AN ACT Relating to mediation; amending RCW 62A.9-501, 61.30.030, 60.11.060, and 61.12.120; 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. The suffering agricultural economy adversely affects economic conditions for all other businesses in rural communities as well. Many of this state's farmers are unable to meet current payments of interest and principal payable on mortgages and other loan and land contracts and are threatened with the loss of their farmland, equipment, crops, and livestock through mortgage and lien foreclosures, cancellation of contracts for deed, and other collection actions. The agricultural economic emergency requires an orderly process with state assistance to adjust agricultural indebtedness to prevent civil unrest and to preserve the general welfare and fiscal integrity of the state. 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. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(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.

(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) "File" means to deliver by the required date by certified mail or another method acknowledging receipt.

(5) "Financial analyst" means a person: (a) Knowledgeable in agricultural and financial matters that can provide financial analysis; (b) who is able to aid the debtor in preparing the financial information required under this chapter; and (c) who is approved by the department. A financial analyst may include county extension agents, adult farm management instructors, and other persons able to carry out the duties of a financial analyst.

(6) "Mediator" means a farm mediator appointed by the department of agriculture.

(7) "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.

(8) "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.

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

(10) "Serve" means: (a) Personal service as in a district court civil action; (b) service by certified mail using return receipt signed by addressee only; (c) actual delivery of required documents with signed receipt; or (d) if an unsuccessful attempt is made to serve under (a) or (b) of this subsection, service may be made by mail with a certificate of mailing to the last known address of the debtor. For purposes of serving under (d) of this subsection, the addressee is considered to have been served the documents five days after the date on the certificate of mailing.

NEW SECTION. Sec. 3. (1) The director shall provide training and support for mediators.

(2) The director shall provide mediators by contracting with qualified persons experienced in farm finance, agricultural law, and negotiation.

(3) The director may appoint a farm mediation administrator. The administrator and director shall provide training for farm mediators and credit analysts and coordinate community legal education programs for farmers.

NEW SECTION. Sec. 4. (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 creditors:

(a) A person operating a family farm; and

(b) A family farm corporation.

(3) The farmer-lender mediation act does not apply to a debtor who owns and leases less than sixty acres with less than twenty thousand dollars in gross sales of agricultural products the preceding year.

NEW SECTION. Sec. 5. The mediation provisions of this chapter shall not apply to a debt:

(1) For which a proof of claim form has been filed in bankruptcy by a creditor or that was listed as a scheduled debt of a debtor who has filed a petition in bankruptcy under federal law;

(2) If the debt was in default when the creditor received a mediation proceeding notice under this chapter and the creditor filed a claim form, the debt was mediated during the mediation period, and (a) the mediation was unresolved; (b) a mediation agreement with respect to that debt was signed; or (c) the creditor and debtor separately restructured the debt and signed a separate mediation agreement with respect to that debt; or

(3) For which the creditor has served a mediation notice, the debtor has failed to make a timely request for mediation, and within thirty days after the debtor failed to make a timely request the creditor began a proceeding to enforce the debt against the agricultural property of the debtor.

NEW SECTION. Sec. 6. A debtor that owns agricultural property or a creditor of the debtor may request mediation of the indebtedness by a farm mediator by applying to the department. The department shall make voluntary mediation application forms available at the county auditor's office and county extension office in each county. The department must evaluate each request and may direct a mediator to meet with the debtor and creditor to assist in mediation.

NEW SECTION. Sec. 7. (1) A creditor desiring to start a proceeding to foreclose 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 on the debtor and the department. The creditor must also file with the department proof of the date the mediation notice was served on the debtor.

(2) The department shall combine all mediation notices for the same debtor that are received prior to the initial mediation meeting into one mediation proceeding.

(3) A debtor must file a mediation request form with the department within fourteen days after receiving a mediation notice. The debtor must list all known creditors on the mediation request form.

(4) A debtor who fails to file a timely mediation request waives the right to mediation for that debt under this chapter. The department shall notify the creditor who served the mediation notice stating that the creditor may proceed against the agricultural property.

(5) If a debtor has not received a mediation notice and is subject to a proceeding of a creditor to foreclose agricultural property, terminate a real estate contract for the purchase of agricultural property, or garnish, levy on, execute on, seize, or attach agricultural property, the debtor may file a mediation request with the director. The mediation request form must indicate that the debtor has not received a mediation notice.

NEW SECTION. Sec. 8. (1) Within three business days after receiving a mediation request, the director shall provide a financial analyst to meet with the debtor and assure that information relative to the finances of the debtor is prepared for the initial mediation meeting. The financial analyst must review and, if necessary, prepare the debtor's financial records before the initial mediation meeting. The financial analyst may request assistance, support, and cooperation in performing the duties required by this chapter from the director of the extension service of Washington State University and from any community college.

(2) After receiving the mediation notice, the department shall provide the debtor with a list of farm advocates that may be available without charge to assist the debtor and the financial analyst.

NEW SECTION. Sec. 9. (1) Within ten days after receiving a mediation request, the department shall send:

(a) A mediation proceeding notice to the debtor;

(b) A mediation proceeding notice to all creditors listed by the debtor in the mediation request; and

(2) The mediation proceeding notice must state:

(a) The name and address of the debtor;

(b) That the debtor has requested mediation under the provisions of this chapter;

(d) A list of the names of three mediators that may be assigned to the proceeding, along with background information on those mediators;

(e) That the debtor and the initiating creditor may each request the department to exclude one mediator by notifying the director within three days after receiving the notice;

(f) That in lieu of having a mediator assigned by the department, the debtor and any one or more of the creditors may agree to select and pay for a professional mediator that is approved by the department;

(g) That the provisions of this chapter prohibit the creditor from beginning or continuing a proceeding to enforce the debt against agricultural property for ninety days after the initial mediation hearing unless otherwise allowed; and

(h) That the creditor must provide the debtor by the initial mediation meeting with copies of notes and contracts for all debts incurred by the debtor with that creditor and provide a statement of interest rates on the debts, delinquent payments, unpaid principal and interest balances, the creditor's value of the collateral, and debt restructuring programs available by the creditor.

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

NEW SECTION. Sec. 10. In lieu of the department assigning a mediator, the debtor and any one or more of the creditors may agree to select and pay for a professional mediator for the mediation proceeding. The department must approve the professional mediator before the professional mediator may be assigned to the mediation proceeding. The professional mediator may not be approved unless the professional mediator prepares and signs an affidavit:

(1) Disclosing any biases, relationships, or previous associations with the debtor or creditors subject to the mediation proceedings;

(2) Stating certifications, training, or qualifications as a professional mediator;

(3) Disclosing fees to be charged or a rate schedule of fees for the mediation proceeding; and

(4) Affirming to uphold the provisions of this chapter and faithfully discharge the duties of a mediator.

NEW SECTION. Sec. 11. (1) If a creditor is not an agency of the United States and receives a mediation meeting notice under section 9 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 initial mediation hearing 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 9 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 initial mediation hearing or (b) a mediation agreement is reached.

NEW SECTION. Sec. 12. A creditor receiving a mediation proceeding notice must provide the debtor by the initial mediation meeting with copies of notes and contracts for debts subject to the provisions of this chapter and provide a statement of interest rates on the debts, delinquent payments, unpaid principal balance, a list of all collateral securing debts, a creditor's estimate of the value of the collateral, and debt restructuring programs available from the creditor.

NEW SECTION. Sec. 13. (1) At the initial mediation meeting and subsequent meetings, the mediator shall:

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

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

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

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

(2) The mediator may call mediation meetings during the mediation period. The mediation period begins on the date of the initial mediation meeting and extends for ninety days after that meeting.

NEW SECTION. Sec. 14. (1) If an agreement is reached among the debtor and creditors the mediator shall witness and sign a written mediation agreement, have it signed by the debtor and creditors, and file the agreement with the department.

(2) The mediator shall sign and serve on the parties and the department a termination statement before or at the end of the mediation period. The termination statement shall:

(a) Acknowledge that mediation has ended; and

(b) Describe or reference agreements reached between a creditor and the debtor, if any, and agreements reached among creditors, if any, or state that no agreement has been reached.

(3) 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

(4) A debtor may agree to allow a creditor to proceed to enforce a debt against agricultural property before the enforcement is otherwise allowed under the provisions of this chapter, but the debtor or creditor may rescind the agreement within five business days after the debtor and particular creditor both sign the agreement.

(5) A mediation agreement shall be determined under principles of contract law and shall be enforced by superior courts of Washington.

(6) 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

(7) In addition to the requirements of subsection (6) 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. 15. (1) The parties must engage in mediation in good faith. Not participating in good faith includes:

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

(b) Failure to provide full information regarding the financial obligations of the parties and other creditors including the obligation of a creditor to provide information as required in this chapter;

(c) Failure of the creditor to designate a representative to participate in the mediation with authority to make binding commitments within one business day to fully settle, compromise, or otherwise mediate the matter;

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

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

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

(2) If the mediator determines that either party is not participating in good faith, the mediator shall file an affidavit indicating the reasons for the finding with the department and with parties to the mediation.

(3) Upon petition by a debtor or creditor, a court may review a mediator's affidavit of lack of good faith or a mediator's failure to file an affidavit of lack of good faith of a creditor or a debtor. The review is limited to whether the mediator committed an abuse of discretion in filing or failing to file an affidavit of lack of good faith. The petition must be reviewed by the court within ten days after the petition is filed.

(4) If the mediator finds the creditor has not participated in mediation in good faith, the debtor may require court supervised mandatory mediation by filing the affidavit with the superior court of the county of the debtor's residence with a request for court supervision of mediation and by serving a copy of the request on the creditor. Upon request, the court shall require both parties to mediate under the supervision of the court in good faith for a period of not more than sixty days. All creditor remedies must be suspended during this period. The court may issue orders necessary to effect good faith mediation. Following the mediation period, if the court finds the creditor has not participated in mediation in good faith, the court shall by order suspend the creditor's remedies for an additional period of one hundred eighty days. 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 additional suspension of creditor's remedies.

If the court finds that the mediator committed an abuse of discretion in filing, or failing to file, an affidavit of lack of good faith, the court may:

(a) Reinstate mediation and the stay of creditors' enforcement actions;

(b) Order court supervised mediation; or

A mediator may offer testimony but is not required to testify as part of the court's review.

(5)(a) A debtor is not mediating in good faith if the debtor fraudulently conceals, removes, or transfers agricultural property in which the debtor knows there is a security interest. The concealing, removing, or transferring must be in violation of a security agreement without remitting the proceeds to the secured party and must have occurred during the mediation period.

(b) A creditor may immediately proceed with creditor's remedies upon receipt of a mediator's affidavit of a debtor's lack of good faith.

(6) A creditor receiving a mediation proceeding notice may begin proceedings to enforce a debt against agricultural property of the debtor:

(a) At the time the creditor receives a mediator's affidavit of the debtor's lack of good faith; or

(b) Five days after the date the debtor and creditor sign an agreement allowing the creditor to proceed to enforce the debt against agricultural property if the debtor has not rescinded the agreement within the five days.

(7)(a) After a debtor requests mediation pursuant to this chapter, a creditor who is participating in the mediation and who has a security agreement relating to agricultural property under the debtor's control may inspect the secured agricultural property during normal business hours on twenty-four hours' notice to the debtor. For purposes of this subsection, "normal business hours" means 8:00 a.m. to 6:00 p.m. Monday through Saturday but excludes legal Washington and United States holidays.

(b) Failure to permit this inspection by the creditor, or destruction or waste of the property securing the debt, is evidence of the debtor's lack of good faith.

NEW SECTION. Sec. 16. A creditor that is notified of the initial mediation meeting, and does not attend, is subject to and bound by a mediation agreement. A creditor may file a notice of claim and proof of claim on a claim form with the mediator before the scheduled meeting. The creditor's claim shall be considered by the mediator and included in the mediation agreement. The mediator must notify the creditors who have filed claim forms of the terms of any agreement.

NEW SECTION. Sec. 17. (1) 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. This subsection is an addition to and not a limitation of immunity otherwise accorded to a mediator under law.

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

(3) A person is not eligible to be a mediator if the person has a conflict of interest that does not allow the person to be impartial. A conflict of interest includes being a current officer or board member or officer of the initiating creditor.

NEW SECTION. Sec. 18. The department of agriculture, in consultation with the director of the agricultural extension service of Washington State University and the boards of trustees of the community college districts, shall make rules to implement the provisions of this chapter. The department shall promulgate forms for voluntary mediation application, mediation request, and claim forms. The department may adopt emergency rules.

NEW SECTION. Sec. 19. The department shall set the compensation of mediators and credit analysts.

NEW SECTION. Sec. 20. A waiver of mediation rights under this chapter is void.

Sec. 21. 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 1988 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 20 of this 1988 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. 22. 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 1988 act, is the subject of forfeiture, the mediation process established in chapter 7.-- RCW (sections 1 through 20 of this 1988 act) have been complied with.

Sec. 23. Section 6, chapter 242, Laws of 1986 and RCW 60.11.060 are each amended to read as follows:

Any lien subject to this chapter, excluded by RCW 62A.9-104 from the provisions of the Uniform Commercial Code, Title 62A RCW, may be foreclosed by an action in the superior court having jurisdiction in the county in which the real property on which the crop in question was grown is situated in accordance with RCW 60.11.070 or it may be foreclosed by summary procedure as provided in RCW 60.11.080, except that if the collateral is agricultural property as defined by section 2 of this 1988 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 20 of this 1988 act).

Sec. 24. Section 413, page 208, Laws of 1854 as last amended by section 614, Code of 1881 and RCW 61.12.120 are each amended to read as follows:

The plaintiff shall not proceed to foreclose his mortgage while he is prosecuting any other action for the same debt or matter which is secured by the mortgage, ((or)) while he is seeking to obtain execution of any judgment in such other action, or until the plaintiff and debtor have complied with the process established in chapter 7.-- RCW (sections 1 through 20 of this 1988 act) if the real property secured by the mortgage is agricultural property as defined by section 2 of this 1988 act; nor shall he prosecute any other action for the same matter while he is foreclosing his mortgage or prosecuting a judgment of foreclosure.

NEW SECTION. Sec. 25. Sections 1 through 20 of this act shall constitute a new chapter in Title 7 RCW.

NEW SECTION. Sec. 26. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.