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Farmland auctions are a popular way to dispose of property. It clearly establishes the market price between the seller and the buyer, no appraisal needed. Like flavors of ice cream, everybody has a preferred auction method and understanding why one person’s rocky road is another person’s cookies and cream helps you understand exactly what is going on.

First some concepts. Reserve is a minimum price that the seller has in mind and once the reserve is off that is an indication that the sale will happen. Terms announced on the day of the auction generally prevail over any prior published terms. Buyers are responsible for doing their own research on a parcel. The auctioneer works for the seller, not the buyer no matter how friendly or helpful they are. Letters of credit are notes from backers indicating that purchaser is “good for it”, as auctions are not contingent (aka dependent) on financing post auction. A Buyers premium is an additional fee above the auction price that is assessed to the sale price.

The traditional open cry auction has the pageantry, the free donuts and the crowd spectacle that Hollywood loves. Anybody can register and, in most cases, anybody can be the successful bidder. The social impact of an open auction works both ways. The seller may accept a lower price than they would otherwise because of the perception of “letting down” the crowd and the public review. Conversely, the bidders may extend past their budget to “prove themselves” in the public spotlight against real and perceived competitors. Knowing who you are bidding against can sometimes prematurely end bidding if the competitor is well funded, an associate or sometimes, a distant relative.

Online bidding creates a much more analytical event where bidders sit in their own machine sheds and check the current posted bid and make a calculation on raising the same. This goes out the window in the closing minutes of the auction, as most of these events have a floating or soft close that essentially extends the auction close by a set time following each raise. What is posted as a 2 PM bid close may result in a 3:30 PM actual end of bidding. Online bidding allows participants from a wide location to participate, and it removes the social conventions some follow of not bidding up your neighbor as online bidding is generally anonymous.

A sealed bid auction creates a situation where a seller can review all potential bidders and review the offers in detail. This allows for a further “final bid” or additional negotiations to reach a price. The Seller has more control over the who they treat with. They are more likely to reject bids in this setting.

A “Dutch” auction is a reversed concept where a price is set and then lowered until it gets a bid, who then gets the item at the lowered price with the accepted bid.

An Invite only auction is just what is sounds like. The format at that private event can take the form of any of the types of auctions previously discussed.

Many times, buyers encounter a hybrid of these auction types, with a seal bid offer in the paper followed by a private invite only in person auction a classic example of the use of multiple techniques to seek and discover the high price for the land.

Within the context of the auction itself, parcels may be grouped into different lots such as bare ground and building site and then the whole farm offered as additional lot. Bidders may be successful on a building site bid, only to lose out on the combination of the land and building site to another bidder. A Choice auction is where several parcels that are similar are all up for offer and the top bid gets to pick the parcel they want (and sometimes as many parcels as they want for that strike price), then the process is repeated until the seller runs out of parcels.

What’s old is new again. In January, the Supreme Court is once again hearing Sackett v. EPA. This gun battle is about a wetland with a proposed house development on it in Idaho near a body of water that the EPA regulates. Really, it’s about how far the federal government’s reach goes and what set of rules it should apply when extending is grasping, overbearing, federal reach. The first Supreme Court battle was over whether or not the Sacketts could even challenge the EPA. Now that that was settled, they are back to fight over what rule is applied.

The fed’s derive their authority from the Clean Water act passed in 1972 by requiring permits for discharging into a “navigable water.” Makes you think that means you can float a boat in it or otherwise “navigate” on the water. Nope, it means “waters of the United States” and territorial seas. No further guidance issued from our friends in Congress. They left it to the administrators in the EPA to develop their own rule. They have tried three times and had two of them invalidated by court challenges.

When this all started, the EPA’s take was that wetlands near (adjacent) other waters that they had jurisdiction on also fell onto them to regulate, Based on 1980s regulations and a 1985 ruling. By 2006, the court was asked if the EPA can regulate close but not touching waters. The lack of a clear court decision resulted in a position that a clear connection or nexus meant the EPA had control. What was a nexus or a clear connection, the answers are as many as the starts in the sky and the alligators in a Florida swamp? Sometimes, the courts use the nexus idea and sometimes the clear connection. The EPA seems to like the nexus approach. However, whatever administration is in the White House has colored the flavor of enforcement technique. For example, the EPA put out rules in 2020 and then under a presidential directive, said they were redoing them in 2021 and reissued them in Dec 21.

The fight is which rule from the 2006 case controls, nexus or connection. The Sacketts say the nexus system is a “wait and see” type system that is never clear and makes it hard to make decisions on land use and investments. The EPA told the Supreme Court not to worry about this question, they were going to make more rules that were backed up by lower court rulings they won in and not to worry.

If you think this is going to be resolved anytime soon, you are wrong. Every year I attend an Ag Law Conference where this topic, if not on the official schedule, is on the lips of a small group of water law junkies and constitutional law nuts. The only thing that changes is the location of the conference, the food served at the break, and the gray in the hair of the debating parties.

Other States Follow Iowa’s lead

Iowa has long had a ban on ownership of land by foreign persons, particularly in the farmland sector. So does Minnesota, Mississippi, North Dakota, Oklahoma and Hawaii.  Alabama, Missouri, and Indiana are all in various stages of contemplating restrictions.   The work around is to have a “sponsor” acquire land in an LLC and then when the person obtains citizenship, they can take the title from the Sponsor LLC. Some states are wise to that loophole and encourage it, others have more formal protections and exemptions built in.

Risk management for crop production is a critical component of a modern ag operation. While many operators use crop insurance, few understand even the basics of how it functions when things go sideways. Understanding this federally regulated program is important to the modern farm operator. It has come a long way since 1936 and is currently a booming industry of 13 companies insuring 120 different crop types to the tune of about 1.2 billion dollars of premiums being written.

While I am as a rule, dismissive of federal politicians, this one has a good sound bite a staffer no doubt put together for him:

“Through the crop insurance program, insurers can extend coverage to crops of all kind, providing farmers with the protections they need to do what they do best: grow food. It is a success story, and even if you are not a farmer, you have benefited from its existence. It has helped you receive more affordable food and helped American maintain its agricultural preeminence.”

-U.S. Representative Luke Messer.

The types of crop insurance are worth taking a peek at. Catastrophic coverage covers 50% of yield at 55% of the price and has a flat premium. Buy up coverage can be yield or revenue based and are calculated off historical proven yields or futures prices at planting and harvest calculated against a revenue calculated price.

Producers have to follow strict deadlines for reporting and sign up with no room to give for any circumstances. In the end, most crop insurance is traced back to the same source, federal government. These type of crop insurances are directly controlled by federal rules and not state or local rules.

Crop insurance for hail coverage is another critter all together. These are private products reinsured by companies that are backed by the feds but are regulated by state level government agencies.

When you disagree with the crop insurance adjuster’s determination, it is time to lawyer up. Attempting to work your way through federal regulations and rules by yourself is an invitation to disaster. The burden of proof is often on the operator and not the agency. The agency can find a myriad of reasons to deny a claim, to include lack of good farming practices. That term is not readily defined. You must make a claim within one year of being denied, no excuses and you must go to arbitration, not state court to resolve your claims. These are just a few examples of the deep morass that issue the world of disputed crop insurance claims.

Iowan’s have little direct contact with federal land regulators. Afterall, Iowa only has .3% that’s right three tenths of one percent of its land mass owned by the federal government. We have essentially no large active-duty military bases, forest reserves, grazing lands, or few national monuments that impact the land use decisions that private citizens make. In fact, the most federal contact Iowan’s have is probably through the USDA office for FSA and NRCS programs and crop insurance claims.

Other states are not so lucky. Consider Utah, which has over 60% of its land in its state owned by the feds. Feds, as you will no doubt be surprised to learn, do not pay taxes to the states on the ground they own. They do pay something called PILT (Payment in lieu of taxes) but it is not the same. Why is this a big deal, who cares? Well, if you are a county in Utah, you might have 5,000 people living in your county on 5% of the land. Hard to provide for essential services like fire protection, EMS, rescue, and sanitation when 95% of your land base is federal lands. Add in three million visitors to the federal lands per year and it becomes even more taxing… See what I did there? Taxing…

Federal officials in the west have noted that when somebody’s nose itches in Washington, people sneeze cough and gasp for air in the West. That is because of the power of the federal government has on affairs in the west because it owns so much of the ground.

Aside from the impact on locals, the federal government has a virtual alphabet soup of regulatory agencies that dictate who can do what on different types of federally owned land. The Bureau of Land Management controls some of the grazing on federal lands, but the Fish and Wildlife Service, the Forestry Department, and Bureau of Indian Affairs all have seat at the table. Each of these regulatory agencies have to follow their play book as proscribed by the federal register via published rules and congressional acts. Environmental activist groups are keenly aware of this process and watch the promulgated rules, comment on them and lobby for changes that suit their missions and desires. Other groups should but sometimes fail to see the changes coming down the pike via regulatory rule. A good example is endangered species listing. Activists seek to enlarge the list of protected and endangered species as those on the list can isolate and take habitat out of other beneficial uses like grazing and mining.

Water is another property right that Iowa doesn’t really have to deal with the way other states sometimes do. Water rights in the west are not the same system we use in Iowa. Tell a western cattle producer that you irrigate right out of a river with no permit or restriction on gallons and watch their jaw drop.

Be aware of the west and the troubles it has with the federal government. The fed has broad sweeping powers to declare lands federal preserves, restrict private activities because of endangered species listing and establishing new federal facilities. Right now, Iowa is relatively clear of federal entanglements outside of Farm Service Agency programs but that is not a guarantee.

Friday, August 19, 2022
  • Patrick B. Dillon
  • Jill Dillon
Dillon Law PC
Patrick B. Dillon enjoys finding solutions to legal issues and catching problems for clients. Pat practices in the Sumner office regularly represents clients in district, associate district and magistrate courts for agricultural, real estate, criminal and collection issues. He drafts wills and trusts, creates estate plans and helps clients through the probate process.
Dillon Law PC
Jill is a University of Northern Iowa undergraduate (Political Science Cum Laude) and a Drake University Law School graduate. Jill is the assistant Fayette County Prosecutor and a certified family law mediator. Jill still has ties to her family farm operation which includes a dairy herd. Jill Dillon focuses on bankruptcy, adoptions, and mediations.

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