2026 ISSUE 5 OFFICIAL PUBLICATION OF THE NEBRASKA BANKERS ASSOCIATION President’s Message Building the Banking Industry’s Next Generation
233 S. 13th St., Ste. 700 Lincoln, NE 68508 Phone: (402) 474-1555 • Fax: (402) 474-2946 www.nebankers.org EDITORIAL STAFF RICHARD BAIER President & CEO richard.baier@nebankers.org GISELA JUNDT Director of Communications & Marketing gisela.jundt@nebankers.org BOARD OF DIRECTORS TRAVIS SEARS NBA Chair Union Bank & Trust Co., Lincoln SCOTT ZIMBELMAN NBA Chair-Elect Homestead Bank, Cozad MARK LINVILLE NBA Past Chair Homestead Bank, Randolph KRISTY BARTAK Nebraska State Bank & Trust Co. Broken Bow NICK BAXTER First National Bank of Omaha Omaha THOMAS CORRIGAN ACCESSbank Omaha KRYSTI CUNNINGHAM Security National Bank of Omaha Omaha JASON HANSEN Associated Bank Omaha CURTIS HEAPY Western Nebraska Bank Curtis ZAC HOLOCH Cornerstone Bank York JEFF KANGER First State Bank Nebraska Lincoln KRISTEN MARSHALL-MASER Five Points Bank Grand Island JEREMY McHUGH Corn Growers State Bank Murdock AARON OTTEN Elkhorn Valley Bank & Trust Norfolk KEVIN POSTIER Henderson State Bank Henderson LUKE RICKERTSEN Flatwater Bank Gothenburg BRIAN SCHWEIGER U.S. Bank, N.A. Lincoln RYNE SEAMAN Cattle Bank & Trust Seward RYAN STEFFENSMEIER First Community Bank Beemer KELLY TRAMBLY South Central State Bank Campbell NICK VRBA RVR Bank Fremont MICHAEL WHEELER Wells Fargo Bank, N.A. Omaha ANDREW WITT Dundee Bank Omaha NBA 4 NEBRASKA BANKER
EDITORIAL: Nebraska Banker seeks to provide news and information relevant to Nebraska and other news and information of direct interest to members of the Nebraska Bankers Association. Statement of fact and opinion are made on the responsibility of the authors alone and do not represent the opinion or endorsement of the NBA. Articles may be reproduced with written permission only. ADVERTISEMENTS: The publication of advertisements does not necessarily represent endorsement of those products or services by the NBA. The editor reserves the right to refuse any advertisement. SUBSCRIPTION: Subscription to the magazine, which began bimonthly publication in May 2006, is included in membership fees to the NBA. ©2026 The Nebraska Bankers Association (NBA) | MBR Connect™. All rights reserved. Nebraska Banker is published six times per year and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of NBA, its board of directors or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. Nebraska Banker is a collective work, and as such, some articles are submitted by authors who are independent of NBA. While a first-print policy is encouraged, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at (801) 676-9722. CONTENTS 6 20 6 PRESIDENT’S MESSAGE BUILDING THE BANKING INDUSTRY’S NEXT GENERATION Richard Baier, President and CEO, Nebraska Bankers Association 9 WASHINGTON UPDATE IT’S TIME TO TALK TOKENIZATION Rob Nichols, President and CEO, American Bankers Association 11 THE FORENSICS BEHIND FRAUD INVESTIGATIONS Sheriff Aaron Hanson on Evidence, Prevention and Bank Cooperation Laurie Johnson, Communications & Marketing Coordinator, Nebraska Bankers Association 14 TECH TALK GENAI SECURITY AND PRIVACY: WHAT IT PROS NEED TO KNOW Jon Waldman, President and Co-Founder, SBS CyberSecurity 17 COUNSELOR’S CORNER TAX SALE CERTIFICATES What Nebraska Lenders Need to Know Laura P. Genett, Associate, Baird Holm LLP 20 MODERN CHECK FRAUD AND A FRAMEWORK FOR RECOVERY Which Bank Takes the Loss? David J. Routh, Partner, and Roger D. Sack, Associate, Cline Williams Wright Johnson & Oldfather LLP 24 THE CASE FOR A DEPOSIT RETENTION STRATEGY Profit Resources Inc. 26 HOW AI COULD RESHAPE THE MORTGAGE MARKET Andrea F. Pringle, Senior Vice President, The Baker Group 29 5 WAYS YOUR FRONTLINE STAFF CAN FIGHT FRAUD Haberfeld 32 2026-2027 EDUCATION CALENDAR Cover photo: The NBA has been active in connecting Nebraska bankers with college students interested in banking through Meet the Bankers events at various campuses. 5 NEBRASKA BANKER
PRESIDENT’S MESSAGE Building the Banking Industry’s Next Generation Richard Baier President and CEO, Nebraska Bankers Association During visits with NBA member banks, our staff often begins by asking, “What issue is keeping you awake at night?” Across banks of every size and in communities both rural and urban, one concern consistently tops the list: developing, attracting and retaining the talent our member banks need to remain competitive and profitable. As Nebraska emerged from the COVID lockdowns, the NBA Board of Directors directed staff to develop a strategy that would position banking as the career of choice for a larger, more diverse group of young Nebraskans. The Board subsequently approved funding for a comprehensive workforce strategy, resulting in the NBA’s “Bank on Your Future” workforce development initiative. Thanks to the work of NBA staff and the support of members across the state, your NBA team now actively engages students from high school through college. The work of the Bank on Your Future team is highlighted on two websites: 1. nebankers.org/workforce Provides member banks with practical information on how to participate in these workforce initiatives. We continue to update the website to keep it useful for human resources teams. Please contact the NBA to explore additional ways your institution can get involved. 2. bankonyourfuture.org Helps students explore banking careers, career fairs, scholarships and internships, as well as NBA student memberships. We encourage your bank to share this site when engaging with students and parents, visiting classrooms and making community presentations. Building on its outreach to future bankers at educational institutions across Nebraska, the NBA team also sought new ways to support the next generation of bankers already beginning their careers. For more than a decade, the NBA has maintained a Young Bankers of Nebraska (YBON) subcommittee of the Education Advisory Committee and sponsored the annual YBON Conference. This event routinely attracts more than 200 talented bankers from institutions of all sizes, representing communities from Falls City to Gordon and many places in between. The NBA’s Next Generation Engagement Coordinator, Jess Mumm, greeted students who stopped by the booth during a Meet the Bankers event at the University of Nebraska-Lincoln. 6 NEBRASKA BANKER
The energy and enthusiasm young bankers bring to the YBON Conference and to the industry at large are contagious. Over the past three years, the NBA team has also created dedicated educational and networking opportunities for bank interns and student employees to learn, grow and connect. These programs include events such as Young Bankers Day at the Capitol, which highlights the importance of teamwork between government relations and the banking sector. At its recent summer meeting, the NBA Board of Directors approved the next phase of the NBA workforce strategy: establishing formal YBON memberships and a YBON Committee beginning in fiscal year 2026-2027. The Board will appoint the YBON Committee, whose members will elect a chair to hold a non-voting seat on the NBA Board. The committee’s mission will be to advise and support the NBA and the banking industry in helping young bankers pursue their professional and personal goals. The expansion of YBON activities and programming is already underway. For example, the NBA coordinated a YBON Husker tailgate before the North Dakota game. Additional plans include lunch-and-learn sessions, virtual meetings and an online peer platform for YBON members. LINCOLN BRUNING endacotttimmer.com 402-817-1000 Legal advice. Community banking experience. Student employees and interns from Nebraska banks gathered for the NBA Summer Experience to learn more about the Nebraska Bankers Association and the banking industry while connecting with peers. Twelve young bankers joined the NBA at the Nebraska State Capitol for a day of learning about advocacy and the Unicameral process. More than 15,000 Nebraskans who work in banking already understand that it is a highly rewarding career choice. In cooperation with our 149 NBA member banks, the NBA team will continue showcasing banking careers to Nebraska students while supporting young bankers as they grow professionally. Together, we can encourage more Nebraskans to choose banking as their preferred career path. We invite every member bank to engage with Bank on Your Future and YBON as we build the industry’s next generation. 7 NEBRASKA BANKER
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For much of 2026, the conversation around digital assets has been dominated by stablecoins, as regulators worked to implement the GENIUS Act, the 2025 law governing stablecoins, and lawmakers debated the Clarity Act, a more comprehensive regulatory framework for all digital assets. To be clear, ABA supports establishing clear rules of the road for digital assets, but the version of the Clarity Act under consideration when the Senate recessed in August needs to be strengthened. With help from bankers, our state association partners and other business groups, we’re engaged in an all-out push to protect local lending and the economic growth it fuels by ensuring crypto companies aren’t allowed to incentivize deposit flight from banks by offering yield-like rewards on payment stablecoins. While we continue our work to improve the Clarity Act and ensure crypto firms seeking to compete with banks face the same rigorous rules as banks, it’s also time to bring the opportunities that digital assets present for our sector to the center of the conversation, including opportunities around tokenized money. Simply put, “tokenization” is the process of representing ownership of an asset on a blockchain and “tokenized money” refers to programmable digital tokens — like stablecoins, tokenized deposits and central bank digital currencies — that represent ownership of money on a blockchain. The first thing to understand about tokenization is that it’s happening right now. Capital markets are already shifting bonds, funds and collateral onto shared ledgers, so it follows that tokenized securities will need tokenized money to work efficiently. Whether in capital markets or treasury management and payments scenarios, customers are looking to take advantage of blockchain’s ability to support always-on tech, instant settlement and programmability. Bankers need to get up to speed on what’s happening — or risk getting left behind. It’s Time to Talk Tokenization Rob Nichols President and CEO, American Bankers Association WASHINGTON UPDATE 9 NEBRASKA BANKER
Most bankers I speak to understand that tokenized money is important, but they aren’t sure what to do about it. That’s understandable, given the pain points currently standing in the way: Many banks find that they don’t have the scale to act alone; there are unsolved issues related to convertibility, fungibility and liquidity; “know your customer” and anti-money laundering challenges and so on. But there are also potential advantages to things like tokenized deposits: They provide stable value, improve capital efficiency, offer regulatory certainty, are recorded as “deposits” on the liability side of the balance sheet and enable credit intermediation. Across the industry, work is underway to determine how tokenized money could support faster settlement, better liquidity management and new treasury services for customers. You’ve probably seen recent announcements about banks, consortia and others launching initiatives in this space. These are important developments, but the point is not that every bank needs to build its own solution. Rather, banks of all sizes need a path to participate safely and at scale, and ABA, as well as state bankers associations and other industry partners, are focused on helping chart that path. ABA’s Office of Innovation has been at the leading edge of efforts to better understand how tokenization can benefit the banking industry from a strategic perspective. You’ll be hearing much more from us in the coming days on our work to help ABA members chart a path forward. America’s banks have always been pioneers in payments innovation — and we aren’t stopping now. Email Rob at nichols@aba.com. 800.228.2581 MHM.INC Now more than ever people want self-service options. With our core integrated ITMs we can make this a reality both in the lobby and in the drive-up of your branch. SELF-SERVICE BANKING 10 NEBRASKA BANKER
Most fraud victims don’t think they’ll ever become victims. They’re careful. They ignore suspicious emails. They don’t hand out personal information to strangers. Yet every year, scammers convince ordinary people to send thousands of dollars, surrender sensitive data or trust someone who doesn’t exist. So how do investigators track down a fraudster who’s hiding behind spoofed phone numbers, impersonated identities and digital transactions? NBA staff spoke with Douglas County Sheriff Aaron Hanson to discuss the forensic work that helps crack fraud cases, the tactics scammers are using right now, and the simple “red flags” everyone should know. How does your office work with banks, businesses and other agencies to combat fraud? Financial institutions and businesses are often well-positioned to identify suspicious activity early, and their cooperation can be extremely valuable. We work with banks, businesses and other agencies to share information, preserve records, identify patterns and respond to the reports of suspected fraud. Another extremely helpful collaboration with financial institutions is working with tellers who recognize common red flags that a customer is being scammed, enabling them to stop a transaction early, before funds are lost. Can you walk us through the steps of investigating a fraud suspect? What first raises the red flags? A fraud investigation typically begins with a complaint; this can be a report from a financial institution, a victim or another source. The first step is to establish what happened, who may have been affected and whether there is evidence of a crime. Red flags can vary depending on the scheme, but they often include transactions that do not fit a person’s normal activity, unusual requests for money or personal info, forged or altered documents, inconsistent explanations or a pattern of activity involving multiple victims. The Forensics Behind Fraud Investigations Sheriff Aaron Hanson on Evidence, Prevention and Bank Cooperation Laurie Johnson Communications & Marketing Coordinator, Nebraska Bankers Association 11 NEBRASKA BANKER
Crime solving is often pictured as fingerprints and DNA. When it comes to fraud cases, what kinds of forensic tools or digital evidence are investigators looking at? In fraud cases, investigators may examine bank and credit card records, transaction histories, emails, text messages, phone records, IP addresses, device data, blockchain transaction records, computers and mobile devices. The goal is to connect the activity to a person and determine how the scheme operated; sometimes this requires combining various records to build a clear timeline and identify the links among people, accounts and transactions. Have advances in technology made these digital investigations easier or harder? Technology has made both sides of the investigation more complicated. The volume of digital information can be challenging, but investigators have access to more information and better tools for analyzing large volumes of data. The biggest concern is the combo of technology, personalization and speed. Criminals can reach large numbers of people quickly, create convincing content and move money before a victim realizes what’s happening. We are also watching the continued use of cryptocurrency, digital payment platforms, social media and AI-generated content in fraud schemes. How have scams and fraud schemes evolved over the last few years? What’s occurring today that people may not have encountered five or 10 years ago? Scams have become more sophisticated, personalized and easier to carry out at scale. The amount of online data available for scammers to purchase — legally or otherwise — is astounding. Criminals may use AI-generated images, fabricated documents, cloned voices or other tactics to impersonate real people and organizations. Social media can also provide information that helps a scammer make a message appear personal and credible. The technology changes, but the underlying goal is often the same: to create trust and urgency to convince someone to send money or share personal info. The important point is that a convincing message is not necessarily a legitimate message. Verify the request independently before acting. How is law enforcement preparing for these emerging threats? Law enforcement agencies have to continue adapting. That includes training investigators on digital evidence, financial crimes, cryptocurrency, online investigations and new technologies. It also means maintaining relationships with agencies and organizations that can assist when a case extends beyond local jurisdiction. No single agency can address every fraud scheme alone. Collaboration, specialized training and timely information sharing are important parts of preparing for these threats. What gives you the confidence that law enforcement can stay ahead of these threats? Law enforcement continues to develop new investigative tools, improve training and build partnerships with financial institutions, technology companies and other agencies. Investigators are becoming more familiar with digital evidence and the ways criminals use technology. What are some of the most common scams facing Nebraskans right now? Common scams include impersonation schemes — like government impersonation or fraudulent requests involving family members — bank and financial institution fraud, online shopping scams, investment and cryptocurrency scams, romance scams and employment scams. Many of these are national or international schemes; a scam does not have to originate in Nebraska to have a real impact on someone in our community. What’s one tactic that tends to catch people off guard? When the scammer already knows something about them — their name, a family member’s name, a recent purchase or info that appears to come from a legitimate account. That familiarity can make the request seem more credible than it is. Fear and urgency remain two of the most common tools scammers use. They may claim that an account is about to be closed, that a loved one is in trouble, that a warrant has been issued or that payment must be made immediately. The goal is to keep the victim from slowing down and verifying the info. What psychological tricks should people be aware of? Scammers often use authority, fear, urgency, familiarity and a desire to help. They may also create a sense of secrecy — telling the victim not to speak with family members, bank employees or law enforcement — or make the victim feel that they’ve already invested too much to stop. If someone thinks they’ve been scammed, what should they do in the first hour? Acting quickly is important. If money has been sent, contact your bank immediately and explain that you believe you’re a victim of financial fraud. Ask what steps are available to stop, reverse or otherwise flag the transaction. Preserve all evidence, including messages, emails, phone numbers, receipts, account info and screenshots. Also, report the incident to law enforcement. Prompt reporting may improve the chances of 12 NEBRASKA BANKER
stopping a transaction and help recover the money if it has already been sent. What misconceptions do people have about fraud victims? One of the biggest misconceptions is that fraud victims are careless or that scams happen only to people who are not technologically savvy. That’s not true. These schemes are designed to manipulate people, and they can affect individuals of any age, income level or education. People should not feel embarrassed about reporting fraud. Shame and embarrassment often delay reporting, and that can make it more difficult to recover funds or identify the suspect. Reporting the crime helps law enforcement understand the scope of the problem and may prevent someone else from becoming a victim. How important is community education and public awareness in fighting fraud? Public awareness is critical. Fraud prevention is not just an investigative issue; it’s a community safety issue, and everyone has a role in it. The more people understand how fraud schemes work, the more likely they are to recognize the red flags before money or personal information is lost. Education also helps reduce the stigma around a person reporting that they were a fraud victim. If someone knows they can report a suspected scam without being judged, they may be more likely to come forward quickly. What are some red flags that should immediately make someone slow down, verify independently, and protect their personal information and money? Be cautious when someone demands immediate action, threatens consequences, asks you to keep the interaction secret, requests payment through an unusual method, or contacts you unexpectedly about an account or financial problem. Other red flags include unfamiliar links, offers that sound too good to be true or a person who refuses to let you verify their identity independently. If something feels unusual, pause and check it before acting. What can families do to protect themselves and loved ones from fraud? Families can help by having regular conversations about scams, encouraging loved ones to verify unexpected requests and creating a plan for what to do if someone receives a suspicious message or phone call. It’s also important to approach these conversations without judgment. The goal is to make sure people feel comfortable asking for help if they believe they’ve been a victim of fraud. More About Sheriff Hanson What inspired you to pursue a career in law enforcement? My path to law enforcement began as a teen. I was working at a small business in the Florence area and witnessed a robbery. After seeing how the Omaha police officer who responded handled the call and interacted with the victim, I was impressed. Conversations with that officer about his experiences piqued my curiosity in the field and really hooked me. What does a typical week as sheriff look like for you? Law enforcement is more about problem-solving than I think many people realize. There really is no such thing as a “typical week” in law enforcement. But every day brings new opportunities to learn, grow and serve our community. What’s one thing about Nebraska or your community that makes you proud to serve here? The people. What’s something about you that might surprise people? I am an apiarist (beekeeper). I also enjoy hunting and gardening. If you weren’t in law enforcement, what do you think you’d be doing? I would probably be a hydrologist. My dad was a chemist and oversaw the Douglas County landfill. I have always been interested in water use and groundwater protection. 13 NEBRASKA BANKER
The hype around generative AI is real, but so are AI risks and the pressure to justify your decisions, especially in regulated industries. Whether you’re fielding questions from your board, compliance team or most tech-savvy end users, the conversation always circles back to two things: security and privacy. We have spent a lot of time digging into the security and privacy documentation for six of the biggest GenAI platforms on the market. Here’s what you need to know before you roll them out. Microsoft Copilot If you’re already a Microsoft 365 shop, Copilot is the safest first step. It’s built with regulated industries in mind, layering on encryption, zero trust architecture and data isolation between tenants. Authentication runs through EntraID, so your existing permissions and policies carry over. Microsoft acts as a data processor under its data processing agreement, and — crucially — your prompts and responses aren’t used to train its models. Web queries are anonymized, and you get full audit logs and eDiscovery through Purview. Don’t use the consumer version for anything regulated. Stick to enterprise deployments. OpenAI ChatGPT ChatGPT is the most popular GenAI platform in the world, but not all versions are created equal. The enterprise, business and API versions offer robust security, SOC 2 Type II and ISO certifications, and external penetration testing. You own your data, and by default, it’s not used for training unless you opt in. But here’s the catch: The consumer versions (free and plus) are not recommended for regulated environments. Data may be retained and used for training unless you explicitly opt out, and admin controls are minimal. If you’re in finance, healthcare or any regulated space, opt for enterprise. Google Gemini Google’s Gemini is all-in on AI, and its enterprise deployments (via Google Cloud or Workspace) come with strong security features: AES-256 and TLS encryption, identity and access management controls, and VPC Service Controls. By default, Gemini doesn’t train on customer data unless you opt in. However, consumer-facing Gemini apps don’t offer the same controls and may retain data longer. If you’re a Google Workspace institution, Gemini is a solid choice. Otherwise, steer clear of the consumer apps for anything sensitive. TECH TALK GenAI Security and Privacy: What IT Pros Need to Know Jon Waldman President and Co-Founder, SBS CyberSecurity 14 NEBRASKA BANKER
Anthropic Claude Claude has made waves with its Claude for Financial Services model, tailored for analysts, underwriters and portfolio managers. Security is enterprise-grade, and you get zero-data-retention mode and custom retention policies. Claude does not train on user data by default and offers granular retention controls and opt-in memory features. If you’re processing large documents or need the strongest privacy protections, Claude is worth a look. Perplexity Perplexity is best known for its research and citation capabilities, and the Enterprise Pro for Finance version offers SOC 2 Type II compliance and zero data retention for API interactions. Consumer versions may retain data and lack strong authentication. Multifactor authentication isn’t built in, and some ambiguity remains in its data usage policies. If you’re considering Perplexity, stick to the enterprise version and review the documentation carefully. It’s great for deep research, but it shouldn’t replace your core compliance workflows. DeepSeek DeepSeek is known for being cost-effective and open source, but it’s not recommended for regulated environments. It lacks a clear encryption standard, appears to offer limited security controls and its servers are in China — meaning your data is subject to PRC law. Data may be retained indefinitely and used for model improvement. If you must use DeepSeek, self-host it and build your own security and compliance layers. Otherwise, steer clear if you’re handling sensitive financial or personal data. Key Takeaways Before deploying GenAI, step back and think strategically about governance, security and privacy. • Enterprise deployments are your friend. Consumer GenAI tools rarely offer the security you need. • Governance matters. Establish AI policies, inventory, risk assessments and training before deployment. • Know your use case. Not every platform fits every need. Be prepared to say no when risk outweighs value. • The Chief AI Officer seat is real. Start preparing now — AI governance is quickly becoming a board-level concern. This article was originally published on sbscyber.com. SBS helps business leaders identify and understand cybersecurity risks to make more informed and proactive business decisions. For more information, contact Ryan Kast at (605) 270-9381 or ryan.kast@sbscyber.com. Learn more at sbscyber.com. 15 NEBRASKA BANKER
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Imagine that you extend credit to a company and secure the loan with a deed of trust on its real property. The borrower may still be making its regular loan payments. However, it may already be showing signs of financial distress and has failed to pay property taxes. Those delinquent taxes are then sold, and a third party acquires a tax sale certificate. Suddenly, you face a problem: You do not hold the tax sale certificate, and the tax lien may take priority over your deed of trust. What do you do to protect your collateral? Although a tax sale certificate does not immediately transfer ownership of the property, it begins a legal process that can affect a lender’s rights, increase the cost of preserving the collateral, and ultimately threaten the lender’s lien position if the delinquency is not addressed. What Is a Tax Sale Certificate? When Nebraska real estate taxes become delinquent and remain unpaid, the county may eventually sell the tax lien through a tax sale.1 The purchaser at the tax sale receives a tax sale certificate rather than ownership of the property.2 Under the statute, the certificate evidences a perpetual lien on the real property for the taxes paid, and the holder may add any subsequently paid taxes to that lien. 3 If the property is not redeemed, the certificate may serve as the basis for further proceedings through which the holder may ultimately obtain title or enforce the lien, depending on the applicable statutory process. COUNSELOR’S CORNER Tax Sale Certificates What Nebraska Lenders Need to Know Laura P. Genett Associate, Baird Holm LLP 17 NEBRASKA BANKER
Because the certificate is a lien rather than a conveyance, the property owner retains ownership and redemption rights, and mortgagees and other interested parties may also redeem the property before any change in ownership occurs. For lenders, a tax sale certificate should therefore be viewed not as the immediate loss of collateral, but as the beginning of a process that requires monitoring and, in many cases, timely action. Tax Sale Certificates Do Not Immediately Transfer Title Although the prior section explains that a certificate is a lien rather than a conveyance, it is worth emphasizing the practical timeline. A lender typically has at least three years from the date a certificate is issued before the holder can even begin the process that leads to title4 transfer, and considerably longer where judicial foreclosure applies, since that path adds the time needed for service, a foreclosure decree, a sheriff’s sale and confirmation.5 The existence of this waiting period is important for lenders. Unlike an execution sale or a foreclosure judgment that may have immediate consequences, tax sale certificates often give interested parties an opportunity to evaluate the situation and determine an appropriate response. That said, lenders should not treat this waiting period as a reason for inaction. The following sections explain why prompt attention matters and what options are available. Nebraska Provides More Than One Enforcement Path Nebraska law provides multiple mechanisms by which a certificate holder may enforce a tax sale certificate, and the applicable path can significantly affect a lender’s risk assessment. Depending upon the circumstances, a certificate holder may pursue an administrative tax deed process or may proceed through judicial foreclosure.6 Nebraska law generally requires the certificate holder to proceed by judicial foreclosure rather than the administrative tax deed process once 110% of the assessed value of the property, less the amount needed to redeem, exceeds $25,000.7 This distinction can be significant because the applicable process may affect the timeline, notice requirements, costs and overall risk profile associated with the certificate. Because the applicable enforcement path depends on the specific property and statutory requirements, lenders should investigate the particular certificate early rather than assuming a uniform timeline or process. Why Tax Sale Certificates Matter to Lenders Many lenders first discover tax certificate issues during collateral reviews, renewals, workouts, title updates or discussions regarding distressed credits. A tax sale certificate issue can become substantially more expensive over time. Delinquent Nebraska real estate taxes accrue interest at 14% per annum from the applicable delinquency date, and the same 14% annual rate applies to the tax sale certificate redemption amount and to qualifying subsequent taxes paid by the certificate holder.8 As a result, delays in addressing a tax delinquency may significantly increase the amount necessary to redeem the property. One reason tax certificates are important is that tax problems do not necessarily correlate with loan payment performance. A borrower may be current on loan payments while simultaneously allowing property taxes to go unpaid. In other situations, tax delinquency may be one of the earliest indicators of financial distress. 18 NEBRASKA BANKER
From a lender’s perspective, unpaid property taxes can signal several potential concerns: • Cash flow issues; • Declining property performance; • Operational problems; • Deterioration in collateral value; or • Broader financial distress affecting the borrower. Because of these concerns, lenders should treat property tax monitoring as an important component of overall collateral management. Regular review of tax payment status can identify emerging issues well before they become more significant problems. Lender Options and Protective Measures When tax issues arise, lenders should review both the applicable tax procedures and the governing loan documents. Many loan documents contain provisions addressing: • Payment of taxes; • Events of default; • Lender protective advances; • Reimbursement rights; • Interest on advances; • Acceleration remedies; and • Guarantor obligations. These provisions can provide important tools for lenders seeking to protect collateral from tax-related risks. Nebraska law generally treats advances for real property taxes as future advances necessary to protect the lender’s security, secured by the mortgage and generally retaining the mortgage’s priority against later-acquired interests, with reimbursement and potential subrogation rights recognized when a lender pays taxes or redeems a certificate to protect its collateral.9 The appropriate response will vary. In some circumstances, advancing funds to redeem the certificate may be the most effective course of action; in others, a lender may choose to work with the borrower to resolve the issue. Regardless of the approach, lenders who understand their loan documents and act early generally have more flexibility than those who discover a certificate issue only after it has significantly matured. Conclusion Tax sale certificates rarely become a crisis overnight. More often, they develop gradually while lenders focus on payment performance, collateral values and other aspects of the lending relationship. By understanding how Nebraska’s tax sale certificate system operates, monitoring tax obligations and responding promptly when issues arise, lenders can better protect collateral and preserve available options before a tax problem evolves into a much larger credit issue. 1 Neb. Rev. Stat. § 77-1801. 2 Neb. Rev. Stat. § 77-1818. 3 Neb. Rev. Stat. § 77-1818; 1980 Neb. Op. Att’y Gen. No. 361. 4 Neb. Rev. Stat. § 77-1818. 5 Neb. Rev. Stat. § 77-1902 (three-year period and foreclosure filing window); Neb. Rev. Stat. § 77-1837(3) (administrative tax deed vs. judicial foreclosure threshold); Neb. Rev. Stat. §§ 77-1902, 77-1903, and 77-1914 (service, decree, sheriff’s sale, and confirmation). 6 Neb. Rev. Stat. §§ 77-1837 to 77-1863 (administrative tax deed); Neb. Rev. Stat. §§ 77-1901 to 77-1941 (judicial foreclosure). 7 Neb. Rev. Stat. § 77-1837(3). 8 Neb. Rev. Stat. §§ 45-104.01, 77-207, and 77-1824. 9 Neb. Rev. Stat. § 76-238.01; see also Criswell v. McKnight, 120 Neb. 317, 232 N.W. 586 (1930). 19 NEBRASKA BANKER
The following scenario has become all too common for community banks in recent years: • A bank customer reports an inaccurate account balance resulting from an unknown check drawn on the customer’s account. • The bank completes a preliminary investigation and determines that the check charged to the customer’s account is fraudulent. • The bank restores the funds to the customer’s account, either because the bank wants to make its customer whole or because it is legally required to do so. • Because the customer report came days or weeks after payment of the fraudulent check, the bank’s “midnight deadline” for returning the check has already passed.1 The bank cannot recover the funds through that channel. • The bank investigates further and determines that the fraudulent check was deposited in an account at a much larger financial institution over 1,000 miles away. The fraudster’s account was opened online shortly before the fraudulent check was deposited into it. • The bank also learns that the fraudster’s account has been closed or drained of funds. Both the fraudster and the money are gone. Modern Check Fraud and a Framework for Recovery Which Bank Takes the Loss? David J. Routh, Partner, and Roger D. Sack Associate, Cline Williams Wright Johnson & Oldfather LLP At this point, the bank whose customer was defrauded will want to recover the funds from the other bank whose customer committed the fraud. Common sense may suggest that the other bank should be responsible because it was the only one that had any contact with the fraudster. Unfortunately, the legal result is not that simple. Uniform Commercial Code Articles 3 and 4 The defrauded bank’s ability to recover from the second bank will depend, in large part, on Articles 3 and 4 of the Uniform Commercial Code (UCC). Specifically, when funds cannot be recovered from the fraudster, the question of “which bank takes the loss” will depend on whether the check was “properly payable” by the customer and the application of the “presentment warranties” for negotiable instruments and bank checks included in Articles 3 and 4 of the UCC. In the scenario described above, the UCC refers to the bank whose customer was defrauded as the “payor bank.”2 The UCC refers to the bank whose customer committed the fraud as the “depositary bank.”3 Potential Recovery: Breach of Presentment Warranties Under the UCC, when the depositary bank introduces the fraudulent check into the payment system as the bank of first deposit, the depositary bank makes the following presentment warranties: • Entitlement to enforce. The depositary bank warrants that it is a person entitled to enforce the check or authorized to obtain payment on behalf of a person entitled to enforce the check.4 • No knowledge of unauthorized drawer signature. The depositary bank warrants that it has no knowledge that the drawer’s signature on the check (the defrauded customer) is unauthorized.5 • No alteration. The depositary bank warrants that the check has not been altered.6 20 NEBRASKA BANKER
If any of these warranties is false, the payor bank is legally entitled to recover from the depositary bank, notwithstanding the fact that the “midnight deadline” has passed.7 The first two presentment warranties rarely provide a basis for the payor bank to recover. The first warranty (entitlement to enforce) requires an unauthorized or missing endorsement, which is uncommon on fraudulent checks. The second warranty (no knowledge of unauthorized drawer signature) requires proof that the depositary bank had actual knowledge of the forgery. This standard is difficult to satisfy, as there is rarely evidence that the depositary bank actually knew of the fraud. As a result, the third warranty (no alteration) is the critical one in most cases. Altered, Forged and Counterfeit Checks The third presentment warranty (no alteration) generally provides the best chance of recovery for the payor bank. “Altered” checks have a specific meaning under the UCC, and “altered” checks differ from “forged” and “counterfeit” checks. Thus, when a payor bank seeks to collect from a depositary bank for a fraudulent check, the payor bank normally will succeed only if it convinces the depositary bank (or a court) that the check was “altered” and not “forged” or “counterfeit.” The determination of whether the check was “altered,” “forged” or “counterfeit” likely will determine which bank takes the loss: • “Alteration” means (1) an unauthorized change in a check that purports to modify in any respect the obligation of a party, or (2) an unauthorized addition of words or numbers or other change to an incomplete check relating to the obligation of a party.8 Old-fashioned check-washing may lead to any of the following “alterations” to a check: (i) changing the payee name, (ii) an increase or decrease in the amount payable and/or (iii) completing an incomplete check other than as authorized. If the check is “altered,” the payor bank should recover from the depositary bank.9 • A “forged” check includes an unauthorized signature that was made without actual, implied or apparent authority.10 An example of “forgery” that leads to this result is a stolen checkbook, in which the thief uses the blank checks to forge the customer’s signature. If the check is “forged,” the payor bank likely will not recover from the depositary bank.11 • A “counterfeit” check is a wholly fabricated check rather than a modification to an existing check. For example, a fraudster may use a bank’s routing number and a customer’s account number to create (or order) new checks that resemble the customer’s actual checks. Counterfeit checks are generally treated the same as forged checks. Thus, if the check is “counterfeit,” the payor bank likely will not recover from the depositary bank. At the time the UCC was adopted, these outcomes reflected an allocation of risk that matched the technology of the era. A payor bank was believed to be best positioned to detect forgeries and counterfeits by comparing checks against its customers’ check stock and signature cards. A depositary bank, on the other hand, was believed to be in the best position to detect check-washing, erasures and other alterations. These assumptions, and the resulting outcomes, have not kept pace with modern technology. In the modern era, checks can be imaged, electronically manipulated and remotely deposited into accounts established online. The checks are then processed through a highly automated settlement system involving little to no review of physical checks by actual people. In this environment, the rationale for the outcomes dictated by the UCC can be difficult to discern, and the distinctions between “altered,” “forged” and “counterfeit” become exceedingly difficult to draw in practice.12 The Board of Governors’ Modernization In 2018, the Federal Reserve Board of Governors amended Regulation CC and adopted a rebuttable presumption of 22 NEBRASKA BANKER
Your Full-Service Bankers' Bank United Bankers' Bank is proud to be the nation's first bankers' bank, serving over 1,000 community banks from the West Coast to the Great Lakes and South Atlantic. We can't wait to share our passion for community banking with you! To Request Pricing Visit ubbRequest.com Contact your Nebraska Calling Officer: Michael Hahn VP, Correspondent Banking Officer michael.hahn@ubb.com ubb.com alteration.13 Under the new provision, when a dispute arises between banks as to whether a substitute check or electronic check is “altered,” “forged” or “counterfeit,” and the original paper check is not available for examination, there is a rebuttable presumption that the check was altered.14 Virtually all checks today are processed electronically, and the original paper check is rarely available by the time a fraud dispute surfaces. Thus, this presumption will apply in the vast majority of cases. The presumption established in 2018 will be quite helpful to a payor bank if its dispute with a depositary bank ends up in court. In that event, the practical effect will be significant: The presumption shifts the burden to the depositary bank to prove by a preponderance of evidence that the check was either forged or counterfeit. If the depositary bank cannot carry that burden, the payor bank’s warranty claim should succeed. On the other hand, prior to litigation (when most of these disputes are resolved), the presumption’s practical effect is less significant. In the absence of clear rulings from courts establishing the distinctions between “altered,” “forged” and “counterfeit” checks, payor banks continue to argue that the right kind of electronic manipulation of imaged checks, or a sufficient number of different changes to the same imaged check, renders the check “counterfeit” instead of “altered,” even when Regulation CC’s presumption applies.15 Conclusion For community banks that learn their customer is the victim of a fraudulent check scheme, and if the bank is facing the scenario described at the outset of this article, the combination of the UCC’s presentment warranties and Regulation CC’s presumption of alteration provides a potential path to recovery from a depositary bank. The payor bank should be prepared to argue and prove that the check was not only fraudulent but also “altered.” The facts and legal issues will vary in every case. Banks are encouraged to contact counsel when dealing with particular challenges or complications related to fraudulent check schemes. David J. Routh is a partner, and Roger D. Sack is an associate with Cline Williams Wright Johnson & Oldfather LLP in Lincoln, Nebraska. They represent banks, bank holding companies and other financial institutions in the areas of mergers, acquisitions and divestitures, regulatory compliance, and lending and finance. 1 See UCC §§ 4-302(a) and 4-104(a)(10). 2 UCC § 4-105(3). 3 UCC § 4-105(2). 4 UCC §§ 3-417(a)(1) and 4-208(a)(1). 5 UCC §§ 3-417(a)(3) and 4-208(a)(3). 6 UCC §§ 3-417(a)(2) and 4-208(a)(2). 7 UCC § 4-302(b). An additional presentment warranty also exists in some cases under Articles 3 and 4 of the UCC, as well as Regulation CC, for “demand drafts” (also called “remotely created consumer items” and “remotely created checks”). Demand drafts are electronic checks that are not signed by the account holder and are created by a third party (normally the payee) under the purported authority of the account holder to charge the account holder’s account. This additional presentment warranty is not discussed in this article because most fraudulent checks include purported customer signatures. However, if the fraudulent check is a “demand draft” under the UCC, the prospects for the payor bank to recover from the depositary bank are significantly improved. For these “demand drafts” only, the depositary bank represents that the person on whose account the check is drawn has authorized the issuance of the check in the actual amount of the check. 8 UCC § 3-407. 9 UCC §§ 3-417(d)(2), 4-208(a)(2) and 4-302(b). 10 See UCC Section 1-201(b)(41) (providing that an “unauthorized signature” includes a forgery). 11 UCC § 3-403(a). 12 Nebraska courts have not yet provided definitive guidance on this distinction, and other courts have noted a “dearth of case law” in this area generally. See Community Bank, N.A. v. JPMorgan Chase & Co., 761 F.Supp.3d 469, 476 (N.D.N.Y 2024) 13 See 83 FR 46849, codified at 12 CFR § 229.38(i). 14 Id. 15 See, e.g., Community Bank, N.A. v. JPMorgan Chase & Co., 761 F.Supp.3d 469 (N.D.N.Y 2024); see also Provident Savings Bank, F.S.B. v. Focus Bank, 548 F.Supp.3d 862 (E.D.Mo. 2021). 23 NEBRASKA BANKER
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