Questions loom over tax liens and private investors concerning home equity theft

The practice is legal in Nebraska and 11 other states.
Questions remain after a Nebraska man loses his home due to an unpaid tax debt
Published: Feb. 7, 2023 at 8:12 PM CST
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OMAHA, Neb. (WOWT) - 6 News told you about the practice of “home equity theft.”

County treasurers often like this practice, because when private investors bid for a tax lien, they pay the delinquent taxes -- and the county also gets paid.

In Douglas County alone, 3,600 properties are up for grabs -- and hundreds of thousands of dollars in unpaid taxes. The carrot for private investors to come in and bid on those is the 14% interest charged on the outstanding taxes, and the opportunity to flip a small investment into something much more profitable.

After a Nebraska man fell behind on property taxes, questions have been raised over what's called "home equity theft."

6 News highlighted Kevin Fair’s case last night. He and his wife owned a small home in Scottsbluff. It was paid off -- meaning no mortgage. A few years back, his wife got sick, and money got tight. He owed $588 in back taxes.

A private investor from Omaha picked up the tab, and three years later, as the law allows, offered the home back to the Fairs for more than $5,000. That’s three years of taxes plus interest.

Kevin Fair didn’t have the money. The private investor now owns the home, valued at $60,000, and can sell it without sharing the proceeds.

While the Nebraska Supreme Court ruled what the investor did is allowed by Nebraska law and is constitutional, that case is on pause.

Kevin Fair is still in the house. That’s because the U.S. Supreme Court is expected to rule on a similar case in Minnesota later this year.

Meanwhile, State Sen. John Cavanaugh of Omaha has proposed a bill that would change part of the equation. It would still allow the bidding of tax liens and the taking of homes.

“$5,000 due on $60,000 in equity,” Cavanaugh said. “Essentially what my bill would say is the amount -- if the house sold -- the investor would get $5,000 they are owned in interest from the tax lien -- but then the original homeowner would get back $52,000 in equity.”

Sen. Cavanaugh’s bill would also add additional notices, meaning the county and investors would need to notify the original homeowner of what’s going on throughout the process so that none of it seems like a surprise, as it did in the case of Kevin Fair.