1st Cir. Holds FCA not requiring lender to come up with restructuring plan before lockdown

The United States Court of Appeals for the First Circuit recently ruled that the federal Farm Credit Act does not require a lender to come up with its own restructuring plan before pursuing foreclosure remedies.

A copy of the notice in Agricultural Credit of Puerto Rico, ACA v. Eco-Parque del Tanama Corp. is available at: Link to Opinion.

The borrowers defaulted on a loan granted by the lender. The loan was subject to the FCA, 12 USC 2001 et seq., which sometimes requires the lender to restructure a loan rather than foreclose.

The borrowers requested restructuring of the troubled loan, but the lender denied the request. The lender ultimately filed this foreclosure action, and the trial court ultimately granted summary judgment for the lender and denied the borrowers’ motion for reconsideration. Borrowers appealed in a timely manner.

First Circuit began its analysis by recounting that a lender need not agree to a restructuring plan that the borrower cannot execute because the FCA only requires restructuring when it would cost the lender no more than a foreclosure. 12 USC § 2202a(e)(1); 12 CFR § 617.7415(d).

Absent unusual circumstances not present here, the Court determined that a failed attempt at restructuring followed by foreclosure would likely cost the lender more than foreclosure alone.

The borrowers countered that the lender was required to come up with its own restructuring plan after rejecting the borrowers’ request for restructuring. In response, the First Circuit acknowledged that the FCA “does not preclude a qualified lender from proposing a restructuring plan for an individual borrower in the absence of a request for restructuring from the borrower.” 12 USC § 2202a(d)(2).

However, the Court also considered that an authorization does not oblige a lender to propose its own restructuring plan, and even less to do so when the financial situation of the borrower does not allow it to be concluded that a reasonable restructuring is possible.

In the absence of any other preserved challenge to the trial court’s finding that the lender properly considered and rejected the requested restructuring, the First Circuit upheld the trial court’s grant of summary judgment in favor of the lender.

The borrowers’ subsequent motion for reconsideration in the trial court focused on their assertion that the lender should have estimated a higher cost of foreclosure compared to the cost of restructuring. However, since the borrowers have demonstrated no ability to meet their obligations under the proposed restructuring, the First Circuit held that any challenge to the lender’s estimate of the transaction costs of the foreclosure could not change the result.

Accordingly, the First Circuit also upheld the trial court’s denial of the Borrowers’ motion for reconsideration.

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