A lending institution is requiring over 1000% more collateral to operate my step-father's farm and he's in a care center. Is this legal? - AgingCare.com

A lending institution is requiring over 1000% more collateral to operate my step-father's farm and he's in a care center. Is this legal?

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More than an actively engaged younger farmer. My step-father wants to purchase 15 cows to compliment his paid for 15 cows & calves. He has no debt, other collateral besides existing cattle [about 600% more], but they also want a lien on his farm which is paid for.
Their reason is he is not physically taking day to day care of them himself. He is 86 and in a care center,but makes the decisions on the operation of his farm.

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Good for him for not row cropping!
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He has 4x the collateral, enough hay and pasture for 60 cows. He is trying to take care of the environment by not row crop farming ground that is highly erodible. The operation is well managed and should be more profitable with reasonable financing. Going out to see a newborn calf is the best medicine for him that there is, and if he can make a buck all the better! Thanks for the comments.
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The bank views the loan to have too much risk as stepdad at 86 is outside the actuarial tables for repayment. Does he have a "key man" business insurance policy or other life insurance policy that the bank could be the beneficiary of so they get a guarantee of payment?

Right now your focusing on the ability to buy cattle....but what is the bigger picture for him, his health & the ranch? Does he have the funds to pay for his NH or AL for 3 years without needing any of the $$ for ranch operating costs? Is there a plan for succession and has it been done however needed legally?
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Your step-father? If you are in a nursing home, it may be time to consider retirement. Is this loan really to help you out, because it just sounds fishy to me.??
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It's been quite a while since I've worked on loans for "operating" "equipment", but as I remember the chattel (cows) are also the collaterall (as opposed to real property), so their value for use in the operation may or may not be as great as the potential loan.

There may be some other factors: his age, the management he has running the farm, their expertise or lack thereof, or just that the bank is not interested in granting the loan and is trying to make it difficult to discourage your stepfather.

Most of these kinds of loans that I'm familiar with were for purchase of equipment (and cows could be considered a sort of equipment). A Security Agreement and UCC-1 were executed, which created a secured interest in the collateral (cows) so that if there was a default the cows could be recovered/reclaimed by the bank. I don't recall that liens were placed on real property, UNLESS the existing cattle and to be purchased cattle weren't considered sufficient collateral to secure the loan.

I did have an experience in which a national bank was reluctant to grant a loan to a person in his 80s without sufficient financial assets to cover the loan if there were a default. It might in fact be your stepfather's age combined with what the bank feels is inadequate collateral, hence the house as additional security.

Perhaps a way to get around this is to execute a management agreement that places younger, very experienced managers in charge and reporting to your father as CEO, or something similar. I think the fact that he's in a care center might be raising their concern for longevity of the enterprise.

The bank is probably examining the transition issue if your father passes before the loan is paid back, which raises another question - that of projections for income from the cattle. Are they dairy cattle or to be raised and sold for market? The long term use of them might affect the likelihood of paying off the loan. It wouldn't surprise me also if someone in the bank is factoring in futures markets for the cattle.
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I'd want a lien on his farm, too. Why do you gave a problem. With that?
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In my humble opinion, this old bird is trying to keep another old bird from expanding. Pretty common for the crusty old birds who are too stubborn to quit to try to "one up' each other. I am glad you are trying to help. Cattle income is the only retirement that most of these folks have.
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We have already talked to another bank. He has banked at the one in question for 50+ years and received this answer from the bank president, whom he considered a friend and he is in his mid 70's and in questionable health, without a financial statement, or an official loan committee meeting! Thanks for your input.
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RUN away from this scenario. Is this a local bank? Cattle loan are usually a 60/40 loan to value ratio, but can take other farm assets such as equipment as chattel for the cattle mortgage. For example if you will end up with 30 cows, figure the total value times 60 %. This should give you the amount of $ you can borrow to purchase the new 15 head.

Truthfully, if you are trying to manage his operation in his absence, you just need him to give you a durable financial (and Medical) power of attorney. Then you can run his farm on his behalf. Don't take no for an answer.
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