Agency Error Turns Dream Into a Nightmare : Misunderstanding Over Foreclosure Letter Sends Couple Into Battle With Government Bureau to Save Their Farm

Ed and Sandra Bennett have always wanted a piece of the American dream, though they’ve never thought it would come easy. Still, give them a place in the country, somewhere nice to raise their children, a situation where Ed could build something for himself--and they’d make it work.

So 15 years ago, the Bennetts left their life in New York City, driving west until they reached San Luis Obispo where the air was clean and employment could be found. They did without vacations, new clothes, a car, even if that meant Ed had to walk the two miles to his job in a nursery every day.

And when they were finally able to acquire a piece of property, 80 acres on an oak-dotted hill about 15 minutes out of Paso Robles, they accustomed themselves to doing without the most basic amenities--electricity, indoor plumbing and water--for three years while they built a house. They also refined their dream. They decided to convert a backyard hobby into a money-making occupation. They would raise rabbits--and given their willingness to work hard, plus a little capital, Sandy’s Gourmet Rabbits could become the premier supplier of rabbit meat on the Central Coast.

Now, they say, everything they’ve worked and sacrificed for is in jeopardy because of a bureaucratic error and that bureaucracy’s subsequent refusal to rectify the mistake.

The Farmers Home Administration has never gotten good press. It’s been pegged the nation’s agricultural lender of last resort, the place you go when all others have turned you down. The FmHA has been typecast as the bad guys in recent American farm crises.

It was an FmHA foreclosure policy that inspired the movie “Country,” starring Jessica Lange. The film’s epilogue noted that because of situations like the one in the movie, there had been a court injunction placing a moratorium on all FmHA foreclosures. Ironically, that moratorium led to the particular paper work that got the Bennetts in the jam they’re in today. Another injunction, this one instigated in June, 1987, has once again put a moratorium on all FmHA foreclosures--including the Bennetts.

On the subject of Ed and Sandra Bennett, California FmHA head Richard Mallory admits he gets “just a bit worked up.” The Bennetts, he said, “have dragged us through the mud.”

There was a bureaucratic error, he concedes, but the Bennetts are “making a big deal out of this because they want us to pay for damages.”

What follows is a calamity of communication and miscommunication, of bureaucrats assuming that they’re being understood and their client perceiving something completely different and assuming that their perception is correct. It is a saga that is not yet ended. And when it is resolved, it will cost someone--either the American taxpayers as a whole or one hard-working American couple--a lot of money.

On the face of it, the Bennetts’ problem looks like a simple little mix-up. In January, 1986, the couple, who’ve borrowed a total of $211,000 (not including interest) since September, 1981, and repaid $11,067, received a routine notice that one of their loans was due. Six weeks later, they received a certified letter with the “Notice of Intent to Take Adverse Action,” a then-new procedure with which the FmHA hoped to collect on delinquent loans.

Now the crux of the problem: When a loan is due, there is a one-year grace period in which to pay it or have it rescheduled. If a Notice of Intent to Take Adverse Action was to be sent to the Bennetts, it should have come after Jan. 1, 1987.

But the Bennetts took the Notice at face value, accepting that they were delinquent and unless something was done, foreclosure was imminent. They met with their loan officer, George Dones, at the Arroyo Grande office of the FmHA and applied to have their loan rescheduled or consolidated. The local office denied the request and the Bennetts appealed.

Until this point, nobody had told the Bennetts that they had the one-year grace period and that the notice had been sent out in error. Nor did anyone make it clear that a Notice of Intent to Take Adverse Action is not necessarily the beginning of foreclosure proceedings, but rather a procedure designed to push the delinquent borrower into getting his financial act together.

The appeal was handled by Robert Anderson, director of the FmHA district office in Stockton, and he compounded the Bennetts’ confusion. In his judgment letter dated Aug. 29, 1986, he informed the couple--who were hearing this for the first time--that the Notice of Intent to Take Adverse Action had been sent in error. However, he wrote, he was still denying their request for rescheduling.

Further, he stated in the letter to the Bennetts that they had until Dec. 31, 1986, to “work out your financial problems with the County Office. At which time they will be required by procedure to initiate foreclosure action.”

Wrong. According to FmHA procedure, the only thing that’s going to happen to the Bennetts if they don’t work out their financial problems by the end of 1986 is another Notice of Intent to Take Adverse Action will be mailed in early 1987. This time, of course, it would be appropriate.

Anderson’s response to this misinformation?

“That’s the way I wrote it. But that’s not the way I meant it. I meant the process, which includes the letter of adverse action. To me, it would be quite clear and knowledgeable that they were going to receive another notice. Anyway, they never pursued it. If there was something that bothered them, they could have called me.”

As for informing the Bennetts that they had been sent the notice in error, yet denying their request for rescheduling: “The notice was not my concern. I was still faced with the request for rewriting their loan, which I denied.”

Ed and Sandra Bennett didn’t know what to do. For four years they’d been using the FmHA money to develop their operation and construct the facilities needed to house 230 does. (Does are the measuring rule for a rabbit ranch. From that figure, you can count on the same amount of hens every week.) FmHA is not big on providing funds for capital improvements, so much of what the Bennetts figured had to be built--they’d done themselves.

But 1986, they had believed, was going to be their year. Finally they had the facilities for the production on which all of their estimates had been based. Finally, they’d be able to start paying back. But if they were going to be out in just a few months, they shouldn’t be buying more stock, should they?

So the Bennetts let their accelerated breeding program come to a standstill. The 120 does they had in January, 1986, is now at 40. They cannot meet their market and they’ve stopped shopping for new ones. Sandy Bennett claims they’ve lost more than $300,000 in unearned income between the time that first notice arrived in 1986 and for the five years it would take to build their herd up again.

Their time now is spent looking for somebody, anybody, to investigate the situation. Long letters detailing their whole history with the FmHA, with assorted related correspondence attached, have gone out to everyone they could think of: local congressmen, all the power bases in the FmHA, the Department of Agriculture, every member of the House and Senate Agriculture committees and even President Reagan, whose office responded in March with a presidential apology for the error.

Response has been minimal, and many of those who do respond have picked up on the wrong issue or have confused facts and dates almost, sighed Sandy Bennett, “as if they’ve hadn’t even read my letter.”

George Dones admits he messed up. The Bennetts’ loan officer, a serious-minded former Peace Corp volunteer, Dones remembers the winter of 1986 as a hectic time, what with the usual onslaught of reschedulings and introduction of new regulations.

That’s why “it just didn’t click” that the Bennetts’ loan had been rescheduled only a few months before and no way should they have received the Notice of Intent to Take Adverse Action. When the Bennetts came in, Dones said, he just assumed they had become delinquent and in spelling out their options, “gave them a worse case scenario.”

Sometime later--Dones says he isn’t exactly sure when, except it was before the appeal hearing--”I became aware that it was not appropriate for them to have received the notice.

“I found out the error that caused all these problems and I should have contacted them,” he conceded in the course of several interviews with The Times.

“I must have just put it off. And well, later, I assumed they knew. I guess I thought I had told them. . . . I don’t know how many times I met with them. But they were going to have to be rescheduled anyway. So we just continued with the hearing.”

And the Bennetts say that’s what really infuriates them.

“Anderson didn’t have to go through with that hearing,” Sandy Bennett said. “He should have gone to Mo (Maureen Reilly, Dones’ supervisor at the time) and said, ‘these people don’t need to come in.’ We would have been thrilled. We would have done our best, probably would have paid something on the loan if only they’d voided the paper work and said come back next January.”

As to why that didn’t happen, there’s no good answer.

FmHA officials imply that the Bennetts, past due and with a bad history of making payments on their FmHA loans, are using that one bureaucratic mix-up as a way to blame someone else for their failure to deliver.

“I just don’t think they cut short their herd,” Maureen Reilly said. “They could have kept going and reapplied in January. I have people under the same conditions, but they keep paying to show they are a good credit risk. I’ve never had anyone say ‘well, that’s it.’ Then there’s this moratorium on foreclosures. Other borrowers are saying this is great; we’re going to prove you wrong. But the Bennetts?”

FmHA head Richard Mallory, also skeptical, read the Notice of Intent to Take Adverse Action aloud over the phone during an interview.

“Most people do not find these forms intimidating. In my mind, I just don’t believe that they were scared enough to dump their operation because they got this letter. But if they were,” he added, “why didn’t they sell their other assets? Why didn’t they call my office?

“If these people are such fighters, such aggressive people as we are seeing them to be now, why would they just give up the way they did?”

What’s more, demanded Mallory, if the Bennetts want a formal acknowledgement of the error and assurance that they weren’t being foreclosed, what about the letter of Oct. 8, 1986? Written by then-acting director Larry Smith, the letter states that the notice “was incorrectly sent to you.” It also tells the Bennetts: “FmHA does not plan to accelerate your FmHA debts at this time because of a monetary default.”

Ed and Sandra Bennett say they can barely contain their anger at the FmHA responses. Here they are, ages 51 and 49 respectively, their three children nearly grown, still living in a house with unstuccoed walls and unfinished plywood floors, still trying to get a livelihood started. Who are these people, they think, these bureaucrats who have no concept of what rabbit farming is about and what do they know about being scared?

“When you are sitting with your life on the line and you get these letters, a certified letter. . . ,” said Sandy Bennett, trying to remain calm. “We read that they’re going to foreclose on us, that they’re going to confiscate our money. Of course, it’s pure panic. We’re dealing with the government here and they can do anything they want.

“Anderson had no right to write that letter. He knew what we would think. And then we get that letter from Smith saying they’re not going to accelerate our debts. What does that mean? That’s not what Anderson said. He said ‘we will foreclose after Jan. 1.’ We don’t know what’s happening. We don’t know that’s not the procedure. Why can’t they just come out and say what they mean?

“Instead they threaten us at every turn. I can’t sit and save out animals when I’m getting threats. I have to know where I stand.”

Resolution of the situation? Sandy Bennett says she wants her losses. In effect, she wants the debt to be wiped away.

Richard Mallory says the FmHA is not legally empowered to make any settlement. If that’s what they want, he says, the Bennetts’ only recourse is to take the FmHA to court. He also says the FmHA would still be willing to reschedule if the Bennetts could prove that the market for rabbits is as profitable as the couple claim.

The Bennetts remain resolute. They’ve been wronged and they’re not going to give an inch, they maintain. They’re not about to sell a parcel of their land to reduce their debt.

“Absolutely not,” Sandy Bennett declared. “They are the ones that created this monster. They’re saying they made a mistake but we’ve got to pay for it.”

Richard Mallory hears that and just shakes his head.