May a qualified lender reclassify property as nonagricultural when taken into inventory?
Probably not. Property is generally classified as either agricultural or nonagricultural by a qualified lender at the time of loan making, and qualified lenders may not change that classification at loan liquidation without a compelling reason. Because the initial classification during loan making affected the type of financing provided, qualified lenders may not alter this classification for loan liquidation purposes—particularly when a change in property classification during loan liquidation may cause a former owner to be denied the opportunity to exercise the right of first refusal. However, some situations may arise when property should be reclassified—for example, when modifications in land use or zoning occurred during the life of the loan. Qualified lenders should clearly document any such reclassification change, demonstrating that the changes to the land occurred during the life of the loan and did not exist at the time of loan making.
