Heir Property, 1190-1192 [E6-22102]

Agencies

• DEPARTMENT OF AGRICULTURE
• Rural Business-Cooperative Service
• Rural Utilities Service

[Federal Register Volume 72, Number 6 (Wednesday, January 10, 2007)]
[Proposed Rules]
[Pages 1190-1192]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-22102]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 72, No. 6 / Wednesday, January 10, 2007 / 
Proposed Rules

[[Page 1190]]



DEPARTMENT OF AGRICULTURE

Rural Business-Cooperative Service

Rural Utilities Service

7 CFR Part 4200


Heir Property

AGENCY: Rural Business-Cooperative Service, Rural Utilities Service, 
Department of Agriculture.

ACTION: Advanced notice of proposed rulemaking.

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SUMMARY: The United States Department of Agriculture, Rural Development 
is soliciting public comment and historical information on the heir 
property issue as it affects African American farmers and homeowners.

DATES: Comments must be submitted on or before March 1, 2007.

ADDRESSES: Interested persons may submit comments to: 
Bethany.Erb@usda.gov Please submit any information you have regarding 
heir property including, but not limited to legislative action, prior 
studies (both government and private), historical literature, and 
personal insight. Please include your position on the matter along with 
any supporting material and plausible solutions.

FOR FURTHER INFORMATION CONTACT: USDA Rural Development. Bethany Erb 
(202) 720-8570. Bethany.Erb@usda.gov.

SUPPLEMENTARY INFORMATION:

Background

Overview

    Broadly defined, heir property is property passed down from one 
generation to another. It may be transferred to one heir, subdivided 
among many heirs or transferred to many heirs with undivided interest. 
When a property owner dies without an estate plan, state law determines 
property succession. Typically, properties lacking estate plans are 
inherited by heirs with undivided interests thereby creating fractional 
interest also known as tenancy in common. The heir property issues that 
have elicited concern in the African American farming community arise 
from tenancy in common and for the purpose of this Notice the term 
``heir property'' will be used to refer to this specific situation.
    The ``heir property'' issue includes a cluster of problems arising 
when undivided interest in land is passed to multiple heirs. Problems 
range from land partition sales to reduced crop yields as a result of 
underutilization. The array of problems caused by heir property 
contributes to unsuccessful business models which results in land loss 
and the deterioration of rural African American communities. It should 
be noted, however, that while unclear title contributes to unsuccessful 
business models it is not the sole contributor to the land loss issue.
    For historical reasons this issue is closely associated with 
African American farmers in the South. African American landholdings in 
the post-bellum South were generally very small. Access to capital and 
competent legal counsel were problematic and there was often distrust 
within the African American community regarding the dominant legal and 
lending institutions.
    For all these reasons, heir property issues emerged as a special 
concern of the African American agrarian community and are a priority 
of African American farming and land loss prevention organizations 
today. A parallel issue, heir housing, also presents a significant 
concern. Although not as extensively studied, heir housing also appears 
to pose substantial threats to the well being of rural African American 
communities.
    It should be noted that the heir property issue can and does 
occasionally arise in other contexts. It should also be emphasized that 
a resolution of the heir property issue, in itself, would not be a 
complete solution to the difficulties facing African American small 
farmers today. In particular, small farming operations will continue to 
face competitive pressures and the need to identify niche markets to 
survive.
    Therefore, this issue is linked with the broader challenges facing 
all small producers in today's agriculture market. Clearing title is 
simply one step--though an extremely important one--in allowing small 
farmers to develop sustainable market driven business models, which is 
the key to ensuring the future viability of African American land 
ownership.

Cultural Importance of Land/Homeownership

    African American land ownership and retention is of particular 
importance because for generations of African American, especially in 
the rural south it symbolized a step towards racial equality and self-
sufficiency. It signified status in the wider community. USDA 
recognizes this unique historical and cultural component associated 
with African American land ownership. This factor is noneconomic, but 
the linkage of land and homeownership to healthy community life is 
unmistakable. USDA agrees that reversing the land loss trend is an 
important objective for rural African American communities.

Land Loss

    In 1910 African American land ownership reached its peak of about 
15 million acres. Since then land ownership has continually decreased 
and by 1992 had declined to 2.3 million acres. Because of the 
significant impact heir property has on land loss, African American 
land loss prevention organizations consider heir property one of, if 
not the most, significant factor contributing to land loss.
    Not only does heir property contribute to and exacerbate land loss, 
it also inhibits heir property owners from expanding. At this point, 
USDA has identified three characteristics that put heir property owners 
at a disadvantage and therefore contribute to land loss: partition 
sales, barriers to government programs and private lenders, and reduced 
incentives to improve the land.

Partition Sales

    Partition sales are a court ordered sale of land that results in 
the highest bidder becoming the property owner. Heir property partition 
sales commonly occur because one or more heirs want to liquidate their 
interests in the property. Sometimes another heir is able to buy out 
their interests, but it is not uncommon for the land to be sold to 
someone outside the family.

[[Page 1191]]

Barriers to Government Programs and Private Lenders

    Ownership validation is important for federal farm loans and 
program enrollment. In certain situations, because heir property owners 
are not able to produce a clear title to land or a home, they have 
difficulty obtaining certain types of federal assistance available to 
other farmers. Like government lenders, private lenders are constrained 
when applicants cannot use property as collateral. Additionally, 
lenders are not able to exercise the option of making a loan against a 
crop. In order to do so, the farmer must have recordable interest in 
the crop, which cannot be validated by heir property owners.
    The long-term effect of ineligibility for government programs and 
reduced access to private lenders accentuates land-loss and damages 
rural communities by limiting the resources owners need to maintain or 
develop their property. This situation also puts these producers at a 
disadvantage with regards to other producers.

Reduced Incentive To Improve the Land

    Property ownership gives individuals an incentive to reinvest in 
their asset and increases the capacity to build wealth over time by 
leveraging existing assets. Heir property owners have less incentive to 
invest in their property because it is not soundly theirs. As a result, 
utilization and productivity are undermined.
    Marketability of property is also reduced. Land value is depressed 
because property cannot be easily marketed without clear title. 
Potential buyers are likely to be deterred by the complications of heir 
property. Lease value is depressed for similar reasons. These lower 
values further reduce the ability of the heir property owner to improve 
the productivity of the land.
    Finally, such beneficial property modifications as environmental 
enhancements, product diversification, irrigation and home repairs may 
be neglected because the incentive to invest is absent for heir 
property owners. Consequently, land potential is not maximized, which 
further accelerates the land-loss trend.

Heir Property Study

Purpose of Study

    The mission of USDA Rural Development is to increase economic 
opportunity and improve the quality of life for all rural Americans. 
For the African American community in particular, the Rural Development 
mission includes working to increase African American land and home 
ownership.
    Rural Development believes that prosperity in rural America today 
depends on economic diversification and flexible adaptation to market 
opportunities. However, heir property owners' economic options are 
severely restricted. In order to find a way to expand economic options, 
USDA began an heir property study in early 2005.
    The 2005 USDA heir property study was intended as a follow-up to a 
more extensive study conducted in 1984 titled; The Impact of Heir 
Property on Black Rural Land Tenure in the Southeastern Region of the 
United States, conducted by the Emergency Land Fund Inc. At the onset, 
USDA officials identified four fundamental areas that required study. 
Areas included:
    1. The current status/extent of heir property.
    2. What, if any, measures are already in place to prevent and 
correct heir properties.
    3. Determine how frictional ownership affects the African American 
agricultural business model.
    4. Determine what options USDA has for assisting property owners in 
clearing title.

Data Colletion Procedure

    In the early summer of 2005, a researcher was assigned to begin 
studying the heir property issue. The preliminary research determined 
that heir properties are extremely difficult to monitor or track, and 
that there was no means by which to access or compare quantifiable 
data. Heir properties are difficult for government land base systems to 
track because fractionally-owned lands are not typically enrolled in 
government programs.
    County property records do list property succession, but this data 
is only relevant for probated property or for title that has been 
transferred and processed by the courts. These records did prove useful 
when evaluating historical trends because the researcher was able to 
determine which properties were tenancies in common before sale.
    As a result of this preliminary analysis, USDA concluded that the 
best way to approach the subject was to select a small area where 
information could be verified by local farmers and county officials. A 
small county in eastern Arkansas was chosen as a representative test 
case.

Current Status

    Results of this study confirm that heir property remains a complex 
problem for African American farmers and homeowners. In the county 
selected for the 2005 review, around 40 percent of the African American 
owned lands were heir property. This is not surprising. The 1980 The 
Impact of Heir Property on Black Rural Land Tenure in the Southeastern 
Region of the United States, found that 80 percent of all African 
Americans who owned rural property had not established a will for 
property succession.
    While this research, completed in 1980, thus suggested that the 
share of future African American heir properties could approach 80 
percent of the total, the actual ratio appears to be substantially 
lower today. USDA believes that partition sales have exacerbated the 
land loss trend since 1980. This is the reason today's heir ownership 
is significantly lower than the previous study indicated.
    Problems facing today's heir property landowners are similar to 
those of past generations: partition sales, reduced access to 
government programs and private lenders, and reduced incentives for 
land improvement relevant. For example, a landowner in Forrest City, 
Arkansas was not accepted into the USDA Conservation Security Program 
because he was unable to show proof of title, which was essential for 
program enrollment.
    The factors that have contributed to land loss also had a similar 
effect on heir owned homes. For example, heir property homeowners were 
unable to receive a Rural Development home loan to complete badly 
needed home repairs. In several cases, homes have been abandoned as a 
result of unclear title. It is estimated that in certain rural 
communities of in eastern Arkansas, up to fifteen percent of homes in 
these communities are heir property homes.
    Several community based African American farm organizations are 
working to address the heir property issue. Much of the assistance they 
provide is technical such as legal and financial planning tools. This 
assistance covers both prevention and correction mechanisms. For 
example, community based organizations teach estate-planning courses, 
designed to assist minority farmers with property succession. Some 
organizations also have staff attorneys experienced in assisting heir 
property owners with land use options. Attorney services appear to be a 
widely successful technical assistance tool.
    Study results concluded that unclear title had a significant impact 
on farmers' overall ability to sustain business. Unclear title 
diminishes farm asset returns, access to capital and reduces 
participation in several USDA programs.

[[Page 1192]]

The challenge of developing a sustainable, market driven business model 
are intensified in heir property situations.
    Grants, subsidies, and litigation settlements have failed to 
prevent land loss. It cannot be overemphasized that long-term stability 
cannot be based on perpetual dependence on subsidy programs; rather it 
requires adaptation to market initiatives and the leveraging of assets 
to build competitive business models.

Request for Public Comments

    The objective of any USDA program would be to reverse the land loss 
trend and foster the growth of healthy, sustainable African American 
farms and rural communities. USDA is inviting public comment on this 
goal. USDA seeks public response on the questions listed below. 
However, public comments are not limited to addressing only the seven 
bulleted points. Comments on all heir property related issues are 
welcomed.
    1. Greater Understanding. USDA seeks any materials or personal 
insights that would contribute to the overall understanding of the heir 
property issue.
    2. What has been done, or is being done to alleviate heir 
properties. What should be done? USDA would like to learn about any 
previous attempts to clear heir property. USDA is interested in why 
each attempt succeeded or failed and would like detailed accounts of 
the attempts.
    3. What should USDA's role be to assist African American land and 
homeowners to clear title?
    4. What are the risks--to all parties involved--of clearing title? 
USDA is mindful of the fact that heir properties are unique and 
sometimes fragile. It should also be noted that USDA would not sanction 
any program that could potentially take an ownership interest in 
farmland.
    5. What resources are needed to clear title? The 2005 study proved 
that there are several resources being used to clear title. USDA seeks 
public comment to determine if those resources are sufficient and if so 
is there anything USDA can do to bolster them? If those resources are 
insufficient, what additional measures should be taken to improve the 
situation?
    6. Is clear title in itself sufficient to reverse the land loss 
trend? USDA's first objective is the effective resolution of the heir 
property issue; however USDA realizes that the African American 
community will quickly advance beyond clear title. Therefore, USDA 
seeks public comment to determine if clearing title in itself is enough 
to reverse the land loss trend. If clear title alone is not enough to 
reverse the land loss trend, please indicate what else is needed.
    Please illustrate any ideas for initiatives that go beyond clear 
title. USDA is particularly interested in any ideas for educational 
courses that may help reverse the land loss trend.
    7. Role of the Community Based Organizations. Community based 
organizations (CBOs) have played a critical role in supporting small 
farmers. In the past century, they have made significant progress 
advancing civic equality for all minorities. Research suggests that 
community based organizations will be an essential part of the heir 
property solution.
    Currently, USDA seeks a partnership with a community based 
organization that has a commitment to local communities and can be a 
bridge to the government at the local and national levels while at the 
same time building trust between USDA and African American farmers. 
USDA seeks public advice on the future role of such a partner. For 
example, must a CBO be an agriculture related organization in order to 
effectively administer a clear title program? Or could it be an 
organization with lesser agriculture credentials, but an equally well-
established community relationship, such as a faith-based organization?
    USDA Rural Development is working to ensure all sectors of rural 
America are able to participate in the growth and expansion of the 
rural economy. The ability of small producers to participate in these 
opportunities depends on their ability to become vertical owners in the 
agriculture production process and in order to do so they must have 
access to capital and innovative business models.
    A clear title initiative would be an important contribution of 
stabilizing African American land ownership and would lay the 
foundation for a more sustainable and diversified pattern of 
development for the years ahead.

    Dated: November 22, 2006.
Thomas C. Dorr,
Under Secretary for Rural Development.
[FR Doc. E6-22102 Filed 1-9-07; 8:45 am]
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