Klein v. Oakland/Red Oak Holdings, 294 Neb. 535

Background

Owners Sickels granted five trust deeds to Oakland State Bank (later assigned to Oakland/Red Oak Holdings). A substitute trustee was appointed.
Situs, LLC purchased a tax certificate in 2010; the certificate was assigned to Vandelay Investments, which applied for and received two treasurer’s tax deeds in July and August 2013; both deeds were recorded before the trustee’s sale.
On October 2, 2013, a trustee’s sale was conducted; appellees (the Kleins and the Lynches) purchased the trustee’s deed for $40,001 and received a trustee’s deed the following day.
The appellees did not review recorded public records before bidding and lacked actual knowledge of the recorded treasurer’s tax deeds; they later discovered competing title claimed by Vandelay.
Appellees sued in equity to set aside the trustee’s sale and recover their purchase price; the district court voided the sale and ordered Oakland to return the funds.
The Nebraska Supreme Court reversed, holding (1) treasurer’s tax deeds passed title free and clear of prior liens and were recorded before the trustee’s sale, and (2) caveat emptor applies to trustee’s sales, so the purchasers bore the risk for failing to examine the record.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the trustee’s sale is void because a prior treasurer’s tax deed divested the trust deed of title	Trustee’s sale is void because treasurer’s tax deeds extinguished Oakland’s interest, so purchasers received no title	Trustee’s sale is valid against purchasers who had record notice; purchasers assumed the risk by not examining records	Held: Sale is not void as to appellees; purchasers on record notice are bound (trust deed divested but purchaser’s remedy is not cancellation due to caveat emptor)
Whether purchasers were entitled to return of purchase price due to lack of warranty or conveyable title	Appellees sought rescission and return of funds because trustee had no title to convey	Oakland argued purchasers must bear loss for failing to inspect public records; no duty to disclose	Held: Purchasers are not entitled to rescission; their failure to examine title bars relief and they must bear the loss
Applicability of caveat emptor to nonjudicial (trustee) sales	Purchasers argued equitable relief despite inattention	Oakland argued caveat emptor applies to trustee’s sales and bars relief where purchaser is negligent	Held: Nebraska adopts caveat emptor for trustee’s sales; purchasers must examine title and cannot recover if negligent
Effect of recorded treasurer’s tax deed on priority and notice	Appellees contended they had no actual notice so should be protected	Oakland contended recording imparted constructive notice: race-notice statutes and trust deed recording provisions	Held: Recorded treasurer’s tax deeds imparted record notice; appellees were chargeable with notice despite lack of actual knowledge

Key Cases Cited

First Nat. Bank of Omaha v. Davey, 285 Neb. 835 (discusses the Nebraska Trust Deeds Act and statutory construction)
Enquist v. Enquist, 146 Neb. 708 (doctrine of caveat emptor applies to judicial sales; purchaser must examine title)
Knosp v. Shafer Properties, 19 Neb. App. 809 (treasurer’s tax deed passes title free and clear of prior liens and encumbrances)
Slaughter’s Administrator v. Gerson, 80 U.S. (13 Wall.) 379 (equitable courts will not relieve parties for their own inattention)
Ihde v. Kempkes, 228 Neb. 433 (purchaser is charged with notice of recorded instruments and must exercise increased diligence)