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
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