LB 477 Impacts Secured Creditor Rights in Certified Irrigated Acres in Nebraska

Background

Water rights are critical to the value of agricultural lands.  These rights have come under increasing regulation in Nebraska by the various natural resources districts due to over appropriation of ground water supplies and persistent drought.  Most natural resources districts have adopted rules to curb expansion of irrigation through a certification program for existing irrigated lands.  To provide flexibility for landowners with certified irrigated acres, natural resources districts have allowed landowners to transfer their ground water usage rights to other properties owned by them, to sell those rights to third parties or to surrender those rights to the natural resources district in exchange for financial incentives.  Under Nebraska law prior to the enactment of LB 477, secured creditors having a deed of trust or mortgage on property with certified irrigated acres had no legal right to receive any notice of a transfer or surrender of the water usage rights nor any right to approve or disapprove these transactions as a condition to the transfer or surrender.

Legislative Action

LB 477 was signed by Governor Heineman on April 22, 2009, and will become effective in September, 2009.  It requires landowners seeking approval for any transfer or surrender of their water usage rights to supply the natural resources district with a title report covering all tracts of land from which ground water usage rights are to be transferred or surrendered and identifying the name and address of each lienholder who has filed a mortgage or trust deed on the affected real estate. 

Prior to approving the transfer or surrender, the natural resources district having jurisdiction must determine that the landowner has obtained the written consent of each affected lienholder.  In turn, the natural resources district is required to record an instrument of transfer of the right to use ground water with the register of deeds in each county where real estate losing water usage rights is located.

Impact on Agricultural Lenders

• After the effective date of LB 477, any transfer or surrender of water usage rights will require the written consent of those lienholders disclosed in the title report in order to be effective.  Lienholders may withhold consent.  An approved transfer or surrender will be reflected in the real estate records.
• Transfers or surrender of certified acres occurring prior to the effective date of LB 477 do not require lienholder consent and are generally reflected only by records of the natural resources district.  Lenders will need to contact the natural resources district to determine whether the water usage rights on any parcel of property that is intended as collateral have been transferred or surrendered prior to the effective date of LB 477.
• Allocations made by natural resources districts of the amount of ground water that may be pumped by a landowner each year, and any transfer of these allocations are not impacted by LB 477.  If the landowner has a multi-year water allocation, the allocation could be fully utilized before the end of the allocation period.  Lenders must contact natural resource districts to determine current allocation status.

The contents of this article are intended for general informational purposes only and should not be construed as legal advice. Readers are urged not to act upon the information contained in this publication without first consulting an attorney.