SENATE BILL REPORT

SB 5173

BYSenators Hansen, Bauer, Gaspard, Warnke, Deccio and Lee

Providing for mediation prior to foreclosure on loans to family farms.

Senate Committee on Agriculture

Senate Hearing Date(s):February 13, 1987

Senate Staff:Tom McDonald (786-7404)

AS OF FEBRUARY 12, 1987

BACKGROUND:

The agricultural communities throughout the country are generally experiencing tighter financial conditions as commodity surpluses increase, prices drop, land values drop, and mortgage payments on land and on previous capital expenditures remain at high rates.  A large percentage of farmers are within a dangerously high debt to asset ratio, and across the board farmers are experiencing cash flow problems.  For many farmers, their financial conditions are deteriorating to a point where the creditor institutions see no choice but to foreclose on the mortgaged equipment and land.  For the farmer, foreclosure will usually force him/her out of a chance to continue operating and pay off other loans and obligations; and for the creditor, foreclosure is a decision of last resort as it usually results in a guaranteed financial loss.

Several states in the midwest, where the financial crisis appears to have hit the hardest, have recently enacted legislation to alleviate the financial pressures and keep as many farmers as possible in the farming business.  These legislated programs include financial counseling, peer counseling, interest buydowns, debt reconstruction procedures, and mandatory or voluntary mediation between the farmer and creditor prior to foreclosure.

SUMMARY:

A comprehensive mediation program is established prior to commencement of foreclosure proceedings by the creditor against the debtor's agricultural property.  Through mediation, the parties are to attempt to reconstruct debt repayments or use other means to limit the effects of widespread foreclosures.  The program is implemented through the Department of Agriculture, with the Department adopting the appropriate rules.

Prior to proceeding with foreclosure, attachment, execution or termination of a real estate contract on agricultural property, a creditor must send a mediation notice to the debtor and the Department of Agriculture.  Upon notification from the creditor, a debtor has 20 days to file a request for mediation with the Department.  The Department shall evaluate the request within 20 days, and, if it finds mediation appropriate, provide a credit analyst to the debtor to prepare for mediation.  The mediator may call meetings up to 60 days after the initial meeting.

Mediators are immune from civil liability for actions taken pursuant to the mediation.  The parties must mediate in good faith and sanctions and remedies are set forth for acts of bad faith.  Enforcement of any mediated agreement shall be through the district court of that county.

Fiscal Note:      requested