Smith v. Apex Fund Services (2025)
Citation: No. 2023-SC-0336-DG · Court: Supreme Court of Kentucky · Decided: October 23, 2025
A recent kentucky decision holding that when foreclosure-sale proceeds are insufficient to pay all competing property-tax lienholders in full, they share the proceeds pro rata as equal-rank claims — not on a “first in time, first in right” priority basis.
Facts
After the owners of a parcel on North Highway 421 in Manchester (Clay County), Kentucky died, no one paid the property taxes, and multiple certificates of delinquency issued for successive years’ unpaid taxes. The parcel later sold for only $2,500 at a master commissioner’s foreclosure auction — not enough to satisfy every tax lien. Three sets of lienholders claimed the proceeds: Keith and Jessica Smith, Apex Fund Services (as custodian for Ceres Tax Receivables, a third-party certificate purchaser), and the Commonwealth of Kentucky / Clay County. Each held one or more certificates of delinquency (tax liens). The question was how to divide the insufficient proceeds among them.
Holding
The Supreme Court of Kentucky held that where foreclosure-sale proceeds are insufficient to pay all property-tax lienholders in full, the liens of the state, county, city, and third-party certificate purchasers are of equal rank and share the proceeds pro rata — affirming the Court of Appeals (No. 2022-CA-1495-MR). Priority is not determined by the order in which the certificates/liens were filed or recorded; “first in time, first in right” does not govern as among competing property-tax liens.
Reasoning
- Under Kentucky’s delinquent-tax framework (KRS Chapter 134), a third-party purchaser of a certificate of delinquency steps into a tax lien that is of the same character and rank as the governmental tax liens, rather than acquiring a superior priority by virtue of purchase or filing order.
- Because the competing claims are all property-tax liens of equal rank, the ordinary recording-priority rule does not apply; equal-rank claims that cannot all be paid in full are satisfied ratably (pro rata).
- Pro rata distribution among equal-rank tax lienholders is the rule for insufficient proceeds, governing how the fund is allocated before any surplus question arises.
Practical impact
- For investors/operators: A Kentucky third-party certificate-of-delinquency holder does not gain priority over the state/county or other certificate holders by buying or filing first. In an underwater foreclosure, expect a pro rata share, not full recovery ahead of others. Model recovery accordingly. See tax-sale-mechanics and lien-priority-waterfall-reading.
- For former owners / surplus: This case governs distribution of the sale fund among lienholders; only after equal-rank tax liens are satisfied (pro rata when short) can any surplus-funds remain for the former owner. It thus frames who reaches any surplus under tyler-v-hennepin-county.
Good-law status
Good law as of last_verified 2026-06-02 — a 2025 decision of Kentucky’s highest court; not yet subject to any overruling or modification. Verified via the Justia and FindLaw opinion postings, the Kentucky Supreme Court’s discretionary-review docket (No. 2023-SC-0336-DG), and Kentucky Educational Television’s official argument coverage; the full opinion text was confirmed available but not retrieved line-by-line (Cloudflare-gated mirrors). Holding corroborated across these sources and the affirmed Court of Appeals decision (No. 2022-CA-1495-MR).
Why it matters
Smith v. Apex settles a recurring Kentucky distribution question: competing property-tax liens — including those bought by third-party investors — rank equally and split short proceeds pro rata, dictating both investor recovery and what is left for any surplus-funds claim.
Related authorities
- tyler-v-hennepin-county — former owner’s right to surplus equity above the debt.
- farmers-national-bank-v-commonwealth-2015 — Kentucky certificate-of-delinquency framework (third-party purchasers hold an assignable chose in action).
Applies in →
Legal information, not legal advice. This page summarizes a court decision for educational purposes and does not create an attorney-client relationship. Verify against the primary opinion and consult a licensed attorney in the relevant jurisdiction before acting. Last verified 2026-06-02.