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Beginning Farmer and Rancher Land Contract Guarantee Pilot Program

Agriculture.com Staff 07/07/2010 @ 9:08am

Nancy L. Thompson Thompson Law Office The Saddlery Building 309 Court Avenue, Suite 217 Des Moines, Iowa 50309 515-875-4850 nthompson@courtavenuesuites.com www.thompsonlawoffice.net

Summary: Iowa is one of six states selected to participate in a new pilot program authorizing the Farm Service Agency (FSA) to guarantee land contracts between landowners and beginning farmers. Five such contracts may be guaranteed in the state in each of the next four years (through fiscal year 2007). Data from the Natural Resources Conservation Service suggests that 20% of current Iowa farm operators meet the FSA definition of a beginning farmer. This guarantee program is anticipated to create greater opportunities for beginning farmers to become landowners as well as operators.

Program Origins: The concept of guaranteeing land contracts originated from an evaluation of Farm Service Agency beginning farmer programs conducted in 1995 and funded by the United States Department of Agriculture. Lenders, beginning farmers, and FSA employees participated in focus groups, surveys and personal interviews to both evaluate existing programs and suggest new ideas for helping beginning farmers (see Financing Beginning Farmers: An Evaluation of Farm Service Agency Credit Programs , by Thompson, Foster et al, Center for Rural Affairs, 1995). Backed by Sens. Tom Harkin (D-IA) and Richard Lugar (R-IN), the 2002 Farm Bill authorized a limited pilot of the land contract guarantee concept. Designed as a guarantee of payments rather than a guarantee against loss following liquidation, the program is intended to be a significant advantage to both sellers and buyers while FSA's exposure is limited to the amount of just two contract payments.

Program Implementation: On September 4, 2003 FSA announced the availability of funds for the pilot program and released information regarding eligibility and application requirements for the program. Funding became available on September 4th and applications were to begin being accepted as of the same date. The six states participating in the pilot program are Indiana, Iowa, North Dakota, Oregon, Pennsylvania, and Wisconsin. Iowa ranks third in the nation in the volume of land contract sales (behind Minnesota and Wisconsin) so it is a logical state in which to pilot the new program.

Application Procedures -- To apply for a land contract guarantee, an interested seller should contact FSA, which will send interested sellers a letter describing the program. Signing and dating the letter and returning it to FSA will be considered the seller's guarantee application. The prospective buyer must then submit a number of documents including income tax or financial records, a proposed cash flow, a financial statement, and a description of the buyer's farm experience.

Eligibility -- A buyer must be a beginning farmer (in general, someone who has farmed for less than ten years but has at least three years of farming experience and who owns no more property than 30% of the county average) who is not delinquent on any federal debt and who has not had debt forgiveness from FSA after April 4, 1996. Only new contracts can be guaranteed by FSA and the purchase price of the farm cannot exceed $500,000. The beginning farmer must provide a cash downpayment of at least five percent of the purchase price. This downpayment should come from cash reserves (gifts are permitted) but if the downpayment has to be borrowed (e.g. from a family member) there can be no repayment on the borrowed funds during the ten years of the guarantee.

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