• Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads


Total Views
On Slideshare
From Embeds
Number of Embeds



Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

    No notes for slide


  • 1. Class #31, Nov. 1, 2002
    • Chapter 13 - Ag Credit, Finance and Bankruptcy
    • Part II Next Class
    • Case Recitation
    • U.S. v. Ellis --- Scott Priebe&Cale Russler
    • First Nat’l --- Donald Shoemaker & Lee Stanish
    • Northeast Chick – Eliz. Sturgeon&Mike Veld
    • Lisco State Bank – Betsy Willwock & Richard Dobbyn
  • 2. Case Assignments Monday Nov. 4
        • Case Student
        • Gretna St. Bank -- Andrew Eller& Nathan Fleck
        • Exchange Bank -- Chris. Geswein & Luke Harrison
        • In Re Welch-- Ryan Holtkamp&Gretchen Humphrey
        • In Re Mary Freese–Joshua Johnson& Kyle Kuehnert
  • 3. Types of Credit
    • Types of Credit
    • -- Short-Term Credit
      • working capital, term 1-3 years
    • -- Intermediate Credit,
      • equipment, machinery, farm improvements, term 3-7 years
    • -- Long-Term Credit
      • land, major building, and land improvements
  • 4. Ag Institutional lenders
    • -- Commercial banks
    • ---- Short and intermediate term, a little long term
    • -- Insurance Companies
    • --- Long term credit
    • -- Farm Credit System
    • --- began with the Federal Land Bank in 1916
    • ---- FLB started with Federal Govn’t capital, but was repaid, and became farmer owned.
  • 5. Sources of Credit for Ag
    • Financial crisis in ‘80s brought an infusion of fed funds, and reorganization of farm credit agencies
    • Farm Credit System Reorganization
      • FLBs and Intermediate Credit Banks were merged to form a single Farm Credit Bank
    • Now, FCS (Farm Credit Service) exist.
  • 6. Direct USDA Lending -- Farmer’s Home Administration
    • A USDA Agency providing supervised credit, historically
    • --- but, mainly guaranteed loans now
    • --- for “worthy” farmers who are unable to get credit elsewhere.
    • Note, the losses FHA took in the paper on Indiana Ch. 12 bankruptcy study in the late 80’s.
  • 7. Direct USDA Lending
    • Farmers are still facing restructured shared appreciation agreements which if and when they are enforced could mean failure to at least a few farmers.
      • If the debtor/farmer can’t at least service an extra increment to his or her debt, they may be forced to foreclosure!
    • They provides rural housing loans, rural community development loans.
  • 8. Direct USDA Lending
    • Commodity Credit Corporation (CCC)
    • price support loans for farmers since the mid-30s.
    • CCC handles storage and disposal of accumulated stocks from non-recourse loans.
    • Rural Electrification Administration makes
    • 100 % loans on up to 35 years for electrical and telephone services.
  • 9. Non-institutional Lenders
    • Private individuals are a major source of credit
    • -- especially within families
    • -- often for installment sales of farmland
    • Manufacturers, Dealers, and Ag Companies
    • -- Machinery, seed, ...
  • 10. The Loan Agreement
    • Promissory notes, written promise to repay
    • --- demand note
    • --- installment note
    • --- open-ended note for a line of credit
    • Aspects of the note
    • ---- amount, of course
  • 11. The Loan Agreement
    • More aspects of the note:
    • ---- interest rate, fixed or variable
    • ---- other fees: collateral appraisal fees, closing costs, loan service fees, legal fees (examine title)
    • ---- beware of repayment terms--to avoid default
    • ---- watch out for the acceleration clause
  • 12. The Loan Agreement
    • Acceleration Clauses (ACs) are not favored by the courts.
    • An example is, the “quick foreclosure clause” (strict forfeiture) in an installment contract.
    • Borrower should soften ACs with a grace period.
    • Borrower will want a prepayment option without penalty.
    • If there is an secondary signatory on the note, they are primarily liable along with the borrower.
  • 13. Mortgages
    • A mortgage is a conveyance of an interest in real property by the mortgagor (borrower) to the mortgagee (lender).
    • -- on the condition that the transfer is void once the debt is repaid.
    • Actually, the “title status” of the parties varies by state.
    • --- In “title states,” lenders are deemed to have title while the debt exists.
    • --- In “lien states,” the debtor has title and the lender has a lien, Indiana being an example.
  • 14. Mortgages
    • If permitted by the terms, the borrower may sell the mortgaged property, but subject to the mortgage
    • Priority of Lenders
    • The first mortgage holder has priority over all other creditors, including second and subsequent mortgage holders.
    • A second mortgage is one where the same real estate is security for a debt as the first or primary mortgage.
    • -- in a foreclosure, the 2nd takes after the 1st .
  • 15. Mortgages
    • The document itself is similar to an installment contract, discussed earlier.
    • Borrower has many responsibilities
    • and a failure could trigger the acceleration clause.
    • Issues are, taxes, insurance, assessments …
  • 16. The Mortgage Instrument
    • Eminent domain or any other sale proceeds are likely to accrue to the lender/mortgagee.
    • Thus, lender may have to consent to the transaction and/or the amount in order avert an acceleration
    • E.g., Selling the house and lot off the farm.
    • “ Deeds of trust” are used in place of mortgages in some states. E.g. Missouri.
  • 17. Foreclosure
    • --- discretionary action by the lender after the payments are overdue
    • This is a suit or action that is a request for sale of the property
      • once the court so orders
      • the property is advertised for sale
      • after the statutory time allowance, there is an auction to the highest bidder
      • proceeds of sale are applied to the debt
    • Alternatively, there may be a “deed in lieu of foreclosure”
  • 18. Redemption
    • This right permits the borrower to redeem--buy back the land.
    • There is a time period, set by state law to redeem after the foreclosure sale
    • -- three months in Indiana, but longer in the past, and in other states.
  • 19. Redemption
    • Note, it is an “equity of redemption” that may be allowed under an installment contract if it is requested in a court proceeding where a “strict foreclosure” is provided in a contract.
    • A farmer (debtor) remains in possession during the redemption period.
    • (See Figure 13.1 on an overhead.)
  • 20. United States v. Ellis, U.S. Ct of App., 9th Cir., ‘83
    • Action: for redemption rights
    • Issue:
    • Does Ellis have redemption rights?
    • Facts: Ellis took FmHA loans, in ‘76’’,77, &’78.
    • Mortgages on the farm secured the loans.
    • Mortgage document waived “state redemption rights .”
    • On 4 -1- 81 FmHA foreclosed--due $150,000+Interest
    • FmHA got a judgement for a sale of property.
  • 21. United States v. Ellis
    • Holding:
    • There are now redemption rights in federal law.
    • The court held there was no grant of state redemption rights that had been explicitly waived.
    • At the time of the action, Washington state law had a one year redemption right.