Pub. 4 2015 Issue 2

March 2015 23 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 addition, windmills on the land generate substantial revenue. Presumably this valuable farmland collateralizes the FCMA loan. But there are two problems with this arrangement. First, is St. Joseph’s an eligible FCS borrower? More specifically, to use the language of the Farm Credit Act, is St. Joseph’s a bona fide farmer, rancher, or producer or harvester of aquatic products given that the college leases its farmland to persons who do the actual farming? FCA regulations define a bona fide farmer as “a person owning agricultural land or engaged in the production of agricultural products, including aquatic products.” [emphasis supplied] However, the first portion of the regulation, “a person owning,” goes beyond a plain reading of the phrase “bona fide” as that phrase is used in the Farm Credit Act. The dictionary meaning of “bona fide” is genuine or real. Synonyms include authentic, true, actual, legitimate, and valid. All of these meanings apply to a person actually engaged in farming – they certainly do not apply to a person, or a college, who merely owns the farmland and leases that land to actual farmers. Hence, the FCA regulation governing who is eligible to borrow from the FCS has a far broader scope than the statute on which that regulation is based. Second, even if St. Joseph’s is an eligible FCS borrower, can FCMA establish a valid first lien on the farmland Ms. Waugh donated to the college given that the Farm Credit Act requires that FCS real estate loans must be secured by a first lien on the real estate securing the loan. Ms. Waugh, reportedly a savvy businesswoman, “worried that the church might one day overturn any agreement she had with the college and sell her land if it needed cash.” Therefore, to prevent the sale of the land, “she stipulated in her will and written agreements with the college that neither the college nor the church could sell the farmland, going so far as to stipulate in the transfer deed that the land could be used only for farming and wind-energy production and never sold.” This restriction raises this crucial question: Can FCMA place a valid first lien on the farmland given that the college is barred from selling the land under any circumstance? If not, then is FCMA’s loan to the college a real estate loan or an unsecured loan, which clearly FCMA cannot make to an educational institution. In November, I asked the FCA if St. Joseph’s could be considered to be a “bone fide” farmer as Congress meant that term to be interpreted. I also sent the FCA information about the FCMA loan, including copies of news articles reporting that the Waugh farmland cannot be sold. Michael Stokke, the FCA’s Director of Congressional and Public Affairs, responding to my email, stated that my inquiry “does not involve a loan for which you are obligated,” which is how the FCA often blows off complaints about improper FCS lending. Stokke’s letter then stated that “we assure you that, under our examination authority, we have reviewed [FCMA’s] relationship with the College and determined that, in its business dealings with the College, [FCMA] has complied with our regulations.” Hence, it appears that the FCA is saying that an FCS institution can make an unsecured loan to an educational institution that is not actually engaged in farming. Presumably FCA Chairman Jill Long Thompson, who used to represent a congressional district near Rensselaer, agrees with Stokke’s response. I also asked a representative of FCMA about the appropriateness of this loan. To date, FCMA has not responded, which is not surprising. This is another FCS loan that merits congressional inquiry. Report FCS lending abuses to: green-acres@ely-co.com Bankers are continuing to send FCW reports of FCS lending abuses, such as FCS loans for rural estates, weekend getaways, and hunting preserves. Email reports of similar lending abuses in your market to: green-acres@ely-co.com ABA Celebrates 140th Anniversary To commemorate ABA’s 140th anniversary in 2015, the association has published an interactive timeline documenting key moments in the history of both ABA and banking in the United States. Starting with 1782, the timeline demonstrates how bankers have innovated better ways of keeping deposits safe, giving customers convenient choices and making loans to help people buy homes and grow businesses. It also highlights ABA innovations that have helped banks meet their customers’ needs. For Lease: Prime location in Great Bend, Kansas. 7,000 sq. ft. Former Bank of America Banking Center. Available for immediate occupancy. Call 620-793-9200 and ask for the Building Manager. O O