May 17, 1994
Mr. Thomas G. Fern, State Director
Farmers Home Administration
771 Corporate Drive
Lexington, Kentucky 40503-5477
Re: Whether County Clerk is Required to Allow Entry, in Margin of Previously Recorded Mortgage, a "Memorandum" of the Extension Thereof.
Dear Mr. Fern:
By letter of February 18, 1993, James Dunsmore, then acting state director for the Farmers Home Administration (FmHA), asked that this office provide an opinion concerning whether the Warren and Simpson County Clerks are required to allow a memorandum of the extension of a mortgage to be inscribed into the margin of a previously recorded mortgage as called for by Kentucky Revised Statutes (KRS) 413.100.
In our view, reading the statutes pertaining to recordation of instruments related to a mortgage as a whole, a county clerk, or deputy thereof, is not required to allow entry into the margin of a mortgage, a memorandum concerning the extension thereof. The object and legislative intent of KRS 413.100, we believe, is met by the parties to an extension of a mortgage lodging their extension agreement for record with the county clerk, and the clerk's entry of a copy of the mortgage extension agreement into the appropriate record book for such instruments in the clerk's office. These actions, we believe, provide constructive notice of the extension of a mortgage so as to extend or prolong the time within which a lien may be enforced as against purchasers or creditors. Discussion follows.
Statute In Question
KRS 413.100 provides, in part pertinent here:
No promise, acknowledgement or payment of money by any person bound on any bond or obligation for the payment of money secured by a lien shall operate as a prolongation or extension of the time within which the lien may be enforced as against purchasers or creditors, unless the promisor and the holder of the lien, before fifteen (15) years after the maturity of the debt, enters a memorandum on the margin of the record of the deed or mortgage, attested by the clerk, showing that the debt is extended, for what time it is extended and the amount still due thereon.
Farmers Home Administration (FmHA) Concerns
Mr. Dunsmore's letter explained that the Kentucky FmHA state office has advised its county offices to make a notation in the margin of the record, when extending the terms of a note more than 15 years past the original maturity of a debt secured by a real estate mortgage, because the statutory language seemed clear that the proper method of notice to third parties is by notation on the margin of the record.
His letter further explained that the Warren and Simpson County Clerks have informed the local FmHA supervisor that they do not allow marginal notations, and that in response to this position, several local banks have drafted "Extension and Modification Agreements" to be filed in the real estate records.
The FmHA State Office, Mr. Dunsmore also indicated, does not believe the use of an extension or modification form is appropriate in light of the clear language of KRS 413.100. A person relying upon the statute, according to Mr. Dunsmore's letter, would be searching for notations of extensions in the margin of the record and not for an agreement filed in the real estate records. Accordingly, Mr. Dunsmore's letter indicates, a lender would not be able to rely upon the theory of constructive notice in the case of an agreement filed in the real estate records as required by the Warren and Simpson County Clerks.
Accepted Practice in Recording Extensions of Mortgages
The question presented here affects not only future recordations of extensions of mortgages in the 120 counties, but also apparent thousands of such recordations that are understood to have been carried out in the past.
At bottom, in our view, the question here is whether the entry of a memorandum of an extension of a mortgage, on the margin of a mortgage, in literal compliance with the letter of KRS 413.100, is the only lawfully effective means of providing constructive notice of the extension of a mortgage, so as to prolong the time within which a lien may be enforced as against purchasers or creditors.
Because of the potentially broad impact of the question here involved, and because it is alleged that the county clerks of two counties (Simpson and Warren) have refused to make certain notations in the margin of mortgages as called for by KRS 413.100, we checked with county clerks in a number of counties, as well as attorneys involved on a daily basis with recordation of instruments related to real estate, and with what are commonly called "title searches," to determine the actual practice followed in connection with recordation of an extension of a mortgage.
KRS 413.100 (see above) calls for a "memorandum" to be entered by the promisor and the holder of a lien, on the margin of the record of a related deed or mortgage, and for such memorandum to be attested by the clerk. The "memorandum" is to show that the debt is extended, for what time it is extended, and the amount still due thereon.
The current language of KRS 413.100 was added by amendment in 1918. This was well before the days of electrostatic copiers, which allow a copy of an original instrument to be made, such that the image of an actual instrument may be entered into the record, obviating the need to make a "memorandum" of the basic elements of an agreement or contract (e.g., an extension of a mortgage) in the margin of a previously recorded mortgage. KRS 413.100, however, has not been amended to address current practice in view of technological change. It might be said that the precise mechanism of "notice" called for by KRS 413.100 has fallen into desuetude, that is, such precise mechanism of notice has become obsolete.
From our queries it appears that KRS 413.100 is universally not followed.
We understand that, while the specific procedures for recording extensions of mortgages differ from county to county, the well established and recognized practice, in all counties, which has been followed for at least twenty years in connection with recordation of extensions of mortgages, is to "record" the image of the actual extension agreement between the borrower and lender. This is done by the clerk's making of an electrostatic copy of the actual instrument, and placing the copy in the appropriate book (deed or mortgage) as determined in accordance with the practice of a given county, and by the making of a corresponding entry in the grantee and grantor indexes (see, for example, KRS 382.200).
In some counties, it is our understanding, the clerk makes a "summary" notation on the margin of a mortgage indicating the book and page where the copy of the extension agreement may be viewed. In other counties, again according to our understanding, no notation is made in the margin of a mortgage concerning the recording of an extension agreement.
That the recording of a separate extension instrument can be properly viewed as accepted practice is evidenced, in part, by commentary in a handbook entitled Kentucky Real Estate Law and Practice, University of Kentucky College of Law, Office of Continuing Legal Education (1990). In volume II, chapter 11 of the handbook, entitled "Mortgages," authored by Michael B. Vincenti, Esq., it is pointed out that:
Kentucky law expressly provides that a mortgage will secure all renewals and extensions of the secured debt. KRS 382.520(1). While nothing requires an extension agreement to be recorded, the better practice is to record a simple extension agreement since the maturity date has changed. Cf. KRS 382.330.
(Id., p. 11-27.)
Concerns Expressed by County Clerks
Several points were made by various clerks and deputies contacted in connection with the research incident to this opinion, regarding why the letter of KRS 413.100 is not followed in connection with recordation of an extension or modification agreement regarding a mortgage. Among these were that it is simply not feasible for a debtor and lender to personally appear, and have a clerk or deputy copy into the margin of a mortgage the various information elements that would be necessary, in order to comply with the letter of KRS 413.100. For example, a clerk (or deputy thereof) would have to inscribe in the margin of a mortgage, the date, the names of the parties, the time the mortgage is extended, the amount due thereon, and the clerk's attestation. In many instances, it is understood, this is not practically achievable because of limited margin space. Of additional concern, as expressed by the clerks, was that, depending upon the timing of microfilming, entries made in the margin of a mortgage would not be captured on such film.
KRS 446.080(1) provides:
All statutes of this state shall be liberally construed with a view to promote their objects and carry out the intent of the legislature, and the rule that statutes in derogation of the common law are to be strictly construed shall not apply to the statutes of this state.
We believe the clear object and legislative intent embodied in KRS 413.100 is to ensure that constructive notice of the fact of an extension of a mortgage is formally recorded in the office of the county clerk. In our view the legislative object and purpose is not, as such, to require compliance with the technical provisions of the statute. In our view, the object and intent of the legislature embodied in KRS 413.100 is satisfied by the recordation of the image of the actual agreement of extension. KRS 446.080(1).
We note also that it is well recognized that in order to determine whether there are encumberances upon property, which would, of course, include an extension of a mortgage, one must review the required indexes maintained by the county clerk (KRS 382.200 et seq.). Such a review would lead one not only to a mortgage bearing upon a given property, but also to an extension of a mortgage.
In Newboldt v. Board of Education of Berea Ind. Sch. Dist., Ky., 409 S.W.2d 513, 514 (1966), the court observed:
It is an established rule of statute construction that the courts will consider the purpose which the statute is intended to accomplish and will not give a strict, literal construction to the statute if it would lead to an unreasonable or absurd conclusion. [Citations omitted.]
Given the long established, universally recognized practice described above, and the thousands of recordations that have taken place under such universal practice, it would be unreasonable and absurd (Newboldt, above) to suggest that a clerk must now begin allowing a memorandum of the extension of a mortgage to be placed in the margin of a mortgage by a borrower and lender. Such a view would also have the absurd and unreasonable result of casting in doubt the effectiveness of thousands of prior recordations of extensions carried out under accepted procedure.
We believe the better view, reading the statutes regarding recordation of instruments related to real estate as a whole, is that a county clerk is not required to allow parties to enter notations in the margin of a mortgage as called for by KRS 413.100. The legislative intent in providing for notations in the margin of a mortgage is fully satisfied by the lodging with the county clerk for recordation, an instrument having the same information elements as are called for by KRS 413.100, together with any general requirements concerning recordation of legal instruments, and the entry of a copy of such instrument in the proper record book.
Should a question be raised about the "recordability" of a "extension agreement," we note that such an agreement, in and of itself, has the attributes of a mortgage. Accordingly, although styled as an "extension agreement" or "modification agreement," such an instrument, in our view, is recordable as a mortgage. Whether in terms of common usage of language, or as a technical term of the law (KRS 446.080(4)), a "mortgage" is an instrument pledging real property to a creditor as security for payment of a debt. In our view an extension of a mortgage, or substantially similar agreement, meets such definition. Assuming that a given extension of a mortgage meets general requirements for recordation of a mortgage (see, for example, KRS 382.270 and 382.330), an extension of a mortgage may be recorded on the same basis as a mortgage.
In order to eliminate doubt, in circumstances such as are involved here, where practices are affected by changes in technology, the statutes should be amended to accommodate accepted modern practices. As noted in Kentucky Real Estate Law and Practice (above), in Volume II, chapter 15, p. 15-38, "Recordation," authored by Ewing Hardy, Jr., and Jonathan C. Hardy:
The recording of instruments affecting real property is the subject of sometimes inconsistent legislation enacted piecemeal over many years. The general purpose is to establish a system of notice and protection for innocent parties who are without notice.
Should your agency question the efficacy of the views expressed here, the agency may want to file a declaratory judgment or other action to have the matter judicially determined.
Gerard R. Gerhard
Assistant Attorney General