NO. 91-298 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1991 

FARM CREDIT BANK OF SPOKANE, a corporation, 

successor by merger to The Federal Land 

Bank of Spokane, 

Plaintiff and Respondent, 

-vS- DEC 1991 

WILLERT MARK FAUTH and PATRICIA ANN FAUTH, LA s~zittt 

husband and wife; and THOMAS FAUTH AND THERESA CLERK OF SUPREME COURY 

STAYE OF MONTANA 

FAUTH, husband and wife, 

Defendants and Appellants. 

APPEAL FROM: District Court of the Seventeenth Judicial 

District, In and for the County of Valley, 

The Honorable B. W. Thomas, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Matthew W. Knierim; Gallagher, Archambeault & 

Knierim, Glasgow, Montana 

Robert Hurly, Glasgow, Montana 

For Respondent: 

Gregory G. Murphy; Moulton, Bellingham, Longo & 

Mather, Billings, Montana 

Filed: 

Submitted on Briefs: Oct. 24, 1991 

I 

Clerk 
~ustice Fred J. Weber delivered the Opinion of the Court. 

This is a foreclosure action brought by Farm Credit Bank of 

Spokane (Farm Credit) against Willert Mark and Patricia Ann Fauth 

(Fauths) in the Seventeenth Judicial District Court, Valley County, 

Montana. The District Court granted summary judgment in favor of 

Farm Credit. Fauths appeals. We affirm. 

We find the following issue determinative: 

Did Farm Credit's credit review committee properly review 

Fauths' restructure application in compliance with the standards of 

Title 12 U.S.C. B 2202(a) (2)? 

November 17, 1982, the Fauths executed a promissory note to 

the Federal Land Bank of Spokane, a Farm Credit System lender 

governed by the Agricultural Credit Act of 1987, Title 12 U.S.C. 5 

2001, et seq. Farm Credit is the successor by merger to Federal 

Land Bank of Spokane. This note was secured by a mortgage on real 

property located in Valley County. On February 18, 1988, after 

failure to make payments, Farm Credit notified the Fauths that the 

distressed loan might be suitable for restructure under the 

Agricultural Credit Act. April 5, 1988, the Fauths filed a 

restructuring application. Tom Schmitt (Schmitt) , a bank credit 

officer, denied the restructure proposal after consulting with the 

regional credit manager, Dennis Robinson. 

Pursuant to Title 12 U.S. C. 5 2202 (b) (2) , the Fauths appealed 

this denial to Farm Credit's credit review committee. The 

committee, chaired by Dennis Robinson, denied the Fauths' proposal. 

Farm Credit then brought action to collect on the note and 

foreclose on the property. 
The Act requires that Farm Credit System lenders consider 

borrower's restructure proposals. If the proposal is declined, the 

debtor may appeal this decision to a credit review committee. 

Title 12 U.S.C. 5 2202(a)(2) provides guidelines for credit review 

committee membership: 

Membership. In no case shall a loan officer involved in 

the initial decision on a loan serve on the credit review 

committee when the committee reviews such loan. 

The Fauths contended that Robinson was "involved1' in the 

initial denial of their application; thus, Farm Credit violated 5 

2202(a) (2) when Robinson sat on the credit review committee. 12 

U.S.C. 5 2202a(b) (3) provides: 

Limitation on foreclosure. No qualified lender may 

foreclose or continue any foreclosure proceeding with 

respect to any distressed loan before the lender has 

completed any pending consideration of the loan for 

restructuring under this section. 

After Farm Credit commenced foreclosure on November 29, 1988, 

it voluntarily selected a new committee and held a second review of 

the Fauths' restructure proposal. On November 30, 1989, the 

Fauths' April 5, 1988 restructuring application was again reviewed 

and denied. 

September 12, 1990, on the Fauths' motion, the District Court 

dismissed Farm Credit's foreclosure action. Upon motion by Farm 

Credit, the District Court vacated its prior order on December 4, 

1990. It found that 5 2202a(b) (3) provided a limitation on 

enforcement rather than a condition precedent to the foreclosure 

action. It held that Farm Credit's second credit review committee 

did cure the prior violation. The court ordered foreclosure on May 

13, 1991. The Fauths appeal this judgment. 
Did Farm Credit's credit review committee properly review 

Fauths' restructure application in compliance with the standards of 

Title 12 U.S.C. § 2202(a) (2)? 

The Fauths contend that Robinson was involved in the initial 

denial of the Fauths' application, and therefore Farm Credit 

violated the restructure procedures mandated by Title 12 U.S.C. § 

2202(a)(2) when Robinson chaired the initial review committee. 

Farm Credit denies impropriety in the membership of the initial 

credit review committee. In the alternative, Farm Credit contends 

any defect in the initial process was cured by the bank's second 

review of the application. 

We note that 9 2202 (a) (2) prohibits "loan officers" who are 

involved in the initial decision from sewing on a credit review 

committee. Because we conclude that any deficiency in the credit 

review procedure was corrected by the subsequent committee review, 

we do not find it necessary to decide whether regional credit 

manager Robinson could be classed as a "loan officer" for this 

purpose. 

In reaching that decision the committee was required to 

consider Title 12 U.S.C. 2202a(d) (1) which in pertinent part 

provides: 

In general. When a qualified lender receives an 

application for restructuring from a borrower, the 

qualified lender shall determine whether or not to 

restructure the loan, taking into consideration (A) 

whether the cost to the lender of restructuring the loan 

is equal to or less than the cost of foreclosure; (B) 

whether the borrower is applying all income over and 

above necessary and reasonable living and operating 

expenses to the payment of primary obligations; . . . 
The initial credit review committee denied the Fauthst 

application on the ground that (1) the Fauthsl historical cash flow 

indicated a higher level of income available for debt service; (2) 

the Fauths were unwilling to pledge available real property as 

additional security; and (3) the application did not represent the 

least cost alternative to Farm Credit. The second committee denied 

the application of April 5, 1988, for the same reasons. 

The Fauths contend that Farm Credit acted in bad faith in 

scheduling the meeting of the second review committee. Because 

that contention is not supported in any manner by the record, it 

will not be considered. Next Fauthst contend 5 2202a(b)(3), bars 

Farm Credit from initiating foreclosure proceedings before 

complying with the restructure procedures. Thus we should dismiss 

Farm Credit's foreclosure suit which was filed prior to complying 

with § 2202 (a) (2) . 

Farm Credit contends that 5 2202a (b) (3) , is a limitation on 

the enforcement of foreclosure rather than a condition precedent to 

filing a foreclosure action. Thus dismissal is not required when 

the court did not order foreclosure until after procedural 

requirements were met. 

Section 2202a(b) (3), in substance provides that no lender Itmay 

foreclose or continue any foreclosure proceedingt1 before the lender 

has completed any pending consideration of a restructure plan. On 

April 5, 1988, the Fauths filed their initial restructure 

application. Loan officer Schmitt denied the restructure proposal 

and the Fauthst appeal to the credit review committee was denied on 

September 8, 1988. Farm Credit then commenced foreclosure 
proceedings on November 29, 1988. As a result of contentions that 

Robinson's membership in the committee was inappropriate, Farm 

Credit selected a new committee which completed the second review 

on November 30, 1989. On December 4, 1990, the District Court 

concluded that the section provided a limitation on enforcement, 

that the action of the second review committee cured any violation, 

and granted Farm Credit's motion for summary judgment. On May 13, 

1991, the court ordered foreclosure of the mortgage. 

We conclude that the District Court is correct in concluding 

that this code section did not require dismissal of the 

foreclosure. The initial committee credit review and the second 

committee credit review took place prior to the judgment of 

foreclosure. We therefore conclude there was no violation of Title 

12 U.S.C. 5 2202a(b) (3), and we agree with the District Court's 

holding that the second credit review committee cured any existing 

violation prior to foreclosure. 

Finally the Fauths contend that Farm Credit should have 

considered the facts regarding restructuring as in existence on 

November 30, 1989, the date of review, rather than limiting review 

to the April 5, 1988 restructuring application. 

In Federal Land Bank of St. Paul v. Asbridge (N.D. 1991), 474 

N.W.2d 490, the borrower, in a foreclosure action, requested that 

the case be remanded in order for Asbridge to file an additional 

restructuring application with the bank. The North Dakota court 

denied remand holding that the Agricultural Credit Act did not 

command interminable efforts at restructuring. Rather, the court 

affirmed the foreclosure decree concluding that the bank fairly 
*I . 

considered and refused Asbridgest restructuring plan under the 

applicable federal criteria. Asbridse, 474 N.W.2d at 494. 

Likewise in this case, Farm Credit refused the Fauthsl 

restructure plan in accordance with the Agricultural Credit Act 

procedures. Section 2202a (b) (3) as applicable here, prohibited 

Farm Credit from continuing foreclosure until it had completed Itany 

pending consideration of the loan for restruct~ring.~~ Weconclude 

that the only pending application for consideration was the 

restructure application of April 5, 1988. Thus Farm Credit was not 

required to command interminable efforts at restructuring, consider 

any revised restructure applications, or consider negotiations 

subsequent to April 5, 1988. 

We hold Farm Credit's review committee properly reviewed 

Fauthsl restructure application in compliance with the standards of 

Title 12 U.S.C. $j 2202 (a) (2). 

We affirm.