2010 Kentucky Certificate of Delinquency Update

            DISCLAIMER:  I’ve got to start with this first.  This is not an exhaustive review of the statutes and is merely for informational purposes.  Don’t take it as legal advice.  There is no attorney-client relationship generated merely by you reading this update.

 In 2009, the Kentucky legislature passed a bill that dramatically increased the regulatory environment affection Kentucky Certificates of Delinquency.  This summary is an attempt to highlight the changes as well as educate those new to Kentucky Certificates of Delinquency on how the process works.  I’ll be referring to the Certificates of Delinquency as “liens” throughout this summary. 

Here is what has remained the same: 

·        12% simple interest rate earned on amount paid for liens (KRS 134.125)

·        Interest is accrued at 1% per month with any part of a month counting for the whole month. (KRS 134.125)

·        In addition to the interest, tax lien purchasers may collect for expenses incurred in collecting the lien (KRS 134.452), including:

• $100 administrative fee
• Attorneys fees prior to initiating litigation (Mailing letters, fielding phone calls, generally handling the collection of the liens for a client)
  • Up to $350 for liens $350 or below (no more than 100% of cost of lien)
  • Up to $560 for liens $700 or below (no more than 80% of cost of lien)
  • Up to $700 for liens above $700 (no more than 70% of the cost of lien)
• All attorneys fees and costs (providing they are reasonable) involved in foreclosing or otherwise collecting the lien through litigation

 As we are going to see below, there are substantial requirements for anybody that purchases a tax lien in Kentucky, and in my opinion, the statutes outlined above show that the legislature envisioned that most investors would purchase the liens, and then hand off the entire collection process to an attorney.  The good news for investors is that they are able to recoup all of their direct costs, including attorneys fees, associated with investing in these liens.  Moreover, with a competent attorney handling the file there is more likelihood that these liens will be collected quickly.

Here are the relevant changes and the new tax lien investment and collection procedures: 

1. Registration to purchase tax liens (KRS 134.129).
   1. Anyone who is going to buy 5 or more liens statewide OR 3 in any one county OR spend more than $10,000 on liens statewide MUST register with the Kentucky Department of Revenue.
   2. You will have to pay an administrative fee of $250.00 to register to buy the tax liens.
   3. You will have to be in good standing with regard to taxes owed to the state and your prior business record.

    

2. Tax Lien Purchasing Procedure (KRS 134.128)
   1. The county clerk will now handle the sale of all tax liens.  They will no longer be purchased at the Sheriff’s office. 
   2. The Department of Revenue will determine and advertise the dates of the sales in each county and the dates and times will be staggered so that people can purchase liens in multiple counties.
   3. The dates of the tax sales will fall between July 14 and September 1 of each year and will be advertised at least 30 days in advance in the paper.
   4. You will have to register at least one week before each with each county clerk in order to buy liens and you will likely have to put an advance deposit down.  You will have to pay a registration fee to the clerk for the right to purchase liens at the sale, $10.00 for each bill on your list, up to $250.00 per county.  The deposit requirements and deadlines to register vary from county to county, so you will want to check with each county clerk to see what procedure they will use.
   5. The county clerks are allowed to refuse to sell liens involved in litigation or that are likely to be duplicate bills.  This will cut down on the amount of liens that are refunded because they are uncollectable.
   6. The Department of Revenue has set a purchasing procedure that is used statewide.  The procedure is a lottery system similar to a professional sports draft that ensures that each purchaser who registers will have an equal chance of buying liens.
   7. One person may not represent multiple entities at the tax sale and no related entities shall be allowed to purchase liens.  This prevents the big buyers from flooding the sale with their proxies and buying the bulk of the liens.
   8. If you hold a lien on a property from a prior year, you will be allowed first chance to purchase the lien on the property for the current year.

    

3. Notice Requirements and Collection Procedures on Tax Liens (KRS 134.490)
   1. Address Collection from PVA – The statute says you shall do this, even if you have the actual mailing address of the property owner. 

                                                               i.      You must contact the county’s PVA and get the most recent address for each property owner by sending them a list of the property addresses and map numbers on the properties that you purchased liens for at the tax sale.

                                                             ii.      The PVA will respond within 10 days and will charge you $2 per address.

                                                            iii.      If you send out any of the letters set forth below and they are returned as undeliverable, you MUST re-send (with proof of mailing) the letters to the property address (NOT the owner’s mailing address that you got from PVA) with the letters addressed to “Occupant” within 10 days of having the mail returned to you.

2. First Letter – You must send a letter out (first class with proof of mailing via the USPS or Affidavit) within 50 days of purchasing the lien that tells the taxpayer the following:

                                                               i.      The certificate is a lien of record against the property

                                                             ii.      The lien is accruing 12% interest as set forth above

                                                            iii.      If the lien isn’t paid, it will be subject to collection as provided by law

                                                           iv.      A detailed payoff statement as of the date of the notice, showing purchase price, interest, and fees and costs (including statute references to why those fees and costs are collectible).

                                                             v.      Contact information for the lien buyer – Name, physical and mailing addresses, and telephone number.

                                                           vi.      YOU LOSE THE RIGHT TO COLLECT YOUR FEES AND INTEREST IF YOU DON’T SEND THESE NOTICES

3. Foreclosure Notice – You have to wait at least 1 year after the taxes become delinquent before you can foreclose and you must foreclose between the first year and the 11^th year after buying the lien.  (KRS 134.546)

                                                               i.      Before you can initiate foreclosure suit, you have to send out a notice at least 45 days prior to filing suit that lets the taxpayer know that you intend to file suit to collect, ALONG WITH all of the information required in the first letter above.  You must send this letter first class with proof of mailing. 

4. Miscellaneous
   1. If you purchase a duplicate bill or a bill that is otherwise uncollectible, you may apply to the county clerk for a refund and the county clerk will refund your initial payment, but NOT any interest or expenses.

 I hope this recap of the current law has been beneficial to you and please call me at 270-761-4558 or email me at greg@gregtaylorlaw.com if you have additional questions.

< Return to homepage
 

These materials have been prepared by Gregory T. Taylor, Esq. for informational purposes only and are not legal advice. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship. Readers should not act upon this information without seeking professional counsel. Kentucky law does not certify specialties of legal practice. A listing or discussion of practice areas does not constitute or imply any sort of certification or specialization for Kentucky practice.