Stites & Harbison, PLLC

The Kentucky Attorney General has issued a formal opinion rejecting the restrictive position of many county clerks that only a few types of mortgage modifications can be recorded under Kentucky law. OAG 09-002.

Kentucky statutes expressly authorize three types of mortgage modifications: to extend term, to reduce principal and to correct purely clerical errors. Many county clerks in Kentucky have taken the position that these are the exclusive types of modifications permitted under Kentucky law. These clerks often conducted substantive reviews of tendered amendments and rejected documents which, in their view, contained other "unauthorized" provisions. Yet lenders and borrowers often mutually desire to make many other types of amendments to their mortgages. The clerks' refusal to record certain amendments required that new mortgages be filed to implement desired changes, thus jeopardizing priority and limiting flexibility to negotiate loan modifications.

The problem was exacerbated because there was no uniform policy among the county clerks, and with Kentucky's 120 counties, it was often difficult to predict whether a particular document would be deemed by a particular clerk to be recordable.

In response to an inquiry, prepared by Stites & Harbison, the Kentucky Attorney General adopted an expansive view that county clerks should record all duly prepared and submitted mortgage amendments. The Attorney General rejected the idea that clerks should conduct substantive reviews of mortgage amendments. Rather, questions regarding the legitimacy of particular amendments must be left to the courts.

In light of the current stressed state of the mortgage industry, the Attorney General's opinion gives welcome flexibility and predictability to mortgage lenders seeking to negotiate appropriate loan modifications with borrowers and record them in the real estate records.

If you have any questions regarding the applicability or interpretation of OAG 09-002, please contact Richard A. Vance at rvance@stites.com.

Richard A. Vance is a Member in the Louisville office where his practice concentrates on all aspects of residential mortgage finance, including compliance, licensing and litigation.