I am in the process of buying some land for hunting property for me and my son.

Everything has been going well until tonight when I looked through the papers three days before closing. Buried in the stack is an agreement from Rural 1st, the mortgage lender, that states that I agree to buy stock in their company as may be required from time to time. I called the loan officer, and she stated that the closing statement already has a purchase of $1,000 of stock, and that we are technically part owners of the company for as long as we have a loan with them, and the $1,000 will be returned when we pay off the loan. She also stated that they can never make us purchase more stock in the future, but she's not sure she can provide an official document stating that.

I don't have a problem with the $1,000 up front. All loans have some sort of closing costs and if they want to call it a stock purchase, whatever.
The part that has me worried is that it sounds like they could come back and demand that I purchase additional stock in the future.

Am I just being paranoid? Has anyone dealt with Rural 1st, or any other mortgage lender that had this as part of their business model?

If the property is a good deal and Rural 1 is a legitimate company I would not sweat it. IF it smells funny than I might not feel great and there for do something different. Borrowing on bare land can be a bit of a diffeent deal. How much land?

35 acres. I couldn't get anyone from my regular bank to call me back about a mortgage. Rural 1st was the recommendation of the listing agent.

Could be illegal under a tying agreement. Traditional banking being extended with the requirement of purchasing non traditional banking products as a condition of financing is generally not legal unless they are requiring you to pledge securities in an affiliate as collateral as condition of granting the loan. Without knowing more detail, this sounds suspect at best.

If you suspect the $1,000 in stock will be thrown in the wind, can you calculate the actual APR? It may make little difference depending on the numbers. Raw land is tough to finance.

I'm not worried about the $1,000 getting returned or not. The part that has me concerned is the agreement that I, "agree to purchase stock as required from time-to-time." If this is only a one-time up-front requirement, then why this as required from time-to-time language? It does say as required by the by-laws. I've asked my loan office to provide those to me.

On the one hand I agree with you in not liking that open ended language, and not providing the by-laws. On the other hand, unless it is a banking institution in which you are leaving funds, I don't know that there's much to worry about.

If down the road they notify you that you need to buy more stock as per the by-laws, you might just say "no thanks". What are they going to do? Call in a performing loan? Sue you when you've been making timely payments? Not that it couldn't happen, but it seems unlikely.

I don't know how you've been communicating, but if you could email the person who is telling you it's just the up front one time, and get a response in writing to that effect, I'd feel a little better.

Sounds like it's a COOP of sorts, where you must be an "owner" to participate in their programs.

I would call Rural first, and ask them directly.

I don't see anything on their website, but would be good to clarify.

Reading the fine print is always a good idea.

Do not sign anything you don't understand, and don't sign anything you don't agree with.

Don't be afraid to walk. There are other parcels out there.

Rural 1st is just a trade name of Farm Credit Mid-America, which is a financial services cooperative with almost $30 billion in assets. They’re not a traditional bank — buying stock is how you become a member and gain access to the other members’ capital.

I have no idea what your loan documents say, and those control, but the idea that you’re buying stock in a cooperative isn’t troubling in light of the above.

Without seeing the paperwork , it's impossible to answer your question . Have it reviewed by an Attorney before signing .

I had something similar with my rural property loan from Alabama AG Credit. I believe my buy-in was $1000 as well. I don't recall if there was a statement about possibly having to buy more stock, it has been almost 15 years since I took out the loan. I will pay the loan off later this year and have never been asked to buy more stock. As a matter of fact, I have received patronage refunds over the years totaling maybe $5K?

Pay a real estate lawyer in your state to look at the papers. It will be the best $300 or so you spen.

Farm Credit or Federal Land Bank has done this for at least 45 years. At least since I was in the business.

quote:

Originally posted by mcrimm:
Farm Credit or Federal Land Bank has done this for at least 45 years. At least since I was in the business.

Plus, it has always been $1,000 for the stock purchase, since the 80’s at least. I remember my dad stating that exact amount when he bought some ag land during that time. Additionally, he never had to pay for any extra stock purchases.

For Farm Credit or Federal Land Bank each loan you have with them requires a stock purchase. If you get another loan to build a cabin or for anything you will have too buy more stock. I have done this a few times and all was good.

Thank you all for sharing your wisdom. The loan officer did provide the by-laws, which clarified everything. Based on that and your mostly positive feedback, I am proceeding.

I can't wait to get closed tomorrow so I can put all this paperwork behind me and start enjoying the land.