Recovering Surplus Funds After a Tax Sale in Kentucky

What are surplus funds? When a county sells real property at a tax sale to recover unpaid property taxes, the sale price may exceed the total amount owed (taxes, interest, penalties, fees, and sale costs). The difference between the sale proceeds and those charges is called the surplus (sometimes called overage or excess proceeds). Under Kentucky law, those surplus funds do not automatically belong to the purchaser; they are held for whoever has a lawful claim to them.

Who can claim surplus funds? Potential claimants include the former property owner, secured creditors (for example, a mortgagee), lienholders, or heirs with a valid ownership interest. Priority among claimants depends on the relative priority of recorded liens and applicable statute or case law. Because liens often survive a tax sale or have priority claims on surplus, the former owner is not always guaranteed the entire surplus.

General process to recover surplus funds in Kentucky

1. Confirm that a surplus exists and who holds it. After a successful tax sale, the county usually completes accounting. If proceeds exceed the amount needed to satisfy the tax delinquency and sale costs, the excess is identified as surplus. Contact the county clerk or county treasurer in the county where the sale occurred to learn whether surplus funds were recorded and how they are being held.
2. Gather documentation. Typical documents claimants will need include photo ID, proof of ownership or interest (deed, will, probate documents, mortgage or lien recording), the tax sale certificate or sale notice, and any documents showing the amount owed and paid. If you are asserting a lien (for example, a mortgage), bring recorded lien documents showing the date and priority.
3. File a written claim with the county. Most counties require a written, signed, and often notarized claim form or affidavit submitted to the county clerk or treasurer. The claim should explain your legal interest (owner, mortgagee, lienholder, heir) and include copies of supporting documents. Follow the county’s specific procedures and provide the requested identification and paperwork.
4. County review and possible notice to other claimants. The county will review claims and may notify other interested parties. If multiple parties claim the same surplus, the county may require a judicial determination. In contested cases, the county typically will not disburse funds until a court resolves priorities.
5. If a dispute occurs, expect court involvement. When two or more parties claim the surplus, either the county or a claimant can ask the circuit court to decide ownership. This may require a civil action to determine lien priorities, validity of claims, or rightful ownership. Courts apply Kentucky statutes and recorded-priority rules to resolve disputes.
6. Unclaimed funds and escheat. If no one claims surplus funds within the period required by law or county rules, the funds may be transferred according to statutory procedures (which can include escheat to the state or retention by the county under certain conditions). Check the county’s procedures and applicable Kentucky law for exact outcomes.

Key legal references and where to look

Kentucky statutes and local rules govern tax sales and distribution of proceeds. For the statutory framework and details, consult the Kentucky Revised Statutes and county tax sale procedures. The Kentucky Legislature’s online statutes portal is a primary source for state law: https://apps.legislature.ky.gov/statutes/. For practical county-level procedures and contact information, contact the county clerk or county treasury office where the property is located. The Kentucky Court of Justice website (https://www.courts.ky.gov/) can help you find local court rules if a dispute goes to litigation.

Common pitfalls to avoid

• Waiting too long. Statutory and procedural deadlines can bar claims or make recovery harder. Start the process as soon as you learn of the sale.
• Failing to search for liens. A mortgage or other lien may have priority over the former owner’s claim to surplus funds.
• Not using recorded documents. Properly recorded deeds and liens are often decisive in priority disputes; get certified copies if needed.
• Assuming the purchaser controls the surplus. Typically, the county holds surplus proceeds and distributes only under statute or court order.

Hypothetical example (illustrative)

Maria owned a small house and failed to pay property taxes for several years. The county sold the property at a tax sale. The buyer paid $40,000, while taxes, penalties and sale costs totaled $25,000. The county reports a $15,000 surplus. Maria believes she is entitled to the $15,000 but learns there is an unpaid mortgage recorded earlier. Maria should immediately contact the county clerk, gather her deed and tax sale paperwork, and submit a verified claim. The mortgage holder may also file a claim. If both parties claim the surplus, the county or a claimant may ask the circuit court to determine who receives the funds based on recorded priorities.

Disclaimer

This article provides general information about the surplus-fund recovery process under Kentucky law. It is not legal advice and does not create an attorney-client relationship. Laws and local procedures change. For advice about a specific situation, contact an attorney admitted in Kentucky or the county clerk where the sale occurred.

Helpful Hints

• Contact the county clerk or county treasurer immediately after a tax sale to ask whether surplus funds exist and how to file a claim.
• Gather proof of ownership and recorded documents (deeds, mortgages, lien filings) before filing a claim.
• Ask the county for its required claim form or the exact affidavit language it expects; follow directions precisely (notarization, ID, copies).
• If you are a lienholder, confirm your lien’s recording date and priority—recording date often controls priority over surplus funds.
• Be aware that contested claims commonly require filing in circuit court; consider consulting a Kentucky attorney if a dispute arises.
• Keep careful records of communications with county officials and copies of all documents you submit.
• Search Kentucky statutes and county rules online for procedural requirements (start at Kentucky Revised Statutes and the Kentucky Court of Justice).