Gov. Terry E. Branstad proclaimed an economic "emergency" in Iowa yesterday, automatically activating a state law that enables strapped farmers to go to court and request a one-year reprieve from foreclosure.
The debt-moratorium law, a rewrite of a more lenient 1939 law, requires the farmer to make interest payments. It does not guarantee that any moratoriums would be granted.
Branstad, a Republican, has been pressured by farm groups for months to proclaim the emergency and trigger the law. Some farm groups have maintained a vigil outside his office in an effort to force him to act.
Branstad said he waited until the current farm bill expired with the end of fiscal 1985 Monday to send a "loud and clear" signal to the federal government about the severity of the farm-debt crisis.
A spokesman said the governor was acting to keep the Farm Credit Administration from foreclosing on 10 to 12 percent of its farmer borrowers nationwide this fall. But Iowa bankers said his move could hurt people it is intended to help by making farm credit scarce.
"My action today is designed to tell Washington, in a loud and clear voice, 'We need help in the heartland,' " Branstad told reporters in Des Moines.
Although the law does not guarantee the farmer a reprieve from foreclosure, it places the burden of proof on the lender before foreclosing.
The lender must demonstrate to the court that he helped the farmer restructure his debt as advantageously as possible, that he helped the farmer into any available federal and state aid programs and that the farmer had failed to make interest payments before foreclosing.
The 1939 bill it replaced allowed a straight one-year continuation of a farmer's loan upon declaration of economic emergency. Twenty-eight states had similar laws during the Great Depression but only Minnesota and Iowa have farm debt-moratorium laws now. Minnesota allows farmers with legal counsel to seek stays of foreclosure until July 1987.
Bankers urged Branstad not to invoke the moratorium because it is likely to force them to deny future loans to farmers in the worst financial straits, according to Neil Milner, executive vice president of the Iowa Bankers Association. Many bankers are doing voluntarily what the moratorium law requires.
"We really do not see any benefit," he said. "It doesn't eliminate the debt. It's still going to be there. I think the terrible part of it is it hurts the very people you're trying to help."
Iowa State Banking Superintendent Thomas Huston said the moratorium would not cure the high interest rates and low crop prices ruining many of the state's family farmers.
"It's hard to interfere with the market," he said.
Last month, Branstad ordered an across-the-board cut of 3.8 percent in the state budget as the result of declining state sales- and income-tax revenues because of the farm depression. Local Iowa governments also have been hurt financially because of many farmers' inability to pay property taxes.
"We're walking a fine line because, if the moratorium is too aggressive, it has a chilling effect on the lenders and you hurt those you want to help," said Prof. Neil E. Harl of Iowa State University, who helped draft the new law.
"This applies only to loans secured by land as collateral and requires payment of interest, which is vital to the lenders," he said.
A spokesman for Branstad said about 40 percent of Iowa's 110,000 farmers are in severe financial trouble with a debt-to-assets ratio of 70 percent or more.