U.S. v. Einum, 92-3595

• Decision Date: 10 May 1993
• Docket Number: No. 92-3595,92-3595
• Citation: 992 F.2d 761
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. John L. EINUM and Joann F. Einum, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 761

992 F.2d 761

61 USLW 2693

UNITED STATES of America, Plaintiff-Appellee, v. John L. EINUM and Joann F. Einum, Defendants-Appellants.

No. 92-3595.

United States Court of Appeals, Seventh Circuit.

Argued April 7, 1993.

Decided May 10, 1993.

Jean-Marie Reilly, Office of the U.S. Atty., Madison, WI, (argued), for plaintiff-appellee.

Mark Bromley, Kinney, Urban, Schrader, Bromley, Kussmaul & Soman, Lancaster, WI, (argued), for defendants-appellants.

Before EASTERBROOK and KANNE, Circuit Judges, and ENGEL, Senior Circuit Judge. ^*

EASTERBROOK, Circuit Judge.

John and Joann Einum borrowed some $150,000 from the Farmers Home Administration. The debt was secured by a mortgage on their farm in Wisconsin. They have not repaid. After the FmHA commenced foreclosure proceedings the Einums admitted that the agency was entitled to this relief--eventually. They asked the court to delay the sale for one year, corresponding to the "redemption" period that Wisconsin affords borrowers before a lender may put real estate on the auction block. Wis.Stat. § 846.10(2). The year's delay is a moratorium before foreclosure rather than a period in which to redeem after sale, but the parties do not contend that anything turns on this difference. Relying on United States v. Victory Highway Village, Inc., 662 F.2d 488, 497-98 (8th Cir.1981), which holds that the Department of Housing and Urban Development may foreclose without regard to state redemption periods, the district court ordered the Einums' farm sold if they did not pay during the next 60 days. This 60-day grace period has no source in either state or federal law; it was the court's invention, from which the United States has not appealed. The Einums, who have appealed, ask for the application of state law.

Only one court of appeals has addressed the question whether persons who borrow from the FmHA receive the benefit of state redemption periods. United States v. Ellis, 714 F.2d 953 (9th Cir.1983), holds that they do, relying on United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979). Kimbell Foods establishes that although "federal law governs questions involving the rights of the United States arising under nationwide federal programs", id. at 726, 99 S.Ct. at 1457, state law supplies the content of federal law unless Congress has established distinctively federal rules. Kimbell Foods rejected arguments that federal loan programs by their nature call for uniform federal rules and that the government's status as a "lender of last resort" justifies giving it priority over competing private claimants. Ellis concluded that both the method and the result of Kimbell Foods apply to redemption periods as fully as to the other aspects of state law that Kimbell Foods addressed. Victory Highway Village articulates positions the Court unanimously rejected more than a year earlier in Kimbell Foods, a case the eighth circuit did not mention.

Although Ellis persuasively explains why state redemption periods apply to FmHA loans when federal law is silent, the statute books have put on weight in the decade since that opinion. The Agricultural Credit Act of 1987, Pub.L. 100-233, 101 Stat. 1568, substantially amended 7 U.S.C. § 1985, which governs the procedures the FmHA uses to dispose of property securing defaulted loans, and the Secretary of Agriculture made extensive revisions to the corresponding regulations. Statute and regulations together prescribe a lengthy sequence of steps, both before and after a sale. Today the FmHA routinely excuses the first 180 days of delinquency. A borrower more than 180 days in default receives a notice and an opportunity to participate in the "primary and preservation loan service programs." 7 C.F.R. §§ 1951.907(f), 1951.911(a). A form lets the borrower elect among programs for deferring, rescheduling, and renegotiating the interest rate on the loan. 7 C.F.R. Part 1951, subpart S, exhibit A. To be eligible for one or more of these, the borrower must provide a plan showing that the operation of the farm will permit him to repay the loan over a longer period (or with lower interest, or both). Application kicks off an administrative process that, including appeals, may be lengthy; during all of this time the borrower remains in possession of the farm. See generally 7 C.F.R. Part 1951.

A borrower ineligible for any of these programs receives an option to pay off the loan at the "net recovery value" (a term defined by 7 C.F.R. § 1951.909) within 45 days. A borrower who does not exercise this option may elect during the next 180 days to participate in a "preservation loan service program" that provides for continued occupancy of the farm, provided the borrower conveys title to the property to the FmHA and...