LINCOLN — In a ruling that Legal Aid attorneys are calling a “historic reversal,” the Nebraska Supreme Court on Friday ruled in favor of two elderly homeowners who were victims of what critics called a government-sponsored theft of their home equity.
The homeowners, represented by legal aid organizations Legal Aid of Nebraska and Pacific Legal Foundation, argued that Nebraska’s delinquent tax foreclosure process is unconstitutional because it could result in homeowners losing more than they would have to pay to pay off their property tax debts.
“The Nebraska Supreme Court ruled (today) that home equity is protected by the Constitution and that the government cannot take more than is owed,” said Christina Martin, senior attorney at the Pacific Legal Foundation, which has partnered with Legal Aid to represent the people of Nebraska.
Investors kept the profit
One of the cases involved Kevin and Terry Fair, who lived in their Scottsbluff home for nearly three decades but fell behind on their taxes after she became ill and he stopped working to care for her (she died during the litigation). The county eventually transferred the couple’s $60,000 home to a private investor, who paid off the Fairs’ $5,268 debt to the county and kept the profit.
In the second case, Sandra Nieveen had already lived in her Lincoln home for half a century when the county transferred the $61,900 house to a private investor for a tax bill of less than $4,000.
In both cases, the Nebraska Supreme Court initially upheld the state’s laws, prompting Pacific Legal and Legal Aid to ask the U.S. Supreme Court for review.
Last May, the U.S. Supreme Court ruled in a different but similar case, Tyler v. Hennepin County, that it violates the Fifth Amendment’s “expropriation clause” for the state to withhold more than is owed to pay a property tax debt.
That sent the Fair and Nieveen cases back to the Nebraska Supreme Court for reconsideration. On Friday, Nebraska judges ruled that investment companies that bought the tax liens must pay Fair and Nieveen the excess equity left over after paying off their property tax debt. The cases were sent back to the court to determine how much the homes are worth and how much compensation must be paid.
“Today’s rulings by the Court reinforce that the Expropriation Clause of the United States and Nebraska Constitutions requires that homeowners be paid fair compensation when the value of their expropriated property exceeds the tax liability,” said Jennifer Gaughan, director of legal strategy at Nebraska Legal Aid. “These tax expropriation laws hurt the elderly, the sick and the poor the most – and disproportionately impact people of color.”
Martin said her team was pleased that after years of litigation, the Nebraska court recognized homeowners’ rights to their hard-earned equity.
“This is a win for all Nebraskans, who can now sleep soundly knowing that their home equity belongs to them and them alone.”
NE law was changed last year
Last year, Nebraska lawmakers changed the state’s laws regarding the sale of delinquent taxes, which were challenged in the Fair and Nieveen cases. The changes took effect in September 2023 and prevent future scenarios of home equity theft by requiring investors with tax liens to pay the original owner any remaining equity after the delinquent taxes, interest, penalties, fees and other liens on the property are paid off.
Here’s how it worked in Nebraska before the changes: Counties could sell the tax lien on a property to a third party who paid the homeowner’s delinquent taxes. After three years of taxes being paid on the property, the third party investor could demand the deed to the property, although the investor had to notify the owner and give them a chance to keep the property by paying the delinquent taxes and interest.
Too often, Nebraska lawmakers said, the investor made an unexpected profit from the sale because state law did not require repayment of the equity accumulated by the owner until September 2023.
Mark Bestul of Legal Aid said Friday’s Nebraska Supreme Court ruling now provides a clear path to justice for Fair and Nieveen. The court said the investors are obligated to pay damages to the homeowners.
Reason for the change in the law
State Senator John Cavanaugh of Omaha, who pushed for changes in the law in Nebraska, said he was pleased that the affected homeowners would be compensated.
“Cases like this are the reason for the change in the law,” he said. “And thanks to this change, there will be no need for such corrections in the future.”
The Pacific Legal Foundation said the decision sends a signal to other states that have not yet complied with the U.S. Supreme Court’s ruling in the Tyler case “that the rights of property owners must be protected.”
