Kentucky Hard Money Loan Guide

Kentucky's homeownership rate is higher than the U.S. average at 66%. Like most states, the Bluegrass State has seen ups and downs over the past few years. But Kentucky has stayed more consistent than most. For potential home buyers, the time and paperwork required to finance a home, to buy a house or an investment property, is not as easy as it looks on TV. Many potential buyers find themselves searching for alternative forms of financing a loan. Those willing to put their home or other owned real estate up as collateral on the purchase may find that a hard money loan works well for them. These are not loans offered by big banks and mortgage companies. Instead, they are often funded by individual and small investment groups who are able to move quickly and require less paperwork. It's important to understand what is involved with any kind of home loan, but Kentucky home buyers looking for alternatives might want to consider a hard money loan.

Kentucky Foreclosure Laws

Kentucky is a judicial foreclosure state. For homeowners in Kentucky, any foreclosure process will be managed with what is called a judicial process, which just means that all of it is managed by the courts. Many states allow mortgage companies to manage their foreclosure process outside of the court system, allowing things to move very quickly. All foreclosures in Kentucky must follow a set timeline, provide the same kind of notice to borrowers in jeopardy of losing their homes, and protections for homeowners that are available under the law will be managed by the court system.

Deficiency Judgments

The state of Kentucky does allow for deficiency judgments against a homeowner who loses their property in a foreclosure. This comes into play when the home is sold at auction by the lender and there is not enough money from the sale to cover what is owed by the borrower. That left over amount can be charged to the homeowner in what is called a deficiency judgment. There are some rules about how much they can get if the home is sold for way below the fair market value. But in general, borrowers that lose a home in foreclosure can be charged for the remaining debt.

Deed in Lieu of Foreclosure

Kentucky does allow for this kind of arrangement. Deed in Lieu of foreclosure is a special agreement that both the borrower and lender can agree to, where the homeowner in default gives up possession of the home to the mortgage company. It eliminates the need for courts, filings and the whole foreclosure process – saving both sides time and money. It is also possible to negotiate an agreement that assures the homeowner that they will not get hit with a deficiency judgment. This kind of arrangement is also sometimes called "cash for keys" because some mortgage lenders will offer a small cash payment to help with the unexpected costs of moving out of the home.

Grace Period Notice

Kentucky does not have a built-in grace period for all home loans. Some states do provide a set amount of time for homeowners who fall behind to catch up, but not Kentucky. That said, most lenders do build in a general waiting period before filing foreclosure paperwork. The reality is that the first day of a missed payment, the borrower is technically in default. Kentucky foreclosures happen through the court system and they do have a 20 day period of time between filing and action taken, so that can serve as a sort of grace period when the borrower might be able to negotiate a settlement or payment arrangement to catch up and avoid losing the home. But overall, there is no official grace period in Kentucky.

Protections for Military Service Members

Some states offer special protections against foreclosure for military personnel. There are federal protections, but Kentucky does not have separate programs for this kind of protection. However, the federal Servicemembers Civil Relief Act protections do extend to Kentucky National Guard service members who are ordered to active duty by the Governor for a period of 30 days or more. Ky. Rev. Stat. Ann. § 38.510

High Risk Mortgage Protections

A high risk mortgage is one that has a particularly high interest rate or was provided as a "sub-prime" mortgage to buyers with a negative credit history. In Kentucky, while there is no grace period across the board to help homeowners delay foreclosure proceedings, for a chance to catch up, there is one for high risk mortgage holders. Before foreclosing a high-cost home loan in Kentucky, the foreclosing party must provide a notice of default to the borrower that gives them 30 days to try and cure the default and hopefully, reinstate the mortgage. Ky. Rev. Stat. Ann. § 360.100.

Additional State Laws

The maximum interest rate allowed by law is 8%. The maximum legal interest rate in Kentucky is 8% unless there's an agreement otherwise. Even then, parties can't agree to a rate more than 4% above the discount rate of the Federal Reserve Bank or 19%, whichever is less, for a principal amount of $15,000 or less, or any rate for a loan of $15,000 or more as provided by the contract.

Kentucky is a homestead state. Similar to other state homestead laws, the Bluegrass State's homestead statute places a limit on the value of property that can be designated as a homestead at $5,000. Debtors are also allowed to protect $3,000 of personal property.

Lender Licensing Requirements

The Department of Financial Institutions (OFI) of the Public Protection Cabinet in Kentucky is responsible for all supervision and regulation of the Mortgage Broker License in the Kentucky. All Kentucky mortgage licenses are handled through the National Mortgage Licensing System.

Legal Issues with Hard Money Loans in Kentucky

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