The Colorado Farm Homestead Protection Act
| Publication year | 1986 |
| Pages | 1642 |
1986, September, Pg. 1642. The Colorado Farm Homestead Protection Act
On April 18, 1986, Governor Lamm signed House Bill No. 1284, providing for economic stabilization of the agricultural community through homestead protection ("Act"). The policy of the Act is to sustain family farmers in rural communities through the current economic crisis, to conserve the rural economy and agricultural land and to preserve farming opportunities by retaining farmers upon the land to the greatest degree possible. The Act is effective from the date of its enactment through January 31, 1990, when it is effectively repealed.
Among other matters, the Act allows redemption of farm homestead from foreclosure sales of agricultural real property without redemption of the entire property. It also provides for leases of agricultural real estate to farmers who previously have conducted farming activities upon foreclosed land. Additionally, the Act grants a right of first refusal to qualified farmers to repurchase land after foreclosure. Finally, the Act restricts a secured party's right to dispose of agricultural collateral under Article 9 of the Uniform Commercial Code ("UCC").
This article examines the substantive rights of farmers under the Act. The discussion assumes that a loan secured by agricultural property, whether real or personal, is in default and the lender seeks to enforce security provisions for the loan.
The foreclosure redemption statute(fn1) is amended to define "agricultural homestead real estate" as a contiguous parcel of "agricultural land,"(fn2) reasonably operated as a unit, and containing up to forty acres, with reasonable access to domestic water, including the owners' residence, and related mineral rights. The parcel cannot contain more than five acres or a facility material to the operation of the remaining agricultural real estate without the consent of the secured lender. The homestead can neither interfere with access to water rights for the remaining farm land nor with access to the remaining real estate.(fn3) Creation of the homestead is deemed a permitted division of land by court order.(fn4)
The agricultural homestead is a wholly distinct concept and has no relation to any homestead exemptions created by other state or federal laws. It applies only to redemption of farm property after foreclosure. The previous owner may redeem the homestead by paying the public trustee or officer conducting the sale the portion of the foreclosure sale price, with default interest, taxes and other charges equal to the fraction of the fair market value of the homestead parcel, divided by the fair market value of all real estate foreclosed.(fn5)
This formula can result in a redemption for the homestead in an amount far less than its actual value. On the other hand, if the fair market value of the homestead parcel is "disproportionately large in comparison to the redemption price," the court may adjust that fraction to a fair redemption price for the homestead, considering the secured party's ability to recover the entire redemption price.(fn6)
An owner desiring to redeem a homestead should tender to the trustee or officer holding the sale a legal description of the proposed homestead and the owner's statement of the proposed payment for the homestead at least sixty days prior to the expiration of redemption rights.(fn7) Apparently, this proposal is also tendered to the court of jurisdiction over the foreclosure as the ultimate arbiter of disputed issues regarding redemption of the homestead. The Act is not clear on this procedure. Feasibly, if the lender does not dispute the prior owner's proposal as to redemption of the homestead, that proposal will be adopted by the trustee pending tender of payment to redeem the homestead. In the absence of dispute, a court hearing is apparently not required.
If there is any dispute as to redemption of the homestead, the court is vested with discretion to determine the appropriate legal description of the homestead parcel and the redemption price for the homestead. The court may also consider other equitable matters including "the secured party's ability to recover fully the entire redemption price" from the homestead and the remaining agricultural real estate.(fn8) This discretion conforms with other equitable powers granted courts to advance the legislative policy.
The Act does not address the possibility of the deed of trust describing the homestead parcel and appurtenances and stipulating proportionate redemption amounts for the homestead and remaining property. If such matters are addressed within future loan documents, both lenders and borrowers will have some assurance as to the consequences of foreclosure. The negotiated terms would be similar to typical partial release provisions, and would probably be given substantial weight in judicial proceedings.
A farmer may redeem the homestead parcel upon foreclosure of any deed of trust encumbering agricultural real estate, regardless of the type of lender and the type of owner involved. The critical element in this context is that the property foreclosed upon must meet the definition of "agricultural real estate"(fn9) and the homestead parcel must be a contiguous parcel of agricultural land, including the owner's residence, and reasonably operated as a unit.(fn10) If neither the homestead nor the remaining agricultural real estate is redeemed during the six-month redemption period, the previous owner may be entitled to the rights of a "qualified farm owner-tenant" if the requirements described here are met.
Whether or not a farmer whose property is foreclosed is entitled to certain lease and occupancy rights and the right of first refusal to repurchase the foreclosed property depends on whether that person is a "qualified farm owner-tenant ("Tenant").(fn11) The definition of a Tenant is provided in the context of the forcible entry and...
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