Testimony of Roger Johnson
Agriculture Commissioner
House Bill 1234
House Judiciary Committee
Prairie Room
February 11, 2003

Chairman DeKrey and members of the House Judiciary Committee, I am Agriculture Commissioner Roger Johnson. I am here today in opposition to HB 1234, which proposes to amend section 28-24-02 of the North Dakota Century Code, relating to redemption.

I am neither an attorney nor an expert in the area of legal defense. However, I do have an extensive background in working with financially distressed farmers and their lenders. North Dakota's agricultural debtor protection laws are designed to provide certain protections and time to attempt financial recovery for producers facing farm foreclosure.

In the event of a foreclosure action, the current law allows the debtor a period of one year following the sheriff sale to find alternative financing and redeem the property. This amendment would start the one year redemption period at the time of the filing of the summons and complaint and effectively shorten the redemption period by the time between the filing of the complaint and the sale.
Granted, shortening the redemption period may make little or no difference in the outcome of many foreclosure actions. However, it is certainly possible that some debtor redemptions could be precluded by shortening the redemption period.

Redemption financing can take a substantial amount of time and is often predicated on several factors taking place within the redemption period. The annual production and marketing season of most farming and ranching enterprises presents such a variable, which can greatly affect the ability to secure redemption financing. The outcome of crops and/or livestock production, marketing of the production, and numerous other unknowns during the redemption period can make a difference in the ability to obtain the financing. Depending on the timing of the beginning of a redemption period, it is arguable that the current redemption period often leaves less than adequate time to assess the outcome of and obtain financing following a production season.

During the 1980's, agriculture experienced a severe farm credit crisis of declining commodity prices and a collapse in farm property values. As a result, the federal Ag Credit Act of 1987 required loan servicing and restructuring procedures, including mediation, for the Farm Service Agency (formerly FmHA) and Farm Credit System (FCS). In my judgment, these requirements have been very successful in facilitating distressed loan workouts outside the legal system, greatly improving the relationship between debtors and lenders, and reducing the number of farm foreclosures. However, it is important to note that these federal loan servicing and mediation participation requirements do not apply to other lenders in North Dakota.

Chapter 12 bankruptcy has also proven to be an effective farm debt reorganization tool, but its survival is questionable. Chapter 12 bankruptcy has expired and been reauthorized on a short term basis numerous times in recent years.

My observations lead me to believe that our debtor protection laws serve purposes beyond providing certain protections of individual debtors. I believe the existence of these laws provides a strong incentive for lenders to pro-actively attempt negotiated settlements short of foreclosure proceedings. This is good for everyone. The laws also serve as a vivid reminder of the farm credit problems of the past and encourage lending practice vigilance, which would help minimize the magnitude of any agricultural credit crisis in the future.

We all know that the farm economy is cyclical and that farm survival during down cycles has become increasingly difficult. Certainly, tough times on the farm are also tough on agricultural lenders. However, I believe lending institutions are far better able to weather farm economy downturns than individual farm operations.

Will we see another major farm credit crisis in the future? I don't know, but I sincerely hope not. Again, it is impossible to say how many debtor redemptions might be affected by passage of this bill. I do, however, believe passage of this bill would be a mistake. It would send a wrong message and diminish North Dakota's reputation as a strong supporter and advocate of our agricultural industry.

Chairman DeKrey and committee members, I urge a do not pass on HB 1234. I would be happy to answer any questions you may have.