Omaha World-Herald: End home equity theft in Nebraska

Kevin Fair owns a modest home in Scottsbluff where he and his wife, Terry, lived for nearly two decades. In 2014, they fell behind on their property taxes after Kevin quit his job to care for Terry, who was suffering from multiple sclerosis. With only Kevin’s Social Security income to support them, they struggled to make ends meet and fell behind on their property taxes.

County officials placed a tax lien on Kevin’s home over $588 of unpaid property taxes and a private investment company saw an investment opportunity.

The company quietly paid taxes for the Fairs’ home for three years while the county ceased sending the Fairs tax bills or warnings. Then the private company demanded that the Fairs pay the accrued $5,268 in taxes, interest and costs within 90 days or lose their home. The Fairs were unable to get a loan to cover the debt, so Scottsbluff County gave absolute title to their $60,000 home — including the equity of more than $54,000 — to the company.

And that’s just the tip of the iceberg. From 2014 through 2021, local governments in Nebraska seized and sold at least 300 Nebraskan homes. Homeowners’ lost savings amounted to an average of 86% of the home’s value. Nebraska is one of 12 states, plus the District of Columbia, regularly using these abusive and unconstitutional “tax and take” seizures. A recent study by my firm — Pacific Legal Foundation — details how these predatory home equity theft laws work, and the windfall government and private investors have taken at the expense of people like the Fairs.

In the Fairs’ case, they sued in state court with the help of Legal Aid of Nebraska to vindicate their property rights and recover their home equity. They lost their case, and during this time, Terry tragically passed away. But Kevin carried on the fight alone.

After the Nebraska Supreme Court denied him relief, Pacific Legal Foundation joined as legal counsel to continue the fight at the U.S. Supreme Court. PLF has already secured a state supreme court victory in Michigan to end home equity theft there. And we want to add Nebraska to the list of places where home equity theft is a thing of the past. The good news is, the U.S. Supreme Court has agreed to hear another PLF case that could end home equity theft forever, nationwide.

In most states, tax foreclosures are treated just like other debts. If you fail to pay your property taxes, the government (or partnering investors) can seize and sell your property to satisfy the debt. But once your debts are paid, the remaining proceeds must be returned to you.

But that’s not how it works in Nebraska. Here, when property taxes are not paid, the county sells the automatically created tax lien — a legal claim on the property — to a third party. After a three-year redemption period, the third party can either apply to the state treasurer for a tax deed for the entire property (which gives the investor a huge windfall of equity) or may seek a judicial foreclosure that would return the equity above and beyond the taxes, interest and costs back to the homeowner. Unsurprisingly, investors choose the windfall, leaving the original owners with nothing, regardless of how much investment they have made, or how much equity they have built up.

The victims of these seizures are often vulnerable senior citizens like Kevin Fair, who fell behind while caring for his dying wife. Other common victims are people experiencing job loss, health difficulties, mental health challenges or cognitive decline.

The injustice of home equity theft is obvious. But beyond the essential unfairness, we should recognize that these predatory forfeitures violate important property rights protections under the U.S. Constitution. The Takings Clause of the Fifth Amendment requires the government to provide “just compensation” to the owner whenever it takes private property for public use. And the Eighth Amendment’s Excessive Fines Clause prevents the government from imposing excessive financial punishments. Surely, taking a huge windfall at the expense of someone like Kevin violates one of these protections.

Fortunately, the tide is shifting. In recent years, four states changed their tax foreclosure laws to better protect property owners in response to mounting public and media pressure. And Nebraska State Sen. John Cavanaugh recently introduced a bill to end the practice of home equity theft in the state.

Of course, if you fail to pay your property taxes, you’ll likely face consequences like penalties or interest, and in the most serious cases, foreclosure. But the government should never take more than it is owed. We hope that soon Nebraskans too will be protected, and that state-approved home equity theft will be a thing of the past.

This op-ed was originally published in the Omaha World-Herald on February 5, 2023.