Disclaimer: This article is for educational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance on your specific situation.
Detailed Answer
When a property in Kentucky sells at judicial foreclosure or tax sale, any proceeds above the amount needed to satisfy the judgment become “surplus funds.” Before the court disburses those funds, it must ensure no other creditors or lienholders hold valid claims. Here’s how to determine whether others could stake a claim under Kentucky law.
1. Review the Foreclosure Judgment and Clerk’s Certificate
Begin by obtaining the foreclosure judgment and the sheriff’s sale certificate on file with the Circuit Court Clerk. The judgment identifies lienholders named in the lawsuit. Under KRS 426.520, the clerk must receive the proceeds and hold them until the court orders distribution.[KRS 426.520]
2. Conduct a Title and Public Records Search
Search the county clerk’s real property records for any recorded deeds, mortgages, or other liens not listed in the foreclosure complaint. Kentucky county clerks maintain grantor/grantee indexes and mortgage books. A thorough title search will reveal:
- Judgment liens (KRS 426.270)
- Mechanic’s and materialmen’s liens (KRS 371.360–371.735)
- Tax liens filed by state or local governments (KRS 134.010 et seq.)
3. Check UCC Financing Statements
Creditors often protect their interests by filing a UCC-1 financing statement with the Secretary of State. Use the online UCC search to identify any recorded security interests in personal property or fixtures that may attach to the real estate.
4. Search Judgment Dockets
Circuit Court Clerks also maintain judgment dockets for money judgments and domestic support obligations. A judgment lien attaches to real property under KRS 426.270 once properly docketed. Ensure you check all districts where the debtor held property.
5. Investigate Federal and State Tax Liens
The Kentucky Department of Revenue and the IRS file liens for unpaid taxes. Although the IRS files federal tax liens in local recording offices, you can search the IRS’s Record of Federal Tax Liens system and the Kentucky Online Gateway for state tax lien records.
6. Confirm Priority and File a Claim
Once you identify potential claimants, compare their filing dates and types to determine priority. Kentucky follows first in time, first in right for most liens. If you represent a creditor or lienholder, you can file a motion or petition in the foreclosure case within the time limits set by the court. Under KRS 426.530, claimants must assert their interest before the clerk disburses funds.[KRS 426.530]
Helpful Hints
- Hire a title abstractor for complex searches to uncover hidden liens.
- Use the Kentucky Court of Justice online portal to check judgments and case filings.
- Verify IRS lien information through the national Record of Federal Tax Liens database.
- Contact the county assessor’s office for tax lien redemption information.
- Keep precise records of search dates and queries to establish diligence.