Farm Credit Bank of Spokane v. Faut , 48 State Rptr. 1080 ( 1991 )

NO. 91-298
IN THE SUPREME COURT OF THE STATE OF MONTANA
1991
II
FARM CREDIT BANK OF SPOKANE, a corporation,
successor by merger to The Federal Land
Bank of Spokane,
Plaintiff and Respondent,
-vS- DEC 1991
WILLERT MARK FAUTH and PATRICIA ANN FAUTH, L s~zittt
A
CLERK OF SUPREME COURY
husband and wife; and THOMAS FAUTH AND THERESA STAYE OF MONTANA
FAUTH, husband and wife,
Defendants and Appellants.
APPEAL FROM: District Court of the Seventeenth Judicial
District, In and for the County of Valley,
The Honorable B. W. Thomas, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Matthew W. Knierim; Gallagher, Archambeault &
Knierim, Glasgow, Montana
Robert Hurly, Glasgow, Montana
For Respondent:
Gregory G. Murphy; Moulton, Bellingham, Longo &
Mather, Billings, Montana
Submitted on Briefs: Oct. 24, 1991
Filed:
I
Clerk
~usticeFred J. Weber delivered the Opinion of the Court.
This is a foreclosure action brought by Farm Credit Bank of
Spokane (Farm Credit) against Willert Mark and Patricia Ann Fauth
(Fauths) in the Seventeenth Judicial District Court, Valley County,
Montana. The District Court granted summary judgment in favor of
Farm Credit. Fauths appeals. We affirm.
We find the following issue determinative:
Did Farm Credit's credit review committee properly review
Fauths' restructure application in compliance with the standards of
Title 12 U.S.C. B 2202(a) (2)?
November 17, 1982, the Fauths executed a promissory note to
the Federal Land Bank of Spokane, a Farm Credit System lender
governed by the Agricultural Credit Act of 1987, Title 12 U.S.C. 5
2001, et seq. Farm Credit is the successor by merger to Federal
Land Bank of Spokane. This note was secured by a mortgage on real
property located in Valley County. On February 18, 1988, after
failure to make payments, Farm Credit notified the Fauths that the
distressed loan might be suitable for restructure under the
Agricultural Credit Act. April 5, 1988, the Fauths filed a
restructuring application. Tom Schmitt (Schmitt), a bank credit
officer, denied the restructure proposal after consulting with the
regional credit manager, Dennis Robinson.
Pursuant to Title 12 U.S. C. 5 2202 (b)(2), the Fauths appealed
this denial to Farm Credit's credit review committee. The
committee, chaired by Dennis Robinson, denied the Fauths' proposal.
Farm Credit then brought action to collect on the note and
foreclose on the property.
The Act requires that Farm Credit System lenders consider
borrower's restructure proposals. If the proposal is declined, the
debtor may appeal this decision to a credit review committee.
Title 12 U.S.C. 5 2202(a)(2) provides guidelines for credit review
committee membership:
Membership. In no case shall a loan officer involved in
the initial decision on a loan serve on the credit review
committee when the committee reviews such loan.
The Fauths contended that Robinson was "involved1' in the
initial denial of their application; thus, Farm Credit violated 5
2202(a) (2) when Robinson sat on the credit review committee. 12
U.S.C. 5 2202a(b) (3) provides:
Limitation on foreclosure. No qualified lender may
foreclose or continue any foreclosure proceeding with
respect to any distressed loan before the lender has
completed any pending consideration of the loan for
restructuring under this section.
After Farm Credit commenced foreclosure on November 29, 1988,
it voluntarily selected a new committee and held a second review of
the Fauths' restructure proposal. On November 30, 1989, the
Fauths' April 5, 1988 restructuring application was again reviewed
and denied.
September 12, 1990, on the Fauths' motion, the District Court
dismissed Farm Credit's foreclosure action. Upon motion by Farm
Credit, the District Court vacated its prior order on December 4,
1990. It found that 5 2202a(b) (3) provided a limitation on
enforcement rather than a condition precedent to the foreclosure
action. It held that Farm Credit's second credit review committee
did cure the prior violation. The court ordered foreclosure on May
13, 1991. The Fauths appeal this judgment.
Did Farm Credit's credit review committee properly review
Fauths' restructure application in compliance with the standards of
Title 12 U.S.C. § 2202(a) (2)?
The Fauths contend that Robinson was involved in the initial
denial of the Fauths' application, and therefore Farm Credit
violated the restructure procedures mandated by Title 12 U.S.C. §
2202(a)(2) when Robinson chaired the initial review committee.
Farm Credit denies impropriety in the membership of the initial
credit review committee. In the alternative, Farm Credit contends
any defect in the initial process was cured by the bank's second
review of the application.
We note that 9 2202 (a)(2) prohibits "loan officers" who are
involved in the initial decision from sewing on a credit review
committee. Because we conclude that any deficiency in the credit
review procedure was corrected by the subsequent committee review,
we do not find it necessary to decide whether regional credit
manager Robinson could be classed as a "loan officer" for this
purpose.
In reaching that decision the committee was required to
consider Title 12 U.S.C. 2202a(d) (1) which in pertinent part
provides:
In general. When a qualified lender receives an
application for restructuring from a borrower, the
qualified lender shall determine whether or not to
restructure the loan, taking into consideration (A)
whether the cost to the lender of restructuring the loan
is equal to or less than the cost of foreclosure; (B)
whether the borrower is applying all income over and
above necessary and reasonable living and operating
expenses to the payment of primary obligations; ...
The initial credit review committee denied the Fauthst
application on the ground that (1) the Fauthsl historical cash flow
indicated a higher level of income available for debt service; (2)
the Fauths were unwilling to pledge available real property as
additional security; and (3) the application did not represent the
least cost alternative to Farm Credit. The second committee denied
the application of April 5, 1988, for the same reasons.
The Fauths contend that Farm Credit acted in bad faith in
scheduling the meeting of the second review committee. Because
that contention is not supported in any manner by the record, it
will not be considered. Next Fauthst contend 5 2202a(b)(3), bars
Farm Credit from initiating foreclosure proceedings before
complying with the restructure procedures. Thus we should dismiss
Farm Credit's foreclosure suit which was filed prior to complying
with § 2202 (a)(2) .
Farm Credit contends that 5 2202a (b)(3) , is a limitation on
the enforcement of foreclosure rather than a condition precedent to
filing a foreclosure action. Thus dismissal is not required when
the court did not order foreclosure until after procedural
requirements were met.
Section 2202a(b) (3), in substance provides that no lender Itmay
foreclose or continue any foreclosure proceedingt1
before the lender
has completed any pending consideration of a restructure plan. On
April 5, 1988, the Fauths filed their initial restructure
application. Loan officer Schmitt denied the restructure proposal
and the Fauthst appeal to the credit review committee was denied on
September 8, 1988. Farm Credit then commenced foreclosure
proceedings on November 29, 1988. As a result of contentions that
Robinson's membership in the committee was inappropriate, Farm
Credit selected a new committee which completed the second review
on November 30, 1989. On December 4, 1990, the District Court
concluded that the section provided a limitation on enforcement,
that the action of the second review committee cured any violation,
and granted Farm Credit's motion for summary judgment. On May 13,
1991, the court ordered foreclosure of the mortgage.
We conclude that the District Court is correct in concluding
that this code section did not require dismissal of the
foreclosure. The initial committee credit review and the second
committee credit review took place prior to the judgment of
foreclosure. We therefore conclude there was no violation of Title
12 U.S.C. 5 2202a(b) (3), and we agree with the District Court's
holding that the second credit review committee cured any existing
violation prior to foreclosure.
Finally the Fauths contend that Farm Credit should have
considered the facts regarding restructuring as in existence on
November 30, 1989, the date of review, rather than limiting review
to the April 5, 1988 restructuring application.
In Federal Land Bank of St. Paul v. Asbridge (N.D. 1991), 474
N.W.2d 490, the borrower, in a foreclosure action, requested that
the case be remanded in order for Asbridge to file an additional
restructuring application with the bank. The North Dakota court
denied remand holding that the Agricultural Credit Act did not
command interminable efforts at restructuring. Rather, the court
affirmed the foreclosure decree concluding that the bank fairly
*I
.
considered and refused Asbridgest restructuring plan under the
applicable federal criteria. Asbridse, 474 N.W.2d at 494.
Likewise in this case, Farm Credit refused the Fauthsl
restructure plan in accordance with the Agricultural Credit Act
procedures. Section 2202a (b)(3) as applicable here, prohibited
Farm Credit from continuing foreclosure until it had completed Itany
pending consideration of the loan for restruct~ring.`` conclude
We
that the only pending application for consideration was the
restructure application of April 5, 1988. Thus Farm Credit was not
required to command interminable efforts at restructuring, consider
any revised restructure applications, or consider negotiations
subsequent to April 5, 1988.
We hold Farm Credit's review committee properly reviewed
Fauthsl restructure application in compliance with the standards of
Title 12 U.S.C. $j 2202 (a)(2).
We affirm.