collateral defined in the UCC, to name a few. See
Ark. Code Ann. § 4-9-108(b) (1987). It is recommended secured parties follow
specific collateral descriptions in commercial security agreements with all ap-
plicable UCC categories (e.g., accounts, deposit accounts, etc.). A description
of collateral as “all the debtor’s assets” or “all the debtor’s personal property”
or using words of similar import does not reasonably identify the collateral.
Ark. Code Ann. § 4-9-108(c) (1987). Interestingly, such terms are allowed in
a financing statement. See Ark. Code Ann. § 4-9-504(2) (1987).
L. Name of Debtor
Revised article 9 states, “A financing statement substantially satisfying the
requirements [of revised article 9] is effective, even if it has minor errors or
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omissions, unless the errors or omissions make the financing statement seri-
ously misleading.” Ark. Code Ann. § 4-9-506(a) (1987). A financing state-
ment that fails sufficiently to provide the name of the debtor in accordance with
Arkansas Code of 1987 Annotated section 4-9-503(a) is seriously misleading
unless a search of the records under debtor’s correct name would disclose the
financing statement that did not provide the correct name. Arkansas Code of
1987 Annotated section 4-9-503(a) requires the following: (1) If the debtor is
a registered organization, then the financing statement must provide the name
of the debtor indicated on the public record of the debtor’s jurisdiction of or-
ganization; (2) if the debtor is a decedent’s estate, the financing statement must
provide the name of the decedent and indicate that the debtor is an estate; (3) if
the debtor is a trust or a trustee, then the financing statement must provide the
name specified for the trust (or the name of the settlor) and indicate that it is a
trust or a trustee; and (4) in all other cases, if the debtor has a name, then the in-
dividual or organization name of the debtor must be provided and if the debtor
does not have a name, the financing statement must provide the names of part-
ners, members, associates, or other persons comprising the debtor.
Lenders should always verify with the Secretary of State, as to registered
organizations, the name of their borrower. It is also suggested for both regis-
tered organizations and trusts that lenders obtain the organizational documents
for their borrowers to verify names. As to decedent’s estates, a copy of the
probate proceeding containing the precise name of the decedent’s estate should
be obtained.
M. Where to File Financing Statements
Under revised article 9, specific rules are established for where a debtor is
“located” and, in most cases, one filing with the applicable secretary of state
will be sufficient to perfect the security interest of the lender. However, a fi-
nancing statement should be filed in the office designated for the filing or
recording of a record of a mortgage on the related real property if the collat-
eral is as extracted collateral or timber to be cut or the financing statement is
a filed as a fixture filing and the collateral is goods that are or are to become
fixtures. In addition, a financing statement should be filed in the office of the
circuit clerk in the county in which the debtor is located if the debtor is en-
gaged in farming and the collateral is equipment used in farming operations,
or farm products or accounts arising from the sale of farm products. Ark. Code
Ann. § 4-9-501 (1987).
Under Arkansas Code of 1987 Annotated section 4-9-307, a debtor is
“located,” as follows: (1) An individual is located in the state of the debtor’s
principal residence; (2) an organization (other than a registered organization) is
located in the state where its place or business or its chief executive office is lo-
cated (the term organization includes general partnerships, joint ventures, etc.);
and (3) a registered organization is located in the state of formation. For ex-
ample, a Delaware corporation with its sole place of business in Arkansas is
“located” in Delaware for purposes of revised article 9.
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Lenders may perfect a security interest in tangible negotiable documents,
goods, instruments, money, or tangible chattel paper by taking possession of
the collateral. Ark. Code Ann. § 4-9-313(a) (1987). A security interest in instru-
ments, chattel paper, investment property, and negotiable documents may be
perfected by filing. Ark. Code Ann. § 4-9-312(a) (1987). However, a security
interest in a deposit account or a letter-of-credit may be perfected only by con-
trol. Ark. Code Ann. § 4-9-312(b) (1987). As with prior law, the only way to
perfect a security interest in money is by taking possession. If possession of
collateral is taken by a third party on behalf of the lender, revised article 9 re-
quires an authenticated record from the third party acknowledging bailee status
on behalf of the lender. Ark. Code Ann. § 4-9-313(c) (1987). Arkansas Code
of 1987 Annotated section 4-9-309 details which security interests are per-
fected when they attach.
Revised article 9 explicitly states that it does not affect perfection of titled
vehicles and other property described in Arkansas Code of 1987 Annotated
sections 27-14-801–807. Ark. Code Ann. § 4-9-311(a)(2) (1987). However,
section 4-9-311 does not apply to a security interest created by a debtor who
is in the business of selling such items from his inventory. Ark. Code Ann.
§ 4-9-311(d) (1987). Therefore, although a security interest in inventory (in-
cluding vehicles) may be perfected by filing, it is important to note that a buyer
in ordinary course of business, other than a person buying farm products from
a person engaged in farming operations, takes free of a security interest created
by the buyer’s seller, even if the security interest is perfected and the buyer
knows of its existence. Ark. Code Ann § 4-9-320 (1987). Essentially, a buyer of
inventory in the ordinary course has priority over claims of creditors who have
a prior perfected security interest in the dealer’s inventory.
N. Collection and Enforcement by Secured Parties
Pursuant to Arkansas Code of 1987 Annotated section 4-9-607, if so agreed,
and in any event after default, a secured party may notify an account debtor or
other person obligated on collateral to make payment or otherwise render per-
formance to or for the benefit of the secured party; may take any proceeds to
which the secured party is entitled under section 4-9-315; may enforce the obli-
gations of an account debtor or other person obligated on collateral and exercise
the rights of the debtor with respect to the obligation of the account debtor or
other person obligated on collateral to make payment or otherwise render per-
formance to the debtor, and with respect to any property that secures the obliga-
tions of the account debtor or other person obligated on the collateral; if it holds
a security interest in a deposit account perfected by control under section 4-9-
104(a)(1), may apply the balance of the deposit account to the obligation secured
by the deposit account; and if it holds a security interest in a deposit account
perfected by control under section 4-9-104(a)(2) or (3), may instruct the bank to
pay the balance of the deposit account to or for the benefit of the secured party.
If necessary to enable a secured party to exercise the right of a debtor to en-
force a mortgage nonjudicially, the secured party may record in the office in
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which a record of the mortgage is recorded a copy of the security agreement
that creates or provides for a security interest in the obligation secured by the
mortgage and the secured party’s sworn affidavit in recordable form stating that
a default has occurred and the secured party is entitled to enforce the mort-
gage nonjudicially. Ark. Code Ann. § 4-9-607(b) (1987).
A secured party must proceed in a commercially reasonable manner if the
secured party undertakes to collect from or enforce an obligation of an ac-
count debtor or other person obligated on collateral and is entitled to charge
back uncollected collateral or otherwise to full or limited recourse against the
debtor or a secondary obligor. Ark. Code Ann. § 4-9-607(c) (1987).
A secured party may deduct from the collections made reasonable ex-
penses of collection and enforcement, including reasonable attorneys’ fees
and legal expenses incurred by the secured party. See Ark. Code Ann. §§ 4-9-
607, 4-9-104, and 4-9-315 (1987).
O. Right to Possession upon Default
After default, under Arkansas Code of 1987 Annotated section 4-9-609, a se-
cured party may take possession of the collateral and without removal, may
render equipment unusable and dispose of collateral on a debtor’s premises un-
der section 4-9-610. A secured party may proceed under the above section
pursuant to judicial process, or without judicial process, if it proceeds without
breach of the peace. Ark. Code Ann. § 4-9-609(b) (1987). If so agreed, and in
any event after default, a secured party may require the debtor to assemble the
collateral and make it available to the secured party at a place to be designated
by the secured party which is reasonably convenient to both parties. Ark. Code
Ann. § 4-9-609(c) (1987).
Under Arkansas Code of 1987 Annotated section 4-9-610, after default, a
secured party may sell, lease, license, or otherwise dispose of any or all of the
collateral in its present condition or following any commercially reasonable
preparation or processing.
Every aspect of a disposition of collateral, including the method, manner,
time, place, and other terms, must be commercially reasonable. If commer-
cially reasonable, a secured party may dispose of collateral by public or private
proceedings, by one or more contracts, as a unit or in parcels, and at any time
and place and on any terms.
A secured party may purchase collateral at a public disposition or at a pri-
vate disposition only if the collateral is of a kind that is customarily sold on a
recognized market or the subject of widely distributed standard price quota-
tions. See Ark. Code Ann. § 4-9-610 (1987).
Under Arkansas Code of 1987 Annotated section 4-9-611, notification
must be given prior to disposition of the collateral, unless notice is waived by
the debtor. A secured party that disposes of collateral under section 4-9-610
shall send a reasonable authenticated notification of disposition to the debtor,
any secondary obligor and if the collateral is other than consumer goods any
other person from which the secured party has received, before the notifica-
tion date, an authenticated notification of a claim of an interest in the collateral,
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any other secured party or lienholder that, ten days before the notification date,
held a security interest in or other lien on the collateral perfected by the filing
of a financing statement that identified the collateral, was indexed under the
debtor’s name as of that date, was filed in the office in which to file a financ-
ing statement against the debtor covering the collateral as of that date, and
any other secured party that, ten days before the notification date, held a secu-
rity interest in the collateral perfected by compliance with a statute, regula-
tion, or treaty described in section 4-9-311(a).
P. Acceptance of Collateral in Satisfaction
Pursuant to Arkansas Code of 1987 Annotated section 4-9-620, a secured party
may accept collateral in full or partial satisfaction of the obligation it secures
only if (1) the debtor consents to the acceptance under subsection (c) of sec-
tion 4-9-620 (i.e. debtor consents to partial satisfaction only if debtor agrees to
the terms of acceptance in a record authenticated after default, and debtor agrees
to full satisfaction only if the debtor agrees to the terms of acceptance in a record
authenticated after default or the secured party sends debtor an unconditional
proposal that indicates secured party will accept collateral in full satisfaction
and debtor does not provide authenticated notification of objection within
twenty days of when proposal was sent); (2) the secured party does not receive,
within the time frame set forth in subsection (d), a notification of objection to
the proposal authenticated by a person who received notice pursuant to section
4-9-621 or any other person, other than the debtor, holding an interest in the col-
lateral subordinate to the security interest that is the subject of the proposal;
(3) the collateral is consumer goods, the collateral is not in the possession of
the debtor when the debtor consents to acceptance; and (4) subsection (e) does
not require the secured party to dispose of the collateral or the debtor waives
requirement pursuant to section 4-9-624. Ark. Code Ann. § 4-9-620 (1987).
Q. Right to Redeem Collateral
According to Arkansas Code of 1987 Annotated section 4-9-623, a debtor,
any secondary obligor, or any other secured party or lienholder may redeem
collateral. To redeem collateral, a person must tender fulfillment of all obliga-
tions secured by the collateral and the reasonable expenses and attorneys’ fees
described in section 4-9-615(a)(1). Ark. Code Ann. § 4-9-623(b) (1987).
A redemption may occur at any time before a secured party has collected
collateral under section 4-9-607, has disposed of collateral or entered into a
contract for its disposition under section 4-9-610, or has accepted collateral in
full or partial satisfaction of the obligation it secures under section 4-9-622. See
Ark. Code Ann. § 4-9-623(c) (1987).
R. Transition Rules
With the enactment of Act 1439 of 2001, Arkansas adopted revised article 9
of the UCC (revised article 9). To the extent that they are still relevant, the rules
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which govern the transition from the previously enacted version of article 9 to
revised article 9 are set forth in part 7 of revised article 9. Ark. Code Ann § 4-
9-701 et seq. (1987). Part 7 of revised article 9 generally sets forth transition
rules applicable to the attachment of security interests, the perfection of secu-
rity interests, the continuation of existing security interests, the priority of
security interests, the enforcement of security interests, and the termination
of security interests.
IX. Other Laws of Interest
A. Arkansas Fraudulent Transfer Act
Arkansas has adopted the Uniform Fraudulent Transfer Act without material
variation. The Arkansas Fraudulent Transfer Act is set forth at Arkansas Code
of 1987 Annotated section 4-59-201, et seq.
B. Arkansas Environmental Laws
Arkansas environmental laws and regulations are found in title 8 of the
Arkansas Code of 1987 Annotated and in the Code of Arkansas Rules.
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