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Rescuing Private Property Or The Ruination Of Future Generations? Part 2.

Conservation Easements

Rescuing Private Property Or The Ruination Of Future Generations?

Part II, Conservation Easements and Your Banker

By J. Zane Walley

Article and research funded by a grant from the Paragon Foundation

Conservation easements are more like restrictive covenants than easements. A grantor who enters into a CE agrees to dedicate the portion of his property encumbered by the easement to a specified use (or non-use as the case may be) or agrees to adhere to specified practices thereon-in perpetuity. Common law dictates that the original parties must intend for the restrictive covenant to run with the land and the covenant must bind the parties and their assigns. In other words, a landowner who enters into such an agreement not only signs away his right to change the use of the land, but also gives away the rights of any future owner to change the use of the land.

Researcher Gina Brosig for The American Farm Bureau Federation

If the old adage "A farmer or rancherís best business partner is his banker" is still true, an important part of the decision to sell or give a conservation easement (CE) on your property lies with your bankerís view of the legal action. In order to obtain a balanced view and varying opinions, bankers in New Mexico, Colorado, Texas and South Dakota were interviewed for the second part of this series of articles.

All bankers interviewed stated that assigning a CE to a third party critically reduces the loan value of the land. One lender emphatically stated after being interviewed, "Off the record, I wonít loan a penny on property that has a conservation easement attached to the deed."

Jimmy Hall of the Production Credit Association of New Mexico stated, "We have a real concern with conservation easements. Any time you grant one, it has a real impact. Something like a power line easement is ok. It usually adds to the value of the property because often a power company will build a road. I have reviewed easements such as those constructed by the Malapai Borderland Group in Southern New Mexico and find that those easements cause the owners to give up management and control of their land. Before you can increase grazing numbers or make improvements, it has to go before a committee. The owner has no control. You do get a big break when you enter into a CE, but the ones I have examined have a negative impact on property, and thusly loan value. Many people who assign CEs are of the opinion that they can be canceled. That just isnít true. Almost all CEs are for perpetuity; and that is forever."

John Johnson, President of The First Western Bank in Strugis, SD, echoed Hallís views. Mr Johnson Said that his bank has not seen many conservation easements situations, but he was aware of the problems of surrendering such an easement. In a telephone interview Mr. Johnson stated "Conservation easements certainly have an impact on the collateral value of property. It would be difficult to loan money on property encumbered by a third party, because if necessary to foreclose, another involved entity, other than just the owner and the bank, would make for a difficult situation. Simply, a conservation easement at very least severely diminishes the loan value of land."

One Colorado ag financier was unwilling to make a public statement on CEs. The president of the organization carefully voiced, "We have so many people on both sides of the conservation easement controversy that our organization doesnít want to make a statement on this." Then the president added "Iíve got a personal opinion, and it that CEís lower property loan value and are dangerous to agriculture and private property rights."

Dee Gidney, Agriculture Loan Officer at Texas Bank in San Angelo, Texas bluntly says, "I am flat against Conservation Easements. I would never recommend one to a customer because our bank canít loan money on property that has a CE in Place. CEís eliminate property loan value."

The Tax Code (Code of Federal Regulations Sec. 1.170A-14. Qualified conservation contributions) states that mortgaged property may not be considered for a conservation easement.

The code reads, "In the case of conservation contributions made after February 13, 1986, no deduction will be permitted under this section for an interest in property which is subject to a mortgage unless the mortgagee subordinates its rights in the property to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity." It follows that a lending company unwilling to subordinate its financial interest to an outside party would not loan money on property restricted by a CE.

Rachel Thomas, an Arizona based researcher, reports, "Major agricultural financial institutions have discontinued the practice of making loans on any property which has been encumbered by a conservation easement. These financial institutions recognize the risk involved in making such loans."

It would be a prudent decision to consult with your banker before granting a conservation easement to any organization or governmental agency. Question your loan officer on the lending institution policies for ag loans on land with CEs and ask if they would finance a buyer if you need to sell your property.

In the next column on Conservation easements, the long-term implications of CEís will be examined.

To contact the author with your opinions on CEs, email me at frc@pvtnetworks or write, J. Zane Walley, P. O. 161, Lincoln, NM 88338.

I would especially like to speak with lending officers or organizations that have a positive view on lending monies on properties encumbered by CEs.

Paragon is a Constitutional rights foundation headquartered in Alamogordo, New Mexico. Visit the Paragon Foundation Website at http://www.paragonpowerhouse.org. To receive the free monthly Paragon Foundation Newsletter call toll free 1-877-847-3443.