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
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