Request By:
Mr. Gary L. Colley
Denham, Nagle and Colley
2201-1/2 Cumberland Avenue
Box 398
Middlesboro, Kentucky 40965
Opinion
Opinion By: Steven L. Beshear, Attorney General; Elizabeth E. Blackford, Assistant Attorney General
You have asked whether a bank which does not hold a first mortgage on a piece of real property may lend the property owner an amount less than $15,000 pursuant to KRS 287.215 if the bank secures that loan by way of a second mortgage on the property. If so, you have asked whether the bank may charge an attorney's fee for examination of the title pursuant to an examination fee schedule based upon a percentage of the amount loaned.
KRS 287.215(5) prohibits the securing of a loan thereunder by way of a first lien or first mortgage upon real property. There is no prohibition against making a loan pursuant to KRS 287.215 which is secured by a second mortgage on real property if the bank has no other outstanding loan to that person which is secured by a first mortgage on the property. Cf., OAG 74-304, copy enclosed. Therefore, our office is of the opinion, under the circumstances you have described, the bank may make the loan without violating KRS 287.215(5) or (6).
However, in making such a loan the bank could not charge an attorney's fee pursuant to a standard examination fee schedule which is based upon a percentage of the amount loaned if that fee is in excess of the investigation fee provided for in KRS 287.215(2) without being in violation of that subsection and thus subject to the penalty of KRS 287.215(1). KRS 287.215(2) provides:
"(2) In addition to the charge permitted by this section, no further amount shall be directly or indirectly charged, contracted for, or received on any such installment loan, except lawful fees actually paid to a public officer for filing, recording, or releasing any instrument securing the loan and delinquent charges as hereinafter set out, and except an investigation fee not exceeding one dollar ($1.00) for each fifty dollars ($50.00) or fraction thereof upon the first eight hundred dollars ($800) of the principal amount of such loans."
Obviously, the title examination fee is not a permissible charge other than as it may be deemed an investigation fee. Therefore, any charge for a title examination which exceeds or is made in addition to the investigation fee is not permitted.