• Kentucky Banks Must Reassess Notary Procedures
  • August 8, 2011 | Author: Richard A. Vance
  • Law Firm: Stites & Harbison, PLLC - Louisville Office
  • The federal bank regulators recently investigated the largest mortgage servicers in the country and concluded that the foreclosure procedures of some were woefully inadequate, and all needed improvement.  A task force of state attorneys general continues its investigation.  Most recently, the OCC and FDIC have issued “best practices” advisories to the financial institutions under their respective jurisdictions, to review and improve a variety of transactional practices related to loan origination and foreclosure.

    Inadequate notary policies and procedures were high on the list of practices needing improvement.  Investigators found that some institutions allowed notaries to authenticate documents without obtaining appropriate identification, without current registration, or without putting a signer under oath.  Such irregularities have resulted in expensive litigation from borrowers and bankruptcy trustees, and made some mortgage loans uncollectible.  In-house counsel who depart from proper procedures may violate ethical rules and risk disciplinary action from the bar association.

    In general, notaries perform two similar but different functions, both of which are authorized by statute.  First, they take acknowledgments of contract execution.  An acknowledgement is a verification that the person whose signature appears on a document is the person who appears before the notary and whose identity the notary took reasonable steps to verify.  The critical purpose of this acknowledgement is to authenticate the person’s signature, as needed with many documents that will be recorded in the real estate records.

    Second, notaries take oaths and sworn testimony.  Here, the purpose of the act is to take the oath or affirmation that the statements contained in the document are true.  For example, passport applications, mechanics liens, and affidavits must be sworn statements before a notary.

    “Acknowledgements” in Kentucky

    In Kentucky, the laws governing notaries public are set out in Chapter 423 of the Kentucky Revised Statutes.  Under KRS 423.130, the person taking the acknowledgement has a duty to certify (1) that the person appeared before him and executed the instrument; and (2) that the person was personally known to the notary or that the notary took reasonable steps to verify that the person was the person described in the instrument.  KRS 423.140 provides that the Commonwealth recognizes “notarial acts” performed outside the state, subject to certain qualifications.  To qualify for such recognition, the certificate must be in a form prescribed by the laws of Kentucky or the other state, or contain the words “acknowledged before me” or their substantial equivalent.

    In addition to the statutory requirements, notaries public should review the Kentucky Notary Public Handbook, which was recently revised this year.  The Handbook explains that the law does not require the notary to use a seal (although the seal is necessary if the document is to be recorded outside Kentucky).  Perhaps surprising to some, the Handbook provides that in some circumstances the person signing the document need not actually sign it in front of the notary.  For example, the Handbook explains that it is permissible for the notary to acknowledge a signature that was placed on the document before it was presented to the notary, so long as the signer acknowledges the signature, and the notary verifies the identification of the signer by appropriate evidence, such as drivers license.

    Most “best practices” recommend using the “Statutory Short Forms of Acknowledgement,” set forth in KRS 423.160, which are sufficient for individuals and for corporations.  Kentucky courts have also upheld notary actions which substantially comply with the statutory form “acknowledged before me.”  In one case, the words “subscribed and sworn to before me” in a mortgage were deemed the substantial equivalent of “acknowledged before me” and the notarial act was deemed sufficient.  In re Phelps, 341 B.R. 848 (Bankr. W.D. Ky. 2006).

    “Acknowledgements” Gone Wrong

    Prior to 2006, bankruptcy trustees were successful in avoiding many mortgages that contained deficient notarial acknowledgments.  For example, notarial acknowledgements that contained blanks, lacked a date, or were signed outside the presence of the notary without verification of identity, were all determined to be unenforceable in bankruptcy, although in many cases the mortgage was easily located in the public records.  Among the most common mistakes were failing to use the statutory form of acknowledgement and merely stating that the "above-signed" persons appeared instead of listing the individual names in the notary blank.

    In 2006, the Kentucky General Assembly enacted a new savings statute to protect the integrity of the real estate records as public notice, and stave off some of these lawsuits.  If the county clerk accepts the document for recording, it will generally be effective as notice to the public, including bankruptcy trustees.  However, the clerk still has a duty to confirm that notary acknowledgements are properly effective, and a document containing an invalid acknowledgement should be rejected by the clerk, perhaps causing delay and costs to customers and financial institutions.  Further, the savings provision may not protect against all defects.  Thus, a notary should take care that the documents are acknowledged, in person, before him or her, and should demand current identification with photograph for each signing individual.

    Jurats in Kentucky

    Jurats are needed for documents where the signer is required to swear or affirm the truth of the statements contained therein, as with mechanics lien statements, and passport applications.  Affidavits from bank employees are also used to confirm ownership of the loan and verify outstanding arrearages in collection and foreclosure litigation.  A jurat has stricter requirements than an acknowledgement.  Them the notary public must place the signer under oath or its equivalent.  The notary must actually watch the signer sign the document.  The notary should not permit a document to be sworn that contains blanks.  Finally, the language of the jurat must go further than a mere “acknowledgement;” it must clearly indicate that the statement is sworn, or made under oath or an equivalent affirmation.  Failure to comply can have strict consequences.  In one case, a mechanics lien statement was deemed invalid, because it was merely “acknowledged,” and did not contain a sworn statement that the work was performed, as required by the mechanics lien statute.

    Best Practices

    • Financial institutions should consider adopting best practices such as the following:

    • Maintain a current list of the employees that are authorized to act as notaries for transactions involving the institution.

    • Monitor the list of notaries to determine that all qualifications are current.

    • Require employees to review the Secretary of State’s notary handbook at the time the notary is first qualified and in connection with future renewals.

    • Require employees to refuse to notarize documents unless they are signed or personally acknowledged in their presence.

    • Require employees to demand appropriate photo identification for each and every notarization.

    • Require the use of the Statutory Short Forms of Acknowledgement set forth in KRS 423.160.

    • Require employees to refuse to sign jurats for documents containing blanks.

    • Require employees to maintain a journal to document the activities of each notary, as recommended by the Secretary of State.


    The mortgage and foreclosure crisis of the last few years has prompted reexamination of even the most routine aspects of mortgage lending procedures.  Not only is the review and reassessment of the notary practices of bank employees now required by bank regulators, it is just sound business sense.