liquidation pm - gislason & hunter attorneys at law€¦ · partial liquidation • minimize...

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LIQUIDATION What Ag Lenders Should Know

Dustan J. [email protected]

Reed H. [email protected]

Rick J. [email protected]

Mark S. [email protected]

Replevin Actions

Reed H. [email protected]

Roadmap

• Borrower Default• The Workout Process• The Farmer-Lender Mediation experience• The Mediation Process• Replevin/Collection/Foreclosure• Rights of First Refusal

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Collection: Overview

• Monetary Judgment• Suit on Promissory Notes • Action against Guarantors

• Replevin of Personal Property• Mortgage Foreclosure

• Advertisement• Action

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Collection: Personal Property Generally

• After satisfying any Farmer-Lender Mediation requirements, collection can begin in earnest

• Lender should review sources of recovery: • Repossess and sell personal property in which the lender has security interest

• Machinery, livestock, grain, etc. • Foreclose of real property that is subject to the lender’s mortgage• Obtain money judgment against borrower or guarantor and then enforce that

judgment

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cont.Collection: Personal Property Generally

• Review Security Agreements and Financing Statements• The Security Agreement governs what particular property serves as collateral for the

loan• Two common types of Security Agreements:

• “Blanket” Security Agreements identify broad categories of property• E.g., all machinery and equipment, all crops and proceeds

• Security Agreements covering specific items• E.g., John Deere 9520 s/n #######

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• “After-Acquired Property” Clause• Included in many security agreements• Provides that the security interest attaches not only to the property owned at the

time of execution, but other property acquired later that fits within the collateral descriptions

• E.g., “includes the following collateral whether now owned or hereafter acquired”

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• Future Advances Clause• Provides that collateral secures not only the debts outstanding at the time of

execution, but any future loans or future advances• Cross-Collateralization Clause

• Provides that collateral secures not only the loan that might be signed along with the security agreement, but other outstanding loans.

• Some security agreements are limited to particular loans

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• Third-Party Security Agreements • A person other than the borrower may grant a security interest in the third-party’s

property to serve as collateral for a loan • e.g., two farming entities under common family ownership

• Loan may be to one entity• But the other entity may own a majority of the equipment, and thus will grant a

security interest

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• Generally there are three avenues for actually collecting personal property to satisfy a loan:• Voluntary Repossession• “Self-Help” Repossession• Replevin/Claim and Delivery

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Collection: Voluntary Repossession

• Voluntary Repossession• Situations where the borrower agrees to work with the lender to liquidate• Examples:

• Borrower delivers collateral to the lender (or to the lender’s auctioneer) • Allowing auctioneer to conduct an auction at borrower’s farm• Selling grain and turning over proceeds

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cont.Collection: Voluntary Repossession

• Voluntary Repossession • May provide important benefits:

• Minimize liquidation costs, thereby maximizing loan repayment• Can be structured to minimize impact on debtor’s operation in the case of a

partial liquidation • Minimize time

• Parties should have clear understanding on whether lender is waiving other collection remedies in exchange for cooperation

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Collection: “Self Help” Repossession

• “Self Help” Repossession• Repossessing personal property with notice to the borrower, but not with the

borrower’s cooperation• Permissible only if it can be accomplished without a “breach of the peace”

• E.g., entering onto private property over borrower’s objection may be a breach • Verbal, and certainly physical altercation, may be a breach

• Should be approached with caution

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Collection: Replevin

• Replevin/Claim and Delivery• Two phrases used to describe using judicial process to enforce a security interest• Act quickly if property is missing

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cont.Collection: Replevin

• A Minnesota Action Seeking Replevin Will Typically Be Brought in a County Where Collateral Is Located.

• Specifically, that venue provision states: “[a]ctions to recover the possession of personal property wrongfully taken shall be tried in the county in which the taking occurred or in the county in which the property is situated.”

(Minn. Stat. § 542.06)

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• Replevin Procedure• Lawsuit is commenced by serving a summons and complaint• Lender brings motion asking the court to order seizure of the property from the

borrower (or other person in possession)• Specifically identify the collateral

• Sheriffs have been pushing back on the “all machinery and equipment” language• Descriptions from depreciation schedules and financial statements

(Minn. Stat. § 565.23)

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• Replevin Procedure (Cont.) • Bond Requirement

• Lender must post a bond equal to 1.5 times the fair market value of the property seized

• Borrower can regain possession by posting bond in an amount equal to the lesser of:• 1.25 times the fair market value of the property; or• 1.5 times the amount of the lender’s claim

• Debtor can request the amount be lowered• Court can order immediate possession without notice if the lender will suffer

irreparable harm if property is not obtained before a hearing.(Minn. Stat. § 565.25)

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• Order for Seizure• Identifies the property to be seized• Directs sheriff to seize the property• Permits lender to liquidate and sell, subject to any timing restrictions

(Minn. Stat. § 565.26, subd. 1)

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• Liquidation• After lender has taken possession, the lender can liquidate the property and sell it

and apply proceeds to loans • Must be done in a “commercial reasonable” manner

• Must act reasonably in attempting to realize highest value possession • Will often involve hiring an auction company to advertise and conduct the sale

• Must also act reasonably to preserve value of collateral• Especially important with livestock, perishable produce or other goods, or

property that may be damaged by weather

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• Liquidation• Notice

• Generally lender must provide debtor, guarantor, and other secured parties notification of the disposition (sale) of collateral.

• Minn. Stat. 336.9-613 provides a form to use

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• Order for seizure entered• Obtain possession of personal property• Sale of personal property• Notification of Disposition of Collateral

• 10 day notice• Exception- Perishable goods

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Litigation- Personal Property

• Notification of Disposition of Collateral• Who to serve?

(1) the debtor;(2) any secondary obligor (i.e. guarantor)

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cont.Litigation- Personal Property

• Notification of Disposition of Collateral• Who to serve?

(3) if the collateral is other than consumer goods:(A) any other person from which the secured party has received notification of

a claim of an interest in the collateral;(B) any other secured party that, ten days before the notification date, held a

security interest in or other lien on the collateral perfected by the filing of a financing statement

(C) any other secured party that, ten days before the notification date, held a security interest in the collateral perfected by compliance with a statute, regulation, or treaty described in section 336.9-311(a).

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• Notification of Disposition of Collateral• Specific language as laid out in the statute must be used.• Private Sale

• We will sell the _______________ (describe collateral) privately sometime after (day and date).

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• Notification of Disposition of Collateral• Public Sale

• We will sell the _______________ (describe collateral) to the highest qualified bidder in public as follows:

Date:Time:Place:

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• Disposition of Collateral• Warranties on disposition• Disclaimer of warranties. A secured party may disclaim or modify warranties:

1) As traditionally disclaimed; or2) by a record evidencing the contract for disposition and including an express

disclaimer or modification of the warranties.• Key language: "there is no warranty relating to title, possession, quiet

enjoyment, or the like in this disposition" or uses words of similar import.

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Replevin Motions – Collateral located in Multiple States

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Collection: Replevin of Multi-State Collateral

• In such situations, it is possible for a creditor to commence a single Minnesota action (so long as the relevant loan documents provide for a Minnesota action or the debtor has sufficient ties to Minnesota) and then file a replevin motion in that action seeking recovery of collateral located in other states.

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cont.Collection: Replevin of Multi-State Collateral

• After a Replevin Order Is Issued, the Order Must Be Transferred to Another State Before Collateral Located in That Other State May Be Retaken.

• This is accomplished through state-specific versions of the Uniform Enforcement of Foreign Judgments Act (the “UEFJA”), which has been adopted by most states.

• Minnesota’s UEFJA statute is Minn. Stat. § 548.27• Iowa: Iowa Code § 626A.2• Wisconsin: Wis. Stat. § 806.24• South Dakota: SDCL § 15-16A-2

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cont.Collection: Replevin of Multi-State Collateral

• The UEFJA generally provides that “orders” (such as replevin orders) issued in one state can be enforced in another state once a specific court filing is made in that other state. Thus, when the requisite filing is made, a replevin order issued in Minnesota can be enforced in another state where the secured creditor’s collateral is located.

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Real Estate Foreclosures

Rick J. [email protected]

Options

• Foreclosure by Advertisement• Advantages – no formal court action, quicker, less expensive• Disadvantages – relinquish any deficiency judgment against borrower (generally)

• Foreclosure by Action• Advantages – seek deficiency, bring all obligors in one action• Disadvantages – commence legal action, longer, more expensive

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Deed in Lieu

• Deed in Lieu • Advantages – acquire title, control property, quick, rights of first refusal can be

waived, less expensive• Disadvantages – acquire title, control property, may still need to foreclose or

otherwise remove any junior liens

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Requirements of Foreclosure by Advertisement

• Mortgage must contain power of sale.• Default has occurred by which power of sale became operative.• No action or proceeding at law to collect the debt is pending or, if an

action has been commenced, said action is discontinued or execution upon the judgment has been returned unsatisfied.

• Mortgage and all assignments are recorded.

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Foreclosure by Advertisement: Process

• Are pre-foreclosure notices required? • Minn. Stat. § 47.20, subd. 8

• “Conventional Loan” Notices: Statutory Notice that a lender must send to a borrower via certified mail giving the borrower at least 30 days to cure

• Minn. Stat. § 580.021• Statutory Notice of opportunity for foreclosure prevention counseling sent to

borrower and authorized foreclosure counseling agency

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cont.Foreclosure by Advertisement: Process

• After applicable pre-foreclosure notices have been sent, a Notice of Pendency must be filed with the County Recorder or Registrar of Titles.

Minn. Stat. § 580.032, subd. 3. • Notice of Pendency must be filed before the first date of publication of the

foreclosure notice but not more than six months before the first date of publication.

Id.• Power of Attorney must also be filed with the County Recorder or Registrar of

Titles. Minn. Stat. § 580.05.

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• Notice of sale published for six consecutive weeks. Minn. Stat. § 580.03.• Serve notice of sale and all applicable required notices upon person(s) in

possession of the mortgaged premises at least 4 weeks before sale. Id.

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Foreclosure Notices

• Homestead Designation• Separate Tract Designation• Help for Homeowners in Foreclosure/Foreclosure Advice Notice• Redemption Rights Notice• Tenant Advice Notice

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Homestead Designation

• If the property contains a portion of a homestead, the person in possession of the real property must be notified that the homestead may be sold and redeemed separately from the remaining property

• Notice must be served with the notice of foreclosure (i.e. at least four weeks before the sale)

Minn. Stat. § 582.041; see also Minn. Stat. § 580.03

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What is Ag Homestead Property

• Agricultural land that is occupied and used as a homestead by its owner, who must be a Minnesota resident

• Owner of agricultural property is limited to only one agricultural homestead per family

Minn. Stat. § 273.124, subd. 1• The homestead may include any quantity of land not exceeding 160 acres. Minn. Stat. § 510.02, subd. 1

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Separate Tract Designation

• If the real property is agricultural land and contains separate tracts, the person in possession of the real property must be notified by the foreclosing mortgagee that the separate tracts may be sold and redeemed separately

• Notice must be served with the notice of foreclosure (i.e. at least four weeks before the sale)

Minn. Stat. § 582.042; see also Minn. Stat. § 580.03

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Help for Homeowners/Foreclosure Advice Notice

• Applies to foreclosure of mortgages on property consisting of one to four family dwelling units, one of which the owner occupies as the owner's principal place of residency when the notice of pendency is recorded

• Must be printed on colored paper that is other than the color of the notice of foreclosure

• Font size requirements• Must be delivered with the notice of foreclosure and at least once every

60 days up to the date of the foreclosure saleMinn. Stat. 580.041, subd. 1a,1b, 2

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Redemption Rights Notice

• Applies to foreclosure of mortgages on property consisting of one to four family dwelling units, one of which the owner occupies as the owner's principal place of residency when the notice of pendency is recorded

• Must be printed on colored paper that is other than the color of the notice of foreclosure

• Font size requirements• Must be delivered with the notice of foreclosure Minn. Stat. § 580.041, subd. 1c; see also Minn. Stat. § 580.03

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Tenant Advice Notice

• Applies to foreclosure of mortgages by advertisement on property consisting of one to four family dwelling units, one or more of which are occupied by a tenant as a residence

• Must be printed on colored paper that is other than the color of the notice of foreclosure and help for homeowners notice

• Font size requirements• Serve with notice of saleMinn. Stat. § 580.042; see also Minn. Stat. § 580.03

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Foreclosure by Advertisement: Process

• Notify junior lienholders• Junior lienholders and mechanic’s lienholders. Must be served with notice at least

14 days before the sale. Minn. Stat. § 580.032, subd. 4• State and federal tax liens. Notice of foreclosure must be mailed to commissioner

(and via registered or certified mail or by personal service to the IRS) not less than 25 days before the sale.

Minn. Stat. § 270C.63, subd. 11; see also 26 U.S. Code § 7425(c)(1)

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• Sheriff’s Sale: After required notices provided, sale conducted by sheriff of county where land is located

• Bidding: Land is sold to highest bidder; lender may “credit bid” but should carefully consider amount, because surplus will go to junior creditors or mortgagor

• Record the Certificate of Sale plus all attachments (executed by Sheriff) with County Recorder or County Registrar of Titles within 20 days of foreclosure sale

Minn. Stat. § 580.12

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Foreclosure by Action: Process

• Foreclosing party gives pre-foreclosure notices to mortgagor Minn. Stat. § 47.20, subd. 8 & Minn. Stat. § 580.021• Defendants are mortgagors, junior mortgagors, or others claiming interest

in the subject real estate

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cont.Foreclosure by Action: Process

• File Summons and Complaint with the appropriate district court• Serve Summons and Complaint - include homestead and tract

designation notices if applicable; note that there are different notices to include with complaint v. notice of sale

Minn. Stat. § § 582.041 and 582.042

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• File Notice of Lis Pendens with County Recorder or County Registrar of Titles

• Lawsuit proceeds – ordinary procedure• Most foreclosure actions will terminate with a default motion or a motion for

summary judgment. A certified copy of the judgment is delivered to the sheriff.• Sale procedure is substantially the same as foreclosure by advertisement.

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• After the foreclosure sale, the sheriff will prepare a report of saleMinn. Stat. § 581.08• The foreclosing creditor then files a motion with the court requesting an

order confirming the sale• If the court grants the motion, the sheriff shall execute a certificate of sale,

which shall be recorded within 20 days after confirmation. Id.

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Redemption Periods

• Twelve months if: • Mortgage was executed prior to July 1, 1987, and the mortgaged premises, as of the

date of the execution of the mortgage, exceeded ten acres in size;• Mortgage was executed prior to August 1, 1994, and the mortgaged premises, as of

the date of the execution of the mortgage, exceeded ten acres but did not exceed 40 acres in size and was in agricultural use;

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cont.Redemption Periods

• Mortgaged premises, as of the date of the execution of the mortgage, exceeded 40 acres in size;

• Mortgage was executed on or after August 1, 1994, and the mortgaged premises, as of the date of the execution of the mortgage, exceeded ten acres but did not exceed 40 acres in size and was in agricultural use.

Minn. Stat. § 580.23, subd. 2(3)(4)(5)(6)

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Waiver of 12-month Redemption

• For mortgages executed on or after August 1, 1994, mortgagor may waive in writing the mortgagor's right to have a 12-month redemption period

• Must sign waiver before or at the time of granting a mortgage• Must be either a document separate from the mortgage or an addendum

to the mortgage that is executed and acknowledged on a separate page• If a separate document, must be recorded no later than 10 days after

recording the mortgageMinn. Stat . § 580.23, subd. 4

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Deficiency Judgments on Ag Property

• Mortgage must be entered after March 22, 1986, regarding property used in agricultural production,

• Deficiency judgment may only be obtained by filing an action for a deficiency judgment and a determination of the fair market value of the property within 90 days after the foreclosure sale.

• In the action, all issues of fact, including determination of the fair market value of the property, shall be tried by a jury unless a jury trial is waived as provided in Minnesota district court rules.

• A court may allow a deficiency judgment only if it determines that the sale of the property was conducted in a commercially reasonable manner.

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cont.Deficiency Judgments on Ag Property

• The amount of the deficiency judgment is limited to the difference of the fair market value of the property, and the amount remaining unpaid on the mortgage.

• The property may not be presumed to be sold for its fair market value. A party adversely affected by a deficiency judgment may submit evidence relevant to establishing the fair market value of the property.

• Notice of the time and place where the action for the deficiency judgment and the determination of fair market value of the property is to be heard must be given to all parties adversely affected by the judgment.

Minn. Stat. § 582.30, subd. 3

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Statutory Right of First Refusal for Agricultural Land and Farm Homesteads under Minnesota Law

Dustan J. [email protected]

Mark S. [email protected]

Introduction

• The right of first refusal for farm property was first enacted by the Minnesota legislature in 1986 as part of a legislative package intended to assist family farms in light of the 1980s farm crisis. The law is presently codified at Minn. Stat. § 500.245.

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cont.Introduction

• In general, the law applies to a seller or lessor of agricultural land or a farm homestead who has acquired that property as a result of enforcing a debt against it, including by foreclosing a mortgage, accepting a deed in lieu of foreclosure, terminating a contract for deed, or accepting a deed in lieu of termination.

• It allows the immediately preceding former owner of the property to buy back or lease the property from the lender at the same price agreed to between the lender and a prospective third-party buyer or lessee.

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Pre-Marketing Notice

• The statute requires, as an initial matter, that before offering agricultural land or a farm homestead for sale, the lender must provide at least 14 days written notice to the immediately preceding former owner that the land will be offered for sale.

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Definition of Immediately Preceding Former Owner

• An immediately preceding former owner is the entity who had record legal title to the property before the acquisition by the lender, except: (a) if this was a bankruptcy estate, the debtor in bankruptcy is deemed to be the immediately preceding former owner; and (b) if the property was acquired by termination of a contract for deed or a deed in lieu of termination, the immediately preceding former owner is deemed to be the purchaser under the contract.

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cont.Definition of Immediately Preceding Former Owner

• Only a family farm, family farm corporation, family farm partnership or family farm limited liability company may qualify as an immediately preceding former owner.

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Offer of Right of First Refusal

• A lender may not proceed with a sale or lease of the property to a third party before offering, or making a good faith effort to offer, the property for sale or lease to the immediately preceding former owner (the “former owner”) “at a price no higher than the highest price offered by a third party that is acceptable to the seller or lessor.”

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cont.Offer of Right of First Refusal

• When the lender has found a buyer (or lessee) for the property and has entered into a purchase agreement (or lease), the lender must provide a notice of the right of first refusal to the former owner using form language which is set forth in the statute (at Minn. Stat. § 500.245, subd. 2(a)).

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cont.Offer of Right of First Refusal

• The notice must be personally delivered with a signed receipt or sent by certified mail with a receipt of mailing to the former owner’s last known address.

• A copy of the purchase agreement or lease must be included with the notice, along with an affidavit from the lender affirming that the purchase agreement or lease is true, accurate, and made in good faith. If the lender wishes, the identity of the prospective purchaser or lessee may be deleted from the purchase agreement or lease.

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Price

• “A price no higher than the highest price offered by a third party” means the acceptable cash price or acceptable time-price offer made by a third party.

• A “cash price” offer is one which involves a simultaneous transfer of title for payment of the entire amount of the offer.

• A “time-price” offer is an offer which is financed entirely or partially by the seller, including an offer to purchase under a contract for deed or mortgage.

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cont.Price

• If the third-party offer is in the form of a time-price offer, the lender has the option of making either the same time-price offer or an equivalent cash offer to the former owner.

• An equivalent cash offer means an offer that is equal to the present value of the stream of payments that would be made over the time period of the time-price offer, using the yield curve of U.S. treasury notes and bonds of similar maturity, plus two percent, as the discount rate.

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Extinguishment, Limitation, or Assignment of the Right• The right of first refusal may not be extinguished or limited except by:

• An express statement in a deed in lieu of foreclosure;• An express statement in a deed in lieu of a termination of a contract for deed;• An express statement conveying the right to the lender; however, the former owner

may rescind such a conveyance by notifying the lender in writing within 20 calendar days after signing the statement;

• An express statement conveying the right to a person to whom the land has been transferred in order to cure a title defect; or

• An express statement conveying the right to a contract for deed vendee to whom the land was sold under a contract for deed by the former owner if the express statement and the contract for deed are recorded.

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cont.Extinguishment, Limitation, or Assignment of the Right

• To qualify as an “express statement,” the statement must be written in a clear and coherent manner using words with common and everyday meanings. The statement must also be signed by the former owner.

• Other than as provided above, the right of a former owner to receive an offer to purchase or lease may not be assigned or transferred, but may be inherited.

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Exercise of the Right

• The former owner may elect to purchase or lease only a portion of the property, but such election must be reported in writing to the lender prior to the time the property is first offered for sale or lease. To qualify, the portion must be contiguous and compact so that it does not unreasonably reduce access to, or the value of, the remaining property.

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cont.Exercise of the Right

• The former owner must exercise the right to buy the property (or a portion of it if previously elected), in writing, within 65 days after the notice is mailed or personally delivered. In the case of a lease, the former owner is given only 15 days after the notice is mailed or personally delivered to exercise the right.

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cont.Exercise of the Right

• If the former owner does not accept the offer to buy or lease within the 65-day or 15-day time period, or does not perform the obligations of the offer, including paying the amounts due, within ten days after accepting the offer, the lender may proceed with the sale or lease to the third party.

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Re-Sale of Acquired Property by Former Owner

• A former owner, except one who is actively engaged in farming (as defined by Minn. Stat. § 500.24, subd. 2(a)) and who agrees to remain so on a portion of the property for at least one year after accepting an offer to purchase, may not sell property acquired through the exercise of the right of first refusal if the arrangement of the sale was negotiated or agreed to prior to accepting the offer to purchase.

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cont.Re-Sale of Acquired Property by Former Owner

• This prohibition does not apply to a sale by the former owner to his or her spouse, parents, siblings, siblings-in-law, or children.

• There is a rebuttable presumption that a sale is in violation of this prohibition if the sale occurs within 270 days of the former owner accepting the offer.

• A person who sells property in violation of this prohibition is liable for damages, plus reasonable attorney fees, to a person who is damaged by the sale.

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What Constitutes “Agricultural Land”?

• The term “agricultural land” is not defined in Minn. Stat. § 500.245.• A certificate indicating whether or not property contains agricultural land

or a farm homestead that is signed by the county assessor and properly recorded is prima facie evidence of whether the property constitutes agricultural land or a farm homestead.

• “Prima facie evidence” can be rebutted, but the party seeking to do so must produce significant or substantial contrary evidence.

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cont.What Constitutes “Agricultural Land”?

• Rabbe v. Farmers State Bank of Trimont, 2019 WL 2416036 (Minn. App.), rev. denied. • An issue in this case was whether two commercial grain-elevator properties

constituted “agricultural land” so as to have required the lender to provide the former owner with a notice of right of first refusal (which the lender had not done). The district court found that the properties were not agricultural land and the Court of Appeals affirmed.

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• Rabbe v. Farmers State Bank of Trimont, 2019 WL 2416036 (Minn. App.), rev. denied. • The properties contained various buildings and were used primarily for grain storage.

They also contained small portions of bare land that the former owner claimed could be tilled but were not, with no evidence presented as to when they were last tilled. Signed and recorded certificates from the county assessor indicated that the properties were not agricultural land or a farm homestead, and the properties were classified as industrial for tax purposes.

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• Rabbe v. Farmers State Bank of Trimont, 2019 WL 2416036 (Minn. App.), rev. denied. • The former owner argued that the definition of “agricultural land” found in Minn.

Stat. § 500.24, subd. 2(g) should apply. Under that definition, “agricultural land” means “real estate used for farming or capable of being used for farming in this state.” The term “farming” is defined in subd. 2(a) of that same statute, in relevant part, as “the production of (1) agricultural products; (2) livestock or livestock products; (3) milk or milk products; or (4) fruit or other horticultural products. It does not include the processing, refining, or packaging of said products….”

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• Rabbe v. Farmers State Bank of Trimont, 2019 WL 2416036 (Minn. App.), rev. denied. • The former owner maintained that by failing to include “storage” in the list of

exclusions along with “processing, refining, or packaging,” the legislature intended for storage to be included within the definition of “farming.”

• The former owner also emphasized the fact that both properties, as noted, contained some tillable land which was arguably “capable of being used for farming.”

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• Rabbe v. Farmers State Bank of Trimont, 2019 WL 2416036 (Minn. App.), rev. denied. • The lender maintained that in light of the legislature’s determination that the county

assessor’s certificate constitutes prima facie evidence as to whether or not property contains agricultural land, the term “agricultural land” in § 500.245 should be defined by reference to the property tax classification for the property at issue.

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• Rabbe v. Farmers State Bank of Trimont, 2019 WL 2416036 (Minn. App.), rev. denied. • The lender argued in the alternative that even if the definition of “agricultural land”

found in § 500.24 were used, the term “production” refers to the process of creating a commodity, not storing it; storage occurs after production is completed. Further, if commercial grain elevators constituted agricultural land, then nearly every grain elevator in the state would be in violation of Minnesota’s corporate farming law.

• The lender also maintained that the small potentially tillable acreage within the properties did not transform this industrial land into agricultural property.

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• Rabbe v. Farmers State Bank of Trimont, 2019 WL 2416036 (Minn. App.), rev. denied. • The Court of Appeals assumed, without deciding, that the meaning of “agricultural

land” should be determined with reference to Minn. Stat. § 500.24 as the former owner argued, but adopted the lender’s position that commercial grain-elevator properties, mainly used for grain storage, are not property that is used in the production of agricultural products.

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• Rabbe v. Farmers State Bank of Trimont, 2019 WL 2416036 (Minn. App.), rev. denied. • The Court also held that the phrase “capable of being used for farming” is to be

interpreted with reference to the current use of the property, not what might theoretically be possible. Since the small portions of bare land on the properties were not tilled and there was no record of when they had last been tilled, they were not currently being used for farming nor were they currently capable of being used for farming, and thus were not agricultural land.

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Private Cause of Action

• As previously noted, a notice of the right of first refusal must include a copy of the purchase agreement or lease which the lender has entered into with the prospective third party purchaser or lessee, along with an affidavit affirming that the purchase agreement or lease “is true, accurate, and made in good faith.” Minn. Stat. § 500.245, subd. 2(b) and (c).

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cont.Private Cause of Action

• In Rabbe v. Farmers State Bank of Trimont, the former owner claimed that the lender had fraudulently obtained artificially inflated offers for farmland that the lender had also foreclosed on. In other words, that the lender had lied to the third-party buyers in order to obtain offers that exceeded the actual value of the farmland as had been established through appraisals. The former owner argued that because § 500.245, subd. 2(b) provides that the required affidavits must be made in good faith, a former owner is provided with a private cause of action when a purchase offer is the product of fraud or not made in good faith.

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cont.Private Cause of Action

• The Court of Appeals did not decide whether § 500.245, subd. 2(b) provides a private cause of action. However, for purposes of its decision, the Court assumed that it did.

• The Court concluded that even assuming there is a private cause of action, such would not entitle the former owner to make a claim against the lender based upon the allegation that the lender had lied to the third-parties.

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This program is not intended to be responsive to any individual situation or concerns as the contents of this presentation are intended for general informational purposes only. Participants are urged not to act upon the information contained in this presentation without first consulting competent legal advice regarding implications of a particular factual situation. Questions and additional information can be submitted to your Gislason & Hunter Attorney or to the presenter of this session.

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