Real Estate


Nebraska Supreme Court Draws a Fine Line Between Federal and State Arbitration Laws in Home Sales

On any given day, millions of Americans are entering into contracts both big and small. Some of these contracts represent the terms and conditions for a major life decision for those people, while other contracts represent transactions that no one would give a second thought to. For example, as you are reading this article there is likely someone signing their name to a contract for a mortgage on the home they plan to raise their children in. Meanwhile someone somewhere else is agreeing to the terms and conditions of a mobile app designed to super impose animated animals over their face in a selfie. Regardless of the seriousness of the contract, people are more often than not agreeing to arbitration clauses that they never read.

Most people do not even realize that they are agreeing to arbitration clauses that will keep them out of the courthouse when they enter into these contracts. Even more people do not realize that arbitration is governed by one of two sets of laws in most cases, and parties who are not carefully drafting those clauses might find them unenforceable. Recently, in a nasty dispute between a property management company and a home buyer, the Nebraska Supreme Court in Garlock v. 3DS Properties, L.L.C., considered whether an arbitration clause found in the contract for the sale of a home was governed by Nebraska arbitration law or federal arbitration law.

In Garlock, the Garlocks purchased a home from 3DS Properties. The Garlocks later sued 3DS Properties for damages they alleged were caused by serious problems in the home which 3DS Properties did not disclose as required by law. The Garlocks brought this lawsuit in state court, and 3DS Properties sought to have it removed from state court and taken to arbitration. Both the Garlocks and 3DS Properties disagreed on where the Garlock’s claim should be considered. The dispute lasted several years until it eventually landed in the Nebraska Supreme Court. That dispute highlighted two important distinctions that should always be considered by anyone entering into a contract with an arbitration clause in Nebraska.


Because the Garlocks wanted their case to be heard in state court rather than in an arbitration court, they argued that the arbitration clause in the contract between them and 3DS Properties was unenforceable under Nebraska’s Uniform Arbitration Act. The Garlocks based this argument on the fact that the contract between them and 3DS Properties contained a clause above the signature line that read:


The Garlocks reasoned that because this notice was not underlined it was not enforceable under Nebraska’s Uniform Arbitration Act. The Nebraska Uniform Arbitration Act requires that all contracts with binding arbitration clauses include the above notice which must be capitalized and underlined in order to be enforceable. Because this notice was not underlined the Nebraska Supreme Court reasoned that, standing alone, the arbitration clause in the contract between the Garlocks and 3DS Properties was unenforceable on its face under Nebraska law.

This one minor detail was missed by 3DS Properties in the drafting of its real estate sale contract and highlights the importance of utilizing a qualified attorney in the contract review process. 3DS Properties was not without a strong counterargument, however.


3DS Properties badly wanted to have this dispute heard in arbitration court. To do this, 3DS Properties had to counter the Garlock’s argument that the arbitration clause was unenforceable because it failed to have an all capitalized and underlined notice. Rather than accepting Nebraska law as the governing choice of law, 3DS Properties argued that the arbitration clause governed by federal arbitration law and therefore did not have to include an underlined notice.

This argument was based on the Nebraska Supreme Court’s holding in Wilczewski v. Charter West National Bank where the Court held that federal arbitration laws applied to all contracts formed in interstate commerce under Title 9 of the United States Code. In cases where federal arbitration laws apply, contracts do not have to meet the requirements under Nebraska’s Uniform Arbitration Act. In Wilczewski, the sale of a home under foreclosure contained an arbitration clause which the buyers argued was unenforceable under Nebraska’s Uniform Arbitration Act. There, the Court reasoned that the arbitration clause did not have to comply with Nebraska’s Uniform Arbitration Act because the sale of homes in foreclosure are done by banks who are integral parts of the stream of interstate commerce.

3DS Properties tried to harness this reasoning in their dispute against the Garlocks. The Nebraska Supreme Court, however, disagreed when they determined that the simple sale of a home, rather than a foreclosure done by a bank, was purely an intrastate activity rather than an interstate activity. In other words, contracts governing the sale of real estate in Nebraska which do not involve parties from other states or lenders from other states is considered an intrastate activity and must conform to the requirements of the Nebraska Uniform Arbitration Act for arbitration to be binding.


First, the details really do matter. Whether you are drafting a contract, or you are agreeing to a contract someone else has drafted it is important to fully understand all terms, conditions, and laws that govern those terms and conditions. In the case of Garlock, the parties could have avoided thousands of dollars in expenses, and years of litigation by simply underlining a single sentence in their sale contract. Moreover, the parties could have saved a great deal of trouble by having a qualified attorney review their sales contract prior to its execution.

Second, the context of a contract can completely change the arbitration laws it is governed by. If you are a party who prefers arbitration over traditional litigation, it is imperative that you understand the context in which your contract is being executed. In Garlock, the parties were selling a home in a simple real estate transaction and therefore the arbitration laws of Nebraska applied to the formation of their contract. However, had these parties been using an out of state lender, or selling the property in a foreclosure, the federal arbitration laws would have applied to the formation of their contract.

If you are in the middle of trying to sort out the contents of an important contract, please do not go it alone unless you fully understand the legal ramifications of what you are drafting or agreeing to. If you have questions about contracts, the clauses in those contracts, or arbitration and arbitration clauses make sure you get in touch with a qualified attorney before it becomes a mess you cannot get out of.

Nebraska Supreme Court Upholds Decision of Zoning Board of Appeals Limiting Business Owner’s Use of Land

The Nebraska Supreme Court recently ruled on claims for a variance from the requirements of Omaha’s zoning code based alleging unnecessary hardship. The case is a helpful reminder of the importance of seeking legal advice before making substantial investments or changes relating to land use

Nebraska Legislature Considers Property Tax Relief Procedure for Property Owners Whose Property has been Damaged by a Natural Disaster

Lawmakers heard LB512, introduced by Senator Lou Ann Linehan, on April 9. The bill contains alterations in state tax law that were requested by the state Department of Revenue. The bill allows for a property owner to petition his or her county assessor for a reassessment of property value if the property was damaged or destroyed by a natural disaster. Senator Steve Erdman introduced an amendment, adopted 41-0, which would require the county assessor to report all real property destroyed by a fire or other natural disaster to the county board of equalization. The county board would then adjust the value. Senator Curt Friesen supported the amendment and stated that the amendment would not have a significant effect on a political subdivision tax revenue. Property owners who suffered significant losses in this year’s flooding should consider consulting with counsel to determine their options to reduce property tax liability.

In Nebraska, Lenders Have Five Years to Pursue Deficiency Lawsuits after Judicial Foreclosures

In First National Bank of Omaha v. Scott L. Davey and Deborah Davey, the Nebraska Supreme Court held that a creditor has five years to pursue a deficiency action in situations where a piece of real estate has been foreclosed through judicial proceedings.

Nebraska law provides that, when real estate lending is secured by a deed of trust, the deed of trust can be foreclosed either through a non-judicial trustee sale of the property or a judicial foreclosure proceeding.  If the foreclosure, through either process, does not generate enough proceeds to pay off the underlying loan, the lender will be entitled to pursue the defaulted party for the remaining unpaid balance (the “deficiency”).  The Nebraska Deed of Trust Act, however, states that any legal action to secure a deficiency judgment must be brought within three months after “any sale of property under a trust deed…”

In Davey, a deed of trust had been foreclosed through use of judicial foreclosure proceedings which culminated with a sheriff’s sale of the property.  A deficiency resulted, but the lender did not file a deficiency lawsuit within the three month time frame.  The Douglas County District Court held that the lender filed its deficiency action too late and the action was dismissed.  The Nebraska Supreme Court reversed that decision, finding that the general five year statute of limitations for written contract matters applied instead.  The Court found that, notwithstanding the statutory language, applying the shorter three month time frame to filing of deficiency actions after a judicial foreclosure sale could produce absurd results in some cases and that it was more appropriate, given the overall statutory intent, to apply the five year limit instead.  Accordingly, lenders using the judicial foreclosure process have a considerable length of time to determine whether they wish to seek a deficiency judgment when the foreclosure did not produce enough funds to pay off the underlying loan.  
Davey reflects that, in Nebraska, despite the expedient procedure for foreclosure provided in the Deed of Trust Act, many situations can exist in which judicial foreclosure is more appropriate.  While the judicial process will take much longer, it is appropriate for use in situations in which competing liens need to be resolved, and can also be appropriate when the lender will need more time to evaluate its options.  

Erickson|Sederstrom attorneys are available to aggressively pursue both judicial and non-judicial foreclosure actions and any resulting deficiency suits.  Erickson|Sederstrom attorneys also provide a wide variety of additional real estate litigation services, including quiet title actions and landlord/tenant dispute litigation.