Randy Saunders is an attorney with Nelson Mullins Riley & Scarborough, and has practiced law within the tax sales space in several states, including Kentucky, for many years. He recently shared his knowledge and insight into the unique ways that tax sales work in the Blue Grass State, during a podcast conversation with Tax Sales Resources' CEO, Brian Seidensticker.
Kentucky Tax Sales Overview
Tax sales happen yearly in Kentucky, are managed by the county clerk, and take place between 90 and 135 days from the date that the tax delinquency was filed with the county clerk’s office. A round robin method of bidding is used for all Kentucky tax sales; properties are grouped together into lots; and the order of the round robin bidding is determined by random selection on the day of the sale. Payment for purchased lien and deed certificates is due on the day of the sale.
Determining Lien Priority in Purchasing Tax Certificates
Any previous purchaser of delinquency certificates is entitled to first priority in purchasing others on the same properties. But if you are interested in doing so, you must submit a list of those properties at least 10 days before the scheduled sale, along with a deposit equal to 100% of the value of those certificates. Then you are guaranteed your purchase of those, and they are removed from the public sale. In the event that you haven’t purchased certificates in the past and therefore don’t have a priority claim, you can still submit a list of those properties you want, along with a deposit representing 25% of the value of the certificates. You must do so at least 10 days prior to the sale, along with your registration form.
Tax Deeds Foreclosures in Kentucky
In Kentucky you can get the tax deed if the lien certificate isn’t redeemed, but there is a one-year “tolling period” where you cannot act on it to pursue foreclosure. However, during that time you still earn 1% interest per month that accrues to 12% per year. Then, after that first year, you can begin the judicial process of foreclosure, which includes sending notifications to property owners. If you buy more than five certificates statewide or at least three in the same county – or if you invest more than $10,000 − you also have a strict legal obligation to come up with a payment plan for the delinquent taxpayer, to help them redeem the property. Managing the payment plan is not done by the county, but is the responsibility of the tax investor – who can charge the delinquent taxpayer a fee of eight dollars a month for managing the plan. It’s strongly recommended that you seek advice from a qualified attorney when creating that payment plan. Saunders shares a more detailed insight into the foreclosure process in Kentucky in another interview.
Conducting Your Due Diligence
It’s wise to perform extra due diligence in selecting the county where you decide to operate, and it’s also a good idea to talk to someone who is knowledgeable about the tax sale process in that particular county. That’s because you’ll need to work with that county’s judicial system and Master Commissioner. You also want to know if you’re investing in a property where the tax certificates have been bought multiple times – but did not result in foreclosure. That can be an indication of how challenging it is to acquire the property. If the property is not redeemed, you can take possession once the court officially approves the foreclosure you requested. But when you go before the judge you need to factor in the judge’s sympathy for the taxpayer. You have to show compelling evidence that you did everything strictly in accordance with all of the statutes, otherwise the court will likely deny your request.
Kentucky Tax Liens as a Business Model
Due to the nature of the system followed in Kentucky, most investors make money not by acquiring the property through foreclosure, but by earning interest and redemption payments. Most successful investors therefore follow a business model that factors in the cost of their investment and their servicing obligations like sending notification letters and managing payment plans. They also account for the fact that they cannot act on the deed certificate during the one-year tolling period.
To learn more about the tax sale investment process in Kentucky, download the extensive white paper Randy Saunders co-authored with Matt Abee. Also be sure to watch the full in-depth podcast interview that Saunders did with Brian Seidensticker.