FARGO - Two adult daughters of bankrupt farmer Ron McMartin Jr. have reached an agreement that will allow the sale of a valuable piece of lake property near Detroit Lakes, Minn.

The property of about 50 acres on Island Lake has been valued as high as $2.5 million. McMartin, of St. Thomas, N.D., paid $1.3 million for the property in 2011.

The settlement agreement, designed to avoid a costly court trial on the issue, will allow the trustees to sell property, but gives the daughters, Rachel McMartin of Detroit Lakes and Laura Hagemeister of Fargo, the option to outbid a potential buyer.

The daughters, as co-trustees of the Island Lake Irrevocable Trust, reached the settlement agreement with the trustees of two related Chapter 7 bankruptcies -- Erik Ahlgren, trustee for McM Inc., and David Velde, trustee for Ron McMartin Jr. It was filed Tuesday, March 26, in Fargo. The daughters are represented by attorney Michael Gust of Fargo.

Proceeds from the sale of the lake property at 41106 County Road 126, Detroit Lakes, will be split 25 percent to the daughters’ trust, and 75 percent to the bankruptcy trusts, the agreement says. It doesn’t specify how much of the bankruptcy proceeds would go to the McM Inc. versus the individual bankruptcy trusts.

Big operator, big bust

McM at one time was the largest beet producer for American Crystal Sugar Co., with 11,000 acres of the high-value crop. He also produced potatoes, edible beans, corn and soybeans.

But in February 2017, McM filed for Chapter 7 bankruptcy liquidation and later that year filed a separate, personal Chapter 7 case. Claimants filed $62 million in claims on McM, including $43 million for an operating loan from BMO Harris Bank.

That was about two years after McM had transferred the lake place into the Island Lake Irrevocable Trust in a transaction that involved what Ahlgren in bankruptcy motions alleged were a “scam” loan involving Ron Jr.’s father, Ron McMartin Sr. Ahlgren accused Ron Sr. of civil fraud in an attempt to make the lake purchase falsely appear as a purchase and an arms-length transfer.

The new settlement, which still must be approved by U.S. Bankruptcy Judge Shon Hastings, resolves everything relating to the lake property trust.

Ahlgren said he separately continues to allege that Ron McMartin Sr. improperly received $1.5 million in assets diverted from the McM Inc. farm during a time when Ron Jr. had access to his father’s accounts.