Pub 2 2013 Issue 7

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 20 Farm Credit Mid-America gets stung for financing land scam Farm Credit Mid-America (Mid-Am) has gotten stung for at least $300,000 helping to finance a property development scheme in Georgia it had no business being involved in. Headquartered in Lou- isville and formerly known as FCS of Mid-America, Mid-Am is the second-largest FCS association, serving all of Indiana and Tennessee and most of Ohio and Kentucky.  Although not authorized to lend in Georgia, lend it did, in Dade County on the Tennessee border, appar- ently after getting permission from AgGeorgia Farm Credit, ACA, whose territory includes Dade County. The Mid-Am loan in question was made to T.A.S. Properties, LLC (TAS), which started developing a 2,000+ acre property in 2004 called The Preserve at Rising Fawn. Unfortunately, this acreage at the foot of Lookout Mountain is quite mountainous and not very suitable to development, even for second-home properties, which is how they were marketed. Of course, lending to finance property development clearly is off-limits for FCS associations. Farm Credit Administration (FCA) regulation Sec. 613.3005, Lending Objective, states that FCS “[c]redit shall not be extended where investment in agricultural assets for speculative appreciation is a primary factor.” By its very nature, property development is speculative as price appreciation clearly is in- tended. Reportedly, Mid-Am characterized the borrowers as part-time farmers even though the land generated no farm income. Not surpris- ingly, mortgage defaults rose during the recession, forcing TAS to file for bankruptcy in 2011. Mid-Am, of course, is no stranger to bending the rules, as I reported in a May 2012 FCW article, “FCS now a student-loan lender?” In that case, Mid-Am lent money to a 23 year-old college student who “had to plant a garden to become eligible” to borrow. Interestingly, the student also was a member of the Ohio House of Representatives and served on its Agriculture and National Resources Committee. As bad as it was for Mid-Am to lend outside of its assigned territory to help finance a highly speculative property development, The Preserve at Rising Fawn turned out to be a huge land fraud, as evidenced by the April 2013 criminal convictions of two TAS principals, Joshua Dobson and Paul Gott, in the federal district court in Chattanooga, Tennessee. According to news reports of the trial, Dobson, Gott, and their accomplices marketed “two-to-three-acre lots, many on the slopes of Lookout Mountain, without access to roads, electricity or water.” During The Preserve’s heyday, the lots “were appraised at $90,000, $150,000, even $250,000 for loan purposes.” Many investors in these properties, though, were “straw buyers” participating in a “no- down-payment, no-monthly-payment financing scheme used to market [the] lots.”  In a May 2012 press release, the FBI “assigned a value of $45 million to what it described as a multi-state mortgage fraud.” Not surprising- ly, many of the properties have been foreclosed upon with numerous buyers facing bankruptcy and great financial distress. Although other parties participated in financing The Preserve, Mid-Am clearly had no business being involved at all. Hopefully the FCA will penalize Mid-Am for this lending violation. Of course, given the FCA’s policy of not publicizing its enforcement actions, neither Mid-Am’s owner/ borrowers nor the public will ever know about it.   FCA continues to overstate FCS lending to YBS farmers In a June 13, 2013, news release touting the FCS’s lending to young, beginning, and small (YBS) farmers, the FCA ignored this simple fact – FCS lending to YBS farmers, relative to total FCS lending, has declined in recent years. In FCA parlance, a young farmer or ranch- er is 35 or younger, a beginning farmer or rancher has 10 years or less farming experience, and a small farmer or rancher had less than $250,000 in gross annual agricultural or aquatic product sales at the time the loan was made. The FCA overstates the FCS’s YBS lending by double and triple-counting YBS loans. For example, an FCS loan to a 29-year-old farmer with six years of farming experience and gross annual farm sales of $230,000 is counted three times – once as a Y, once as a B, and once as an S farmer.  The FCA tried to mask the decline in the FCS’s YBS lending with statements such as this one: “The increase in new lending to the three YBS categories exceeded the pace of overall [FCS] lending to farm- ers. The numbers and volume of YBS loans outstanding also rose in Bert Ely’s farm credit watch ® Shedding Light on the Farm Credit System, America’s Least Known GSE ©2013 Bert Ely