SENATE BILL REPORT

SB 6545

BYSenators Anderson, Hansen, Barr, Halsan, McMullen and Bailey

Providing for mediation in farm foreclosure actions through the community college system.

Senate Committee on Agriculture

Senate Hearing Date(s):January 26, 1988

Majority Report:  That Substitute Senate Bill No. 6545 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Barr, Chairman; Anderson, Vice Chairman; Bailey, Halsan, Hansen.

Senate Staff:John Stuhlmiller (786-7446); Tom McDonald

                  (786-7404) January 26, 1988

Senate Committee on Ways & Means

Senate Hearing Date(s):February 4, 1988

Senate Staff:Stan Pynch (786-7715)

AS OF FEBRUARY 3, 1988

BACKGROUND:

Agricultural communities throughout the country are experiencing tougher financial conditions as commodity surpluses increase, prices fall, land values continue to decline, and mortgage rates on land and other capital expenditures remain uncertain.  For many farmers, financial conditions are deteriorating to the point that creditor institutions see no choice but to foreclose on mortgaged equipment and land.  For the farmer, foreclosure usually precludes a chance to pay off other loans and obligations through continued operations.  For the creditor, foreclosure is a decision of last resort as it usually results in a financial loss.

Several states have recently enacted legislation to alleviate these financial pressures and keep as many farmers as possible in the farming business.  These legislated programs include financial counseling, peer counseling, interest buydowns, and mandatory or voluntary mediation between the farmer and creditor prior to foreclosure.

SUMMARY:

An agricultural assistance and consultation program to aid financially distressed farmers is established by the State Board for Community College Education through the community college system.

Individual community colleges shall submit proposals for their mediation process to the board for approval.  The mediation process shall make available to farmers:  financial consulting, farm management consulting, voluntary debt mediation, and referral services for mental health assistance and support counseling.

The board shall provide training for financial consultants and mediators to work on this program and shall also compile a directory of services available through the program.  The board may establish reasonable fees to defray the cost of the program, and shall apply to the United States Secretary of Agriculture for a matching grant under Title V, Subtitle A of the Agricultural Credit Act of 1987.

Individual farmers in danger of foreclosure on agricultural property may initiate the mediation process by filing an application with the closest community college offering a program of financial consulting.  Upon receipt of the application, the college may assign the farmer to a financial consultant.  If this process relieves the distressed condition, no mediation will be pursued.

If mediation is desired by the farmer and recommended by the financial consultant, the college shall direct a mediator to meet with the farmer and creditor to assist in mediation.  A financial consultant, if properly trained, may act also as the mediator in this situation.

Mediation shall be terminated if a creditor does not agree to participate.  However, if more than one creditor is involved mediation will only be terminated as it relates to the creditor or creditors who do not agree to participate.

If a mutually agreeable decision is reached, the mediator shall draft a mediation agreement to be signed by the farmer and the creditor.  This agreement, when signed, is a legally binding contract.

Neither execution nor foreclosure shall be permitted on agricultural property if the debtor and creditor are participating in mediation.

If a debtor in default under a security agreement has provided agricultural property as collateral for the agreement, remedies available to a secured party shall not be permitted if the debtor and secured party are participating in mediation.

EFFECT OF PROPOSED SUBSTITUTE:

The release from civil liability for the state and designated financial consultants and mediators is expanded to include any activities associated with the financial counseling program.

The sections forbidding execution, foreclosure and collection under security agreements on agricultural property if the debtor and creditor or secured party are participating in mediation are deleted so that willing creditors in this mediation process will not be penalized.

A sunset date of April 1, 1991, and an emergency clause are added.

Appropriation:    none

Revenue:    yes

Fiscal Note:      available

Senate Committee - Testified: AGRICULTURE:  Ray Harry, State Board for Community College Education (for); Bill Dicus, Walla Walla Community College (for)