Kentucky Supreme Court decision in Hall v. MERS reduces likelihood that lenders will owe statutory damages for human errors in the process of releasing satisfied mortgages.
On June 21, 2012, the Kentucky Supreme Court issued its first decision interpreting KRS 382.365 concerning a mortgagee’s responsibility for releasing of record a satisfied mortgage. Among other issues, the case involved the extent to which the lender will be exposed to statutory damages when human error kept the lender from releasing of record its satisfied mortgage. M&P filed an amicus curiae brief on behalf of a major mortgage lender in Kentucky, and the Kentucky Supreme Court adopted the interpretation of KRS 382.365 set out in M&P’s brief.
The case involved an error in a mortgage release which the lender had promptly recorded after the loan was repaid. However, because of human error, the mortgage release incorrectly referred to the book and page number of the owner’s deed instead of the lender’s mortgage. The problem was compounded when the notice from the property owner’s attorney simply stated that “the mortgage has not been released of record.” The lender read this letter and took no action since it had recorded a mortgage release.
KRS 382.365 imposes significant statutory damages (up to $500/day) if a mortgage lender fails to release a mortgage after receiving a written notice of failure to release its lien. However, KRS 382.365 excuses the lender if it can show “good cause” as for why the lien was not release of record. In this case, the borrower argued that “good cause” can never include human error by the lender. M&P argued that this was an incorrect interpretation of the statute.
The Kentucky Supreme Court agreed with M&P’s argument, and the Court decided that “in certain circumstances, human error can form the basis upon which ‘good cause’ exists for failure to timely release a lien.” The Court decided that “good cause” is “to be made on a case-by-case basis, under the totality of the circumstances.” It further held that the existence of “good cause” is required by the statute to be decided by the judge. It is not a jury issue. After considering all of the circumstances in the case involving MERS, the Supreme Court held that “good cause” existed and no statutory damages were owed.
M&P stresses that all mortgage lenders should strive to promptly and correctly release satisfied mortgages and have in place effective systems to deal with customer complaints about unreleased mortgages. But when those systems fail for reasons where the lender can show “good cause”, the Hall v. MERS case reduces the likelihood that the lender will owe statutory damages.