## Facts

- Oakland/Red Oak Holdings, LLC was the beneficiary of deeds of trust encumbering certain real property.
- Before a trustee’s sale occurred under the deeds of trust, the county treasurer issued treasurer’s tax deeds to a third party for the same property.
- The tax deeds were recorded before the trustee’s sale; by statute, such tax deeds pass title free and clear of prior liens and encumbrances, extinguishing the deed-of-trust lien interest.
- At the trustee’s sale, Jeremy and Kimberly Klein and Robert and Elaine Lynch purchased the trust deed interest for $40,001.
- The purchasers did not examine the public records before bidding and did not learn of the recorded tax deeds.
- After the sale, the purchasers sought equitable relief against Oakland to set aside the sale and recover the $40,001 purchase price.

## Issues

1. Whether caveat emptor governs purchases at a trustee’s sale under a deed of trust.
2. Whether purchasers may obtain equitable rescission of the trustee’s sale and restitution from the beneficiary when recorded tax deeds had extinguished the lien and the purchasers failed to search title records.
3. Whether constructive notice from recorded instruments bars equitable relief for a purchaser’s mistake caused by failure to review public records.

## Decision

- The Nebraska Supreme Court reversed the district court’s judgment for the purchasers.
- The court held that caveat emptor applies to trustee’s sales and charges purchasers with examining title and taking notice of recorded instruments affecting the property.
- Because the treasurer’s tax deeds were recorded before the trustee’s sale, the purchasers were on constructive (record) notice that the deed-of-trust lien had been extinguished.
- Equity did not permit rescission or reimbursement where the purchasers’ loss resulted from their own negligence or inattention in failing to check the public record.
- Oakland was not required to return the $40,001 purchase price.

## Legal Principles

- Caveat emptor applies to trustee’s sales absent a controlling statute, agreement, or wrongdoing that shifts the risk from the purchaser.
- Recorded instruments in the chain of title provide constructive notice; purchasers are charged with notice of properly recorded documents affecting title or lien status.
- A treasurer’s tax deed passes title free and clear of prior liens and encumbrances, extinguishing earlier deed-of-trust interests.
- Equity generally will not relieve a purchaser from the consequences of the purchaser’s own failure to exercise reasonable diligence when the defect is apparent from public records.

## Conclusion

The court held that buyers at a trustee’s sale assume the risk of defects discoverable from the recorded title record; because recorded tax deeds had extinguished the lien and the purchasers failed to investigate, they were not entitled to rescind the sale or recover the purchase price from the beneficiary.


Klein v. Oakland/Red Oak Holdings, LLC, 294 Neb. 535, 883 N.W.2d 699 (Neb. 2016)