The Wisconsin Department of Agriculture, Trade & Consumer Protection cautions farmers against predatory loan companies that are taking advantage of the current economic situation to the detriment of farmers.
"As farmers find it increasingly difficult to obtain loans, the Wisconsin Farm Center is aware that companies are seeking to prey on cash-strapped farmers in Wisconsin," explains Wisconsin Agriculture Secretary Rod Nilsestuen.
In one situation in southern Wisconsin, a farmer was charged $2,500 for the loan proposal. The group would loan him 60% of the appraised value of the farm real estate and 50% of the appraised value of his personal property. On top of the loan proposal fee, the group would charge the farmer $18,000 in closing costs, 12% interest on the loans, and a balloon payment due in two years. The farmer would also be billed an undisclosed amount for the appraiser who was chosen by the group.
"We are concerned that in cases such as this, the farmers could be left with nothing," said Paul Dietmann, Director of the Wisconsin Farm Center. "There is little chance that these farmers will end up owning their farms at the conclusion of these deals, and the companies would own the farm for 60 cents on the dollar."
The Wisconsin Farm Center has suggestions for identifying loan offers that are too good to be true. Some signs of predatory lenders include:
- Being charged for a loan finder arranging the contact
- Unreasonably high interest rates
- High closing costs or origination fees
- High appraisal fee or an appraiser chosen by the loan company
- Short loan maturity time
- A lender not regulated by the government
- A loan originating from a distant state
- An offer of cash in exchange for an ownership interest in the farm
- Pressure to close the transaction quickly or threats that the loan won't be available for long
These predatory loan companies have been contacting farmers by phone or letter. Some companies also have websites or ads with loan information. To avoid falling into a predatory lending trap, review all non-standard loan offerings with a neutral party such as the Wisconsin Farm Center. Contracts should be reviewed by an attorney before signing. Take the time you need to really consider what you want to do. A legitimate loan company will give you the time you need.
"While it does not appear that the loan practices of these companies violate state law, they are violating the state's no-call law if you are on the no-call list. Predatory lenders have a high likelihood of making someone's bad situation much more difficult," said Dietmann. "We encourage farmers to call us for a neutral, third-party analysis of their financial condition so we can help develop a sound strategy to protect their farm equity."
The Wisconsin Farm Center provides services to Wisconsin farmers and agribusinesses to promote the vitality of the state's agricultural economy and rural communities. Farmers and small agribusiness owners can contact the Farm Center through the toll-free phone line at 1-800-942-2474 to report predatory practices or receive additional assistance.