Statutory Lien Priority in Kentucky With One Exception

When determining the priority of liens affecting real property, Kentucky is a race-notice state. KRS 382.280 is the controlling statute. It provides that: "all bona fide deeds of trusts or mortgages shall take effect in the order that they are legally acknowledged or proved AND lodged for record." (emphasis added). This statute provides for an orderly system that gives notice to those who seek to secure a subsequent interest in real property. It also provides for a sequential method for payment of debts.

However, there is an exception, the Doctrine of Equitable Subrogation. This doctrine is detailed in Kentucky Legal Systems Corp v. Dunn, 205 S.W.3d 235 (Ky. App. 2006). In the case, the Court held that a purchase money lien is superior to a prior judgment lien. It doesn't matter if the mortgagee had knowledge of the lien or failed to search for said lien. Id. at 237. The reasoning behind this holding is practical and fair. "Without this advance of money, the purchaser-mortgagor would never have received the property and the other claimants would never have had the opportunity to satisfy their claims from such a convenient source." Id., quoting Restatement (Third) of Property, Mortgages, Sec. 7.2 (1997).