‘Real Party In Interest’: The Arkansas Story

style=’font-size: large’>With the uptick in foreclosures over the last year, it is not surprising to see a similar increase in the number of contested cases. While the majority of contests usually rely on arguments that the foreclosing party or its attorney has failed to comply with the statute, more recent contests have included arguments about the foreclosing entity's interest, or lack thereof, in the property. This issue is encompassed in a range of arguments, usually centering around a lack of assignment or other recorded interest in the property when the foreclosure has been initiated by someone other than the original mortgagee. Additionally, many pro se filers have argued that the foreclosing party cannot proceed with a nonjudicial foreclosure because it is not the real party in interest. While this argument has its base in the fact (or allegation) that the party does not have a recorded assignment, it is generally couched as a Rule 17 argument. Rule 17(a) of the Arkansas Rules of Civil Procedure provides that every action be prosecuted in the name of the real party in interest. However, filers pursuing the Rule 17 argument fail to understand that the Rules of Civil Procedure do not apply to statutory foreclosures. Both rules 1 and 81 state that the rules govern the procedure in the circuit court and apply to all civil proceedings cognizable in the state's circuit courts. This reading of the rules has been upheld in several Arkansas Supreme Court cases. In Sosebee v. County Line School District, the Arkansas Supreme Court defined a civil action as ‘an ordinary proceeding in a court of justice.’ Prior to the Sosebee case, the court was asked to determine whether the rules specifically applied to nonjudicial foreclosure actions (Union National Bank v. Nichols). {OPENADS=float=left&zone=32} The mortgagors claimed that the calculation of the number of days under a specific statutory foreclosure provision had to be read in conjunction with the calculation method provided for in the rules. The court stated that the statutory foreclosure act was ‘designed to be effectuated without resorting to the state's court system, and therefore, is not a procedure cognizable in the circuit court.’ As such, the court ruled that the rules did not apply. As Rule 17 goes, then, the argument against its application to statutory foreclosure actions is well established. Therefore, any argument by a borrower that Rule 17 does or should apply can be easily disposed. However, as stated earlier, this argument is almost always accompanied by additional arguments that the foreclosing entity lacks a recorded assignment or other recorded interest and cannot bring the foreclosure. Unlike the Rule 17 argument, allegations involving lack of an assignment or interest may not be easily overcome without proper documentation. As such, mortgagees are cautioned to maintain the chain of assignments in order to avoid protracted litigation. Even where a contest can be easily set aside, maintaining the appropriate documentation and recording the necessary chain may allow a mortgagee to avoid less-serious litigation that adds both time and expense to the foreclosure. [i]Angela Martin is a real estate attorney in Wilson & Associations PLLC's litigation department. She can be e-mailed at amartin@wilson-assoc.c


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