Debt
Relief for Prevailing Class Members
1. Introduction
The Consent Decree
in Pigford provided debt relief for prevailing credit claimants.
This Monitor Update describes recent developments regarding debt relief
and describes the debt relief claimants will receive.
2. Debt Relief
Available Only for Successful Credit Claims
In Pigford,
debt relief can be granted only as a result of a successful Track A or
Track B credit claim. In general, a credit claim is a claim based on the
claimant's effort to get a farm loan from USDA. For example, if a
claimant claimed that USDA discriminated against him or her in the
making of a Farm Operating Loan or a Farm Ownership Loan, the claimant
made a credit claim.
A noncredit claim,
on the other hand, is a claim that is not based on an effort to get a
farm loan—but instead is based on the claimant's effort to obtain some
other benefit from USDA. For example, if a claimant claimed that USDA
discriminated against him or her in providing a USDA disaster payment,
or in implementing a USDA conservation cost-share program, the claimant
made a noncredit claim.
3. Legal Authority for Debt Relief
Debt relief for
claimants who prevail on a credit claim is based on several legally
binding documents.
a. Consent Decree
The Consent Decree
provides that a claimant who prevails on a credit claim receives a
discharge of certain outstanding USDA debts. The discharge applies to
those debts that were incurred under, or affected by, the USDA program
or programs that were the subject of a prevailing credit claim.
b. February 7,
2001 Stipulation and Order
On February 7,
2001, Judge Paul L. Friedman signed a Stipulation and Order that
discusses the details regarding the debt discharge that claimants will
receive in credit cases. The Stipulation and Order is based on an
agreement that was reached by the government and Class Counsel.
According to the Stipulation and Order, the government and Class Counsel
had certain debts in mind when they wrote the part of the Consent Decree
that provides for debt relief. These debts are more clearly defined in
the Stipulation and Order.
c. February 22, 2008 Opinion and Order
On February 22,
2008, Judge Paul L. Friedman signed an Opinion and Order that interprets
certain Consent Decree provisions regarding debt relief.
d. USDA Agreement
USDA has agreed
that the principles outlined in this Monitor Update are consistent with
how USDA implements debt relief to prevailing claimants.
4. Debts to
Be
Discharged
Certain USDA debts
will be discharged as a result of the Pigford settlement. The
question of which loans will be forgiven can be complicated. The
following sections explain debt forgiveness in some detail.
a. Debts Affected
by Discrimination
In general, if the
Adjudicator or Arbitrator specifically identified a certain debt as
being affected by discrimination, this debt will be discharged. For
example, if the Adjudicator found discrimination in the late funding of
the claimant's 1984 Operating Loan, the 1984 Operating Loan that was
affected by discrimination qualifies for Pigford debt relief.
Two important
points flow from this finding of discrimination.
First, the date of
the discrimination matters for the purposes of debt discharge. For
example, if the Adjudicator found that there was discrimination in a
loan denial that took place on April 15, 1990, that date creates an
important starting point for debt discharge purposes.
Second, the type
of loan that was found to be the subject of discrimination matters for
the purpose of debt discharge. In general, a loan is of the same type if
it was incurred under the same loan program. The Operating (OL) Loan
Program is one USDA program, the Farm Ownership (FO) Loan Program is a
separate program, the Emergency Loan program (EM) is a separate program,
and so forth.
b. Some Debts
Incurred After the Discrimination Occurs
The Adjudicator or
Arbitrator will have found discrimination based on a certain event—for
example, the denial of a loan or of loan servicing. If, after the date
of discrimination, the claimant incurred additional debt that was of the
same type as the debt that was subject to discrimination, the additional
debt will be discharged.
For example, if
the Adjudicator found that USDA discriminated against the claimant in
denying a Farm Operating Loan in 1994, and USDA then made a Farm
Operating Loan to the claimant in 1995, the 1995 Operating Loan will be
discharged. This is true even though the Adjudicator did not find
discrimination in the 1995 Operating Loan.
c.
Loans Made After
December 31, 1996—No Debt Discharge
In general, loans
made after the end of the period covered by the Consent Decree—December
31, 1996—are not subject to discharge as a result of the Consent Decree.
For example, if a
claimant received a Farm Operating Loan in 2000, this loan cannot be
discharged as a result of the Consent Decree.
If, however, a
loan application was filed before the end of the class period, and the
loan resulting from that application closed after the end of the class
period, the loan may be discharged.
For example, a
claimant might have submitted a loan application in November 1996 for a
Farm Ownership Loan, and, based on that application, received a Farm
Ownership Loan in May 1997. If the Adjudicator found discrimination in
the making of the May 1997 Farm Ownership Loan, that loan would be
forgiven even though the loan was made after the end of the class
period.
d.
Rescheduling,
Reamortization, and Defining When a Debt Is Incurred
As is noted above,
the date on which a loan was incurred is important for figuring the
right to debt relief in Pigford. For Pigford debt relief
purposes, a loan is considered "incurred" at the time the loan was
originally made, not at the time a loan was rescheduled or reamortized.
For example, if
the only discrimination found by the Adjudicator was in the making of an
Emergency Loan in 1992, the 1992 Emergency Loan would normally be
discharged, as would Emergency Loans made from 1992 through the end of
the class period. If USDA rescheduled the 1992 Emergency Loan in 1998,
for the purposes of Pigford debt relief, the loan was still
incurred in 1992, and would be forgiven. If the Emergency Loan had been
originally incurred by the claimant in 1998, it would not normally be
forgiven.
It is also
possible for a loan to have been incurred before the class period, and
later rescheduled during the class period.
For example, if
the only discrimination found by the Adjudicator was in the making of an
Operating Loan in 1984, the 1984 Operating Loan would normally be
discharged, as would Operating Loans made from 1984 through the end of
the class period. If the claimant had also received an Operating Loan in
1979 that was rescheduled in 1986, for the purposes of Pigford
debt relief, the loan was incurred in 1979 and would not be forgiven
because it was incurred before the discrimination occurred.
e.
Some Debts Incurred at the Same Time as the Discrimination
If the claimant
incurred additional debt of the same type as the debt that was subject
to discrimination, and incurred the additional debt at the same time as
the discriminatory act, the additional debt will be discharged.
For example, if
the Adjudicator found that discrimination occurred in the late funding
of a claimant's one-year 1990 Operating Loan for annual production
purposes, that loan would normally be forgiven under Pigford. If,
on the same day that the claimant received the one-year Operating Loan,
he or she also received a seven-year Operating Loan for the purchase of
equipment or livestock, the seven-year Operating Loan incurred at the
same time as the one-year Operating Loan would be forgiven even if the
Adjudicator did not specifically discuss that loan.
f. Exception to Loan Program Rules—Switch Cases
As is noted above,
debt forgiveness in Pigford largely follows the loan programs
that are available from USDA.
For example, in
general, if an Adjudicator found discrimination in the making of an
Operating Loan in 1990, the claimant will receive debt relief for
Operating Loans received from 1990 through 1996. If the claimant also
received a Farm Ownership Loan in 1990, but the Adjudicator did not find
discrimination in the making of a Farm Ownership Loan, the Farm
Ownership Loan would generally not be eligible for debt relief.
An exception to
this general rule occurs in what might be called "switch cases." In some
cases, the Adjudicator or Arbitrator made an explicit finding of
discrimination with respect to a specific loan, and USDA determines that
the actual loan at issue was clearly from a different loan program and
was simply misidentified by the Adjudicator or Arbitrator. In these
cases, USDA will "switch" the finding to the correct loan program and
implement debt relief based on the actual loan program in which the
Adjudicator or Arbitrator found discrimination. In other words, if the
Adjudicator or Arbitrator found discrimination in the making of a loan,
but made a mistake in identifying the type of loan program in question,
the loan will be forgiven even if the loan program was incorrectly
identified. In these cases, the claimant will generally not receive debt
forgiveness for the loan type that was mistakenly identified by the
Adjudicator or Arbitrator.
For example, an
Adjudicator may have found discrimination in the making of an Operating
Loan in 1991, but it turns out that the only loan made to the claimant
in 1991 was an Emergency Loan. If the facts establish that the loan
referred to by the Adjudicator was actually an Emergency Loan, the
remedy will be "switched" to the Emergency Loan and the Emergency Loan
will be forgiven.
Similarly, an
Adjudicator may have found discrimination in the making of a 1981 Farm
Ownership Loan but in fact the loan at issue was a 1981 Emergency Loan
for real estate purposes. If the 1981 Emergency Loan is the loan
referred to by the Adjudicator, the debt relief would be "switched" to
the Emergency Loan program.
As another
example, if the Adjudicator found discrimination in the making of
Emergency Loans from 1981 through 1984, but the claimant received
Emergency Loans from 1981 through 1983 and received an Operating Loan in
1984, the remedy for 1984 will be "switched" to the Operating Loan
program. In this case, the claimant's 1981, 1982, and 1983 Emergency
Loans and 1984 Operating Loan were the subject of the finding that they
were "affected by" discrimination and qualify for debt relief.
There are rare
cases in which the Adjudicator found discrimination in the making of a
loan in one loan program and USDA's records indicate that the claimant
received two loans at the same time that were affected by the same act
of discrimination.
For example, an
Adjudicator may have found discrimination in the late funding of an
Operating Loan in 1991. If the facts establish that the claimant's 1991
loan application resulted in both an Operating Loan and an Emergency
Loan being made to the claimant, the remedy will be "switched" to
include both the Operating Loan and the Emergency Loan and both loans
will be forgiven.
In addition, once
the remedy of loan forgiveness has been switched to a different loan
program, the switch applies to debt forgiveness for loans in the same
program that were made for the rest of the class period. Some USDA farm
loan programs authorize the use of funds for a variety of purposes. Once
the loan program is identified, however, the use of loan funds for
particular purposes does not affect the eligibility of subsequent loans
in the same loan program for Pigford debt relief.
For example, if
debt relief is "switched" from the 1981 Operating Loan program to the
1981 Emergency Loan program, the claimant's Emergency Loans received
between 1981 and 1996 qualify for debt relief regardless of whether the
Emergency Loans were used for operating or real estate purposes.
g. USDA Forgives All Liability for Claimant
In some cases the
claimant will already have had the debt forgiven through USDA's loan
servicing or debt settlement regulations. When this happens, the
claimant is sometimes still possibly liable to repay part of the debt.
This can occur, for example, with a shared appreciation agreement that
is signed after a debt write-down. If the original debt is forgiven
under Pigford, the debt forgiveness applies to all claimant
liability for that debt, including shared appreciation and other similar
obligations.
5. Debt Forgiveness and Loan Servicing
In cases
concerning a prevailing claim based upon loan servicing, USDA will
discharge loans that were in effect at the time of the loan servicing
application or were the subject of the loan servicing request, when the
Adjudicator or Arbitrator specifically provided for such discharge.
"Loan servicing" as used here means various types of loan restructuring
available to eligible farm loan borrowers. These include, but are not
limited to: primary loan servicing options previously found in Code of
Federal Regulations, Title 7, Part 1951, subpart S, such as
rescheduling, reamortization, consolidation, limited resource interest
rates, deferrals, write-downs, and net recovery buyouts; preservation
loan servicing opportunities, such as homestead protection, credit
sales, and leaseback/buyback; debt settlement options previously found
in Code of Federal Regulations, Title 7, Part 1956, such as adjustment,
compromise, cancellation, and charge off; and other options,
including, disaster set aside, subordinations, and the release of
valueless liens.
The parties are
not in agreement with respect to the appropriate debt relief in cases
concerning a prevailing claim based upon loan servicing when the
Adjudicator or Arbitrator did not specifically identify the loans to be
discharged. In this latter situation, a claimant should contact class
counsel or the Monitor's office for assistance.
6. Debts Not to Be Forgiven—Older Lawsuits
An important
exception applies to all of the above debt discharge discussion. No debt
discharge will apply to any debts that were the subject of litigation
separate from this lawsuit if there was what is known as a final
judgment in that separate lawsuit, and if all of the appeals for that
separate lawsuit have been forgone or completed.
For example, if a
claimant was involved in a lawsuit with USDA that was begun and
completed in 1990, and the result of the 1990 lawsuit was that USDA got
a judgment against the claimant, and all appeals have been exhausted,
debt discharge in the Pigford settlement will not change the
result of the 1990 lawsuit.
7. Refunds of Voluntary Payments
Claimants
sometimes make voluntary payments on loans that are subject to discharge
under the Consent Decree. In most cases, voluntary payments that a
Pigford claimant paid on a debt that was later forgiven under
Pigford will not be refunded. However, USDA will refund voluntary
payments made after the date of the initial prevailing decision that
gave the claimant the right to debt relief on the loan on which
voluntary payments were made.
a. Most Common Cases—No Refund
In most cases,
the claimant will not receive a refund of payments he or she made.
For example,
if a claimant received an Operating Loan in 1993 and made payments
on that loan in 1994 and 1995, those payments will not be refunded
even if under Pigford the 1993 Operating Loan became eligible
for forgiveness.
b. Refunds for Payments After Adjudicator or Arbitrator Decision
Payments made
by the claimant after the claimant won the right to debt relief in
an Adjudicator or Arbitrator decision will generally be refunded.
However, such refunds might be applied to other delinquent debt that
is outstanding at the time of the refund but that is not subject to
discharge under the Consent Decree.
c. Defining When an Adjudicator or Arbitrator Decision Takes Effect
As noted
above, the date the claimant won the right to debt relief in an
Adjudicator or Arbitrator decision is important for deciding whether
the claimant will get a refund of a payment made on a debt. Because
many Adjudicator and Arbitrator decisions were the subject of a
petition to the Monitor, and in some cases were amended by the
Adjudicator without a petition, defining when a claimant prevailed
on certain debt relief can be complicated.
(1) Claimant Prevails, No Petitions
If a
claimant prevailed on a claim in his or her Adjudicator decision
and neither side petitioned the decision to the Monitor, the
claimant qualified for debt relief on the date of that
Adjudicator decision.
For
example, if an October 1, 1999 Adjudicator decision found
discrimination with respect to USDA's 1995 Operating Loan
program and neither party petitioned the Monitor on the
decision, USDA will refund payments the claimant made on the
1995 Operating Loan on or after October 1, 1999, the date of the
original Adjudicator decision.
(2) Claimant Prevails, USDA Petition Denied by Monitor
If a
claimant prevailed on a claim in his or her Adjudicator decision
and a USDA petition was denied by the Monitor, for debt relief
purposes, the claimant prevailed on the date of the original
Adjudicator decision.
For
example, if an October 1, 1999 Adjudicator decision found
discrimination with respect to USDA's 1995 Operating Loan
program, USDA petitioned the Monitor, but the petition was
denied, USDA will refund payments the claimant made on the 1995
Operating Loan on or after October 1, 1999, the date of the
original Adjudicator decision.
(3) Claimant Prevails, USDA Petitions, Monitor Directs
Reexamination, but Adjudicator Reaffirms Claimant Win
If a
claimant prevailed on a claim in his or her Adjudicator
decision, and a USDA petition to the Monitor resulted in the
Monitor sending the decision to the Adjudicator for
reexamination, but the Adjudicator reaffirmed the original
decision, the claimant qualified for debt relief on the date of
the original Adjudicator decision.
For
example, if an October 1, 1999 Adjudicator decision found
discrimination in USDA's 1995 Operating Loan program, USDA
petitioned the Monitor, the Monitor sent the decision back to
the Adjudicator, and the Adjudicator issued a reexamination
decision in 2005 that reaffirmed the Adjudicator's original
decision, including a finding of discrimination with respect to
the claimant's 1995 Operating Loan, USDA will refund payments
the claimant made on the 1995 Operating Loan on or after
October 1, 1999, the date of the original Adjudicator decision.
(4) Claimant Loses, Claimant Petitions, Monitor Directs
Reexamination, and the Adjudicator Finds Discrimination in the
Reexamination Decision
If a
claimant originally lost a claim in his or her Adjudicator
decision, but petitioned to the Monitor, and the Monitor sent
the decision back to the Adjudicator for reexamination, the
claimant may not have prevailed in an Adjudicator reexamination
decision until a long time after the original adjudication. In
this case, the claimant's loans did not qualify for debt relief
until the later Adjudicator reexamination decision in which the
claimant won.
For
example, if an October 1, 1999 Adjudicator decision denied the
claimant any relief, the claimant petitioned the Monitor, the
Monitor sent the decision back to the Adjudicator, and the
Adjudicator issued a reexamination decision in 2005 that
resulted in forgiveness of a 1995 Operating Loan, USDA will
refund payments by the claimant on the 1995 Operating Loan on or
after the date of the Adjudicator reexamination decision in
2005. Payments made before the 2005 reexamination decision will
not be refunded.
(5) Reexamination Decisions That Do Not Affect Relief of a
Particular Debt
If a
claimant originally prevailed in an Adjudicator decision that
was later the subject of a petition, it will sometimes be the
case that the petition and the later decisions based on the
petition did not address the original finding that resulted in
relief for a particular debt. In such a case, the loans
identified in the original decision qualified for debt relief on
the date of that initial prevailing Adjudicator decision.
For
example, if an October 1, 1999 Adjudicator decision found
discrimination in the making of a 1995 Operating Loan, the
claimant might have petitioned the Monitor to seek a
reexamination of the Adjudicator's refusal to find
discrimination in the making of a 1982 Farm Ownership Loan. If
the Claimant won the 1982 Farm Ownership Loan claim on
reexamination and the 1995 Operating Loan claim was not
disturbed by the petition process, the relevant Operating Loans
qualified for debt relief on October 1, 1999, the date of the
original prevailing Adjudicator decision. In this case, the
relevant Farm Ownership Loans qualified for debt relief on the
date of the Adjudicator's reexamination decision. USDA will
refund payments made on the respective loans on or after the
dates that the loans qualified for debt relief.
(6) Claimant Prevails and Petitions on Debt Relief, Monitor
Directs Reexamination to Correct Debt Relief
If a
claimant originally prevailed in an Adjudicator decision that,
under the general debt relief rules of Pigford, would
have provided debt relief, it will sometimes be the case that
the claimant petitioned regarding the debt relief in question.
If the Monitor sent the decision back to the Adjudicator for
reexamination of debt relief, the Adjudicator's reexamination
decision clarifying debt relief did not change the date that the
claimant's loans qualified for debt relief. The claimant's loans
qualified for debt relief on the date of the original prevailing
Adjudicator decision.
For
example, if an October 1, 1999 Adjudicator decision found
discrimination in the making of a 1990 Operating Loan but did
not award debt relief, the claimant might have petitioned the
Monitor for debt relief on his outstanding 1990 Operating Loan.
Although the Adjudicator specifically awarded Operating Loan
debt relief for the first time in the reexamination decision,
the claimant's 1990 Operating Loan qualified for debt relief on
October 1, 1999, when the Adjudicator found discrimination in
USDA's 1990 Operating Loan program. In this case, USDA will
refund payments made by the claimant on or after October 1,
1999.
8. Refund of Offsets
Many claimants
have had "offsets" of payments that would usually have been paid to them
by the federal government. Offsets can be taken for USDA farm program
payments, as well as other federal payments, such as Social Security
benefits and income tax refunds. Offset funds are applied to a
borrower's debt to the government instead of being paid to the borrower.
Offsets are
important for Pigford because some of the money offset by the
federal government was applied to loans that were forgiven as a part of
the lawsuit. USDA will refund offsets taken after January 1, 1999, as
payment on any loans subject to discharge under the Consent Decree.
Offsets taken before January 1, 1999, will not be refunded. However,
such refunds might be applied to other delinquent debt that is
outstanding at the time of the refund but is not subject to discharge
under the Consent Decree.
9. Correcting Mistakes in Debt Relief
USDA has agreed
that if they mistakenly provided debt relief that was not due to a
claimant, and also failed to provide the debt relief that was due to
that claimant, USDA will notify class counsel about the mistake. USDA
will also provide the claimant's loan records to class counsel and give
class counsel the choice of whether USDA should implement the correct
debt relief or allow debt relief to stand as implemented. In other
words, once USDA has forgiven a debt through Pigford, USDA will
not reverse the debt forgiveness and reinstate the debt unless the
claimant's lawyer informs USDA that the claimant agrees to the change.
10. Debt Forgiveness and Future Participation in USDA Programs
USDA agrees that
debt forgiveness under Pigford will not affect the claimant's
ability to participate in USDA farm loan programs—either in receiving or
servicing a loan. This means, for example, that Pigford debt
forgiveness will not affect the claimant's creditworthiness if the
claimant seeks another loan with USDA.
11. More Information
For more
information about the February 7, 2001 Order, the February 22, 2008
Order, or for a copy of the Consent Decree or the Orders, please call
the Monitor's office at the phone number listed below.
Anyone who has any
question regarding debt relief should call the Monitor's office toll
free at 1-877-924-7483.
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