Dealing With An Uncooperative County Clerk In Kentucky

  • November 27, 2018

Having a county clerk reject a document that needs to be recorded to have legal effect is an all-too-familiar circumstance for many Kentucky attorneys.  Being unable to record a deed, mortgage, or power of attorney can be both frustrating and have detrimental legal consequences.

In such circumstances, the first and most logical step is to see if the issues raised by the county clerk can be quickly addressed to the clerk’s satisfaction, which is the simplest and most cost-effective solution, regardless of whether you agree with the clerk’s rationale or interpretation of a particular statute. This is true even if it requires the inconvenience of asking a client to re-sign a seemingly simple document after some minor revisions to satisfy the county clerk.

However, sometimes a scenario will present itself where altering the document to meet the county clerk’s demands is impossible.  Brendan Shevlin of Wallingford Law successfully represented a loan servicer on appeal before the Kentucky Court of Appeals who could not get a county clerk to recognize and record its power of attorney in just such a situation.

Select Portfolio Servicing, Inc. v. Blevins, 494 S.W.3d 510 (Ky. Ct. App. 2016) involved a limited power of attorney in a format commonly used within the mortgage loan servicing industry.  Modern mortgage lending is heavily reliant on the packaging of individual mortgage loans into mortgage-backed securitized trusts, which are overseen by trustees who outsource the day-to-day management of the loans to “loan servicers,” who oversee the individual mortgage loan accounts, including keeping payment records and recording important documents related to the mortgages they service.

Much like the relationship between general contractors and subcontractors in construction, the loan servicing on mortgage loans held in mortgage-backed securitized trusts frequently involves a “master servicer” that has contractual ties directly with the trustee for said trusts, who hires a “subservicer” to perform the actual day-to-day management of the loans held in the trust.  Blevins involved a document that included two powers of attorney, one of which was a power of attorney from the trustee to the master servicer that included authority for the master servicer to execute its own separate powers of attorney to subservicers (passing on the trustee’s authority to the subservicer), and the other was just such a power of attorney from master servicer to subservicer.  The Fayette County Clerk refused to record the “piggy back” power of attorney, demanding any power of attorney attempting to pass authority from the trustee to the subservicer had to be done via a single power of attorney between only the trustee and the subservicer, despite not being able to identify any specific Kentucky statute that prohibited the rejected power of attorney, and despite the inability of Wallingford Law’s client to acquire the power of attorney demanded.

The subservicer (Select Portfolio Servicing, Inc.) filed a declaratory judgment action in Fayette Circuit Court seeking to compel the Fayette County Clerk to recognize and record the “piggy-back” power of attorney, but the trial court refused to order the Fayette County Clerk to record it, finding that the clerk’s suggested single power of attorney was more appropriate to pass authority between the trustee and the subservicer, leading to an appeal to the Kentucky Court of Appeals. Id. at 511-12.

On appeal, the Kentucky Court of Appeals reversed the Fayette Circuit Court, and found that powers of attorney in Kentucky were predominantly governed by agency principles rather than statutes (which has changed somewhat with Kentucky’s subsequent adoption of the Uniform Power of Attorney Act[1]https://www.wallingfordlaw.com/uncategorized/287), and that nothing in Kentucky agency law prohibited recording the “piggy-back” powers of attorney common to the master servicer-subservicer relationship. Id. at 514-15.  The Blevins Court went further to hold that both the “piggy-back” powers of attorney themselves, and any documents executed pursuant to such a power of attorney, were recordable under Kentucky law. Id. at 515.

Even after emerging victorious on appeal, the struggle with the Fayette County Clerk continued, as the Fayette County Clerk still refused to record the “piggy-back” power of attorney as a single document, instead claiming, despite Blevins, that it had to be recorded as two (2) separate powers of attorney.  Because the Fayette County Clerk persisted in its refusal, a Motion for Contempt in Fayette Circuit Court was eventually required before finally getting the county clerk to comply with Blevins and record the “piggy-back” power of attorney that was the basis of the appeal “as is.”

Looking back, there are a number of lessons to be gleaned from the experience.  First, as noted at the outset, a pre-litigation compromise with the county clerk that would have resulted in the recording of the “piggy-back” power of attorney would have been vastly preferable to the time, expense, and acrimony involved with litigation and a subsequent appeal against the local county clerk.  Keep in mind you will have to deal with the same county clerk on new matters after the case is over, so exhaust all possibilities before resigning yourself to a lawsuit.

Second, before filing suit, invest the time to research whether the law is on your side.  On the whole, the county clerks know the recording statutes and requirements very well, so make sure your legal position is sound before you take the drastic step of suing the county clerk, as losing such a case will only make things worse.

Third, be aware the local county clerk is likely relying on a statewide manual created by the Kentucky County Clerks Association regarding how to handle the recording of particular document types.  Some county clerks will be willing to send you the relevant pages out of the manual to make it easier for both you and the clerk to get the document properly recorded.

Fourth, consider whether the conflict with the clerk is being partially or mostly driven by recording fees, or more precisely, the lack thereof.  Kentucky county clerks participated in two (2) separate federal actions (one involving a class action of 41 of Kentucky’s 120 county clerks) in recent years in which the county clerks attempted to recoup recording fees purportedly avoided by a company that electronically tracked ownership of mortgages internally and outside of the county clerks’ offices. See Christian Cty. Clerk v. Mortg. Elec. Registration Sys., 515 F. App’x 451 (6th Cir. 2013)(Unpublished) & Boyd Cnty. ex rel. Hedrick v. Merscorp, Inc., 614 F. App’x 818 (6th Cir. 2015)(Unpublished).  So, a resolution may be as simple as agreeing to a higher recording fee.

Finally, at least if the document or issue is important enough to involve the courts, Blevins is a reminder that Kentucky law ultimately prevails over the preferences and whims of the local county clerk, the guidelines in the Kentucky County Clerks Association manual, or customs or local practices that have developed over time that conflict with the underlying statutes or case law.

For more information about the contents of this article, please contact Brendan Shevlin at (859) 219-0066 or [email protected].

[1] In 2018, Kentucky enacted legislation adopting provisions of the Uniform Power of Attorney Act, creating a new statutory governance structure under KRS Chapter 457.