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U.S. Bank National Ass'n v. Tax Ease Lien Investments 1, LLC
Citations: 356 S.W.3d 770; 2011 WL 5599687; 2011 Ky. App. LEXIS 227Docket: No. 2011-CA-000472-MR
Court: Court of Appeals of Kentucky; November 18, 2011; Kentucky; State Appellate Court
U.S. Bank National Association appeals a Caldwell Circuit Court Order approving a Master Commissioner's recommended distribution of funds from the sale of a real property parcel. U.S. Bank contends the trial court improperly prioritized liens held by the City of Princeton and Caldwell County over those held by other lien holders, advocating for a pro rata distribution among all lien holders. The court determined Kentucky Revised Statutes (KRS) Chapter 134 grants equal priority to all liens from unpaid ad valorem taxes, leading to a reversal and remand of the Order. The facts include the City and County assessing taxes on the property, which went unpaid from 2001, resulting in delinquency certificates. Tax Ease Lien Investments acquired certificates for 2001, 2004, and 2006, while U.S. Bank obtained the 2005 certificate. In 2009, Tax Ease initiated a civil action to collect its liens, naming U.S. Bank as a defendant. The circuit court issued a Default Judgment and Order of Sale in 2010, with the property selling for $5,500, insufficient to cover all liens. The Master Commissioner proposed a distribution where the City and County received full payment of their liens ($685.60 and $506.14, respectively), and the remaining proceeds were split pro rata among Tax Ease, U.S. Bank, and Southern Tax Services. U.S. Bank and Tax Ease's motions to amend the Order for equal distribution were denied, with the court favoring the Master Commissioner's distribution. U.S. Bank argues that KRS 134.420(3) indicates all liens from unpaid ad valorem taxes have equal priority, regardless of the holder, and that the statute should not imply a hierarchy between municipal liens and those of third-party purchasers. U.S. Bank asserts that its lien from the purchase of a 2005 certificate of delinquency is equal in rank to those held by the City of Princeton and Caldwell County, citing KRS 426.690 and the case Flag Drilling Company, Inc. v. Erco, Inc. U.S. Bank contends that the circuit court erred by not recognizing this equality. The statutory framework prioritizes liens from unpaid ad valorem taxes, as stated in KRS 134.420(1), which grants a lien for 11 years post-delinquency, and KRS 134.420(3), asserting that such liens take precedence over all other obligations. The court concluded that third-party purchasers of certificates of delinquency can exercise the same priority as municipalities, reinforcing that the lien's priority is inherent to the lien itself, not the holder. This is supported by KRS 134.546(2), allowing third-party purchasers to enforce the lien, and KRS 134.546(5), which mandates pro rata distribution among all lien holders if no purchaser appears at a foreclosure sale. The court highlighted that both municipalities and third parties hold equivalent rights in enforcing ad valorem liens, as confirmed by the Flag Drilling case. Consequently, the court reversed the Caldwell Circuit Court's order and directed for a pro rata distribution of the proceeds.