Cool head, calm heart required to cope with threat of repossession
FARMLAND and other farming assets have become more attractive to bankers chasing the assets of borrowers who are in financial trouble,
Nowadays, such assets are seen to have improved potential to help ease the burden on stricken bank balance sheets.
There have been a number of high profile cases in recent months of bankers moving on farm assets — which now leave many over-borrowed farmers worrying that their lender will be knocking on the door with repossession orders.
A lender in one of the country’s largest financial houses says that the necessary measures are being put in place by a number of lenders to move on farmers and their assets, even if they have to play “the long game”.
While it is difficult to put an exact number on the amount of repossession there has been in recent times of both land and farm machinery, more cases have come to public notice.
In May 2012, a possession order sought by Carlisle Mortgages Ltd against farmer John Sinnott in Co Wexford was reactivated at the High Court, having first been made in July 2009. Mr Sinnott had received €800,000 in February 2008 to buy land.
Seamus Sherlock, a Co Limerick landowner, has been waging his “Life after Debt” campaign to help those in debt, since 2010. He was served with an eviction notice last August.
Since then, Mr Sherlock has barricaded the entrances to his farm and has had a large group of supporters guarding his property round the clock.
It is not just land that has been targeted by eager lenders; farm machinery has been high on their list of targets also. Two recent instances brought such issues into the public eye.
In early December, Independent TD for Tipperary South, Mattie McGrath, led a group of farmers “sitting-in” at the offices of Friends First in Dublin, after the loan operator had attempted to repossess a tractor from a farm in Wexford.
Later in the month, Donal Connaughton, a pig farmer from Longford, was found guilty of false imprisonment of two men when they arrived to repossess a generator and two power-washers on behalf of GE Money.
Tom Murphy, director of the Professional Agricultural Contractors (PAC), says his services of negotiation have been required more than in past years,
“PAC, free of charge, negotiates on behalf of farmer in difficult situations and we have received a volume of calls over the past couple of years. It’s important that farmers don’t long-finger institutions and hope the problem goes away. We have seen from recent high profile events that the lenders will not take no for an answer, they can’t and won’t be hoodwinked. It would appear to be the case that there is a concerted effort on their part to target farm assets,” Mr Murphy said.
These sentiments have been qualified by agricultural consultant Mike Brady of Brady Group in Cork. He predicts a “seismic shift” from 2013 onwards, with banks tracking the financial activities of farmers more than in previous years — mindful of the quick resale potential of land and other farming assets.
“Since its inception, the National Asset Management Agency (Nama) banks have been focussing primarily on bringing the larger loans, the €5m-plus loans, into line. Now that the majority of these loans have been taken care of, there is an emphasis on these banks and institutions to chase up the smaller loans, the €1-€3m loans and the €3-€5m loans.
“We are anticipating a seismic shift in the activities of these banks in terms of pursuing smaller businesses like those of farmers. A considerable amount of additional re sources and staff has been taken on by these banks to deal with the expected increased activity.”
The tactic by loan houses to pursue farms and machinery would appear questionable when you look at the cash reverses the average farmer has. According to recent data, farmers here have average cash flow to cover their annual bank interest bill 11 times. The average farmer’s milk sales cover the interest bill 15.5 times. Typically, a dairy farm here has enough family farm income to clear its debt in 1.7 years, or enough milk sales to clear its debt in 14 months.
Liquid assets are sufficient to immediately repay debts 1.7 times, and total assets are sufficient to immediately repay debts nine and half times over.
If, for the most part, farmers are in position to repay even the most burdensome of loans, why are they in the cross-hairs of many of the loan houses?
Niall Farrell of Patrick J Farrell and Company Solicitors in Newbridge, Co Kildare, a firm which specialises in farming law, believes that farmers are, for the most part, victims of circumstance.
“Farmers have assets that have, in theory, potentially high resale opportunity. If €70,000 is owed on a tractor or piece of machinery and a bank repossesses it, then they could reclaim a decent chunk of what is owed to them. Compare that to the housing market. If a homeowner in a rural setting is unlucky enough to have their home repossessed, then it’s unlikely that they’ll recoup any of what’s owed. Farming’s success can also be a hindrance.
“The repossession of a farm or machinery is no different to the repossession of houses, something which is all too common lately. If a farmer falls into arrears, then it is at the lender’s discretion to seek a High Court order for repossession of the property or machinery.
“Emotion is the single biggest difference in the repossession of a buy-to-let property, and a farm or its assets. It’s very difficult to take order of land or machinery without causing considerable anger and hostility in the locality,” Mr Farrell said.
A case in point was the auction in late 2010 of a 67-acre farm at Crossakiel near Kells in Co Meath, which had been repossessed by ACC. Despite strong interest before the sale, and a reasonable attendance at the auction, the highest bid on the land was only €1.
According to those who attended on the day, there was a negative atmosphere, and the auctioneer later said that there was “no question” but that people were unwilling to support the sale of a repossessed farm.
While Mike Brady agrees that it would be difficult for bank and loan providers to move swiftly on a farm, it cannot be ruled out, and the only way to keep them at bay, if a farmer has fallen into arrears, is to negotiate.
Mike Brady said: “I expect that it would have to be a very grave situation before a lender would move on an entire farm, but we cannot rule it out. Tom Clinton and the IFA did trojan work in protecting the assets from banks in the ’70s, but it’s a very different landscape now and banks are now looking to move on smaller businesses such as farms.
“The piece of advice I would give to any client that is unfortunate enough to find themselves in negative equity and under pressure from lenders is simple. Negotiate, work it out. Conversely, this is the same advice I would give to banks and loan houses.
“Farming is different to any other small- or medium-sized business. Farms have assets that are, in many instances, different to other business. They are vital to the continued operation and viability of the business and, therefore, every attempt should be made to negotiate a favourable deal for all parties.
“The other hugely important thing to remember is that farms and any potential debt a farm business might have will not clear a bank’s balance sheet. Loan houses can get caught up in thinking that, because farming is profitable at the moment, but being single-minded in this approach will be to the detriment of those handing out loans, and would impact more on them than farmers.”
