Summary of a Recent
Judicial Development in
Finance & Credit

2008 Farm Bill Prohibits Foreclosure in the Case of
Pending Discrimination Complaints

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In United States v. Morawski, No. 6-13776, 2008 WL 3539995 (E.D. Mich. Aug. 12, 2008), the United States District Court for the Eastern District of Michigan held that a defaulting debtor had no pending discrimination complaints against Farm Service Agency that would prohibit acceleration and foreclosure, and therefore granted the government's motion for summary judgment to accelerate his notes and foreclose on his real property.

Background

The debtor obtained operating loans from Farm Service Agency (FSA) to establish a dairy farm in December 1994, granting a mortgage on his farm property and a security interest in his chattel and crops to secure the loans. Id. at *1. The loan agreements stated that in case of default, the government would have the right to accelerate the loans and foreclose on anything purchased by the debtor with the borrowed funds. Id. After the debtor defaulted, the government brought this action. Id.

Arguments

The government sought summary judgment to enforce its rights under the security agreements. Id.

The debtor, without providing any evidence or authority, argued that the terms of the mortgages and promissory notes were illegal. Id. at *2. He also argued that certain mortgage documents were invalid because there was no date next to the signatures. Id. at *3. Lastly, he argued that the acceleration of his debt and commencement of this action violated FSA's policies prohibiting commencement of any action against a debtor while a discrimination complaint is pending. Id. at *4.

Analysis and Holdings

After examining the mortgages and notes, the court did not find anything unconscionable or inappropriate that would invalid the agreements. Id. at *2. The court explained that for the government to obtain a judgment directing the debtor to pay the balance due under the notes, it had to show that the debtor executed the notes which formed the bases for the claim, it was the current owner or holder of the notes, and the notes were currently in default. Id. Having done so, the government's motion for summary judgment was granted regarding that issue. Id.

The court rejected the debtor's argument that the mortgage documents were invalid because they lacked a date next to the signatures, and granted the government's motion for summary judgment to foreclose, because the existence of a defaulted obligation that was secured by a mortgage was undisputed. Id. at *3. The debtor also raised other counterclaims and affirmative defenses, which the court held were barred by his failure to exhaust his administrative remedies. Id. at *3-4. Finally, the court found that although the 2008 Farm Bill created a prohibition against acceleration or foreclosure of farm program loans against a debtor with valid discrimination complaints pending, the USDA had dismissed this debtor's complaints as invalid and he therefore had no valid discrimination claims pending. Id. at *4. Therefore, the court held that the government was authorized to foreclose and to obtain a personal judgment against the debtor for any remaining deficiency. Id.

The case was decided on August 12, 2008.