The Impact of Kentucky Master Commissioner Sale Cancellations on Loan Servicers

In today’s installment of the MDK News Break, we take a closer look at the recent increase in cancellations of Kentucky Master Commissioner (MC) sales, often stemming from servicer delays in calculating an opening bid ahead of a scheduled sale. These delays can lead to cancellations and rescheduling, creating operational, financial, and legal challenges for Plaintiff’s loan servicers.

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Understanding the Financial Impact of Sale Cancellations

Beyond the obvious timeline disruptions that cancellations cause, loan servicers must also consider the potential costs incurred. These costs may not be recoverable under the terms of the loan documents, further complicating the situation.

As highlighted in Senior Attorney Chris Wiley’s September 9, 2019, article, “Consider Master Commissioner Fees When Choosing to Cancel a Sale in Kentucky,” the financial implications of canceling an MC sale in Kentucky can be considerably higher than in other jurisdictions. This is particularly true when factoring in the property value provided by the Master Commissioner prior to the sale and the timing of the cancellation. Since property values have significantly increased since the publication of that article, cancellation fees have also risen accordingly.

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Borrower-Led Litigation: A Growing Risk

While it has traditionally been uncommon for borrowers to seek a quick Master Commissioner sale, this trend has become more frequent as housing prices have risen. Recently, MDK encountered a case where the borrower wanted an expedited MC sale. However, after the sale was canceled due to the loan servicer’s failure to provide a timely bid, the borrower filed litigation against the plaintiff. The borrower contested not only the cancellation of the sale but also argued that any associated cancellation fees (approximately $5,000) should not be included in the plaintiff’s total debt.

The borrower’s desire for a prompt sale stems from the fact that, for those who do not plan to retain the property, an expedited MC sale can help mitigate liability and holding costs. It also prevents the total debt from growing, which could erode the property’s equity. In many instances, any surplus proceeds from the sale, after the plaintiff’s debt has been satisfied, is payable directly to the borrower. Therefore, any increase in the total debt directly reduces the amount of cash the borrower-owner is entitled to following the sale.

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The Importance of Timely Appraisals and Bid Instructions

Aside from an active bankruptcy filing, which typically necessitates cancellation, the most common reason for a Master Commissioner sale cancellation is the absence of an appraisal needed to calculate the plaintiff’s opening bid, particularly for government-insured loans. While servicers may have differing procedures regarding the timing of appraisal orders to comply with insuring requirements, it is advisable for servicers to review these procedures and ensure they align with current rules and provide the servicer ample time to obtain any documentation needed to calculate proper bidding instructions. Given the evolving housing market and the potential for increased litigation, timely appraisals are critical to avoiding unnecessary cancellations and associated costs and risks.

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Key Takeaways

• Timely preparation is critical. Servicers must ensure appraisals and bid instructions are submitted well in advance to avoid unnecessary cancellations of Kentucky Master Commissioner Sales.

• Cancellation costs are rising. Due to increased property values, fees associated with canceled sales have also increased—and may not be recoverable under loan documents.

• Legal exposure is growing. Borrowers are more frequently seeking expedited sales and may pursue litigation when delays or cancellations occur.

• Equity and borrower impact matter. Delays can reduce a borrower’s surplus recovery from the sale, especially when debt increases due to additional costs.

• Review internal processes. Servicers should assess and update internal timelines and procedures to better align with current requirements and mitigate risk.

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