United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 02-2633
                                   ___________

United States of America,               *
                                        *
             Appellee,                  *
                                        * Appeal from the United States
       v.                               * District Court for the
                                        * Northern District of Iowa.
Patricia G. Larson,                     *
                                        * [UNPUBLISHED]
             Appellant,                 *
                                        *
City of Peosta, Iowa; State of Iowa,    *
                                        *
             Defendants.                *
                                   ___________

                             Submitted: February 14, 2003

                                 Filed: August 25, 2003
                                  ___________

Before HANSEN,1 Chief Judge, RICHARD S. ARNOLD, and BYE, Circuit Judges.
                               ___________

PER CURIAM.

      Patricia G. Larson appeals from the judgment of foreclosure against her
property arguing the Rural Housing Service (RHS) failed to comply with the

      1
       The Honorable David R. Hansen stepped down as Chief Judge of the United
States Court of Appeals for the Eighth Circuit at the close of business on March 13,
2003. He has been succeeded by the Honorable James B. Loken.
moratorium regulations in violation of federal law and was denied her right of
redemption under state law. We affirm the decision of the district court.2

       In June 1996, Larson obtained a Rural Housing Loan made pursuant to the
provisions of Title V of the Housing Act of 1949. She promised to repay $78,530.00
plus interest based on a payment schedule with the Farmers Home Administration,
now RHS. 42 U.S.C. § 1475(a) gives RHS the authority to grant payment
moratoriums. Pursuant to this authority Larson sought and received a payment
moratorium in 1998, which was cancelled on May 25, 1999.

       Larson failed to make her loan payments to the government and on August 26,
1999, again requested moratorium relief. After an eight-month delay, which RHS
attributes to Larson's incomplete application file, her request was denied. Larson
appealed this decision but lost, whereupon she appealed to the director of RHS, who
also upheld the agency's denial of moratorium relief.

       After the moratorium was denied, the government filed a complaint in the
Northern District of Iowa on March 21, 2001, alleging default and accelerating the
payment schedule. Larson answered the complaint denying default. On May 10,
2001, the government moved for summary judgment. Larson resisted the motion and
filed a demand for delay of sale on August 29, 2001, which was resisted.

       On April 9, 2002, the district court denied Larson's motion and issued a
judgment and decree of foreclosure. On June 11, 2002, the property was sold to a
third party at a United States Marshal's sale. Larson did not seek a stay thereof. On
June 18, 2002, RHS moved to confirm the sale. Over Larson's resistance, the district
court confirmed the sale.


      2
      The Honorable Edward J. McManus, United States District Judge for the
Northern District of Iowa.

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                                            I

        Larson appeals, arguing the government wrongfully denied her moratorium
relief, and once foreclosure procedures were begun, RHS failed to follow federal law
which requires compliance with state law procedures governing foreclosure actions.

       The government argues, in light of the fact the property has already been sold,
Larson's appeal is moot. "Once foreclosed property is sold to a bona fide third-party
purchaser, a court generally lacks the power to craft an adequate remedy for the
debtor. Therefore, a debtor who fails to obtain a stay of the sale has no remedy on
appeal and the appeal is moot." United States v. Fitzgerald, 

, 1342 (8th
Cir. 1997) (citations omitted).

       Larson did not seek to stay the Marshal's sale. That sale occurred and a third
party purchased the property. If the property is now in the hands of a third party who
purchased the land in good faith, a federal court should not undo that purchase. 

not the case here, however, for the third party who purchased the
foreclosed land was on notice Larson was challenging the legality of the sale.
Larson's appeal was pending, and the government had filed a lis pendens with the
Dubuque County Clerk before the sale occurred. Moreover, Larson remained on the
land and was making payments to the third party. Therefore, the third party purchaser
bought the land subject to Larson's right to fully litigate the legality of the denial of
the moratorium. Thus, the appeal is not moot.

                                           II

      Larson argues the district court's order upholding the agency decision is
erroneous because it failed its obligations under the Administrative Procedure Act
(APA), 5 U.S.C. § 706(2)(A),(C),(D),(F).

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      Larson argues RHS wrongfully denied her moratorium relief. Specifically, she
claims RHS did not comply with the federal regulations governing the moratorium
process; RHS erroneously determined her income had not fallen by 20%; and RHS
erroneously determined the situation was permanent.

       First, we consider whether RHS complied with the moratorium regulations.
The Secretary of Agriculture is authorized by Congress to grant "a moratorium upon
the payment of interest and principal on such loan for so long a period as he deems
necessary, upon a showing by the borrower that due to circumstance beyond his
control he is unable to continue making payments . . . without unduly impairing his
standard of living" during the time the loan is outstanding. 42 U.S.C. § 1475(a).
More specifically, the moratorium regulations found at 7 C.F.R. § 3550.207 provide
once a moratorium is granted "[a]t least 30 days before the moratorium is scheduled
to expire, RHS will require the borrower to provide financial information needed to
determine whether the borrower is able to resume making scheduled payments." 7
C.F.R. § 3550.207(b)(2). Larson argues such a demand for information was not made
before her moratorium was canceled May 25, 1999, and so RHS did not comply with
the federal regulations governing the moratorium process.

       The government challenges this position only by saying: (1) the issue was not
raised below and should not now be considered on appeal, and (2) there is no
evidence such failure prejudiced Larson's rights. The government is wrong as to the
first point. A review of the record, specifically page 47 of the appendix, shows
Larson did raise RHS's failure to follow the moratorium regulations. On the other
hand, we agree with the government's second argument.

       It seems of little consequence to this appeal that RHS failed to request
information before canceling the moratorium on May 25, 1999, because a full review
of all pertinent information was conducted during the consideration of the second

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moratorium request. Larson petitioned RHS for a second moratorium on August 26,
1999. On February 28, 2002, when RHS deemed the file complete, it performed a full
review pursuant to 7 C.F.R. § 3550.207, and denied the second moratorium. Larson
appealed this decision but lost her appeal, whereupon she appealed to the director of
RHS who also upheld the agency's denial of moratorium relief. Only after RHS
refused to grant a second moratorium, did it seek foreclosure in federal court.

       Next we consider whether RHS erroneously concluded Larson was ineligible
for moratorium relief. The criteria defining the eligibility for a moratorium is found
in 7 C.F.R. § 3550.207(a). Only two of these criteria are relevant here, (a)(1) and
(a)(1)(i) which together allow for moratorium relief when: "[d]ue to circumstances
beyond the borrower's control, the borrower is temporarily unable to continue making
scheduled payments because: The borrower's repayment income fell by at least 20
percent within the past 12 months." RHS determined Larson did not qualify for a
moratorium because she had not experienced a twenty percent reduction in her
income in the "past twelve months" and her inability to pay was not temporary.

       Larson first claims RHS's determination that her income did not fall by 20%
was erroneous. Larson asked for a moratorium extension on August 26, 1999, which
was denied. She appealed the decision and an administrative hearing was held on
June 8, 2000, where the hearing officer determined Larson's income for 1999 totaled
$2,427.68. This sum came from two sources: 31.87% of it, or $773.88, from working
at Hometiques, a retail store, and 68.11%, or $1,653.60, from working at Northeast
Iowa Community College. She lost her job at Hometiques and thereby lost 31.87%
of her income. Accordingly, Larson argued her income dropped by more than 20%
of her income in the "past twelve months." In so arguing she calculated the time
period from August, 26, 1999.

       The hearing officer, however, declined to use August 26 as the starting point
for calculating the "past twelve months." Instead, the hearing officer used February

                                         -5-
28, 2000, when RHS maintains it received all the supporting documentation. By that
date, Larson was receiving Social Security Administration (SSA) benefits of at least
$484 per month, and the hearing officer, therefore, concluded Larson's income
actually increased during the relevant time period. Larson asserts RHS's choice of
dates was arbitrary and unwarranted by the facts and therefore reversible error. The
district court disagreed, and we do likewise. RHS's choice of date was reasonable,
and the district court's approval of this agency decision is not reversible error.

        Larson also argues RHS's determination her situation was permanent was
erroneous. The hearing officer, like RHS, determined she was more than temporarily
unable to resume her monthly payments. The hearing officer found Larson had a
disability dating back to May 1997 for which she started receiving SSA benefits
January 1, 2000. The success of her claim for SSA benefits was based primarily upon
a letter dated October 5, 1999, wherein Larson's mental health counselor advised the
SSA she was not capable of working at a competitive level for a minimum of the next
twelve months. The letter further stated "[b]ased on the nature of her problems, she
will not be employed at a competitive level at any time in the foreseeable future."

       This same therapist, however, wrote a letter dated March 15, 2000, which
suggested Larson would be employable again in June 2000. At the June 8 hearing,
the therapist was questioned about his various letters and comments about the health
of Larson. The therapist affirmed Larson would continue to receive SSA benefits for
the foreseeable future. He further commented Larson was under a great deal of stress
and had regressed since he wrote the March 15, 2000, letter.

       Relying on these facts, the hearing officer concluded Larson was more than
temporally unable to make her payments. She unsuccessfully appealed the hearing
officer's decisions. While RHS's director's ultimate decision noted there was
conflicting evidence about Larson's ability to work, the director, nonetheless,



                                        -6-
concluded Larson was not entitled to a moratorium. The district court's approval of
that agency decision is deemed not to be error.

                                         III

       Larson argues, in the alternative, even if the moratorium relief was properly
denied, the government failed to provide the appropriate state procedural protections
to her during the foreclosure process. Specifically, she argues the government was
obligated by 42 U.S.C. § 1475(b) to foreclose pursuant to Iowa law, and under Iowa
law she had a right to either demand a delay of sale or the right to redemption. She
further argues Iowa law makes the ability to foreclose without redemption contingent
upon certain procedures in the Iowa Code. She reasons because the government
failed to follow the appropriate state procedures for foreclosure without redemption,
and the district court dismissed her demand for delay of sale, she is now entitled to
the right of redemption. We disagree.

       First, the real estate mortgage foreclosed in this case contained a specific
contractual waiver of state redemption rights. In pertinent part, paragraph nineteen
of the mortgage reads:

      Borrower agrees that the Government will not be bound by any present
      or future State Laws . . . (d) allowing any right of redemption or
      possession following any foreclosure sale . . . . Borrower expressly
      waives the benefit of such State law.

      In United States v. Birchem, we upheld the use of such a waiver, stating:

      Even though [South Dakota] law prohibits the use of redemption waiver
      clauses, Congress has authorized the Secretary of Agriculture to
      establish the terms of the FmHA's loan instruments. Along these lines,
      we have recognized that Congress's authorization permits a federal


                                         -7-
       agency to include a waiver of state redemption rights in a borrower's
       mortgage. The Birchems are bound by the provision in their real estate
       mortgage that waives the benefits from any state laws "allowing any
       right of redemption or possession following any foreclosure sale."

, 609 (8th Cir. 1996) (citations omitted).

      Additionally, rather than retracting from our position in Birchem, as Larson
seems to imply, we recently reiterated it. In United States v. Jacobsen, the
government brought a foreclosure action against Kathleen Jacobsen after she
defaulted on a loan issued by the Farmers Home Administration. 

, 323
(8th Cir. 2002) (per curiam). The district court ordered Ms. Jacobsen's mortgage be
foreclosed. 

issue on appeal was whether the government could
contractually require Ms. Jacobsen to waive redemption and deficiency rights in spite
of 42 U.S.C. § 1475(b). We held it could. 

       Besides, § 1475(b) does not require the government to adopt state substantive
rules. Rather it provides in relevant part: "in foreclosing on any mortgage held by
the Secretary under this subchapter, the Secretary shall follow the foreclosure
procedures of the State in which the property involved is located, to the extent such
procedures are more favorable to the borrower. . . . " (Emphasis added).

       The right to redemption is a substantive right, not a procedural right. 

("We agree with the district court that the right to redemption and
protection from deficiency judgments are substantive rights."). Therefore, even if we
were to assume 42 U.S.C. § 1475(b) prohibited waivers of procedural rights as Larson
argues, the statute is still inapplicable here, for the right to redemption is a substantive
state right.

      Reading Birchem and Jacobsen together, therefore, makes plain RHS can
require borrowers to contractually waive their redemption rights afforded by Iowa

                                            -8-
law, as RHS did here. Since Larson waived her redemption rights in her mortgage
agreement, we are unable to grant her such a right on appeal. Accordingly, the
district court is affirmed.

      A true copy.

            Attest:

               CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




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