I realize many of you have questions related to the 2014 Farm Bill and the new programs that USDA’s Farm Service Agency (FSA) and Risk Management Agency are working to implement. Good resources on many of the common questions exist; see AREC’s 2014 Farm Bill Page which is part of our Crop Insurance Extension page to find links to many of those tools. While many of those tools were developed for producers, we may overlook the fact that landowners/landlords potentially will qualify for these programs as well. A recent federal court of appeals decision highlights who is potentially considered a landowner under USDA’s regulations.
Before we get started, let’s note that although the decision is recent, the programs involved the Direct Payment Program and the Countercyclical Payment Program (DCP program). These programs were replaced in the 2014 Farm Bill with Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) programs, but the regulations related to who is considered an landowner have not changed (see 7 C.F.R. § 718.2). Section 718.2 defines an owner to be in these six situations:
(1) One who has legal ownership of farmland
(2) Any agency of the Federal Government, but the agency is considered ineligible from receiving payment;
(3) Purchaser of farmland under a contract for deed;
(4) Person who has a life-estate in the property; or
(5) Person who has purchased farmland in a foreclosure proceeding, the redemption period has not passed, and the original owner has not redeemed the property.
(6) An heir to property but cannot provide legal documentation to confirm ownership if such heir certifies to the ownership of the property and the certification is considered acceptable, as determined by the Deputy Administrator.
These six ownership forms seem straightforward and in some cases (like 3, 4, and 5) help clarify who would be eligible. But what if we are dealing with a rare case of a special form of ownership that does not quite fit in one of those six categories? That was the issue in Stable Investments Partnership v. Vilsack. Stable had bought farmland in Illinois and set up a land trust with a local bank. For those interested in learning more about trusts, see Estate Planning For Maryland Farm Families; on page 8 we have a good overview of trusts.
According to the trust documents, the bank held title to the farmland as trustee and Stable was the beneficiary, entitled to earnings and proceeds of the trust. Under the trust documents, Stable held no title in the farmland. Stable crop-share leased the farmland to a tenant and the tenant signed up for the DCP program and identified Stable as the owner. FSA issued Stable a DCP payment in 2010 but later requested the money be returned after realized Stable did not meet any of the qualifications to be an owner. Stable attempted to fight this decision but lost at all levels and appealed to the U.S. Seventh Circuit Court of Appeals.
The Seventh Circuit agreed with the previous decisions that Stable as a beneficiary did not qualify under USDA’s regulations. A trust beneficiary did not hold legal title to the property/owner of record. The court found that Stable’s interest fit in none of the six categories. For those reasons, the court affirmed the lower court decision finding Stable was not an owner under FSA’s regulations.
So why should you care about a court decision affecting how property is owned in Illinois? As a landowner you will want to check to make sure your property is held in a way that allows you to participate in the current commodity programs, especially if you are renting the property under a crop-share lease. You should learn from the mistakes of the two attorneys at the heart of the Stable decision. Potentially in Stable, an agreement between the trustee and the beneficiary requiring trustee to sign over any USDA program payments on the farmland to the beneficiary would have solved the problem.
For example, your farmland is owned by a limited liability company (LLC) which rents the farmland to Sally under a crop-share lease. Sally is participating in the PLC program on the farmland rented to her by the LLC, but puts you down on the form with FSA as the owner. If a PLC payment is made to you, you will have to return it once FSA catches the mistake because any payment should have gone to the LLC and not you.
As landowners renting out farmland, you need to review how that property is owned to determine if you fall under one of the six categories defined by USDA to qualify as an owner. Many of you will have no problem fitting into one of those categories. For those of you not quite sure, consult your local FSA office to determine if you do and potentially consult an attorney to determine what additional steps could be taken to ensure that if you do receive an ARC or PLC payment (if one is made), that you get to keep it and do not have to return the payment to FSA.
This post is brought to you by the Crop Insurance Education Program: