The Nebraska Supreme Court is housed at the Nebraska State Capitol Building in Lincoln. (Rebecca S. Gratz for the Nebraska Examiner)
LINCOLN — Action Monday by the nation’s highest court voided two decisions of the Nebraska Supreme Court that upheld what critics have been calling state-assisted “home equity theft.”
The U.S. Supreme Court justices sent both cases back for reconsideration by the state’s Supreme Court. The move was made in light of the high court’s May 25 decision in a similar Minnesota case.
All nine justices in that case, Tyler v. Hennepin, agreed that the tax sale process in Minnesota’s Hennepin County (akin to that of Nebraska’s) was unconstitutional and violates the “takings clause.”
State Sen. John Cavanaugh of Omaha called the U.S. Supreme Court’s actions on Monday as well as on May 25 “vindication” and reinforcement that he and others seeking to change Nebraska’s delinquent tax sale process were on the right side.
Shortly before the Nebraska Legislature wrapped up its session Thursday, lawmakers approved legislation, pushed in part by Cavanaugh, to amend the state’s process — ensuring that homeowners are compensated for the equity they have built up if their home is seized for property tax debts.
Expected to be endorsed by Gov. Jim Pillen, Legislative Bill 727 would lay out a different tax sale process moving forward, including improved notice to homeowners of any tax delinquency.
Reconsideration of the two Nebraska cases could bring good news to plaintiffs in the cases of Kevin and Terry Fair of Scottsbluff and Sandra Nieveen of Lincoln. In both cases, the Nebraska Supreme Court upheld the state’s tax sale process laws but allowed the families to stay in their homes pending the outcome of the U.S. Supreme Court.
“It has taken a long time to get to this point,” said Jennifer Gaughan, chief of legal strategy for Legal Aid of Nebraska, which represented both homeowner families in state court. “We look forward to resolving these cases and seeing justice served for our clients who have lived for years under the stress of not only the threat of homelessness but also the loss of equity in their property without any compensation — stripped of their only asset and left with nothing to be able to get another place to live.”
Gaughan believes the U.S. Supreme Court’s decision in the Minnesota case means that Nebraska’s current tax sale process is unconstitutional, as well.
Pacific Legal Foundation, which has led nationwide efforts to end “home equity theft” where it is practiced, helped represent the Fairs and Nieveen free-of-charge in the U.S. Supreme Court. Their respective cases have been going on for more than four years.
Christina Martin of Pacific Legal called the Supreme Court’s actions a “major victory” for protecting homeowner property rights. According to Pacific Legal, Nebraska is among a dozen states with laws under which homeowners can lose the full value of their home for nonpayment of a much smaller property tax debt.
How it has worked in Nebraska: Counties could sell the tax lien on a property to a third party who pays a homeowner’s overdue taxes. After three years of paying taxes on the property, the third-party investor can seek the legal deed to the property, although the investor is supposed to notify and give the owner a shot at holding onto the property by paying the delinquent tax and interest.
If that doesn’t happen, the investor can reap a windfall on a sale, since state law doesn’t require reimbursement of equity the owner has built up.
Martin says that, in all, 21 states practice some form of so-called “home equity theft” and “are now on notice” to change laws or face financial damages in court.
Legal Aid’s Mark Bestul said that if Legal Aid and Pacific Legal had not challenged the Nebraska process, the Fair and Nieveen families would have lost their homes years ago.
In the Fair case, the couple had lived in their Scottsbluff home for nearly three decades but fell behind on taxes. The county eventually transferred the couple’s $60,000 home to a private investor, who paid off the Fairs’ $5,268 county debt and kept the profit.
In the second case, Sandra Nieveen had lived in her Lincoln residence for a half-century when a private investor paid her tax debt of less than $4,000, and ultimately obtained the home, then valued at about $62,000.
Most people affected by the tax sale process are older, sick and financially struggling homeowners, civic rights advocates say, with a disproportionate impact on people of color.
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