ES Law Welcomes John Bachman!

ES Law proudly welcomes John Bachman, an esteemed and highly experienced attorney, to its distinguished team. John brings a wealth of expertise in various areas of the legal field, particularly in real estate development, leasing, financing, and acquisition and sale transactions.

With decades of experience, John has earned a stellar reputation for his exceptional legal insight and commitment to his clients. His diverse clientele includes developers, local governmental bodies, notably Sanitary and Improvement Districts, business and property owners, associations, institutional banks and lenders, and business owners.

John's specialization in zoning and land use further solidifies his position as a leading expert in the legal community. His extensive involvement in commercial, industrial, and residential development, leasing, and ownership has been instrumental in facilitating complex real estate transactions. Additionally, his substantial experience in oil and gas leasing transactions, carbon sequestration, and related pipeline easements for property owners and pipeline companies showcases his versatility in navigating the intricate legal aspects of these industries.

John's academic achievements include a B.S.B.A. degree from the University of Nebraska and a J.D. from Creighton University. He remains an active member of the Omaha Bar Association and the Nebraska State Bar Association, contributing to the legal community's growth and development.

Consistently recognized for his expertise, John has received accolades from prestigious institutions such as Best Lawyers in America and Chamber U.S.A. for the past two decades, affirming his status as a trustworthy authority in various real estate fields.

Welcome, John!

A Win for Homeowners: Nebraska Legislature Ends “Home Equity Theft”

Geraldine Tyler, a 94-year-old widow and homeowner in Minnesota, successfully challenged the Constitutionality of a Minnesota law that permitted her county government to seize the entire value of her property because of a much smaller outstanding property tax debt. The United States Supreme Court held that the state law practice violated the Takings Clause of the Fifth Amendment of the United States Constitution, which prohibits the government from taking private property for public use without paying just compensation to the owner.

Mrs. Tyler owed $2,300 in property tax and $13,000 in interest and penalties. Acting under Minnesota’s forfeiture procedures, the County seized her home, sold it, and kept the entire $40,000 from the sale. This sale amount more than doubled Mrs. Tyler’s debt on the property but the County returned nothing to the homeowner in consideration of the equity she had built up in the home. On May 25, 2023, the Supreme Court unanimously ruled that the State “may not extinguish a property interest that it recognizes everywhere else to avoid paying just compensation when it is the one doing the taking.” Tyler v. Hennepin Cnty., 215 L. Ed. 2d 564, 575, 2023 U.S. LEXIS 2201, *19, 143 S. Ct. 1369, 29 Fla. L. Weekly Fed. S 851.

The Tyler case has important implications beyond Minnesota. More than ten other states, including Nebraska until recently, have some form of property forfeiture law similar to Minnesota’s that has been characterized as “home equity theft.” Illinois, Minnesota, and New York have led the nation in the number of these property takings. Now on notice of the unconstitutionality of these forfeiture laws, states must change these laws to comply with the Supreme Court ruling.

During the 2023 legislative session, as part of a $6.4 billion tax relief package, the Nebraska Legislature passed LB 727, which abolished “home equity theft” in Nebraska. The bill requires property tax foreclosures to go through judicial proceedings that protect the owner’s equity.

As property values rise, so have incentives for government entities to seize properties due to tax debts. For those affected by this issue in Nebraska, the Tyler case and Nebraska’s new tax bill set forth strong protections for Nebraska homeowners. Individuals who have lost property under the former Nebraska approach that was invalidated by Tyler should consider speaking with an attorney regarding any potential recourse.

Erickson|Sederstrom Law Clerk Elise Siffring assisted with drafting this article and her help is greatly appreciated.

Lingering Provisions of The CARES ACT That May Impact Iowa and Nebraska Landlords

In March of 2020 the Coronavirus Aid, Relief and Economic Securities Act (“CARES Act”) was signed into law. The moratorium thereunder originally had a sunset date of July 25, 2020. Congress chose not to extend this deadline, and when the CDC tried to do so by administrative order, the Supreme Court of the United States invalidated it. See Alabama Association of Realtors v. Department of Health and Human Services, 21A23 (Aug. 26, 2021). However, certain portions of the CARES Act did not include any such sunset dates and will continue to impact Nebraska and Iowa landlord until Congress legislatively puts an end to them.

Nebraska and Iowa Landlords should be advised that their normal pre-pandemic practices for recovery of unpaid rents and evictions based upon the same may now be affected by provisions of the CARES Act found in section 4024. If a tenant resides within any of the “covered property” defined under subsection 4024(2), then a landlord will need to provide a thirty (30) day notice before any writ of restitution can be executed and the tenant evicted. “[C]overed property” [under the CARES Act] means any property that—

(A) participates in—

(i) a covered housing program (as defined in section 41411(a) of the Violence Against Women Act of 1994 (34 U.S.C. 12 12491(a))); or

(ii) the rural housing voucher program under section 542 of the Housing Act of 1949 (42 U.S.C. 1490r); or

(B) has a—

(i) Federally backed mortgage loan; or

(ii) Federally backed multifamily mortgage loan.

See Public Law No. 116-136, § 4024(2). Even though it does not affect every landlord and tenant situation, this definition is broad enough to implicate a great number of them.

However, courts across Nebraska and Iowa have interpreted the application of these rules differently when “covered property” is implicated. Some allow for normal notices and cure periods for non-payment provided for by state statute (3 days in Iowa and 7 days in Nebraska; see Iowa Code Ann §562A.27; see also Neb.Rev.Stat. §76-1431), but then delay the issuance of a writ of restitution until thirty (30) days from the original notice, while others require actual service of a thirty (30) day notice for a landlord to avoid having to start the entire process over again. Therefore, it is important that Nebraska and Iowa Landlords obtain proper advice before instituting these actions in this current landscape in to avoid confusion, delay or added expense.

Anticipated Changes for Landlords & Tenants Due to Covid-19

Considering the current state of affairs and the imminent expiration of Nebraska’s Temporary Residential Eviction Relief Executive Order, it is important for landlords and tenants to become informed of their duties and the potential for additional exposure to new claims on the horizon arising from circumstances surrounding COVID-19. This article is not meant to be an exhaustive discussion in that regard. Rather, I wish to provide an illustrative list of some of those duties and issues surrounding them which could be affected by the anticipated post-pandemic changes to the commercial real estate market.  

It is well founded in Nebraska law that landlords have a duty to mitigate damages following an abandonment, or any other breach of the lease which leads to a vacant unit in order to maximize their recovery of damages. See Hilliard v. Robertson, 253 Neb. 232, 570 N.W.2d 180 (1997). The satisfaction or not of this duty is fact dependent, but proof of the affirmative defense for breaching tenants does not currently require expert evidence, and even in cases where the landlord has erected marketing signage to relet the premises, Nebraska courts have held that such was insufficient to meet this common law duty. Id. In light of the expected shifts in the commercial real estate market due to the growth of implementing work-from-home strategies, and the eventual corrections likely to follow the sunset of governmental lending and grant programs, this duty and the issues tangential to it should be expected to be litigated frequently. Both landlords and tenants should pay close attention to that litigation as there are likely to be arguments which could alter the proof requirements as well as the duty itself in the coming months to account for a more volatile and shifting market space. 

Nebraska courts have also long held that commercial tenants have a duty to protect lawful entrants to the premises from foreseeable dangers in arrangement and use of his premises. Hansen v. First Westside Bank, 182 Neb. 664, 156 N.W.2d 790. Provided further, in some circumstances, liability for a patron’s injuries can even be extended to commercial landlords. See Reicheneker v. Seward, 203 Neb. 68, 277 N.W.2d 539 (1979). In particular, if a lease is not artfully crafted, or if a landlord fails to address issues that he is put on notice of by his tenant and which create an unreasonable risk of harm to patrons, then liability can be extended to the landlord as well as his tenant for injuries which occurred as a result of those issues. Id. But what does this mean regarding the potential for exposure to tenants and landlords with regard to claims based on contracting COVID-19?   

If landlords had no duty to protect their tenants or their tenant’s patrons, then they could save time and resources by demonstrating a hands-off management approach.  Alex J. Schnepf, A Covid-19 Heavyweight Bout Tenant Safety Versus Discrimination, 35 Prob. & Prop., 24, 25 (2021).  However, the absence of a duty to keep tenants safe is not a reality in many states because of the implied warranty of habitability.  Id.   

In Nebraska, the implied warranty of habitability creates a duty for landlords to maintain habitable conditions on their rental properties by ensuring the premises be safe for the health of the tenants.  For example, landlords must “do whatever is necessary, after written or actual notice, to put and keep the premises in a fit and habitable condition.”  Neb. Rev. Stat. Ann. § 76-1419 (West 2001).  The implied warranty of habitability and limited circumstances for the imputation of premises liability discussed above could theoretically create exposure for landlords who fail to reduce the spread of COVID-19 throughout their rental properties.  See Schnepf, Safety Versus Discrimination, supra; see also Reicheneker, Supra. 

It is foreseeable the assurances of the implied warranty of habitability and limited circumstances of imputation of premises liability may be extended to encompass protecting tenants and their patrons from spreading COVID-19 because the virus presents a direct threat to public health and safety.  It follows that an outbreak of the virus on rental properties could render a property uninhabitable and poses the real threat of substantial lawsuits amongst and against tenants and landlords alike.  What steps should landlords take to ensure the safety of their tenants and the habitability of their rental properties?   

Should landlords of commercial rental properties require their employees to receive vaccinations to mitigate the spread of COVID-19?  The Equal Employment Opportunity Commission states that employers may implicate vaccination policies as a qualification for employment.  The Occupational Safety and Health Administration suggests employers have the vaccine available to eligible employees, either at no or low cost, and supplemental information about the vaccines.  See ABA, COVID-19 Vaccines Prompt Different Questions for Employers and Employees (Feb. 20, 2021), available at https://www.americanbar.org/news/abanews/aba-news-archives/2021/02/covid-19-vaccines-prompt-different-questions-for-employers-and-e/. 

Who is exempt from an employee mandated vaccine?  Employers must engage in a process that considers reasonable accommodations for individuals with disability, those that are susceptible to the vaccine, or someone who has a religious objection.  If an employer is unable to make a reasonable accommodation to an employee, they should consider granting leave to the employee.  In doing so, employers should consider the following: Can the employee be granted a period of leave until the threat of COVID ceases?  Is the employee eligible for leave under the Family Medical Leave Act?  Does the employer have generally applicable workplace leave policies that could be used to allow the employee to take leave until the situation in the country changes?  Id.   

The impact of COVID-19 has created a less than favorable housing situation for tenants and landlords alike.  Nebraska’s Temporary Residential Eviction Relief Executive Order, acting as a moratorium on evictions, is set to expire on May 31, 2021.  Further, the Center for Disease Control’s eviction moratorium shall expire after June 30, 2021.  When these moratoriums lapse, an influx of evictions is likely because of COVID-19’s impact on employment, health, and the overall economy.  See Claire Corea, Tenants’ Right: The Law on Paper Versus the Law in Practice, 47 Rutgers L. Rec. 226, 254 (2020). Likewise, as the funds from governmental programs which have subsidized the market begin to run out, and as more companies continue to implement work-from-home strategies, it could reasonably be expected that the availability of replacement commercial tenants to fill those spaces would be less abundant than in recent years. Therefore, it is important for landlords and tenants alike to be aware of not only the market shifts, but also the changes in their duties and potential exposure to liability stemming from the resulting litigation.

United States Supreme Court Holds that "Mere Retention" of Debtor Property Does Not Violate the Automatic Stay

The United States Supreme Court recently held, in City of Chicago v. Fulton, that a creditor's "mere retention" of a debtor's property does not violate the bankruptcy automatic stay.  In Fulton, the Court found that the Bankruptcy Code permits a creditor to maintain the status quo when a debtor files for bankruptcy.  In other words, the creditor is not automatically compelled to return property of the debtor that the creditor recovered prior to the bankruptcy filing, but the creditor also cannot dispose of the property while the bankruptcy case is pending absent permission from the bankruptcy court. 

                As most bankruptcy creditors are aware, the Bankruptcy Code contains an automatic stay within § 362(a)(3).  The automatic stay acts to automatically protect the debtor and his or her property from most collection or enforcement acts by creditors upon filing of a bankruptcy petition.  Many debtors' counsel have also taken the position that the automatic stay requires creditors to return property to the debtor if the property had been repossessed or otherwise recovered by the creditor shortly before the bankruptcy filing.  Bankruptcy courts had inconsistently interpreted this aspect of the automatic stay.  Fulton made clear that if the debtor seeks return of the property, the correct means to pursue the return is a Motion for Turnover under §542 of the Bankruptcy Code, not the automatic stay statute. 

                Fulton is good news for secured creditors who fear bankruptcy filings by their defaulted customers.  If the creditor can lawfully recover collateral before a bankruptcy case is commenced, the creditor is not automatically compelled to return that collateral as soon as the bankruptcy is filed.  The debtor must take the affirmative step of filing a Motion for Turnover to compel return of the property. 

                Writing the Supreme Court’s opinion, Justice Samuel Alito noted that the language of § 362(a)(3) leads most logically to the conclusion that only affirmative acts that disturb the status quo are prohibited.  If collateral is already in the creditor’s possession when the bankruptcy case is commenced, the creditor must retain the property, but at least is not automatically required to give up possession without a separate Motion for Turnover by the debtor and opportunity for the Bankruptcy Court to decide that issue.   

                Creditors navigating bankruptcy law issues regarding how to deal with collateral or other property recovered from debtors should seek legal advice about how to proceed.  Bankruptcy law remains fraught with potential pitfalls for creditors.  Erickson|Sederstrom’s creditors’ rights attorneys provide timely advice to creditors who are seeking guidance regarding pre-bankruptcy and bankruptcy rights against debtors and debtors’ property. 

Post-Loss Assignments of Benefits: An Easier Way for Contractors to Get Paid

Contractors face an endless stretch of legal and business hurdles on a daily basis. They have to deal with weather, safety, personnel, material acquisition, permits, and needy homeowners. But, getting paid on residential construction work covered by a homeowner’s insurance policy should not be one of those hurdles because there is an easier way for contractors to get paid.

When a homeowner suffers a loss covered by their insurance policy, they have the right to assign their insurance benefits to the contractor making the repairs to their home. By doing this, the homeowner authorizes the insurance company to make the contractor a co-payee for that loss.

In most states, the law permits contractors to ask homeowners to assign their post-loss benefits to the contractor for the work they bid. This allows the contractor to receive payment directly from the homeowner’s insurance company. And, most importantly, helps the contractor avoid those dreaded situations where a homeowner receives their insurance payout but refuses to pay their contractor for its work.

Contractors, however, must beware of the many pitfalls that they can fall into with these post-loss assignments of benefit agreements. Failure to follow laws designed to protect insured homeowners can lead to a contractor’s entire contract becoming voided.

For example, a post-loss assignment of benefits has to be a written agreement. That agreement must contain certain language as set forth by statute, and the contractor has to place the homeowner’s insurance on notice of the assignment within a certain number of days depending on the jurisdiction.

Contractors also have to be careful not take certain forbidden actions on behalf of the homeowner. Some states like Iowa forbid a contractor from negotiating with a homeowner’s insurance company on the homeowner’s behalf. Other states strictly forbid a residential contractor from offering rebates on their deductible as an incentive for choosing their construction company for their job. Mistakes like these can cause a court to find the residential contractor’s entire agreement is void and unenforceable.

Finally, post-loss assignment of benefits under an insurance policy must include specific language depending on the jurisdiction that the contract is contemplated. For example, in Nebraska, a contractor must include the following language in all caps and in 14 pt. font for its assignment to be proper:

YOU ARE AGREEING TO ASSIGN CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY. WITH AN ASSIGNMENT, THE RESIDENTIAL CONTRACTOR SHALL BE ENTITLED TO PURSUE ANY RIGHTS OR REMEDIES THAT YOU, THE INSURED HOMEOWNER, HAVE UNDER YOUR INSURANCE POLICY. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING.

THE INSURER MAY ONLY PAY FOR THE COST TO REPAIR OR REPLACE DAMAGED PROPERTY CAUSED BY A COVERED PERIL, SUBJECT TO THE TERMS OF THE POLICY.

IT IS A VIOLATION OF THE INSURANCE LAWS OF NEBRASKA TO REBATE ANY PORTION OF AN INSURANCE DEDUCTIBLE AS AN INDUCEMENT TO THE INSURED TO ACCEPT A RESIDENTIAL CONTRACTOR'S PROPOSAL TO REPAIR DAMAGED PROPERTY. REBATE OF A DEDUCTIBLE INCLUDES GRANTING ANY ALLOWANCE OR OFFERING ANY DISCOUNT AGAINST THE FEES TO BE CHARGED FOR WORK TO BE PERFORMED OR PAYING THE INSURED HOMEOWNER THE DEDUCTIBLE AMOUNT SET FORTH IN THE INSURANCE POLICY.

THE INSURED HOMEOWNER IS PERSONALLY RESPONSIBLE FOR PAYMENT OF THE DEDUCTIBLE. THE INSURANCE FRAUD ACT AND NEBRASKA CRIMINAL STATUTES PROHIBIT THE INSURED HOMEOWNER FROM ACCEPTING FROM A RESIDENTIAL CONTRACTOR A REBATE OF THE DEDUCTIBLE OR OTHERWISE ACCEPTING ANY ALLOWANCE OR DISCOUNT FROM THE RESIDENTIAL CONTRACTOR TO COVER THE COST OF THE DEDUCTIBLE. VIOLATIONS MAY BE PUNISHABLE BY CIVIL OR CRIMINAL PENALTIES.

The contractor must have the homeowner sign and date below this language as well. Then, after the  post-loss assignment of benefits is executed, a residential contractor in Nebraska must provide a copy of the assignment to the homeowner’s insurance company within five business days.

By taking advantage of post-loss assignments of rights under an insurance policy, contractors can keep revenue streams open cand collections moving. And often times, these simple assignments can help a contractor avoid the headache of executing liens as well. Residential contractors, however, should remember that contracts can be tricky. Assignments like the one described above need to be properly incorporated into the contractor’s underlying contract and those contracts need to meet all necessary formalities under the law to be binding. Therefore, contractors should never hesitate to reach out to a construction lawyer who is familiar with construction contracts and litigation when they have questions about their contracts.

Solar Land Leases

Most Nebraskans and Iowans have become accustomed to seeing wind farms popping up across the prairies of the Midwest. However, fewer of us may realize that solar farms, which are large-scale, ground-mounted arrays of photovoltaic (PV) panels, are emerging as a potential renewable energy alternative to wind power.  Consequently, landowners in certain areas are being approached by developers of solar farms to discuss a potential lease of their land for the housing of a solar farm.

 The use of solar energy is on the rise in the United States and in Nebraska.  In fact, according to the Solar Energy Industries Association, solar energy production in Nebraska is expected to increase over 500% during the next five years.  The increase is due to two main factors.  One factor is the tax incentives offered by state and federal governments that help offset the cost of solar development (which incentives may be increased further under a Biden administration).  The other factor is that the cost of PV cells has decreased significantly over the last few years (and will likely continue to decrease).  

 The rapid growth of solar energy production has caused owners of large tracts of land (including farmers) to consider whether alternative uses of their land may bring them a higher rate of return.  However, solar farm developers are generally very selective when choosing potential land for a solar farm.  The primary criteria such developers use when choosing land are (i) frequency of sunlight (including the absence of sunlight blocking obstructions), (ii) proximity to important infrastructure like roads and grid connection points and (iii) quality of terrain (flat and free from large rocks is most desirable).   When a developer does find land that meets these criteria, it may aggressively pursue a long-term “solar lease” with the owner of the land for the development of a solar farm.  In these instances, a landowner should seek the advice of legal counsel before entering into a solar lease, as it will affect the use of and earnings from the land for generations.  Items to consider prior to agreeing to a solar lease include the following:

1.      Lease Term – Due to the significant investment made by the developer, solar leases are generally going to be for at least 20 years, during which time the land will be unavailable for other purposes.  Thus, a landowner should ensure he or she is willing to devote the land for this use for the entire length of the lease.  Solar leases may also include options by the developer to extend the term of the lease and/or obtain rights to use additional land owned by the landowner.  These terms should be negotiated carefully, and the implications should be fully understood by the landowner.    

 2.      Compensation – Landowners should be particularly careful about the way their compensation is structured.  A flat rental rate will provide a landowner with a steady and certain income stream on the land.  However, a developer may try to structure all or a portion of the rent based on the developer’s income and/or revenue.  This is generally ill-advised to the extent it can be avoided, as it reduces the certainty of income to the landowner.

 3.      Landowner Remedies – A landowner should ensure he or she will have a sufficient remedy in the event of a breach of the solar lease by the developer.  Developers may be newer companies without significant assets.  To the extent possible, a landowner should seek parent/owner guarantees and/or security deposits for his or her protection in the event the developer fails to fulfill its obligations under the solar lease.

 4.      Rights of Others – Mortgages, deeds of trust, farm leases and other rights in the landowner’s property that may be granted to others could preclude granting a solar lease on the land.  A landowner should ensure that no such other rights in the land have been granted that could conflict with the solar lease.  Failure to do so could cause a landowner to be in breach of other agreements and/or the solar lease, resulting in significant costs to the landowner.

 5.      Land Impact – The installation of a solar farm may cause long-term damage to the soil and/or irrigation systems of farmland.  It may take considerable time and expense after the termination of a solar lease and removal of equipment for the land to be returned to a condition suitable for crop production.  The allocation of the costs of returning the land to such condition should be addressed in the solar lease.

6.      Taxes – Solar leases may impact the classification of land as agricultural for tax purposes. This can increase a landowner’s taxes going forward, and may result in recapture of prior tax reductions.  A landowner should understand the tax impact of any solar arrangement and the lease should allocate which party is responsible for taxes during the lease term, including any tax increases. 

 7.      Risk and Insurance – The lease should include customary indemnification and allocation of risk provisions.  The parties should also ensure that adequate insurance is carried by both to cover such obligations.

 8.      Maintenance – The developer is typically going to be the party that is responsible for maintaining the solar equipment, but the lease should also clearly specify which party is charged with maintaining access to such equipment and/or the area surrounding the solar equipment.

 9.      Community Perceptions – A landowner should consider how a solar lease may impact his or her relationship with the community.  Community members may object to the installation of a solar farm in their community for a variety of reasons.  These include (i) opposition to the appearance of solar panels on the landscape, (ii) concern over the impact  the construction and maintenance of a solar farm may have on neighboring properties (including property values) and (iii) distrust of outside developers.

Entering into a solar lease is a major decision, and landowners should not take entering into one lightly.  If you have any questions regarding a potential solar lease on your land, please contact a member of our Real Estate group.

The material in this publication was created as of the date set forth above and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

Nebraska Supreme Court Clarifies Enforcement of Covenants Regarding Homeowners’ Associations

Erickson | Sederstrom's attorneys’ have extensive background in real estate disputes.  If faced with a difficult issue involving real estate – including conveyances, development, zoning, construction, property tax, or other issues – we recommend you contact our office and speak with one of our attorneys. 

 Real estate developments typically are governed by covenants that require or prohibit certain actions by property owners.  To be enforceable, covenants must involve issues that “touch and concern” the land.  The “touch and concern” element of real property covenants has been convoluted in its development.  The Nebraska Supreme Court recently narrowed the interpretation of this element as applied to communities governed by a homeowners’ association (“HOA”).  See Equestrian Ridge Homeowners Ass'n v. Equestrian Ridge Estates II Homeowners Ass'n, 308 Neb. 128, 146 (2021).  Specifically, the court determined that the “touch and concern” element may be satisfied as applied to communities governed by an HOA when the “burden” of HOA payments is afforded to a “benefit” that is: (1) considered a necessity to the community; and (2) increases the value of the community’s lots.

 Facts

 In Equestrian Ridge Homeowners Ass'n v. Equestrian Ridge Estates II Homeowners Ass'n, the Nebraska Supreme Court decided a dispute between two neighboring HOAs involving real covenants running at law in a neighborhood near Gretna, Nebraska.  The covenants addressed requirements to maintain a street.

 In 2004, Ted Grace (“Grace”) and Duane Dowd (“Dowd”) owned contiguous tracks of land near Gretna.  Together, Grace and Dowd agreed to grant their respective tracts of land to Equestrian Ridge, an L.L.C. established by Grace and Dowd, and develop the tracts into residential subdivisions.  Subsequently, Grace and Dowd executed an additional agreement to develop Grace’s tract (“Equestrian Ridge Estates”) first, then Dowd’s tract (“Dowd Grain Subdivision”) thereafter.  All fifteen lots in Equestrian Ridge Estates were sold and were subject to the authority of its HOA through a series of covenants, conditions, and restrictions (“CC&R’s”).  During the development of Dowd Grain Subdivision, the parties determined that Shiloh Road, the only accessible pathway to the Subdivision, terminated at a dead end; therefore, the parties decided to improve accessibility to the Subdivision by “extending Shiloh Road past its dead end to the west, across the border with” Equestrian Ridge Estates.  This agreement was evidenced by Dowd’s promise to subject Dowd Grain Subdivision and its forthcoming HOA, through a series of CC&R’s, “to a sharing of one third of the costs and expenses for the repair and maintenance of 232d Street within Equestrian Ridge Estates.”

 After developing several lots within Dowd Grain Subdivision and renaming the subdivision Equestrian Ridge Estates II, Dowd resigned from the HOA.  Thereafter, “[t]he board members of Equestrian Ridge Estates II HOA formally accepted Dowd's relinquishment of all his interests and agreed to manage the subdivision, and contributed its share of maintenance costs to improve 232d Street.

 In early 2015, Equestrian Ridge Estates II HOA “met to discuss major roadwork that was expected along 232d Street” and made several complaints, including “that when Equestrian Ridge Estates HOA made repairs to 232d Street, it did so without the input of Equestrian Ridge Estates II HOA.”  Equestrian Ridge Estates II HOA further complained “that they only ever learned about 232d Street maintenance projects upon receiving invoices from Equestrian Ridge Estates HOA, typically without any explanation about the maintenance for which they were being asked to contribute.”  Afterwards, Equestrian Ridge Estates II HOA amended its CC&R’s “to remove any requirement of [their] lot owners to contribute to maintenance costs of 232d Street” and refused to contribute to road maintenance costs, while Equestrian Ridge Estates HOA paid the entire amount.  As a result, Equestrian Ridge Estates HOA filed suit against Equestrian Ridge Estates II HOA to seek payment for the road maintenance costs pursuant to the covenants.

 Legal Conclusions

 The Nebraska Supreme Court held that Equestrian Ridge Estates II HOA “was bound to contribute to 232d Street maintenance costs under the 2004 Agreement” because Equestrian Ridge Estates II HOA “was a successor in interest of Dowd Grain Subdivision and, as such, was bound by the covenant at issue in the 2004 Agreement, which runs with the land in perpetuity.”  In support of its holding, the Nebraska Supreme Court set forth and applied the three requirements for a covenant to run with the land:

(1) The grantor and the grantee must have intended that the covenant run with the land, as determined from the instruments of record; (2) the covenant must touch and concern the land with which it runs; and (3) the party claiming the benefit of the covenant and the party who bears the burden of the covenant must be in privity of estate. 

 Applied here, the “intent to bind” element was met because it was contemplated in the 2004 agreement that the covenants at issue “would bind lot owners in the future.”  When considering the “touch and concern” element, the court noted that “it has been found impossible to state any absolute tests to determine what covenants touch and concern land and what do not.”  Therefore, this issue was “one for the court to determine in the exercise of its best judgment upon the facts of [the] case.”

 The Nebraska Supreme Court has adopted a clearer explanation of “what it means for a covenant to touch and concern the land.”  The “covenant must impose, on the one hand, a burden upon an interest in land, which on the other hand increases the value of a different interest in the same or related land.”  The “touch and concern” element is met in this instance because “[i]n exchange for the burden of being required to contribute to 232d Street maintenance costs, Dowd afforded Equestrian Ridge Estates II and its future lot owners the benefit of paved access across 232d Street to public roads.”

 Finally, the Nebraska Supreme Court distinguished and applied various definitions of “privity” when analyzing the third element of “privity of estate.”  See id. at 146-47.  In essence, “privity” can be “defined as mutual or successive relationships to the same right of property, or such an identification of interest of one person with another as to represent the same legal right or derivative interest . . . between parties.”  Id. at 147.  The “privity of estate” element is satisfied in this case because Equestrian Ridge Estates II, the same property that Dowd once owned, is now controlled by Equestrian Ridge Estates II HOA and owned by Equestrian Ridge Estates II HOA and Equestrian Ridge Estates II's lot owners.  Id.  Accordingly, “Dowd and these lot owners are successive owners of the same land pursuant to their deeds of purchase for the lots.”  Id. 

 Therefore, Dowd’s promise to subject his subdivision to a requirement to contribute to 232d Street maintenance costs at the time of the 2004 agreement “was a covenant that ran with the land.”  As a result, Equestrian Ridge Estates II HOA, as the successor in interest to Dowd, was bound to contribute to 232d Street maintenance costs.

 Future Developments for Covenants Running at Law as Applied to Communities Governed by an HOA

 Although the “touch and concern” element has been convoluted throughout its development, the Nebraska Supreme Court has now narrowed its interpretation of this element as applied to communities governed by an HOA.  Specifically, the court determined that the “touch and concern” element may be satisfied as applied to communities governed by an HOA when the “burden” of HOA payments is afforded to a “benefit” that is: (1) considered a necessity to the community; and (2) increases the value of the community’s lots, such as the street maintenance costs involved here. 

Nebraska Supreme Court Draws a Fine Line Between Federal and State Arbitration Laws in Home Sales

On any given day, millions of Americans are entering into contracts both big and small. Some of these contracts represent the terms and conditions for a major life decision for those people, while other contracts represent transactions that no one would give a second thought to. For example, as you are reading this article there is likely someone signing their name to a contract for a mortgage on the home they plan to raise their children in. Meanwhile someone somewhere else is agreeing to the terms and conditions of a mobile app designed to super impose animated animals over their face in a selfie. Regardless of the seriousness of the contract, people are more often than not agreeing to arbitration clauses that they never read.

Most people do not even realize that they are agreeing to arbitration clauses that will keep them out of the courthouse when they enter into these contracts. Even more people do not realize that arbitration is governed by one of two sets of laws in most cases, and parties who are not carefully drafting those clauses might find them unenforceable. Recently, in a nasty dispute between a property management company and a home buyer, the Nebraska Supreme Court in Garlock v. 3DS Properties, L.L.C., considered whether an arbitration clause found in the contract for the sale of a home was governed by Nebraska arbitration law or federal arbitration law.

In Garlock, the Garlocks purchased a home from 3DS Properties. The Garlocks later sued 3DS Properties for damages they alleged were caused by serious problems in the home which 3DS Properties did not disclose as required by law. The Garlocks brought this lawsuit in state court, and 3DS Properties sought to have it removed from state court and taken to arbitration. Both the Garlocks and 3DS Properties disagreed on where the Garlock’s claim should be considered. The dispute lasted several years until it eventually landed in the Nebraska Supreme Court. That dispute highlighted two important distinctions that should always be considered by anyone entering into a contract with an arbitration clause in Nebraska.

ATTENTION TO DETAIL REALLY MATTERS

Because the Garlocks wanted their case to be heard in state court rather than in an arbitration court, they argued that the arbitration clause in the contract between them and 3DS Properties was unenforceable under Nebraska’s Uniform Arbitration Act. The Garlocks based this argument on the fact that the contract between them and 3DS Properties contained a clause above the signature line that read:

THIS CONTRACT CONTAINS AN ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

The Garlocks reasoned that because this notice was not underlined it was not enforceable under Nebraska’s Uniform Arbitration Act. The Nebraska Uniform Arbitration Act requires that all contracts with binding arbitration clauses include the above notice which must be capitalized and underlined in order to be enforceable. Because this notice was not underlined the Nebraska Supreme Court reasoned that, standing alone, the arbitration clause in the contract between the Garlocks and 3DS Properties was unenforceable on its face under Nebraska law.

This one minor detail was missed by 3DS Properties in the drafting of its real estate sale contract and highlights the importance of utilizing a qualified attorney in the contract review process. 3DS Properties was not without a strong counterargument, however.

ARBITRATION MATTERS ARE GOVERNED BY BOTH STATE & FEDERAL LAWS

3DS Properties badly wanted to have this dispute heard in arbitration court. To do this, 3DS Properties had to counter the Garlock’s argument that the arbitration clause was unenforceable because it failed to have an all capitalized and underlined notice. Rather than accepting Nebraska law as the governing choice of law, 3DS Properties argued that the arbitration clause governed by federal arbitration law and therefore did not have to include an underlined notice.

This argument was based on the Nebraska Supreme Court’s holding in Wilczewski v. Charter West National Bank where the Court held that federal arbitration laws applied to all contracts formed in interstate commerce under Title 9 of the United States Code. In cases where federal arbitration laws apply, contracts do not have to meet the requirements under Nebraska’s Uniform Arbitration Act. In Wilczewski, the sale of a home under foreclosure contained an arbitration clause which the buyers argued was unenforceable under Nebraska’s Uniform Arbitration Act. There, the Court reasoned that the arbitration clause did not have to comply with Nebraska’s Uniform Arbitration Act because the sale of homes in foreclosure are done by banks who are integral parts of the stream of interstate commerce.

3DS Properties tried to harness this reasoning in their dispute against the Garlocks. The Nebraska Supreme Court, however, disagreed when they determined that the simple sale of a home, rather than a foreclosure done by a bank, was purely an intrastate activity rather than an interstate activity. In other words, contracts governing the sale of real estate in Nebraska which do not involve parties from other states or lenders from other states is considered an intrastate activity and must conform to the requirements of the Nebraska Uniform Arbitration Act for arbitration to be binding.

IMPORTANT TAKEAWAYS FROM THE GARLOCK CASE

First, the details really do matter. Whether you are drafting a contract, or you are agreeing to a contract someone else has drafted it is important to fully understand all terms, conditions, and laws that govern those terms and conditions. In the case of Garlock, the parties could have avoided thousands of dollars in expenses, and years of litigation by simply underlining a single sentence in their sale contract. Moreover, the parties could have saved a great deal of trouble by having a qualified attorney review their sales contract prior to its execution.

Second, the context of a contract can completely change the arbitration laws it is governed by. If you are a party who prefers arbitration over traditional litigation, it is imperative that you understand the context in which your contract is being executed. In Garlock, the parties were selling a home in a simple real estate transaction and therefore the arbitration laws of Nebraska applied to the formation of their contract. However, had these parties been using an out of state lender, or selling the property in a foreclosure, the federal arbitration laws would have applied to the formation of their contract.

If you are in the middle of trying to sort out the contents of an important contract, please do not go it alone unless you fully understand the legal ramifications of what you are drafting or agreeing to. If you have questions about contracts, the clauses in those contracts, or arbitration and arbitration clauses make sure you get in touch with a qualified attorney before it becomes a mess you cannot get out of.

Nebraska Legislature Considers Property Tax Relief Procedure for Property Owners Whose Property has been Damaged by a Natural Disaster

Lawmakers heard LB512, introduced by Senator Lou Ann Linehan, on April 9. The bill contains alterations in state tax law that were requested by the state Department of Revenue. The bill allows for a property owner to petition his or her county assessor for a reassessment of property value if the property was damaged or destroyed by a natural disaster. Senator Steve Erdman introduced an amendment, adopted 41-0, which would require the county assessor to report all real property destroyed by a fire or other natural disaster to the county board of equalization. The county board would then adjust the value. Senator Curt Friesen supported the amendment and stated that the amendment would not have a significant effect on a political subdivision tax revenue. Property owners who suffered significant losses in this year’s flooding should consider consulting with counsel to determine their options to reduce property tax liability.

In Nebraska, Lenders Have Five Years to Pursue Deficiency Lawsuits after Judicial Foreclosures

In First National Bank of Omaha v. Scott L. Davey and Deborah Davey, the Nebraska Supreme Court held that a creditor has five years to pursue a deficiency action in situations where a piece of real estate has been foreclosed through judicial proceedings.

Nebraska law provides that, when real estate lending is secured by a deed of trust, the deed of trust can be foreclosed either through a non-judicial trustee sale of the property or a judicial foreclosure proceeding.  If the foreclosure, through either process, does not generate enough proceeds to pay off the underlying loan, the lender will be entitled to pursue the defaulted party for the remaining unpaid balance (the “deficiency”).  The Nebraska Deed of Trust Act, however, states that any legal action to secure a deficiency judgment must be brought within three months after “any sale of property under a trust deed…”

In Davey, a deed of trust had been foreclosed through use of judicial foreclosure proceedings which culminated with a sheriff’s sale of the property.  A deficiency resulted, but the lender did not file a deficiency lawsuit within the three month time frame.  The Douglas County District Court held that the lender filed its deficiency action too late and the action was dismissed.  The Nebraska Supreme Court reversed that decision, finding that the general five year statute of limitations for written contract matters applied instead.  The Court found that, notwithstanding the statutory language, applying the shorter three month time frame to filing of deficiency actions after a judicial foreclosure sale could produce absurd results in some cases and that it was more appropriate, given the overall statutory intent, to apply the five year limit instead.  Accordingly, lenders using the judicial foreclosure process have a considerable length of time to determine whether they wish to seek a deficiency judgment when the foreclosure did not produce enough funds to pay off the underlying loan.  
Davey reflects that, in Nebraska, despite the expedient procedure for foreclosure provided in the Deed of Trust Act, many situations can exist in which judicial foreclosure is more appropriate.  While the judicial process will take much longer, it is appropriate for use in situations in which competing liens need to be resolved, and can also be appropriate when the lender will need more time to evaluate its options.  

Erickson|Sederstrom attorneys are available to aggressively pursue both judicial and non-judicial foreclosure actions and any resulting deficiency suits.  Erickson|Sederstrom attorneys also provide a wide variety of additional real estate litigation services, including quiet title actions and landlord/tenant dispute litigation.