LINCOLN — A retired judge, an Omaha City Council member and civil liberties lawyers were among those who stood up Thursday for a proposal to end what some have called government-assisted “home equity theft” in Nebraska.

Among opponents who spoke against Legislative Bill 577 were county treasurers concerned about additional costs and companies that profit from the current system.

But even amidst naysayers, support surfaced for a key safeguard that State Sen. John Cavanaugh said was his main inspiration for introducing the bill. That is, protecting homeowners from losing property and equity valued far above the amount they failed to pay in property taxes.

“That’s the part that shocks the conscience,” the Omaha lawmaker said after a public hearing before the Legislature’s Revenue Committee, which took no action on whether to advance LB 577 to full debate by the Legislature.

Nebraska among a dozen states

Cavanaugh said he will work, in the meantime, with both sides to try to address cost concerns cited by opponents, without harming the essence of the legislation.

As it stands now, Nebraska is among a dozen states and the District of Columbia with laws that allow a homeowner to lose the full value of their home for nonpayment of a much smaller property tax debt, according to the Pacific Legal Foundation.

It works this way: Counties can sell a tax lien on a property to a third party who steps up to pay 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 but 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 the windfall on a sale, since state law does not require reimbursement of equity the owner built up.

A retired district judge in Nebraska, Ronald Reagan, spoke in favor of LB 577 and offered an example of a case he more recently became involved in at a private law firm.

He said an investment firm that had purchased a tax sale certificate had invested up to $25,000, including fees. But the house that Reagan’s client stood to lose was valued at more than $200,000.

While a legal technicality allowed Reagan’s firm to win the case and keep the homeowner from losing her home and equity, he said: “You can see what the problem is.”

Costly, time-consuming

Aimee Melton of the Omaha City Council said she spoke both as an attorney and on behalf of her colleagues, who all back LB 577. “I have to say it’s somewhat rare when you get all seven Omaha City Council members to agree on something.”

Melton added, “I agree we all need to pay our taxes. … But the current process we have is not equitable.”

Under Cavanaugh’s proposal, if the assessed value of the house is higher than the redemption amount, the third party investor that bought the tax certificate would have to pursue a foreclosure proceeding through District Court.

Cavanaugh said that route would prevent the homeowner from excessive loss of a nest egg.

The third party investor still would be entitled to reasonable expenses, he said, including a statutory 14% annual interest rate. Counties still could sell liens to retrieve lost property tax revenue.

Lancaster County Treasurer Rachel Garver, speaking as an opponent, said LB 577 was “trying to do the right thing” by allowing homeowners to “hold on to the equity in their home.”

But, she said the enhanced notification requirements called for in the bill — steps Cavanaugh said help ensure that homeowners delinquent on property taxes understand risks and aren’t caught by surprise — would be too costly and time-consuming. Garver also didn’t think the additional notices would guarantee more protection to homeowners.

Among extra mandates is that county treasurers, early on, send first-class and certified mail to warn delinquent homeowners of risks to their property. For the first time, counties also would have to tap title companies to research parcels. County sheriffs would see notification duties increased.

Crimps the investor business model

John Ewing, Douglas County treasurer, also bristled at what he said would be an initial first-year, $600,000 cost incurred by his county to comply with new notification requirements. In the subsequent years, he said, the county would spend $443,000 annually, including expenses for sheriff’s notices.

Ewing said his office already has procedures in place to reach out to residents with information about back taxes owed.

However, he said: “I am a strong proponent of ensuring that homeowners do not lose their equity.” He said he supported the proposed mandate that foreclosures go through the court system.

Samantha Ott of US Asset said her company has been purchasing tax liens for more than 25 years and has contributed over $175 million to Nebraska counties through that process.

She said it would not make sense for her company to continue investing in delinquent tax sales if LB 577 were adopted.

Of the bill, she said, it “simply takes away one of the mechanisms for us to make the business model make sense without compensating us elsewhere.”

Asked by Sen. Tom Briese of Albion about changes that could make their business work, Ott said that raising attorney fee reimbursements on foreclosure proceedings would help.

“Our goal is not to take property but simply have a workable business model that makes sense for all parties involved,” Ott said.

Nebraska Examiner is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Nebraska Examiner maintains editorial independence. Contact Editor Cate Folsom for questions: info@nebraskaexaminer.com. Follow Nebraska Examiner on Facebook and Twitter.