Current State of the Law on Perfection of Security Interests in Kentucky

Current State of the Law on Perfection of Security Interests in Kentucky
by Tom Canary

The process for perfecting a security interest in Kentucky is a two-step process involving two forms.

The first form is the Application for Title and Registration (DMV Form TC 96-182). The information contained in this form details to whom the security interest in the vehicle is being granted, and a statement from the consumers as to their county of residence. Bear in mind that Kentucky has 120 counties, and a given city may be located in as many as three counties. Therefore, depending on where you live in that city, your county of residence could be one of several counties. The Application is filed with the clerk in the county where the lien is to be perfected.

The second form is called a Title Lien Statement (TC 96-187). This details the parties that are to appear as owners on the Certificate of Title, the secured party, a description of the vehicle, and is time and date stamped by the county court clerk.

The clerk will take the information from the Application for Title and will input that information into Kentucky’s centralized Automated Vehicle Information System (AVIS), used by all 120 Kentucky County Court Clerks. If the Title Lien Statement and fees are presented at the same time, the clerk will put the information into AVIS, after which the title will print and will be sent to the consumer. Kentucky is one of a very few states that do not deliver the title or some receipt to the lender showing the perfection of the lien.

While this appears simple, the devil is in the details.

The Title Lien Statement must be filed in the county of the consumer’s residence. The paperwork is prepared by the selling dealership who usually relies on the information given to them by the consumer or off the consumer’s driver’s license. Even if all the paperwork is filed by the dealership, fees paid and the title printed with the lender’s lien being noted, if the Title Lien Statement is filed in a county other than that of the consumer’s residence, the lien is not perfected. In that instance, you will lose that lien to a trustee in bankruptcy or other lien creditor.

There was a change to the law in 2020 we thought resolved the issue. That change said that a creditor could rely on a sworn statement made by the consumers as to their county of residence on any form issued by the State of Kentucky involved in the lien process. The only such form is the Application for Title and Registration. If the Title Lien Statement were filed in the county listed by the consumer on that form, we thought the lien was deemed perfected even if the consumer lived in another county.

Unfortunately, the story did not end there. The notary block on the prior version of the Application for Title and Registration (Kentucky of Transportation Form TC 96-182) read: “Subscribed and attested” not sworn. Bankruptcy Judge Schaaf of the Eastern District of Kentucky found that “subscribed” or “attested” was not tantamount to “sworn” under Kentucky’s notary act and case law making this distinction. Accordingly, lenders cannot presently rely on the county given to them by the consumer on the Application for Title since it is not a sworn statement.

In apparent recognition of this shortcoming, KRS 186A.190(3)(a) has been amended again, effective January 1, 2024. A comparison of the versions is instructive:

Current Language: “Is received by the county clerk in the county in which residence of the debtor resides as determined under the provisions of this section together with the required fees, as designated by the debtor in the sworn statement…”

Language effective January 1, 2024: “Is received by the county clerk, together with the required fees;”

This change will be effective for contracts signed January 1, 2024 and after.

Additionally, the KY DMV has changed the notary block on the Application for Title and Registration. The 1/2023 version of TC 96-182 now reads: “Sworn or attested before me…”. If a dealership uses the new version of the Application for Title referenced above, that too could provide a defense against a bankruptcy trustee. I would like to think the letter I sent to the KY DMV attaching a copy of the decision from Judge Schaaf, detailing the shortcoming in the form had something to do with the change in this form.

Bankruptcy trustees have been taking advantage of this disconnect in the statute for a number of years. Hopefully, that time soon will be at an end.

If you have any questions regarding this change, would like more detail, or to know how it affects your business or have questions about perfecting security interests in other states, please contact Tom Canary at [email protected] or KWA at [email protected]. KWA will keep you abreast of any additional changes and appreciate you consideration of using us for your collection, replevin, bankruptcy, foreclosure, and other legal needs in WV, OH, KY, IN and WI.