KRS 355.9-608: Application of proceeds of collection or enforcement -- Liability for

deficiency and right to surplus.

(1) If a security interest or agricultural lien secures payment or performance of an

obligation, the following rules apply:

(a) A secured party shall apply or pay over for application the cash proceeds of

collection or enforcement under KRS 355.9-607 in the following order to:

1. The reasonable expenses of collection and enforcement and, to the

extent provided for by agreement and not prohibited by law, reasonable

attorney's fees and legal expenses incurred by the secured party;

2. The satisfaction of obligations secured by the security interest or

agricultural lien under which the collection or enforcement is made; and

3. The satisfac tion of obligations secured by any subordinate security

interest in or other lien on the collateral subject to the security interest or

agricultural lien under which the collection or enforcement is made if

the secured party receives a signed demand for pr oceeds before

distribution of the proceeds is completed;

(b) If requested by a secured party, a holder of a subordinate security interest or

other lien shall furnish reasonable proof of the interest or lien within a

reasonable time. Unless the holder compl ies, the secured party need not

comply with the holder's demand under paragraph (a)3. of this subsection;

(c) A secured party need not apply or pay over for application noncash proceeds

of collection and enforcement under KRS 355.9 -607 unless the failure t o do

so would be commercially unreasonable. A secured party that applies or pays

over for application noncash proceeds shall do so in a commercially

reasonable manner; and

(d) A secured party shall account to and pay a debtor for any surplus, and the

obligor is liable for any deficiency.

(2) If the underlying transaction is a sale of accounts, chattel paper, payment

intangibles, or promissory notes, the debtor is not entitled to any surplus, and the

obligor is not liable for any deficiency.