The Nebraska legislature is considering legislation that will impose significant disclosure and lien liability on interfamily real estate transfers. The bill, LB72, as originally introduced imposed a lien in favor of the State of Nebraska, Department of Health and Human Services (“HHS”) on the transfer of any real property for “less than full consideration” to any transferee and also a lien on transfers of real estate where the transferor retains an interest in the real estate (such as parents deeding their home to their children and reserving a life estate). The HHS lien is for Medicaid reimbursement and exists even if there is no Medicaid claim.
In addition to the lien, LB72 requires that grantors notify HHS of the transfer and record proof that HHS has been notified of the transfer. Failure to notify HHS of the transfer imposes liability on the transferee for the costs HHS incurs in discovering the transfer. HHS has the right to file a notice of lien liability if there is a Medicaid claim that is not satisfied out of the other assets of the person receiving Medicaid benefits, and HHS can foreclose the lien to obtain reimbursement of Medicaid benefits.
Unlike federal law, which contains a 5 year look back, there is no limitation of the time that HHS can claim a lien or foreclose a lien. For example, if elderly parents deed their house or farm to their children and reserve a live estate, under the federal Medicaid look back provisions, HHS has the right to recoup the interest deeded to the children if the parents receive Medicaid benefits within 5 years from the date of the transfer. LB72 contains no such time limitation. If the elderly parents in the example above deed their farm to their children and reserve a life estate in the farm, live 20 years after the transfer without obtaining Medicaid benefits, and then due to changes in their health obtain Medicaid benefits for the last years of their life, under federal law the transfer of the farm would not be subject to challenge, but under LB72, the transfer of the farm is subject to a lien to be claimed by HHS years after the federal 5 year look back period runs. In fact, if the parents gift an interest in land to someone and live for 30 years before receiving any Medicaid benefits, HHS can still claim a lien under LB72.
LB72 contains no definition of “full consideration.” Does that term mean “fair market value?” If so, why did the Legislature use “full consideration” instead of “fair market value?” LB 72 permits HHS to claim a lien on any real estate transferred for less than “full consideration” even in cases where the real estate is transferred to third-party buyers. The burden of proving “full consideration” is on the transferee. For example, if there’s an arm’s length sale of a person’s house to a non-related buyer, and the buyer is willing to pay $200,000 for a house that may have a fair market value of $220,000, but the seller is willing to accept $200,000 (for example the house may have been on the market for a number of months and in the community involved the only offer may be the $200,000 offer and the seller may not be able to afford the loan payments or the maintenance and real estate taxes to keep the house), the buyer is at risk for the additional $20,000 if HHS asserts its lien under LB72.
Let’s assume that the house was auctioned and the high bid was $200,000 (while the buyer could argue that buying the house at auction set the “full consideration” at $200,000, there is nothing in the statute to preclude HHS from arguing that even an auction sale price is not full consideration). Under this fact pattern, the buyer’s interest in the house is subject to an HHS lien for any Medicaid expenses to the extent of the $20,000 difference between the full consideration and the $200,000 purchase price. This is true whether or not the seller was receiving Medicaid at the time of the sale. And HHS can claim the lien years after the sale closes. In fact, there is no statute of limitations on the HHS lien claim. Not only can HHS claim the difference in value from the buyer, HHS can claim the lien against subsequent purchasers.
If that is not bad enough, under Section 6 (7), if the grantor files an affidavit that the grantee is not a transferee under LB72, and the grantee takes possession of the real estate knowing that the recital was false, the transferee is responsible for the full cost of any Medicaid reimbursement, even if the amount of the reimbursement exceeds the value of the real estate transferred.
LB72 is an effort to push liability for Medicaid reimbursements onto the next generation of Nebraskans where the transfer would otherwise be outside of the federal 5 year look back provisions. There will be increased costs associated with any interfamily transfers, and uncertainty in whether a transferee can take title without being concerned about the HHS lien. Does every sale now need an appraisal to determine “full consideration?” How can retiring farmers transfer their farmland to the next generation without risk of having HHS come back, years later, and claim that the transfer was for less than full consideration?