October 5, 2015

Kentucky Board of Tax Appeals Order Refund

Written By

By Erica Horn and Maddie Schueler

The Kentucky Board of Tax Appeals (“KBTA”) authorized refunds of amounts paid for certain certificates of delinquency by 3rd party purchasers.  The county attorney failed to place the certificates on a “protected list” in accordance with KRS § 134.504(10), which triggered a sale of the certificates that should not have taken place.  Donald T. Prather, Trustee et al. v. Franklin County Clerk, K14-R-13 (KBTA Aug. 26, 2015).  The refunded amount was not to include any filing fees paid to the county clerk or attorney fees, because KRS § 134.551 makes no specific allowance for such an award. 

Pursuant to KRS § 134.551(2), a 3rd party purchaser of a certificate of delinquency may apply to the county clerk for a refund when the certificate “should not have been sold because, on the date of the annual sale, the certificate of delinquency met the requirements for inclusion on the protected list pursuant to KRS § 134.504(10).”  KRS § 134.504(10)(b) requires the county attorney to send to the clerk at least ten days prior to the sale a “protected list” of current year certificates of delinquency that are, among other things, “[i]nvolved in litigation initiated by the county attorney or in which the county attorney responds or files an answer.” 

In the instant case, Franklin County was served with a notice of foreclosure for each of several properties subject to certificates of delinquency, and at the time of the certificates’ sale, the county attorney had filed a response or answer to the foreclosure suits.  However, the county attorney failed to place the certificates on the protected list, and the certificates were sold to the Appellant or Appellant’s transferor.  The Franklin County Clerk denied the Appellant’s request for a refund, and the Appellant appealed to the KBTA. 

 On appeal, the county attorney argued the litigation referred to in KRS § 134.504(10)(b) must regard the certificate of delinquency itself as opposed to the subject delinquent property.  Because the foreclosure actions were not about the certificates of delinquency, the county attorney claimed those certificates were free to be sold.  The KBTA found, however, that the “litigation” referred to in the statute has no limitation and includes any foreclosure action, including an action brought by a financial institution or another 3rd party purchaser.  The KBTA noted that under KRS § 134.420(3), a certificate of delinquency has priority over any other obligation for which the property is liable.  Thus, if there already is a legal action pending in which the taxing district’s lien has a priority, the certificate of delinquency should not be sold to a 3rd party purchaser. 

Therefore, the KBTA held the Franklin County Attorney’s failure to place the certificates on the protected list was contrary to his statutory duty and ordered the county clerk to issue a refund to the Appellants.