Opinion ID: 567988
Heading Depth: 2
Heading Rank: 1

Heading: FmHA's Initial Offset Regulations

Text: 11 Shortly after the Debt Collection Act was passed, FmHA suspended its use of administrative offsets as a means of collecting delinquent farm loans. 3 FmHA is a lender of last resort for farmers who cannot obtain credit from private lenders. The agency makes direct loans to farmers and ranchers through farm ownership, farm operating, and emergency loan programs. See H.R.Rep. No. 100-295(I) 71 (1987) reprinted in 1987 U.S.Code Cong. & Admin.News 2723, 2742. 4 Consistent with FmHA's mission to assist family farmers, these loan programs include provision for family living and farm operating expenses. See generally Coleman v. Block, 562 F.Supp. 1353, 1364 (D.N.D.1983); id., 580 F.Supp. 194, 196-98 (D.N.D.1984); id., 663 F.Supp. 1315, 1324 (D.N.D.1987), vacated as moot, 864 F.2d 604 (8th Cir.1988), cert. denied, 493 U.S. 953, 110 S.Ct. 364, 107 L.Ed.2d 351 (1989). 12 As of September 30, 1987, twenty-four percent of the 8,888 FmHA farm program borrowers in North Dakota were delinquent on their loan obligations. See Leet Aff. para. 2. 5 FmHA loan programs are not automatically terminated by delinquency, however. Rather, the agency is given broad authority to compromise and adjust loans and may grant loan deferrals where, for example, the borrower's inability to pay is due to circumstances beyond the borrower's control. See Coleman, 562 F.Supp. at 1360-61, 1364; id., 580 F.Supp. at 198-99. 13 FmHA's procedures for liquidating outstanding loans were enjoined in Coleman v. Block, when the district court ruled FmHA could not terminate a farmer's living and operating allowance, accelerate a farmer's debt, or foreclose on the property of any farmer-borrower without prior notice of (1) the reasons for the proposed action, (2) an explanation of the options for loan deferral or restructuring, and (3) an opportunity for a hearing. Coleman, 562 F.Supp. at 1367-68 (1983 preliminary injunction); 580 F.Supp. at 210-11 (1984 permanent injunction). 14 Prior to the Coleman preliminary injunction in 1983, an FmHA county supervisor who found a borrower was in default could liquidate the farmer's loan by refusing to release FmHA's lien on the farmer's crops or livestock. This refusal effectively terminated the farmer's income for family living and farm operating purposes, unless the farmer had income from another source. Faced with the elimination of their income stream, many borrowers sold off their property to pay the FmHA debt. If borrowers did not cure their default within sixty days of FmHA's decision to liquidate, their loans were accelerated and the entire balance was due immediately. Only then did FmHA's pre-1983 procedures give farmers the right to a hearing. Coleman, 562 F.Supp. at 1363; id., 580 F.Supp. at 200-01. 15 The Coleman court ruled these procedures violated due process, and ordered that debtors be given notice of loan restructuring options and the right to a hearing prior to FmHA's termination of allowances for family living and farm operating expenses. Id., 562 F.Supp. at 1367; 580 F.Supp. at 203-08, 210-11. In response to the Coleman court's orders, FmHA employed new forms which were sent to borrowers prior to any adverse action. Certain aspects of these new forms were again declared unconstitutional by the court on May 7, 1987. The court ordered that amended forms be used in all future accelerations. Id., 663 F.Supp. at 1333, 1342. 16 During the pendency of the Coleman litigation, on November 26, 1986, FmHA issued an interim rule which contained the procedures FmHA intended to use to exercise administrative offset pursuant to the Debt Collection Act, the Federal Claims Collection Standards regulations, and an interim rule published in February, 1985, by the Department of Agriculture. 6 See FmHA Implementation of Administrative Offset, 51 Fed.Reg. 42,820 (1986). 17 FmHA began to implement the offset interim rule in North Dakota in July, 1987. Only FmHA program borrowers whose accounts had been accelerated prior to May 7, 1987, were subject to the offset. See Leet Aff. para. 3. On August 20, 1987, plaintiffs Dennis and Denise Dockter received a letter from FmHA informing them that FmHA would begin immediately to collect their delinquent FmHA loans through an administrative offset against any amounts that would otherwise be payable to you from another Federal agency. FmHA implemented the offset by sending form letter 1951-3 to the Agricultural Stabilization and Conservation Service (ASCS) 7 requesting the ASCS to forward all payments due the Dockters to the FmHA. 8 18 On September 15, 1987, the Dockters wrote to the FmHA to protest the offset and to request a hearing. The Dockters maintained that to offset their farm program payments would cause a substantial hardship and would defeat the purposes of the farm programs they participated in. They argued that the notice they received violated the Debt Collection Act and their due process rights. Finally, they advised FmHA that they had pledged their farm program payments to the Sargent County Bank in order to obtain a farm operating loan. They told FmHA they would not be able to pay the bank without receipt of these payments. 19 The Dockters also attempted to call ASCS, but to no avail. On October 5, 1987, ASCS implemented FmHA's offset by diverting $3,294 in PIK certificates, the Dockters' final corn deficiency payment, to the FmHA. On October 9, the FmHA County Supervisor informed the Dockters that their September 15 letter [did] not have any credence, and that the only issues they could properly raise to contest the offset were whether their debt existed and was delinquent. 20 On November 23, 1987, the Dockters and the Moseankos filed this suit, seeking to enjoin FmHA's offset process and to obtain the return of all farm program payments which had been diverted to FmHA since July, 1987. 9 Plaintiffs' requested relief included a court order requiring FmHA to promulgate new regulations consistent with the Debt Collection Act, which would be applied before any administrative offset action could be taken to deprive farmer-borrowers of farm program payments needed to carry on their farming operations or to provide income for necessary family living expenses. Plaintiffs maintained the new regulations should provide that the borrower would receive prior notice of the proposed offset, would be advised of the facts which form the basis for the proposed action, and would be afforded an opportunity (1) to present additional facts or comments, (2) to make a written offer to repay, and (3) to request a hearing under procedures which comport with the requirements of due process. 21 Two weeks later, on December 7, 1987, the FmHA agreed to suspend the use of the challenged offset procedures in North Dakota. The next day, the government made the moratorium effective nationwide. One month after the moratorium was announced, on January 6, 1988, Congress passed the Agricultural Credit Act of 1987, Pub.L. No. 100-233, 101 Stat. 1568 (1988). Title VI of the Act, §§ 601-626, made extensive changes in the debt collection and loan restructuring efforts of FmHA. See Coleman v. Lyng, 864 F.2d at 608-09. These changes mandated the restructuring rather than foreclosure of certain loans and provided enhanced rights to farmer-borrowers, consistent with the Coleman court's orders. See Id. at 609-11 (citing S.Rep. No. 100-230, 100th Cong. 1st Sess. 38). 10 22 The Agricultural Credit Act of 1987 suspended all FmHA loan accelerations, liquidations, or foreclosures, pending regulations to implement the provisions of the Act. These provisions required FmHA to provide a notice to all delinquent farmer-borrowers, including those whose loans had been previously accelerated, prior to instituting any adverse action against them. The Act expressly provided that the notice was to include an explanation of all FmHA loan servicing programs and information on how to apply for the programs. Coleman, 864 F.2d at 609-10.