December 2, 2011
On Thursday, December 1st, the Farm Service Agency (FSA) issued the final rule for the Land Contract Guarantee Program, which was authorized under the 2008 Farm Bill. This program was first authorized as a pilot program under the 2002 Farm Bill, but was expanded to be made permanent and offered nationwide in the last farm bill. It will now be available nationwide starting January 3, 2012. Interested parties should contact their local FSA office.
This final rule follows one year behind a draft proposed rule, which was issued last December, and makes only minor technical corrections to improve the clarity of the rule. NSAC and its allies provided comments in advance of this rule and commends FSA for producing a final rule which allows USDA to implement this program on a permanent and national basis.
In its notice, the FSA states that “the Land Contract Guarantee Program will provide a valuable alternative for intergenerational transfers of farm real estate to help ensure the future viability of family farms.”
The program, initially launched in 2002 as a pilot program in 9 states, reduces the financial risk for retiring farmers who sell their farm land to a beginning or socially disadvantaged farmer or rancher, by providing a federal guarantee of three years of “prompt payments” in case the beginning farmer runs into trouble making their payments. The 2008 Farm Bill and the final rule also provide a second option of a standard 90 percent guarantee of the outstanding principal on the land contract. The retiring farmer has the option of choosing the prompt payment guarantee or the regular guarantee on the value of the asset.
In order to be eligible for this program, the seller needs to self-finance the sale of their land, and sell to either a beginning or socially disadvantaged farmer. The buyer of the farm or ranch must a) be a beginning or socially disadvantaged farmer or rancher, b) be not larger larger than a family farm (in which most of the management and labor is provided by family members), c) be the owner or operator of the farm when the contract is complete, and d) have an acceptable credit history and be unable to obtain sufficient credit elsewhere.
This final rule also amends the experience requirements for direct loan eligibility to consider all prior farming experience of the applicant, including on-the-job training or education that occurred within the last 5 years prior to the date of the application, as required by the 2008 Farm Bill.
NSAC developed the policy proposal for this program, and fought for its inclusion in the 2002 and again in the 2008 Farm Bill. To read more about the program, visit NSAC’s Grassroots Guide.