3.4 Kentucky Closing Procedures
Key Takeaways
- Kentucky closings are commonly handled by real estate attorneys or title companies, which also issue title insurance.
- The federal TRID rule requires the Closing Disclosure to reach the buyer at least three business days before consummation; major changes restart the three-day clock.
- Kentucky property taxes are paid in arrears, so they are prorated with a credit to the buyer (debit to seller) for the seller's days of ownership.
- Kentucky's real estate transfer tax is $0.50 per $500 of consideration (KRS 142.050), collected by the county clerk and customarily paid by the seller.
- Recording the deed in the county clerk's office gives constructive notice and establishes lien priority; first to record generally prevails.
Who Closes and the TRID Timeline
In Kentucky, closings (also called settlements) are typically conducted by a real estate attorney or a title company; the lender's closing agent coordinates financed deals. The closing entity also issues title insurance after the title search.
The federal TILA-RESPA Integrated Disclosure (TRID) rule governs timing for most consumer mortgages:
| Document | Trigger | Deadline |
|---|---|---|
| Loan Estimate (LE) | Application received | Within 3 business days of application |
| Closing Disclosure (CD) | Before closing | At least 3 business days before consummation |
The CD replaced the old HUD-1 Settlement Statement for most residential loans (the HUD-1 survives for certain reverse and cash transactions). Three categories of change restart the 3-day clock: a change in the loan's APR beyond tolerance, a change in the loan product, or the addition of a prepayment penalty. Minor fee changes do not restart it.
Documents at the table
| Party | Key documents |
|---|---|
| Buyer/borrower | Closing Disclosure, promissory note, mortgage or deed of trust |
| Seller | Deed, seller's affidavit (no liens/possession issues), payoff statements |
| Both | Settlement statement reconciling debits and credits |
A final walkthrough usually occurs the day before or morning of closing so the buyer can verify the property's condition and that agreed repairs were completed.
Prorations: Kentucky Taxes Are Paid in Arrears
Proration divides shared expenses fairly as of the closing date. Kentucky property taxes are paid in arrears — the bill for a tax year is paid late in that same year or the next, after the period it covers. Because the seller has enjoyed the property for part of the unpaid period, the seller owes that share: at closing the seller is debited and the buyer is credited for the seller's days of ownership, and the buyer later pays the full bill.
| Method | Convention |
|---|---|
| 365-day method | Uses actual days in the year/month (more exact) |
| 360-day (banker's) method | 30 days per month, 360-day year |
Worked proration
Annual taxes are $2,400; closing is April 1 using the 360-day method. The seller owned Jan–Mar = 3 months = 90 days. Daily rate = $2,400 ÷ 360 = $6.667/day. Seller's share = 90 × $6.667 = $600. The seller is debited $600 and the buyer is credited $600, because the buyer will pay the entire $2,400 bill when it comes due.
Title Insurance
| Policy | Insures | Who usually pays |
|---|---|---|
| Owner's policy | The buyer's equity | Often the seller in Kentucky (negotiable) |
| Lender's (mortgagee) policy | The lender's lien | The buyer/borrower |
Title insurance is a one-time premium paid at closing that protects against past, undiscovered defects — forgery, undisclosed heirs, recording errors, prior liens. It does not cover future events or defects the buyer already knew about and accepted.
Recording and Kentucky Transfer Tax
After signing and funding, the deed is recorded in the county clerk's office where the property sits. Recording gives constructive notice and sets priority — the first instrument recorded generally prevails over later-recorded claims, protecting the buyer against a subsequent purchaser.
Kentucky levies a real estate transfer tax under KRS 142.050 at $0.50 per $500 of consideration (equivalently $1.00 per $1,000), collected by the county clerk as a condition of recording. It is customarily paid by the seller but is negotiable; transfers for consideration of $100 or less and certain exempt transfers (gifts, between spouses, government) are not taxed.
| Sale price | Transfer tax at $0.50/$500 |
|---|---|
| $200,000 | $200.00 |
| $300,000 | $300.00 |
| $450,000 | $450.00 |
Worked example: a $300,000 sale → $300,000 ÷ $500 = 600 increments × $0.50 = $300 transfer tax, typically debited to the seller on the settlement statement.
Debits and credits on the settlement statement
The settlement statement is a ledger of debits (charges) and credits (money received) for each party. Mastering who is debited and who is credited is a heavily tested skill:
- The purchase price is a debit to the buyer and a credit to the seller.
- Earnest money already on deposit is a credit to the buyer, reducing cash needed at closing.
- The loan amount is a credit to the buyer (the lender brings those funds).
- The seller's mortgage payoff and any liens are debits to the seller.
- Prorated taxes paid in arrears are a debit to the seller and a credit to the buyer.
Final-walkthrough and funding sequence
Kentucky closings generally follow a fixed order: clear-to-close from the lender, delivery of the Closing Disclosure three business days out, the buyer's final walkthrough, signing of the note and security instrument, disbursement of funds to the seller and lienholders, and then recording of the deed and mortgage. Only after recording is the buyer fully protected against an intervening claim. Agents should remind clients to bring a government photo ID and certified or wired funds — personal checks for large sums are generally not accepted at the closing table — so the funding step is not delayed.
How many business days before consummation must the buyer receive the Closing Disclosure under TRID?
On a $400,000 Kentucky sale, how much is the state real estate transfer tax under KRS 142.050?