If the lender concludes that liquidation of a guaranteed loan account is necessary due to default or third party actions which the borrower cannot or will not cure or eliminate within a reasonable period of time, a meeting will be arranged by the lender with FmHA or its successor agency under Public Law 103-354. All liquidations must receive prior concurrence by the County Supervisor. The District Director or State Office will be consulted on complex cases for advice. When FmHA or its successor agency under Public Law 103-354 concurs with the lender's conclusion or at any time concludes independently that liquidation is necessary, it will notify the lender and the matter will be handled as follows:

(a) The lender will liquidate the loan unless FmHA or its successor agency under Public Law 103-354, at its option, decides to carry out the liquidation. FmHA or its successor agency under Public Law 103-354 will exercise the option to liquidate only when there is reason to believe the lender's liquidating plan is not likely to provide a reasonably adequate recovery. If FmHA or its successor agency under Public Law 103-354 liquidates, all of the requirements for liquidating an FmHA or its successor agency under Public Law 103-354 insured loan will be followed (see subpart A of part 1955, subpart A of part 1962 and subpart A of part 1965 of this chapter). When FmHA or its successor agency under Public Law 103-354 exercises the option to liquidate, the State Director or designee will be the approval official. When such a decision is made, the approval official will submit Form FmHA or its successor agency under Public Law 103-354 1980-45, “Notice of Liquidation Responsibility,” to the Finance Office.

(b) When the decision to liquidate is made, the lender may proceed to purchase the guaranteed portion of the loan from the holder(s). The holder(s) will be paid according to the provisions in the Loan Note Guarantee or the Assignment Guarantee Agreement.

(c) If the lender does not purchase the guaranteed portion of the loan, FmHA or its successor agency under Public Law 103-354 will be notified immediately in writing. FmHA or its successor agency under Public Law 103-354 will then purchase the guaranteed portion of the loan from the holder(s). If FmHA or its successor agency under Public Law 103-354 holds any of the guaranteed portion, FmHA or its successor agency under Public Law 103-354 will be paid its pro rata share of the proceeds from liquidation of the collateral first.

(d) The liquidation and loss claim will be handled as follows:

(1) Lender's proposed method of liquidation. The lender may use any method of liquidation customary to the farm lending industry so long as the method will result in the maximum collection possible on the debt. Within 30 days following the decision to liquidate, the lender will advise FmHA or its successor agency under Public Law 103-354 in writing of its proposed detailed method of liquidation. This is called a liquidation plan and will provide FmHA or its successor agency under Public Law 103-354 with the following:

(i) Proof of the lender's ownership of the guaranteed loan promissory note(s), line of credit agreement(s) and related security instruments.

(ii) a list of borrower's assets including real and personal property, fixtures, claims, inventory (including perishables), accounts receivable, personal and corporate guarantees, and other existing and contingent assets, together with notice of which items are serving as collateral for the guaranteed loan.

(iii) A proposed method of maximizing the collection of debts. The lender should also specify how to collect any remaining loan balances of the guaranteed loan(s). After all loan collateral has been liquidated, possibilities for judgements will be determined.

(iv) The lender will obtain an independent appraisal report on all collateral securing the loan which will reflect the current market value and potential liquidation value. The appraisal report is to allow the lender and FmHA or its successor agency under Public Law 103-354 to determine the appropriate liquidation actions. Any independent appraiser's fee will be shared equally by FmHA or its successor agency under Public Law 103-354 and the lender. Both the lender and FmHA or its successor agency under Public Law 103-354 recover this cost from the first collateral sales proceeds received, each taking half of the proceeds until the cost of the appraisal is recovered. The funds that are collected as recovery of an appraisal fee will be forwarded to the Finance Office along with Form FmHA or its successor agency under Public Law 103-354 1980-40, “Reverse of Report of Liquidation Expense.”

(v) An estimate of time necessary to complete the liquidation. When the lender is conducting a liquidation that the lender estimates will take longer than 90 days and owns any of the guaranteed portion of the loan, the lender will request a tentative loss estimate by submitting to FmHA or its successor agency under Public Law 103-354 an estimate of the loss claim that will occur upon liquidation of the loan. The estimated loss claim will be submitted with the liquidation plan.

(vi) In cases where the lender becomes aware that the borrower has converted loan security, FmHA or its successor agency under Public Law 103-354 and the lender will determine whether the potential recovery will be cost effective. The lender must address in the liquidation plan whether the recovery will be pursued.

(2) FmHA or its successor agency under Public Law 103-354's response to lender's liquidation plan. The County Supervisor will have approval authority for the lender's liquidation plan. FmHA or its successor agency under Public Law 103-354 will inform the lender in writing whether it concurs with the lender's liquidation plan within 30 days upon receipt of such plan from the lender. If FmHA or its successor agency under Public Law 103-354 needs additional time to respond to the liquidation plan, it will inform the lender of an alternate deadline for the response. Should FmHA or its successor agency under Public Law 103-354 and the lender not agree on the lender's liquidation plan, negotiation will take place between FmHA or its successor agency under Public Law 103-354 and the lender to resolve any disagreement. Should FmHA or its successor agency under Public Law 103-354 opt to conduct the liquidation, FmHA or its successor agency under Public Law 103-354 will proceed as follows:

(i) The lender will transfer to FmHA or its successor agency under Public Law 103-354 all rights and interests necessary to allow FmHA or its successor agency under Public Law 103-354 to liquidate the loan. In this event, the lender will not be paid for any loss until after the collateral is liquidated and the final loss is determined by FmHA or its successor agency under Public Law 103-354.

(ii) FmHA or its successor agency under Public Law 103-354 attempt to obtain the maximum amount of proceeds from the liquidation.

(iii) FmHA or its successor agency under Public Law 103-354 may choose one or any combination of the usual commercial methods of liquidation.

(3) Acceleration. The lender or FmHA or its successor agency under Public Law 103-354, if it liquidates, will proceed as expeditiously as possible when acceleration of the debt is necessary, including giving any notices and taking any other required legal action. A copy of the acceleration notice or other acceleration document will be sent to FmHA or its successor agency under Public Law 103-354 or the lender, as the case may be.

(4) Liquidation—accounting and reports. When the lender conducts the liquidation, it will account for funds during the period of liquidation and will provide FmHA or its successor agency under Public Law 103-354 with periodic reports on the progress of liquidation, disposition of collateral, final costs, and any additional procedures necessary for successful completion of liquidation. The County Supervisor will accept or reject the accounting reports as submitted by the lender. When FmHA or its successor agency under Public Law 103-354 is the holder of a portion of the guaranteed loan, the lender will transmit to FmHA or its successor agency under Public Law 103-354 any payment received from the borrower, including the pro rata share of liquidation or other proceeds, using Form FmHA or its successor agency under Public Law 103-354 1980-43, “Lender's Guaranteed Loan Payment.” When FmHA or its successor agency under Public Law 103-354 liquidates, the lender will be provided with similar reports (with copies to the District and State FmHA or its successor agency under Public Law 103-354 offices).

(e) Form FmHA or its successor agency under Public Law 103-354 449-30 will be used to calculate the estimated and final loss. The State Director has approval authority for all loss claims. If approved, the State Director will submit Form FmHA or its successor agency under Public Law 103-354 449-30 to the Finance Office, with copies to the District and County Office. The Finance Office will forward loss payment checks within 10 days of receipt of the request to the County Supervisor for delivery to the lender.

(1) Estimated loss payments. Estimated loss payments may be approved by FmHA or its successor agency under Public Law 103-354 only after the lender has received FmHA or its successor agency under Public Law 103-354's approval of the liquidation plan, debt writedown plan, or a reorganization plan which has been approved by the bankruptcy court. FmHA or its successor agency under Public Law 103-354ted loss, provided the lender applies the payment to the outstanding principal balance owed on the guaranteed debt. The lender will discontinue interest accrual on the defaulted loan at the time the estimated loss claim is approved by FmHA or its successor agency under Public Law 103-354. The estimate will be prepared and submitted by the lender on Form FmHA or its successor agency under Public Law 103-354 449-30, using the appraisal value as opposed to the amount received from the sale of the collateral. Estimated loss payments will be inserted under “Amount Due Lender” on Form FmHA or its successor agency under Public Law 103-354 449-30. The Director, Finance Office, will forward loss payment checks within 30 days of receipt of the request.

(2) Final loss payments. In all liquidation cases, final settlement will be made with the lender after the collateral is liquidated. FmHA or its successor agency under Public Law 103-354 will have the right to recover any losses it paid under the Guarantee from the borrower or any other liable party.

(i) After the lender has completed liquidation, FmHA or its successor agency under Public Law 103-354 may audit the account and will determine the actual loss upon receipt of the final accounting and Report of Loss. If FmHA or its successor agency under Public Law 103-354 has any questions regarding the amount set forth in the final Report of Loss, it will investigate the matter. The lender will make its records available to and otherwise assist FmHA or its successor agency under Public Law 103-354 in making the investigation. If FmHA or its successor agency under Public Law 103-354 finds any discrepancies, it will contact the lender and arrange for the necessary corrections to be made as soon as possible. When FmHA or its successor agency under Public Law 103-354 finds the final Report of Loss to be proper in all respects, the loss claim will be tentatively approved in the space provided on the form for that purpose. If a lender's final loss claim is either denied or reduced, the County Supervisor will notify the lender in writing within 10 days of FmHA or its successor agency under Public Law 103-354's decision, of all the reasons for the decision, and advise the lender of its opportunity for an appeal as set out in § 1980.80 of subpart A of this part and subpart B of part 1900 of this chapter.

(ii) In those instances where the lender has made authorized protective advances, it may claim recovery for the guaranteed portion of any loss monies advanced as protective advances, including any accrued interest resulting from the protective advances. Payment will be made by FmHA or its successor agency under Public Law 103-354 when the final Report of Loss is approved.

(iii) Final loss payments will be made within 30 days after review of the accounting of the collateral.

(iv) When the lender has conducted liquidation and after the final Report of Loss has been tentatively approved:

(A) If the loss is greater than the estimated loss, the Agency will pay the additional amount owed to the lender.

(B) If the loss is less than the estimated loss, the lender will reimburse the Agency for the overpayment plus interest at the note rate from the date of overpayment.

(3) Future Recovery. The lender will remit any future recoveries to the Agency in proportion to the percentage of guarantee in accordance with the Lender's Agreement until the account is paid in full or otherwise satisfied. A lender may, with Agency concurrence, release a borrower or cosigner from liability when adequate compensation is received or it is mutually agreed that there is very little probability of future recovery from the borrower or cosigner.

(4) Maximum amount of interest payment. Notwithstanding any other provisions of this subpart, the amount payable by the Agency to the lender cannot exceed the limits set forth in the Loan Note Guarantee. If the Agency conducts the liquidation, any loss which occurred by accrued interest will be covered by the guarantee only to the date the Agency accepts responsibility for the liquidation. Any loss occasioned by accrued interest will be covered to the extent of the guarantee to the date of final settlement when the liquidation is conducted by the lender, provided it proceeds expeditiously with the liquidation plan approved by the Agency, except when an estimated loss claim is filed. If a lender files an estimated loss claim, the lender will discontinue interest accrual on the defaulted loan when the estimated loss claim is approved by the Agency. The balance of any accrued interest payable to the lender will be calculated on the final Report of Loss form.

(5) Application of the Agency loss payment. The estimated loss payment shall be applied as of the date of such payment. The total amount of the loss payment drafted by the Agency will be applied by the lender on the guaranteed portion of loan debt. However, such application does not release the borrower from liability. Such amounts are only to compensate the lender for the loss. In all cases, a final Form FmHA 449-30 prepared and submitted by the lender must be processed by the Agency in order to close out files.

(6) Income from collateral. Any net rental or other income that has been received by the lender from the collateral will be applied on the guaranteed loan debt.

(7) Liquidation costs. Certain reasonable liquidation costs will be allowed during the liquidation process. Reasonable is defined as the prevailing rate charged in the area for like services. These liquidation costs will be submitted as part of the liquidation plan. Such costs will be deducted from gross proceeds from the disposition of collateral, unless the costs have been previously determined by the Agency to be protective advances. Therefore, if liquidation never occurs or if liquidation is conducted by someone other than the lender (a bankruptcy trustee, for example), there can be no allowable liquidation costs. If circumstances have changed after submission of the liquidation plan which require a revision of liquidation costs, the lender will obtain the Agency's written concurrence prior to proceeding with any proposed changes. No in-house expenses of the lender will be allowed. In-house expenses include, but are not limited to: employee's salaries, staff lawyers, travel, and overhead.

(8) Foreclosure. The lender is responsible for determining who the necessary parties are to any foreclosure action or who should be named on a deed of conveyance taken in lieu of foreclosure. When the conveyance is received and the property is liquidated, the net proceeds will be applied to the guaranteed loan debt. If the Agency has repurchased the guaranteed portion of the loan from the holder, the lender must obtain the Agency's concurrence to any foreclosure action to be taken by the lender; however, the Agency will not be considered to be a necessary party to the action or otherwise required to join in.