Q: Are real estate transactions secured by farmland eligible for the $1 million exemption for certain business loans?
A: Yes, real estate transactions secured by farmland are eligible for the $1 million exemption if they meet the regulatory requirements. The agencies appraisal regulations establish a $1 million threshold above which appraisals are required for business loans that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment (qualifying business loans).34 A loan secured by farmland could be treated as a qualifying business loan and be eligible for the corresponding $1 million threshold if repayment is primarily from the proceeds from the farm business (for example, sale of crops and related payments).
However, a loan secured by farmland whose repayment is primarily from rental income from renting or leasing the farmland to a non-affiliated entity would not be eligible for the qualifying business loan threshold.35 Transactions secured by multiple farmland properties that are owned by one or more affiliated limited liability companies could meet the qualifying business loan exemption, if they meet the source of repayment requirements provided in the appraisal
34 OCC: 12 CFR 34.43(a)(5); Board: 12 CFR 225.63(a)(5); and FDIC: 12 CFR 323.3(a)(5).
35 83 FR 15030 (April 9, 2018).