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Beginning and Socially Disadvantaged Farmer Contract Land Sales

Providing federal loan guarantees to retiring farmers who self-finance the sale of their land to socially disadvantaged farmers and ranchers

Program Basics
The Beginning and Socially Disadvantaged Farmer and Rancher Contract Land Sales Program provides federal loan guarantees to retiring farmers who self-finance the sale of their land to beginning or socially disadvantaged farmers and ranchers. The program is designed to encourage private land contract sales by providing a degree of protection to the retiring farmer whose retirement savings is often in the land and farm. It provides the seller with a federal guarantee much like that available to commercial banks and other lenders.

The program is structured to provide the seller of the farm or ranch two options:

  1. A "prompt payment" guarantee that covers three amortized annual installments or an amount equaling three amortized annual installments; or
  2. A standard asset guarantee plan that covers an amount equal to 90 percent of the outstanding principle of the loan provided that the seller obtains a servicing agent.

For either option, the loan guarantee stays in effect for 10 years. The purchase price or appraisal value of the farm or ranch that is the subject of the contract sale cannot be greater than $500,000. The buyer of the farm and ranch must contribute at least 5 percent as the down payment for the land.

Under the prompt payment guarantee, if the new farmer/buyer does not pay an annual installment due on the contract, or pays only part of an installment, USDA's Farm Service Agency provides the scheduled payment or the unpaid portion to the seller through an escrow agent after the seller unsuccessfully attempts collection. In that circumstance, the buyer would then try to restructure the debt through an approved repayment plan.

Under the asset guarantee, the seller is protecting himself or herself against the possibility that the value of the farm may have sharply declined between the time the contract was entered and any default by the buyer.

Eligibility, Uses, and Restrictions
To be eligible for a loan guarantee, the buyer of the farm or ranch must:

  1. be a beginning or socially disadvantaged farmer or rancher;
  2. have an acceptable credit history demonstrated by satisfactory debt repayment;
  3. be the owner or operator of the farm or ranch when the contract is complete; and
  4. be unable to obtain sufficient credit elsewhere without a guarantee to finance actual needs at reasonable rates or terms.

Website
This program is administered by the Farm Service Agency of USDA.
www.fsa.usda.gov

For information and applications, go to your FSA regional Service Centers or to your state FSA office. You can locate all of the contact information by clicking on your state at:
http://offices.sc.egov.usda.gov/locator/app?state=us&agency=fsa

Contact Information
Bob Bonnet
Guaranteed Loan Branch Chief
Farm Service Agency
bob.bonnet@usda.gov
202-720-3889

Last Updated January 26, 2010

Please note: Building Sustainable Farms, Ranches and Communities is also available for download in PDF format.

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