Nebraska Supreme Court Clarifies Statute of Limitations for Deficiency Actions Following Judicial and Nonjudicial Foreclosures of a Trust Deed
The Nebraska Trust Deeds Act authorizes individuals or entities to secure performance of an obligation by conveying real property to a trustee by trust deed. Following a breach of the underlying obligation, the Act permits sale of the property by either (1) nonjudicial foreclosure, which relies on the trustee’s power of sale or (2) judicial foreclosure by court decree and sheriffs sale. The Act further provides that, if additional amounts are still owned, lenders may commence deficiency actions within three months “after any sale of property under a trust deed.” In First National Bank v. Davey, 285 Neb. 835 (2013), the Nebraska Supreme Court clarified how this three-month statute of limitations applies to judicial and nonjudicial foreclosures.
Here, Scott and Deborah Davey gave a promissory note to First National Bank of Omaha and secured the loan with a trust deed on certain real property. When the Daveys defaulted on the note, First National judicially foreclosed on the property. Because the proceeds of the sheriff’s sale were not sufficient to cover the loan, First National sued the Daveys to recover the deficiency. First National filed this suit 99 days after the sheriff’s sale of the property.
The District Court of Douglas County held that the three-month statute of limitations for deficiency actions under the Act barred First National’s action. First National appealed.
The Nebraska Supreme Court reversed. The Court concluded that the three-month statute of limitations in the Act only applies to deficiency actions filed after an exercise of the trustee’s power of sale in a nonjudicial foreclosure. Where a deficiency action is brought following a judicial foreclosure of a trust deed, it is governed by the general five-year statute of limitations for actions on written contracts. The Court reasoned that a judicial foreclosure is court-ordered and is not dependent on the Act or the powers of sale granted thereunder. As such, First National’s action was timely and the statute of limitations did not bar this action.