Spotlight to shine, in Nebraska and nationally, on what critics call ‘home equity theft’
LINCOLN — Their nightmare had been years in the making, but Joyful and Todd Stoves said they had no idea until a man knocked on their door in December with an order to leave the home they’d lived in over 20 years.
What the couple quickly learned: They had missed a property tax payment on their mortgage-free house in 2017, the year they were consumed with a family death.
Amount skipped: Less than $4,000.
The ensuing nightmare: A third-party investor, after covering a back tax debt amounting to a sliver of the property’s worth, eventually was legally able to take ownership of the three-bedroom house then valued at $222,700.
That is, Lancaster County got the tax revenue it was owed. Ashbrook Capital Management LLC got title to the residence, including equity the Stoveses had built up as their nest egg.
“Our world crashed,” Joyful Stoves said in social media posts chronicling what happened.
A dozen states act similarly
Just recently, after social media shares and comments had multiplied into thousands, the Lincoln family’s saga took a turn for the better. Public records show that Ashbrook sold back the Stoveses’ home to them for $45,000.
Neither side would elaborate, saying only that things ended satisfactorily.
But still in effect are Nebraska statutes allowing what local and national advocacy groups refer to as state-assisted “home equity theft.”
According to the Pacific Legal Foundation, Nebraska is among a dozen states and the District of Columbia with laws under which homeowners can lose the full value of their home for nonpayment of a much smaller property tax debt.
How it works in Nebraska: Counties can sell the tax lien on the 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 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 doesn’t require reimbursement of equity the owner built up.
Pacific Legal looked at seven counties in Nebraska, which account for about 60% of the state’s population, and found that about 300 private residences were seized in this way from 2014 through 2021.
On average, those homeowners had a tax debt worth 14% of the value of their homes, a Pacific Legal spokesperson said. She said the group’s research showed that, collectively, the investors gained $11 million upon selling the properties.
U.S. Supreme Court to weigh in
Such procedures are headed for a national spotlight. The U.S. Supreme Court has decided to hear a case about a Minnesota woman in her 90s who fell behind on property taxes. In Tyler v. Hennepin County, the local municipality seized the woman’s condo to satisfy a $15,000 tax debt and was able to keep a $25,000 surplus.
The court’s decision, which is expected as early as June, could affect Nebraska, which has two cases pending before the U.S. Supreme Court that similarly challenge the constitutionality of the process.
Meanwhile, State Sen. John Cavanaugh of Omaha has introduced a bill that aims for statutory change.
His intent: “To make the law more robust so that fewer people fall through the cracks on the one end, and on the other end, if it does happen, people don’t get so disproportionately hit with excessive loss in equity.”
Laura Ebke of Nebraska’s Platte Institute, which has worked on Legislative Bill 577 with Cavanaugh, said it would enhance notifications so that homeowners who fall behind on property taxes are not “caught by surprise” later and more clearly are told what is at risk.
The bill aims to end scenarios in which homeowners lose excessive equity. Ebke said counties still could sell liens to retrieve lost property tax revenue, and third party investors would be entitled to reasonable expenses. Beyond that, she said, the bill intends that additional value in the seized property would go to the homeowner who had built up the equity.
In addition to the Platte Institute, the American Civil Liberties Union and Legal Aid of Nebraska are pushing for change. A public hearing has yet to be scheduled on LB 577.
Mindy Rush Chipman, executive director of the local ACLU, said she was excited about what she sees as a bipartisan effort to improve a “nuanced process” unknown to most.
Also signed onto the bill are State Sen. Tom Brandt, a Plymouth farmer and a Republican in the officially nonpartisan Legislature, and State Sen. Justin Wayne, a Democrat and lawyer representing North Omaha.
“This process is shocking to people,” said Jennifer Gaughan of Legal Aid of Nebraska, whose organization argued a recent tax lien sale case in which the Nebraska Supreme Court ruled the state’s process legal and constitutional.
With assistance from the Pacific Legal Foundation, that and another Nebraska case have been appealed to the country’s highest court.
One case involved Kevin and Terry Fair, who 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 got the home, then valued at about $62,000.
Most affected are older, sick and financially struggling homeowners, civic rights advocates say, with a disproportionate impact on people of color.
“This process does more than just recover property taxes,” said Gaughan. “It strips low-income homeowners, like Mr. Fair and Ms. Nieveen, of what little wealth they have acquired, and pushes them farther into poverty.”
Existing law is well-intended — “so the county can be made whole”
Rush Chipman offered an example of neighbors who were confused and anxious upon seeing a man taking photos of their house. The couple thought their homestead exemption relieved them of property taxes.
Turned out that a small inheritance had changed their circumstances. Rush Chipman was able to help them avert a loss.
“How many people don’t have a lawyer in the neighborhood to ask?” she said.
To be sure, Nebraska law already calls for certain steps to alert owners in jeopardy of losing property after falling into arrears on tax payments.
Costly to counties
Lancaster County Treasurer Rachel Garver said her county — the second largest in the state — gives “ample notice” to homeowners.
For example, in Lancaster County, where Todd and Joyful Stoves live, annual tax statements include a green-shaded box labeled “Special Messages” that contain information about delinquent taxes.
Once the county sells a tax lien to a third party, that investor is responsible for following a notification process prescribed in state law, said Garver. She said the county attorney looks over a case before a homeowner would lose property.
Existing law is well-intended, Garver said, “so the county can be made whole.”
She sees a “huge burden” for county departments under LB 577, estimating more than $300,000 in added costs for Lancaster County the first year.
Among extra mandates is that treasurers, early on, send first-class and certified mail to warn delinquent homeowners of risks. For the first time, Garver said, counties also would tap title companies to research parcels. County sheriffs would see notification duties increased.
Much of the safeguards add “ridiculous” expenses, Garver said, given that most homeowners rectify delinquent bills before reaching the stage of possibly losing their home.
She said that of about 500 Lancaster County homeowners who fell into arrears in 2017, five ultimately had their properties turned over to a third party investor.
However, Garver said she is a fan of the proposed change in LB 577 aimed at preventing those five homeowners from losing all equity beyond the tax debt and related fees.
“That part of the bill is great,” she said.
‘Flooded with paperwork and emotions’
In recounting their situation, the Stoveses acknowledge a few missteps, starting with nonpayment of their $3,591 property tax bill in 2017. Joyful, owner of Joyful’s Cigar Art, said that was unintentional, and the year the family was “flooded with paperwork and emotions” related to her mother-in-law’s death.
She went on to challenge several “system failures.”
Records show that the Stoveses paid property taxes both before and after 2017 on the home they lived in with their two kids, a dog and two cats.
Had they gone online to check payment history, they might have noticed that a third party also had started to pay taxes on the multi-level house built in 1987.
Said Joyful: “A property owner should be notified if someone else makes a payment on their property, specifically with the ramifications.”
When the county treasurer, in March 2019, sold a tax lien on the house to the third party investor, it triggered a three-year redemption period. Said Joyful: “It’s hard to redeem something you don’t know about.”
So when the Ashbrook agent came to the Stoveses’ house Dec. 8 with a “final notice” to vacate in three days or face eviction, Joyful said she thought it was “a horrible mistake.”
She called it “a complete shock” to then visit the county website and see that Ashbrook was listed as owner of her family house as of August 2022.
“For a purchase price of $3,978 from a treasurer’s tax deed. How could this be? Our home was valued at $222,000.”
Efforts to reach the Stoveses
Upon reaching out to Ashbrook’s attorney, with the Lincoln-based Baylor Evnen law firm, the Stoveses were provided documentation of efforts taken to inform them. The paperwork showed, for example, that a representative of the county sheriff had served Joyful and her husband with notices in May 2022 — something they question ever happened.
The notice said, in part, that the homeowners could redeem their property by paying $3,978.07 (which included interest).
Joyful said had they seen the notice, they would have acted on it. That redemption offer expired after three months.
After more back-and-forth communications and the couple’s appeals to state senators, Ashbrook and the Stoveses resolved the issue in late January. As part of the resolution, both sides agreed not to comment further.