Arkansas: Complete Surplus Funds Recovery Guide -- Tax & Mortgage Foreclosure

Arkansas: Complete Surplus Funds Recovery Guide -- Tax & Mortgage Foreclosure

Overview

Arkansas operates a tax deed system for delinquent property taxes and permits judicial mortgage foreclosures as the primary method for lender-initiated property sales. The state's legal framework for surplus recovery has been significantly affected by recent constitutional developments, particularly the Tyler v. Hennepin County decision. Arkansas was historically one of the most problematic states for surplus retention by government entities, and reforms are ongoing.

Arkansas property tax enforcement is administered at the county level through the County Collector and Commissioner of State Lands. Mortgage foreclosures proceed through the circuit courts. Both processes can generate surplus funds, and both have distinct recovery frameworks that require careful navigation.

All statute references are current as of April 2026. Arkansas law in this area is actively evolving post-Tyler. Always verify current statutes before acting.

Tax Foreclosure Surplus

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Tax Sale Process

Arkansas uses a tax deed system. When property taxes become delinquent, the county holds an annual tax sale. Under Ark. Code Ann. Section 26-37-101 et seq., properties with delinquent taxes are offered at public auction. The process follows a specific sequence:

1. Delinquent List Publication: The County Collector publishes a list of delinquent properties in a local newspaper (Ark. Code Ann. Section 26-37-107).
2. Tax Sale: Properties are sold to the highest bidder at auction, with bidding starting at the amount of delinquent taxes, penalties, interest, and costs.
3. Certificate of Purchase: The purchaser receives a certificate. The former owner has a redemption period to reclaim the property.
4. Tax Deed: If the property is not redeemed within the statutory period, the purchaser receives a tax deed.

If no private bidder purchases the property, it is certified to the Commissioner of State Lands under Ark. Code Ann. Section 26-37-301. The Commissioner then has authority to sell the property at a subsequent sale.

Redemption Period

Arkansas provides a redemption period after the tax sale. Under Ark. Code Ann. Section 26-37-202, the former owner generally has two years from the date of the tax sale to redeem the property by paying the purchase price plus 10% annual interest and any additional taxes paid by the purchaser. For properties certified to the Commissioner of State Lands, the redemption framework follows Ark. Code Ann. Section 22-6-107.

Who Holds Surplus Funds

Surplus funds from county-level tax sales are held by the County Collector or County Treasurer depending on the county's administrative structure. For properties sold by the Commissioner of State Lands, surplus is held by the Commissioner's office (a state-level entity).

Historically, Arkansas was one of the worst offenders in retaining surplus from tax sales. The Commissioner of State Lands routinely sold tax-forfeited properties for amounts significantly exceeding the delinquent taxes and retained all excess proceeds. This practice was the subject of significant litigation.

Claim Process and Deadlines

Post-Tyler, former owners have a constitutional right to surplus from tax sales. Arkansas has enacted reforms under Act 261 of 2023 and subsequent legislative updates to comply with constitutional requirements. Under the current framework:

1. Former owners must file a claim with the entity holding surplus (County Collector or Commissioner of State Lands).
2. Claims require proof of identity, proof of ownership at the time of the tax sale, and documentation of the surplus amount.
3. The claim deadline varies by county and the specific legislative framework in effect. Under Act 261 and its amendments, former owners generally have two years from the date of the sale to claim surplus.
4. Unclaimed surplus is subject to escheat to the county or state under Arkansas unclaimed property laws (Ark. Code Ann. Section 18-12-901 et seq.).

Fee Caps

Arkansas enacted Act 539 of 2023, which regulates surplus recovery agents. Under this act, recovery fees are capped at 10% of the recovered surplus or a maximum of $1,000, whichever is less. Recovery agents must be registered with the state and must provide written disclosure to claimants of their right to file independently. AuctionBlock's $4,999 flat fee exceeds this cap, so Arkansas-specific pricing must be adjusted to comply. This is a critical compliance issue.

Mortgage Foreclosure Surplus

Judicial Foreclosure

Arkansas is primarily a judicial foreclosure state. Mortgage foreclosures proceed through the circuit courts under Ark. Code Ann. Section 18-49-101 et seq. The process involves:

1. Complaint Filed: The lender files a foreclosure complaint in circuit court.
2. Service and Response: The borrower is served and has 30 days to respond.
3. Judgment: If the borrower does not contest or loses, the court enters a judgment of foreclosure.
4. Commissioner's Sale: The court appoints a commissioner (typically a local attorney) to conduct the foreclosure sale. The sale is a public auction held at the courthouse.
5. Confirmation: The sale must be confirmed by the court before the deed is issued.

Non-Judicial Foreclosure

Arkansas does permit non-judicial foreclosure under a statutory power of sale when the deed of trust contains a power of sale clause (Ark. Code Ann. Section 18-50-101 et seq.). However, judicial foreclosure remains the predominant method. Non-judicial sales follow specific notice and publication requirements and are conducted by the trustee named in the deed of trust.

Lien Priority

Arkansas follows a race-notice recording system (Ark. Code Ann. Section 14-15-404). Priority among liens is generally determined by the order of recording, with the first recorded lien having the highest priority. Exceptions include:

• Property tax liens: Always have first priority regardless of recording date.
• Mechanic's liens: May relate back to the date work commenced under Ark. Code Ann. Section 18-44-110.
• Federal tax liens: Priority determined under federal law (26 U.S.C. Section 6323).

Junior lienholders (second mortgages, judgment creditors, HELOC lenders) are paid from surplus in order of their priority before the former homeowner receives any remainder.

Who Holds Surplus

For judicial foreclosures, the court-appointed commissioner holds sale proceeds and distributes them per the court's order. Surplus remaining after all obligations are satisfied is held by the circuit court clerk. For non-judicial foreclosures, the trustee holds and distributes proceeds per Ark. Code Ann. Section 18-50-109.

Claim Process

To claim mortgage foreclosure surplus in Arkansas:

1. Judicial Sale: File a motion with the circuit court that ordered the foreclosure, requesting disbursement of surplus funds. The court will review competing claims and order distribution.
2. Non-Judicial Sale: Contact the trustee who conducted the sale. Provide proof of identity and ownership. If the trustee has deposited surplus with the court, file a motion for disbursement.
3. Required documentation typically includes: government-issued ID, proof of ownership at time of sale (deed, title insurance), lien payoff statements from any known creditors, and a signed claim form.

Arkansas does not impose a specific statutory deadline for claiming mortgage foreclosure surplus, but unclaimed funds held by the circuit court clerk are eventually subject to escheat under the Arkansas Unclaimed Property Act.

Deficiency Judgments

Arkansas permits deficiency judgments after mortgage foreclosure. Under Ark. Code Ann. Section 18-49-103, if the sale proceeds are insufficient to satisfy the mortgage debt, the lender may seek a deficiency judgment for the difference. However, the court must confirm the sale and the deficiency amount must be based on the fair market value of the property. When surplus exists, deficiency concerns are moot by definition -- surplus means the sale price exceeded the debt. However, in cases involving multiple liens, deficiency claims by senior lienholders do not affect surplus owed to the former owner after all liens are paid.

Tyler v. Hennepin Impact

Arkansas was one of the states most directly affected by the Tyler v. Hennepin County decision. Prior to Tyler, the Commissioner of State Lands had a decades-long practice of selling tax-forfeited properties at auction and retaining all proceeds, even amounts far exceeding the delinquent taxes. This practice was challenged in multiple cases, including Freed v. Thomas and Eaton v. Commissioner of State Lands.

The Tyler decision, holding that surplus from tax foreclosure sales constitutes private property protected by the Takings Clause, forced Arkansas to fundamentally restructure its tax sale surplus handling. Key post-Tyler developments include:

1. Act 261 of 2023: Established a framework for returning surplus from Commissioner of State Lands sales to former owners.
2. Act 539 of 2023: Regulated surplus recovery agents and capped fees.
3. Ongoing Litigation: Multiple class action lawsuits are pending against the Commissioner of State Lands seeking retroactive recovery of surplus from pre-Tyler sales. The outcomes of these cases will affect the volume and availability of recoverable surplus.

The Tyler decision has created a significant retroactive surplus recovery opportunity in Arkansas, as the Commissioner of State Lands historically processed thousands of properties annually with retained surplus. Former owners from sales going back years may have viable claims.

Edge Cases

Commissioner of State Lands Sales: Properties that went unsold at county tax sales and were certified to the Commissioner represent a unique category. The Commissioner's sales are statewide and may involve properties in any county. Surplus from these sales requires dealing with a state-level office rather than county entities, and the administrative process differs from county-level claims.

Deceased Owner: Arkansas requires probate documentation (letters testamentary or letters of administration) for an heir or personal representative to claim surplus. Arkansas permits a simplified probate process for small estates under Ark. Code Ann. Section 28-41-101 (estates under $100,000 in personal property).

Tax Sale Purchaser Claims: In some cases, the tax sale purchaser (investor) may overpay and then the owner redeems. The investor is entitled to the purchase price plus statutory interest but may have a claim to excess paid above the minimum bid in certain circumstances.

Timber and Mineral Rights: Arkansas has significant timber and mineral (natural gas) resources. Properties sold at tax sale may have severed mineral or timber rights. Surplus distribution can become complex when the surface estate and mineral estate have different owners.

Federal Liens: IRS liens and other federal liens survive tax sales under certain conditions. The IRS has a 120-day redemption right and must receive proper notice. Federal liens reduce available surplus.

Bankruptcy: If the former owner was in bankruptcy at the time of the foreclosure, the surplus may be property of the bankruptcy estate. The automatic stay may have applied, potentially invalidating the sale in some circumstances.