| Kentucky Court of Appeals Corrects Misinterpretation of Regulation Governing Fees for Cancelled Foreclosure Sales |
| Posted: February 24, 2010 |
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For years disagreement (often informal or unspoken) has existed in Kentucky between counsel and Master Commissioners’ offices regarding the correct method for calculating fees payable to the Master Commissioner for foreclosure sales that are cancelled either at the request of a lienholder or as required by law (e.g. a bankruptcy filing by the property owner). The Administrative Procedures for the Court of Justice addresses how the fees payable in regards to foreclosure sales are to be calculated and provides, in relevant part:
The fee for each judicial sale shall be as follows; 5% of the first $5,000 of the final bid, or in the case of several lots sold at the same time under the same judgment, 5% of the first $5,000 of the aggregate of the final bids, 2% for the nest [sic] $20,000 of the final bid or bids; 1 1/2% for the next $175,000 of the final bid or bids; and 1/2% for the excess over $200,000 of the final bid or bids. In no case shall the fee be more than $5,000. If the property is withdrawn from sale, a fee of $100 or not more than 50% of what the sale fee would have been based upon the appraisal value of the property, shall be allowed by the circuit court. If the sale is not confirmed through no fault of the master commissioner a fee of no more than the sale fee shall be allowed.
The dispute over interpretation of the foregoing paragraph can be summarized as follows: creditors argue that the plain language of the regulation provides that the Master Commissioner’s fee in a cancelled sale is “capped” at an amount equal to 50% of $5,000, or $2,500; however, the Master Commissioners have argued that the plain language of the regulation provides a “cap” only on completed sales and that no “cap” applies on cancelled sales.
The perception has been that counsel for the lienholder regularly concedes to the Master Commissioners’ interpretation by paying the amount demanded (although higher than what is believed to be required under the regulation) largely due to the small amount of money involved on a per-case basis. However, one party recently raised the disputed interpretation before the Kentucky Court of Appeals. In Arterburn v. First Community Bank, et al., 299 S.W.3d 595 (Ky. App. Nov. 2009), the Court of Appeals realized how absurd (or, in their words, “ludicrous”) the results could be when the regulation is applied as the Master Commissioners’ have suggested, for instance, that fees owed in cancelled sales are greater than if a sale is completed.. As a result, the Court of Appeals concluded that the logical reading of the regulation required the application of a $2,500 “cap” on fees owing the Master Commissioner after a sale is cancelled.
On its face, the Court of Appeals’ ruling in Arterburn may not seem to affect much as most cases benefiting from the ruling will typically result in savings for parties of a few thousand dollars. However, for institutional creditors and parties who are often responsible for paying those fees, and given the increase in cancelled sales due to workouts, forbearance agreements and bankruptcy filings, the savings over time may no longer be insignificant.
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