AN ACT Relating to mediation; amending RCW 62A.9-501 and 61.30.030; adding a new section to chapter 6.04 RCW; adding a new section to chapter 61.12 RCW; and adding a new chapter to Title 7 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature finds that the agricultural sector of the state's economy is under severe financial stress due to low farm commodity prices, continuing high interest rates, and reduced net farm income. These factors have created economic conditions which have adversely affected the economic viability of farms to the detriment of the rural economy and to the detriment of the economy of the state of Washington as a whole. It is further found that as a result of public agricultural policies, agricultural market conditions, and other causes, the condition of the farm economy of the state of Washington is such as to jeopardize the continued existence and successful operation of farms in this state necessitating the establishment of a comprehensive program to address farm foreclosures and provide counseling to farmers with financial problems. This program will serve and promote the public welfare of the state of Washington by assuring the viability of farm operations, preventing erosion of the tax base in rural areas, reducing foreclosures on farm property, and enhancing the financial stability of farmers and of the businesses which depend on farmers as customers.

NEW SECTION. Sec. 2. This chapter establishes a comprehensive program to address farm foreclosures through the use of mediation to attempt, whenever possible, to restructure debt repayment or to use other means to limit the effects of widespread farm foreclosure and to assure that operational funding from traditional financial sources is not put at risk. The process of mediation is voluntary, but the notice requirements of this chapter are mandatory. In addition to the development of a mediation program, the department of agriculture shall establish a program to provide financial counseling or management services to farmers who request this advice.

NEW SECTION. Sec. 3. As used in this chapter, unless a different meaning is plainly required by the context:

(1) "Agricultural property" means real property that is principally used for farming or raising poultry or livestock. It includes personal property that is used as security to finance a farm operation or used as part of a farm operation including equipment. Agricultural property does not include crops as defined in chapter 60.11 RCW.

(2) "Creditor" means the holder of a mortgage on agricultural property, a vendor under a real estate contract on agricultural property, a person with a lien or security interest in agricultural property, or a judgment creditor with a judgment against a debtor with agricultural property.

(3) "Department" means the department of agriculture.

(4) "Mediator" means a farm mediator appointed by the director of agriculture.

(5) "Family farm" means agricultural property of not more than two thousand acres, the controlling interest in which is owned by persons related by blood, marriage, or adoption.

(6) "Family farm corporation" means a corporation, the principal assets of which consist of agricultural property of not more than two thousand acres and the controlling interest in which is owned by persons related by blood, marriage, or adoption.

(7) "Controlling interest" has the same meaning as provided in RCW 90.66.040.

NEW SECTION. Sec. 4. (1) The department shall adopt rules to implement this chapter. The rules shall include qualifications of mediators, fees for mediation, and grounds for challenging and removing mediators.

(2) The department shall provide training for farm mediators and credit analysts. The department may provide mediators by contracting with qualified persons experienced in farm finance, agricultural law, and negotiation.

NEW SECTION. Sec. 5. (1) The mediation provisions of this chapter apply to the following creditors:

(a) The United States or an agency of the United States;

(b) Corporations, partnerships, and other business entities; and

(2) The mediation provisions of this chapter apply to the following debtors:

(a) A person operating a family farm; and

(b) A family farm corporation.

NEW SECTION. Sec. 6. A debtor who owns agricultural property or a creditor of the debtor may request mediation of the indebtedness by applying to the department. The department shall make mediation application forms available at each county assessor's office and at the department of agriculture. The department shall evaluate each request and within twenty days determine whether mediation is appropriate. If the department determines that mediation is appropriate, the department shall direct a mediator to meet with the debtor and creditor to assist in mediation.

NEW SECTION. Sec. 7. Any creditor desiring to start a proceeding to foreclose agricultural property, to enforce a debt against agricultural property, to terminate a real estate contract for the purchase of agricultural property, or to garnish, levy on, execute on, seize, or attach agricultural property, shall serve a mediation notice under sections 21 through 28 of this act on the debtor and the department. The creditor shall not begin the proceeding against the debtor or the property until the creditor and debtor have completed mediation, failed to reach agreement by mediation, or mutually agreed not to enter mediation.

NEW SECTION. Sec. 8. (1) A debtor shall file a mediation request form with the department within twenty days after receiving a mediation notice from a creditor. The mediation request form shall list all known creditors. The department shall make mediation request forms available at each county assessor's office and the department of agriculture.

(2) A debtor who fails to file a timely mediation request waives the right to mediation under this chapter. The department shall notify a creditor that the debtor has failed to file a mediation request and that the creditor may proceed against the agricultural property.

(3) A debtor who has not received a mediation notice and is subject to a proceeding of a creditor to foreclose agricultural property, enforce a debt against agricultural property, terminate a real estate contract for the purchase of agricultural property, or garnish, levy on, execute on, seize, or attach agricultural property, may file a mediation request with the department. The mediation request form shall indicate that the debtor has not received a mediation notice.

NEW SECTION. Sec. 9. After receiving a mediation notice, the department shall provide a credit analyst knowledgeable in agricultural and financial matters to meet with the debtor and assure that information relative to the finances of the debtor is prepared for the initial mediation meeting. After receiving the mediation notice, the department shall notify the debtor that a farm advocate may be available without charge to assist the debtor and the credit analyst.

NEW SECTION. Sec. 10. (1) Within twenty days after receiving a mediation request, the department shall send:

(a) A mediation meeting notice to the debtor; and

(b) A mediation meeting notice and claim form to all known creditors of the debtor.

(2) The mediation meeting notice shall include a time and place for an initial mediation meeting between the debtor, all known creditors of the debtor, and the assigned mediator.

(3) An initial mediation meeting shall be held within twenty days of the notice.

NEW SECTION. Sec. 11. (1) If a creditor is not an agency of the United States and receives a mediation meeting notice under section 10 of this act, the creditor and the creditor's successors in interest shall not continue proceedings to foreclose agricultural property, enforce a debt against agricultural property, terminate a real estate contract for the purchase of agricultural property, or garnish, levy on, execute on, seize, or attach agricultural property. Time periods under and affecting those procedures stop running until: (a) Ninety days after the conclusion of the mediation; or (b) a mediation agreement is reached.

(2) If a creditor is an agency of the United States and receives a mediation meeting notice under section 10 of this act, the creditor and the creditor's successors in interest shall not continue proceedings to foreclose agricultural property, enforce a debt against agricultural property, terminate a real estate contract for the purchase of agricultural property, or garnish, levy on, execute on, seize, or attach agricultural property. Time periods under and affecting those procedures stop running until: (a) One hundred eighty days after the conclusion of mediation; or (b) a mediation agreement is reached.

NEW SECTION. Sec. 12. At the initial mediation meeting and subsequent meetings, the mediator shall:

(1) Listen to the debtor and the creditors desiring to be heard;

(2) Attempt to mediate between the debtor and the creditors;

(3) Advise the debtor and creditors of assistance programs available;

(4) Attempt to arrive at an agreement to fairly adjust, refinance, or pay the debts; and

(5) Advise, counsel, and assist the debtor and creditors in attempting to arrive at an agreement for the future conduct of financial relations among them.

The mediator may call additional mediation meetings up to sixty days after the initial mediation meeting.

NEW SECTION. Sec. 13. A mediator is immune from civil liability for actions within the scope of the position as mediator. A mediator does not have a duty to advise a creditor or debtor about the law or to encourage or assist a debtor or creditor in reserving or establishing legal rights.

NEW SECTION. Sec. 14. (1) A mediator cannot be examined about a communication or document, including worknotes, made or used in the course of or because of mediation under this chapter. This section does not apply to the parties in the dispute in an application to a court by a party to have a mediated settlement agreement set aside or reformed.

(2) A communication or document otherwise not privileged does not become privileged because it is used in mediation.

NEW SECTION. Sec. 15. (1) If an agreement is reached among the debtor and creditors, the mediator shall draft a written mediation agreement, have it signed by the creditors, and, if applicable, submit the agreement to the department for approval of debt restructuring.

(2) The debtor and creditors who are parties to the approved mediation agreement and creditors who have filed claim forms and have not objected to the mediation agreement:

(a) Are bound by the terms of the agreement;

(b) May enforce the mediation agreement as a legal contract; and

(3) A mediation agreement shall be determined under principles of contract law.

(4) A mediation agreement is not binding unless it contains a provision stating that it is binding and a provision stating substantially that the parties were advised in writing that:

(a) The mediator has no duty to protect their interests or provide them with information about their legal rights;

(b) Signing a mediation agreement may adversely affect their legal rights; and

(5) In addition to the requirements of subsection (4) of this section, a mediation agreement between a debtor and creditor is not binding until seventy-two hours after it is signed by the debtor and creditor, during which time either party may withdraw consent to the binding character of the agreement.

NEW SECTION. Sec. 16. A creditor that is notified of the initial mediation meeting is subject to and bound by a mediation agreement if the creditor does not attend mediation meetings unless the creditor files a claim form and objects to the mediation agreement. In lieu of attending a mediation meeting, a creditor may file a notice of claim and proof of claim on a claim form with the mediator before the scheduled meeting. By filing a claim form the creditor agrees to be bound by a mediation agreement reached at the mediation meeting unless an objection is filed within the time specified. The mediator shall notify the creditors who have filed claim forms of the terms of any agreement reached at the farm mediation meeting.

NEW SECTION. Sec. 17. The parties shall engage in mediation in good faith. Not participating in good faith includes:

(1) A failure on a regular or continuing basis to attend and participate in mediation sessions without cause;

(2) Failure to provide full information regarding the financial obligations of the parties and other creditors;

(3) Failure of the creditor to designate a representative to participate in the mediation with adequate authority to fully settle, compromise, or otherwise mediate the matter;

(4) Lack of a written statement of debt restructuring alternatives and a statement of reasons why alternatives are unacceptable to one of the parties;

(5) Failure of the creditor to release to the debtor necessary living and farm operating expenses; or

(6) Other behavior which evidences lack of good faith by the party.

A failure to agree to reduce, restructure, refinance, or forgive debt does not, in itself, evidence lack of good faith by the creditor.

NEW SECTION. Sec. 18. (1) If the mediator finds the creditor has not participated in mediation in good faith, the mediator shall issue an affidavit showing lack of good faith by the creditor. The debtor may require court-supervised, mandatory mediation by filing the affidavit with the district court of the county in which the property is located with a request for court supervision of mediation and filing a copy of the request with the creditor. Upon request, the court shall require both parties to mediate under the supervision of the court in good faith for a period not less than sixty days. All creditor remedies are suspended during this period. The court may issue orders necessary to effect good faith mediation. Following the sixty-day period, if the court finds the creditor has not participated in mediation in good faith, the court shall suspend the creditor's remedies for an additional period of one hundred eighty days.

(2) A creditor found by the mediator not to have participated in good faith shall pay attorneys' fees and costs of the debtor requesting court supervision of mediation or the court may order an additional suspension of creditor's remedies.

NEW SECTION. Sec. 19. (1) If the mediator finds the debtor has not participated in mediation in good faith, the mediator shall issue an affidavit showing lack of good faith by the debtor.

(2) A creditor may immediately proceed with creditor's remedies upon receipt of a mediator's affidavit of a debtor's lack of good faith notwithstanding any other requirements of this chapter.

NEW SECTION. Sec. 20. A creditor who has filed a claim form may serve a written objection to the terms of the agreement on the mediator and the debtor within ten days after receiving notice of the agreement. If a creditor files an objection to the terms of an agreement, the mediator may meet again with debtors and creditors within ten days after receiving the objection to attempt to reach a new agreement. Notwithstanding the mediation period, if an objection is filed, the mediator may call mediation meetings during the ten-day period following receipt of the objection.

NEW SECTION. Sec. 21. A creditor shall not begin to enforce a security interest in collateral that is agricultural property which secures a debt of more than five thousand dollars unless: (1) A mediation notice is served on the debtor and a copy filed with the department; and (2) the debtor and creditor have completed the mediation process under this chapter.

NEW SECTION. Sec. 22. The mediation notice to enforce a security interest in agricultural property shall contain the following notice with the blanks properly completed:

@bc"To@ec .......... (Name of Debtor) ..........

@bcyou have defaulted on the@ec .......... (Debt in Default) .......... @bcsecured by agricultural property described as@ec .......... (Reasonable Description of Agricultural Property Collateral) ..........

@bcas a secured party,@ec .......... (Name of Secured Party)@ec .......... @bcintends to enforce the security agreement against the agricultural property described above by repossessing, foreclosing on, or obtaining a court judgment against the property.

You have the right to have the debt reviewed for mediation. If you participate in mediation, the department of agriculture will provide a credit analyst to help you to prepare financial information. Mediation will attempt to arrive at an agreement for handling future financial relations.

To have the debt reviewed for mediation, you must file a mediation request with the department by@ec .......... (Date of 20 Days After Service of the Mediation Notice) ..........

@bcThe mediation request form is available at any county assessor's office and the department of agriculture.

From: ............... @ec (Name and Address of Secured Party) .......... "

NEW SECTION. Sec. 23. A creditor shall not attach, execute on, levy on, or seize agricultural property which secures a debt of more than five thousand dollars unless: (1) A mediation notice is served on the judgment debtor and a copy filed with the department; and (2) the debtor and creditor have completed mediation under this chapter.

NEW SECTION. Sec. 24. The mediation notice to attach, execute on, levy on, or seize agricultural property shall contain the following notice with the blanks properly completed:

@bc"To:@ec .......... (Name of Judgment Debtor) ..........

@bcA judgment was ordered against you by@ec .......... (Name of Court) .......... @bcon@ec .......... (Date of Judgment).

@bcAs a judgment creditor, @ec .......... (Name of Judgment Creditor) .......... @bcintends to take action against the agricultural property described as @ec .......... (Description of Agricultural Property) .......... @bcto satisfy the judgment.

You have the right to have the debt reviewed for mediation. If you participate in mediation, the department of agriculture will provide a credit analyst to help you prepare financial information. Mediation will attempt to arrive at an agreement for handling future financial relations.

To have the debt reviewed for mediation you must file a mediation request with the department by@ec .......... (Date of 20 Days After Service of the Mediation Notice) ..........

@bcThe mediation request form is available at any county assessor's office or the department of agriculture.

From: @ec .......... (Name and Address of Judgment Creditor) .......... "

NEW SECTION. Sec. 25. A creditor shall not begin to terminate a real estate contract for the purchase of agricultural property where the contract secures a debt of more than five thousand dollars unless: (1) A mediation notice is served on the real estate contract vendee and a copy filed with the department; and (2) the real estate contract vendor and vendee have completed mediation under this chapter.

NEW SECTION. Sec. 26. A mediation notice to terminate a real estate contract for the purchase of agricultural property shall contain the following notice with the blanks properly completed:

@bc"To:@ec .......... (Name of Real Estate Contract Vendee) ..........

@bcYou have defaulted on the real estate contract for the agricultural property described as@ec .......... (Size and Reasonable Location of Property, Not Legal Description) ..........

@bcas the real estate contract vendor,@ec .......... (Real Estate Contract Vendor) .......... @bcintends to terminate the contract and take back the property.

You have the right to have the real estate contract debt reviewed for mediation. If you participate in mediation, the department of agriculture will provide a credit analyst to help you prepare financial information. Mediation will attempt to arrive at an agreement for handling future financial relations.

To have the real estate contract debt reviewed for mediation you must file a mediation request with the department by @ec .......... (Date of 20 Days After Service of the Mediation Notice) ..........

@bcThe mediation request form is available at any county assessor's office or the department of agriculture.

From:@ec .......... (Name and Address of Real Estate Contract Vendor)"

NEW SECTION. Sec. 27. A creditor shall not begin a proceeding to foreclose a mortgage on agricultural property that has a secured debt of more than five thousand dollars unless: (1) A mediation notice is served on the mortgagor and a copy is filed with the department; and (2) the mortgagor and mortgagee have completed mediation under this chapter.

NEW SECTION. Sec. 28. A mediation notice to begin to foreclose a mortgage on agricultural property shall contain the following notice with the blanks properly completed:

@bc"To:@ec .......... (Name of Mortgagor) ..........

@bcYou have defaulted on the mortgage of the agricultural property described as @ec .......... (Size and Reasonable Location, Not Legal Description) ..........

@bcAs the holder of the mortgage,@ec .......... (Name of Mortgagee) .......... @bcintends to foreclose on the property described above.

You have the right to have the mortgage debt reviewed for mediation. If you participate in mediation, the department of agriculture will provide a credit analyst to help you prepare financial information. Mediation will attempt to arrive at an agreement for handling future financial relations.

To have the mortgage debt reviewed for mediation you must file a mediation request with the department by@ec .......... (Date of 20 Days After Service of the Mediation Notice) .......... @bcThe mediation request form is available at any county assessor's office or the department of agriculture.

From:@ec .......... (Name and Address of Mortgagee) .......... "

NEW SECTION. Sec. 29. The debtor and creditor, in any transaction governed by this chapter, may request the other party to the transaction to enter mediation concerning possible adjustment, refinancing, or payment.

NEW SECTION. Sec. 30. The district court in the county where the farm property is located shall enforce the mediation agreement.

NEW SECTION. Sec. 31. A new section is added to chapter 6.04 RCW to read as follows:

Execution shall not be permitted on agricultural property, as defined in section 2 of this act, until the debtor and creditor have complied with the process established in chapter 7.-- RCW (sections 1 through 30 of this act).

NEW SECTION. Sec. 32. A new section is added to chapter 61.12 RCW to read as follows:

Foreclosure shall not be permitted on agricultural property, as defined in section 2 of this act, until the debtor and creditor have complied with the process established in chapter 7.-- RCW (sections 1 through 30 of this act).

Sec. 33. Section 9-501, chapter 157, Laws of 1965 ex. sess. as amended by section 34, chapter 41, Laws of 1981 and RCW 62A.9-501 are each amended to read as follows:

(1) When a debtor is in default under a security agreement, a secured party has the rights and remedies provided in this Part and except as limited by subsection (3) those provided in the security agreement. He may reduce his claim to judgment, foreclose or otherwise enforce the security interest by any available judicial procedure. If the collateral is agricultural property, as defined in section 2 of this 1987 act, remedies available to a secured party shall not be permitted until the debtor and secured party have complied with the process established in chapter 7.-- RCW (sections 1 through 30 of this 1987 act). If the collateral is documents the secured party may proceed either as to the documents or as to the goods covered thereby. A secured party in possession has the rights, remedies and duties provided in RCW 62A.9-207. The rights and remedies referred to in this subsection are cumulative.

Notwithstanding any other provision of this Code, in the case of a purchase money security interest in consumer goods taken or retained by the seller of such collateral to secure all or part of its price, the debtor shall not be liable for any deficiency after the secured party has disposed of such collateral under RCW 62A.9-504 or has retained such collateral in satisfaction of the debt under subsection (2) of RCW 62A.9-505.

(2) After default, the debtor has the rights and remedies provided in this Part, those provided in the security agreement and those provided in RCW 62A.9-207.

(3) To the extent that they give rights to the debtor and impose duties on the secured party, the rules stated in the subsections referred to below may not be waived or varied except as provided with respect to compulsory disposition of collateral (subsection (3) of RCW 62A.9-504 and RCW 62A.9-505) and with respect to redemption of collateral (RCW 62A.9-506) but the parties may by agreement determine the standards by which the fulfillment of these rights and duties is to be measured if such standards are not manifestly unreasonable:

(a) subsection (2) of RCW 62A.9-502 and subsection (2) of RCW 62A.9-504 insofar as they require accounting for surplus proceeds of collateral;

(b) subsection (3) of RCW 62A.9-504 and subsection (1) of RCW 62A.9-505 which deal with disposition of collateral;

(d) RCW 62A.9-506 which deals with redemption of collateral; and

(e) subsection (1) of RCW 62A.9-507 which deals with the secured party's liability for failure to comply with this Part.

(4) If the security agreement covers both real and personal property, the secured party may proceed under this Part as to the personal property or he may proceed as to both the real and the personal property in accordance with his rights and remedies in respect of the real property in which case the provisions of this Part do not apply.

(5) When a secured party has reduced his claim to judgment the lien of any levy which may be made upon his collateral by virtue of any execution based upon the judgment shall relate back to the date of the perfection of the security interest in such collateral. A judicial sale, pursuant to such execution, is a foreclosure of the security interest by judicial procedure within the meaning of this section, and the secured party may purchase at the sale and thereafter hold the collateral free of any other requirements of this Article.

Sec. 34. Section 3, chapter 237, Laws of 1985 and RCW 61.30.030 are each amended to read as follows:

It shall be a condition to forfeiture of a real estate contract that:

(1) The contract being forfeited, or a memorandum thereof, is recorded in each county in which any of the property is located;

(2) A breach has occurred in one or more of the purchaser's obligations under the contract and the contract provides that as a result of such breach the seller is entitled to forfeit the contract; ((~~and~~))

(3) Except for petitions for the appointment of a receiver, no action is pending on a claim made by the seller against the purchaser on any obligation secured by the contract; and

(4) Where agricultural property, as defined in section 2 of this 1987 act, is the subject of forfeiture, the mediation process established in chapter 7.-- RCW (sections 1 through 30 of this 1987 act) have been complied with.

NEW SECTION. Sec. 35. Sections 1 through 30 of this act shall constitute a new chapter in Title 7 RCW.