Your lender informs you that your unpaid operating loan will not be renewed. What are your options? Loan foreclosure? Bankruptcy? One important option in Nebraska is farm credit mediation.
This is when you and your creditor (or creditors) sit down with a trained mediator who tries to facilitate a compromise among the parties that avoids loan foreclosure and bankruptcy.
How does mediation work? Farm credit mediation in Nebraska operates under the Negotiations Program of the Nebraska Department of Agriculture. Mediation proceedings are confidential. To begin mediation, you fill out an application form on which you list the creditors you wish to mediate with.
You will have the option to request a financial counselor to assist you in preparing for mediation. This is an important free benefit, and you should use it. The financial counselor will take an in-depth look at your situation, help evaluate your overall financial picture, and look at debt restructuring and refinancing possibilities.
Within 40 days of applying for mediation, you will have your first mediation session, if your creditors agree to mediate — they are not legally required to. If you are a Farm Service Agency borrower, FSA will mediate, but you must meet the time deadlines included in the information you receive from FSA.
Parties each pay $20 per hour for mediation sessions. You may bring an attorney or other adviser with you to mediation. Most mediation sessions are completed within 60 days of your application and result in an agreement between the parties.
For information, visit the Negotiations Program website or call 402-471-4876.
Types of compromises
What type of compromises may be negotiated in mediation? This is where the benefits of the pre-mediation financial counseling come in. Hopefully, you will have developed a strategy that can deal with your debts and allow you to continue operating. A farm credit mediation compromise may include one or more of the following:
• extending the loan term to lower loan payments
• lowering loan payments with a large balloon payment that requires the loan balance to be renegotiated or refinanced in the future
• giving creditors additional loan collateral (security)
• turning an annual operating loan into a separate fixed-term loan
• negotiating how to share the new crop revenue between existing and new creditors
• agreeing to turn property over to creditors in exchange for forgiveness of any unpaid loan balance
If you do negotiate a mediation compromise, it is essential to have the agreement reviewed by an attorney and your tax adviser. Mediation agreements include a two-week review period unless the review period has been waived by the parties.
Turning property over to creditors may in some cases trigger capital gains income, debt forgiveness income or both. It is crucial to identify and understand the income tax consequences of your mediation agreement before it is too late to do anything about them.
What happens if one or more creditors are taking steps to foreclose on a loan? If this happens, you need to contact an attorney immediately. One legal option is a bankruptcy court order to stop state foreclosure proceedings. This can provide time for the parties to negotiate a nonbankruptcy settlement.
If you don’t have an attorney who has dealt with farm foreclosure issues, call the Rural Response Hotline at 800-464-0258. Legal Aid Nebraska assists producers with agricultural credit issues, as do many Nebraska attorneys.
Farm credit issues can be difficult to deal with emotionally. Producers often wait too long to address these issues, at which point there are fewer good options available — often the result of declining land values. Helpful sources of information and assistance include:
• Nebraska Rural Response Hotline at 800-464-0258 (financial, legal, and family counseling services and referrals)
• Farm Finance and Ag Law Clinics at 800-464-0258. Visit cropwatch.unl.edu for each month's schedule. These free monthly clinics are sponsored by the Nebraska Department of Agriculture Negotiations Program and deal with debtor-creditor issues and farm credit mediation.
• Negotiations Program at 402-471-4876 (mediation services for agricultural borrowers, creditors and USDA program participants)
Note: This information is provided for educational purposes. It is not intended as legal advice.
Aiken is a Nebraska Extension water and agricultural law specialist.