Kentucky mortgage lenders will want to know about our new state law that permits the use of private auctioneers in the foreclosure process. KRS 426.522, which became effective on June 8, 2011, permits a creditor or mortgage holder to request that the subject collateral, either personality or land, be sold by “an auctioneer licensed in this state.” The foreclosing creditor has been given the unilateral right to make this election.
In this general respect, Kentucky joins Indiana and Illinois in permitting private auctioneers. Anecdotal evidence from those states suggests that the retention of auctioneers in court-mandated sales results in a significantly higher percentage of foreclosed properties finding third-party purchasers, as opposed to being consummated to the plaintiff-lender on a credit bid. Ohio law does not appear to permit private auctioneers, although over-marketing is common with unique or high value collateral. Tennessee, for other reasons, generally sees relatively few court sales of real estate collateral in defaulted loans.
If the creditor makes this election, KRS 426.522 requires the public sale occur on the site where the property is located. The new Kentucky statute establishes that the auctioneer’s fee may not exceed 6% of the sale price for real property, or 20% for personal property. Further the charged fee cannot include the allowable charges permitted the master commissioner under KRS 31A.010. While auctioneer costs should be found to be part of the creditor’s allowable collection costs, analysis is still recommended of the total anticipated fee in light of the facts of each collection action. It also appears that the Commissioners’ office will be the auctioneer’s hiring principal, but it is unclear the discretion that a creditor will have to dictate which auctioneer is employed on a case by case basis.
Finally, the statute reaffirms certain pre-sale advertisement requirements. Because the existing notice requirements never contemplated private auctioneer conducted sales, consideration must be given to erring on the side of full statutory notification in all cases of uncertainty, at least until further case law or local rules provides additional clarification.