Jan. 29, 2001 CODE OF FEDERAL REGULATIONS 7Parts 1950 to 1999 Revised as of January 1, 2001 Agriculture Containing a codification of documents of general applicability and future effect As of January 1, 2001 With Ancillaries

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 Table of Contents Page Explanation v Title 7: Subtitle B—Regulations of the Department of Agriculture—Continued: Chapter XVIII—Rural Housing Service, Rural Business-Cooperative Service, Rural Utilities Service, and Farm Service Agency, Department of Agriculture (Continued) 5 Finding Aids: Table of CFR Titles and Chapters 621 Alphabetical List of Agencies Appearing in the CFR 639 List of CFR Sections Affected 649

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 Raymond A. Mosley, Director, Office of the Federal Register. January 1, 2001. THIS TITLE

Title 7—Agriculture is composed of fifteen volumes. The parts in these volumes are arranged in the following order: parts 1-26, 27-52, 53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-1599, 1600-1899, 1900-1939, 1940-1949, 1950-1999, and part 2000 to end. The contents of these volumes represent all current regulations codified under this title of the CFR as of January 1, 2001.

The Food and Nutrition Service current regulations in the volume containing parts 210-299, include the Child Nutrition Programs and the Food Stamp Program. The regulations of the Federal Crop Insurance Corporation are found in the volume containing parts 400-699.

All marketing agreements and orders for fruits, vegetables and nuts appear in the one volume containing parts 900-999. All marketing agreements and orders for milk appear in the volume containing parts 1000-1199. Part 900—General Regulations is carried as a note in the volume containing parts 1000-1199, as a convenience to the user.

Redesignation tables appear in the Finding Aids section of the volumes containing parts 210-299 and parts 1600-1899.

CFRORDR.FRM <LRH>7 CFR Ch. XVIII (1-1-01 Edition)</LRH> <RRH>RHS, RBS, RUS, FSA, USDA</RRH> <CFRTITLE> <TITLEHD> <PRTPAGE P="1"/> <HD SOURCE="HED">Title 7—Agriculture</HD> <P>(This book contains parts 1950 to 1999)</P> </TITLEHD> <CFRTOC> <PTHD>Part</PTHD> <SUBTI> <HD SOURCE="HED"> <E T="04">SUBTITLE B—Regulations of the Department of Agriculture—</E>(Continued)</HD> </SUBTI> <CHAPTI> <SUBJECT> <E T="04">chapter xviii—</E>Rural Housing Service, Rural Business—Cooperative Service, Rural Utilities Service, and Farm Service Agency, Department of Agriculture (Continued)</SUBJECT> <PG>1950</PG> </CHAPTI> </CFRTOC> </CFRTITLE> <SUBTITLE> <PRTPAGE P="3"/> <HD SOURCE="HED">Subtitle B—Regulations of the Department of Agriculture (Continued)</HD> <CHAPTER> <TOC> <TOCHD> <PRTPAGE P="5"/> <HD SOURCE="HED">CHAPTER XVIII—RURAL HOUSING SERVICE, RURAL BUSINESS—COOPERATIVE SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF AGRICULTURE (CONTINUED)</HD> </TOCHD> <SUBCHAP> <HD SOURCE="HED">SUBCHAPTER H—PROGRAM REGULATIONS—Continued</HD> </SUBCHAP> <PTHD>Part</PTHD> <PGHD>Page</PGHD> <CHAPTI> <PT>1950</PT> <SUBJECT>General</SUBJECT> <PG>7</PG> <PT>1951</PT> <SUBJECT>Servicing and collections</SUBJECT> <PG>10</PG> <PT>1955</PT> <SUBJECT>Property management</SUBJECT> <PG>168</PG> <PT>1956</PT> <SUBJECT>Debt settlement</SUBJECT> <PG>252</PG> <PT>1957</PT> <SUBJECT>Asset sales</SUBJECT> <PG>278</PG> <PT>1962</PT> <SUBJECT>Personal property</SUBJECT> <PG>279</PG> <PT>1965</PT> <SUBJECT>Real property</SUBJECT> <PG>317</PG> <PT>1980</PT> <SUBJECT>General</SUBJECT> <PG>424</PG> <RESERVED>1981—1999 [Reserved]</RESERVED> </CHAPTI> <EDNOTE> <HD SOURCE="HED">Editorial Note:</HD> <P>Chapter XVIII—Rural Housing Service, Rural Business-Cooperative Service, Rural Utilities Service, and Farm Service Agency, Department of Agriculture, is continued in the volume containing 7 CFR part 2000 to end.</P> </EDNOTE> <EDNOTE> <HD SOURCE="HED">Editorial Note:</HD> <P>Nomenclature changes to chapter XVIII appear at 59 FR 66443, Dec. 27, 1994, 61 FR 1109, Jan. 16, 1996 and 61 FR 2899, Jan. 30, 1996.</P> </EDNOTE> </TOC> <SUBCHAP TYPE="N"> <PRTPAGE P="7"/> <HD SOURCE="HED">SUBCHAPTER H—PROGRAM REGULATIONS—Continued</HD> <PART> <EAR>Pt. 1950</EAR> <HD SOURCE="HED">PART 1950—GENERAL</HD> <CONTENTS> <SUBPART> <RESERVED>Subparts A-B[Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Servicing Accounts of Borrowers Entering the Armed Forces</HD> <SECHD>Sec.</SECHD> <SECTNO>1950.101</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1950.102</SECTNO> <SUBJECT>General.</SUBJECT> <SECTNO>1950.103</SECTNO> <SUBJECT>Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by chattels.</SUBJECT> <SECTNO>1950.104</SECTNO> <SUBJECT>Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by real estate.</SUBJECT> <SECTNO>1950.105</SECTNO> <SUBJECT>Interest rate. </SUBJECT> </SUBPART> </CONTENTS> <SUBPART> <RESERVED>Subparts A-B[Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Servicing Accounts of Borrowers Entering the Armed Forces</HD> <AUTH> <HD SOURCE="HED">Authority:</HD> <P>5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.</P> </AUTH> <SECTION> <SECTNO>§ 1950.101</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>Borrowers with accounts serviced by the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) who have entered or who are entering military service will require special treatment. This subpart prescribes the authorities, policies, and routines for servicing such cases in addition to those contained in other FmHA or its successor agency under Public Law 103-354 regulations.</P> <CITA>[45 FR 43152, June 26, 1980]</CITA> </SECTION> <SECTION> <SECTNO>§ 1950.102</SECTNO> <SUBJECT>General.</SUBJECT> <P>(a) FmHA or its successor agency under Public Law 103-354 will do everything possible to assist borrowers entering the armed forces to adjust their affairs in contemplation of military service. It is not the policy FmHA or its successor agency under Public Law 103-354 to renew, postpone, or modify annual installments due under a promissory note because of the borrower's entry into the armed services. However, under the Soldiers’ and Sailors’ Civil Relief Act of 1940, the property of a borrower in the armed forces cannot validly be seized or sold by foreclosure or otherwise during the borrower's tenure of service, or for three months thereafter, except (1) pursuant to an agreement entered into by the borrower after having been accepted for service, or (2) by order of the Court. Any person causing an invalid sale to be made is guilty of a misdemeanor. Regardless of the foregoing, the long-time interest of the borrower can best be served by prompt and satisfactory arrangements for the use and protection, or disposition, of the security property in accordance with the policies expressed herein. Upon request, OGC will inform the State Director with respect to relief which may be secured by a borrower under the Soldiers’ and Sailors’ Civil Relief Act of 1940.</P> <P>(b) In connection with Multiple Housing loans to individuals, references to County Supervisor and County Office in this subpart will be read as District Director and District Office.</P> <CITA>[50 FR 45763, Nov. 1, 1985]</CITA> </SECTION> <SECTION> <SECTNO>§ 1950.103</SECTNO> <SUBJECT>Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by chattels.</SUBJECT> <P>(a) <E T="03">Policy.</E> (1) Borrowers who owe loans <E T="03">other than</E> Farm Ownership (FO), Operating (OL), Soil and Water (SW), Recreation (RL), Emergency (EM), Economic Emergency (EE), Economic Opportunity (EO), Special Livestock (SL), Softwood Timber (ST) loans, and/or Rural Housing loans for farm service buildings (RHF). When information is received that a borrower is entering the armed forces, the County Supervisor will be responsible for contacting the borrower immediately for the purpose of reaching an understanding concerning the actions to take in connection with the FmHA or its successor agency under Public Law 103-354 loan indebtedness. The borrower will be permitted to retain the chattel security if arrangements can be worked out which are satisfactory to the borrower and FmHA or its successor agency under Public Law 103-354. However, because <PRTPAGE P="8"/>of the nature of chattel security, the borrower will be informed of the usual depreciation of such property and will be encouraged to sell the property and apply the proceeds to the loan(s). In most cases, the interests of both the borrower and the Government can best be served by arranging for a voluntary sale of the security. A borrower retaining security will be expected to make payments on the loan(s) equal to the scheduled payments.</P> <P>(2) <E T="03">Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, and/or RHF loans.</E> If the borrower is delinquent in accordance with subpart S of part 1951 of this chapter, or otherwise in default, the County Supervisor will send exhibit A and the appropriate attachments, as outlined in subpart S of part 1951 of this chapter. If the borrower is not delinquent, the County Supervisor will explain the options set out in paragraph (b) of this section.</P> <P>(b) <E T="03">Methods of handling.</E> In carrying out the above policy, the cases of borrowers entering the armed forces will be handled in accordance with one of the following methods:</P> <P>(1) Voluntary sale of security. This will be accomplished in accordance with § 1962.41 of subpart A of part 1962 of this chapter. Any necessary forms will be signed:</P> <P>(i) Before being accepted for service in the armed forces, if the sale is to be completed before the borrower is accepted for service, or</P> <P>(ii) After being accepted for service, if the sale cannot be completed before the borrower is so accepted. For this purpose, an individual will be considered as accepted for service after being ordered to report for induction, or, if in the enlisted reserve, after being ordered to report for service in the armed forces.</P> <P>(2) Assumption of indebtedness. This will be accomplished in accordance with § 1962.34 of subpart A of part 1962 of this chapter.</P> <P>(3) Arrangements with third persons. When the borrower arranges with a relative or other reliable person to maintain the security in a satisfactory manner and to make scheduled payments, the State Director is authorized to approve the arrangement. In such a case, the borrower will be required to execute a power of attorney, prepared or approved by OGC, authorizing an attorney-in-fact to act for the borrower during the latter's absence.</P> <P>(4) Possible legal actions. If the borrower fails or refuses to cooperate in the servicing of the loan indebtedness secured by chattels in accordance with one of the methods set forth in this section, the borrower's case folder will be forwarded to the State Director for referral to OGC for legal advice as to the steps to be taken in protecting the Government's interest.</P> <P>(c) <E T="03">Statements of accounts and transfers.</E> Borrowers entering the armed forces will be requested to designate mailing addresses for the delivery of statements of account. Any changes in these addresses will be processed on Form FmHA or its successor agency under Public Law 103-354 450-10, “Advice of Borrower's Change of Address or Name,” with appropriate explanations. Under this procedure, a statement of account may be mailed to a location other than where the account is maintained and serviced. This is a deviation from the established procedure. These cases will not be transferred unless the security, when retained by the borrower in accordance with paragraph (b)(3) of this section, is moved into another County Office territory. Then the transfer will be processed through the use of Form FmHA or its successor agency under Public Law 103-354 450-5, “Application to Move Security Property and Verification of Address,” and Form FmHA or its successor agency under Public Law 103-354 450-10 with appropriate explanations. In cases when assumption agreements have been executed, statements of account will be mailed to the assuming borrower. Cases involving assumption agreements will be transferred when the assuming borrower moves from one County Office territory to another.</P> <CITA>[45 FR 43152, June 26, 1980, as amended at 50 FR 45763, Nov. 1, 1985; 52 FR 26133, July 13, 1987; 55 FR 40646, Oct. 4, 1990]</CITA> </SECTION> <SECTION> <PRTPAGE P="9"/> <SECTNO>§ 1950.104</SECTNO> <SUBJECT>Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by real estate.</SUBJECT> <P>County Supervisors, to the greatest extent possible, should keep themselves informed of the plans of borrowers with FmHA or its successor agency under Public Law 103-354 loans secured by real estate who may enter the armed forces. They should encourage any borrower who is definitely entering the armed forces to consult with them before the borrower's military service begins concerning the most advantageous arrangements that can be made regarding the security. County Supervisors will assist these borrowers in working out mutually satisfactory arrangements. Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, ST, and/or RHF loans and who are delinquent or otherwise in default must be sent exhibit A and the appropriate attachments, as outlined in subpart S of part 1951 of this chapter. The County Supervisor will follow the directions in subpart A of part 1965 of this chapter for liquidating real estate security. FO, SW, RL, OL, EE, EM, SL, EO, ST and/or RHF borrowers who are not delinquent will have their accounts handled as set out in the following paragraphs.</P> <P>(a) <E T="03">Power of attorney.</E> Borrowers entering the armed forces who retain ownership of the security should be encouraged to execute a power of attorney authorizing the person of their choice to take any actions necessary to insure proper use and maintenance of the security, payment of insurance and taxes, and repayment of the loan. No FmHA or its successor agency under Public Law 103-354 employee will act as attorney-in-fact for a borrower. The State Director will consult with OGC concerning any limitations upon the use of a power of attorney under local law and the circumstances under which the power of attorney should be exercised. In general, either spouse may act as attorney-in-fact for the other spouse, but, in a few States, a spouse cannot exercise the power of attorney in connection with a sale or encumbrance of the homestead. In a majority of States, a power of attorney is revoked by the death of a person granting the power, but, in some States, the power of attorney executed by a person in the armed services remains valid until actual notice is received of the death of the person granting the power. A power of attorney should not be used in conveying title to the farm except in those States where the power is good until actual notice of death. The State Director will request OGC to prepare a satisfactory form of power of attorney which may be duplicated in the State Office and furnished to County Supervisors with a State supplement concerning its use.</P> <P>(b) <E T="03">Borrower retains ownership of the security.</E> When a borrower retains ownership of the security, FmHA or its successor agency under Public Law 103-354 will assist in making arrangements for the use of the security which will protect the interests of both the Government and the borrower.</P> <P>(1) <E T="03">Leasing.</E> It will be more satisfactory if the security is leased under a written lease in accordance with equitable leasing policies and applicable FmHA or its successor agency under Public Law 103-354 procedures. The borrower should make arrangements for the rental income to be used for regular payments on the loan in order to avoid the accumulation of unpaid interest. The borrower also should make arrangements for the payment of taxes and insurance and maintenance of the security to avoid having these charges paid by the Government and then charged to the account. It would be desirable to provide that the lease will continue for the duration of the borrower's military service unless either party gives written notice of earlier cancellation of the lease.</P> <P>(2) <E T="03">Operation by family.</E> When a borrower wishes to have the farm occupied and operated by family members or relatives without a written lease, the County Supervisor should advise the borrower as to whether or not the proposed arrangements will be in the best interests of the borrower and the Government. When the farm is to be operated by relatives, the hazards and disadvantages to the borrower and the Government which are inherent in unwritten contracts will be discussed, and every effort will be made to induce the <PRTPAGE P="10"/>borrower to enter into formal contractual arrangements whenever possible to do so.</P> <P>(c) <E T="03">Borrower does not retain ownership of the security.</E> The security may be transferred to another approved applicant or sold in accordance with applicable procedure.</P> <P>(d) <E T="03">Borrower abandons the security or fails to make satisfactory arrangements.</E> This paragraph does <E T="03">not</E> apply to borrowers with FO, SW, RL, OL, EE, EM, SL, EO, ST and/or RHF loans. Those borrowers should be sent exhibit A and the appropriate attachments as outlined in subpart S of part 1951 of this chapter. When a borrower abandons the security or fails to make satisfactory arrangements for maintenance of the security and payment of taxes, insurance, and installments on the loan, the County Supervisor will send a complete report on the case to the State Director. The report will include all the information that can be obtained regarding the borrower's plans for the security and any evidence to indicate that abandonment has, in fact, taken place. In these instances, it must be recognized that the borrower may have entered into verbal arrangements for the care of the security without properly advising the County Supervisor. Whether such cases may be construed to be in violation of the provisions of the mortgage, so as to support foreclosure by order of the Court under the provisions of the Soldiers’ and Sailors’ Civil Relief Act of 1940, will need to be determined on an individual case basis by the State Director and OGC. Clear-cut abandonment cases or instances in which the borrower fails to take action to transfer or sell the property, while evidencing no interest in it or desire to retain it, will be processed in accordance with applicable procedures.</P> <P>(e) <E T="03">Statement of account.</E> Borrowers entering the armed forces who retain ownership of the security will be requested to designate mailing addresses for the delivery of statements of account. Any changes in addresses will be processed on Form FmHA or its successor agency under Public Law 103-354 450-10 with appropriate explanations.</P> <CITA>[45 FR 43152, June 26, 1980, as amended at 50 FR 45764, Nov. 1, 1985; 52 FR 26134, July 13, 1987; 55 FR 40646, Oct. 4, 1990]</CITA> </SECTION> <SECTION> <SECTNO>§ 1950.105</SECTNO> <SUBJECT>Interest rate.</SUBJECT> <P>(a) The Soldiers and Sailors Relief Act requires that the effective interest rate charged a borrower who enters active military duty after a loan is closed will not exceed 6 percent. This applies only to full-time active military duty and does not include military reserve status or National Guard participation.</P> <P>(b) As soon as the County Supervisor verifies that a borrower is on active duty, the County Supervisor will send the borrower a letter which states that the interest rate on the borrower's FmHA or its successor agency under Public Law 103-354 loans will not exceed 6 percent. At the same time, the County Supervisor will send the Finance Office a memorandum which states that the borrower is on active duty and that interest of not more than 6 percent should accrue on the borrower's loans, effective as of the date of the memorandum or as of the date of the last payment, whichever is later, until further notice. If a borrower's interest rate on any loan is less than 6 percent, the loan will continue to accrue interest at the lower rate. The assistance under this section may not be retroactively applied.</P> <P>(c) As soon as the County Supervisor verifies that a borrower is no longer on active duty, the County Supervisor will send the Finance Office a memorandum advising them to terminate the 6 percent interest rate. The rate will revert to the note rate (or the payment assistance rate), effective with the next scheduled payment. The 6 percent interest rate will not be cancelled retroactively.</P> <P>(d) Additional directions for handling Single Family Housing Loans are contained in subpart G of part 1951 of this chapter.</P> <CITA>[52 FR 26134, July 13, 1987, as amended at 60 FR 55122, Oct. 27, 1995]</CITA> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 1951</EAR> <HD SOURCE="HED">PART 1951—SERVICING AND COLLECTIONS</HD> <CONTENTS> <SUBPART> <HD SOURCE="HED">Subpart A—Account Servicing Policies</HD> <SECHD>Sec.</SECHD> <SECTNO>1951.1</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1951.2</SECTNO> <SUBJECT>Policy.</SUBJECT> <SECTNO>1951.3</SECTNO> <SUBJECT>Authorities and responsibilities.</SUBJECT> <SECTNO>1951.4-1951.5</SECTNO> <SUBJECT>[Reserved]<PRTPAGE P="11"/> </SUBJECT> <SECTNO>1951.6</SECTNO> <SUBJECT>Handling payments.</SUBJECT> <SECTNO>1951.7</SECTNO> <SUBJECT>Accounts of borrowers.</SUBJECT> <SECTNO>1951.8</SECTNO> <SUBJECT>Types of payments.</SUBJECT> <SECTNO>1951.9</SECTNO> <SUBJECT>Distribution of payments when a borrower owes more than one type of FmHA or its successor agency under Public Law 103-354 loan.</SUBJECT> <SECTNO>1951.10</SECTNO> <SUBJECT>Application of payments on production type loan accounts.</SUBJECT> <SECTNO>1951.11</SECTNO> <SUBJECT>Application of payments on real estate accounts.</SUBJECT> <SECTNO>1951.12</SECTNO> <SUBJECT>Changes in the application of loan payments.</SUBJECT> <SECTNO>1951.13</SECTNO> <SUBJECT>Overpayments and refunds.</SUBJECT> <SECTNO>1951.14</SECTNO> <SUBJECT>Recoverable and nonrecoverable cost charges.</SUBJECT> <SECTNO>1951.15</SECTNO> <SUBJECT>Return of paid-in-full or satisfied notes to borrower.</SUBJECT> <SECTNO>1951.16</SECTNO> <SUBJECT>Other servicing actions on real estate type loan accounts.</SUBJECT> <SECTNO>1951.17-1951.24</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.25</SECTNO> <SUBJECT>Review of limited resource FO, OL, and SW loans.</SUBJECT> <SECTNO>1951.26-1951.49</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.50</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <SUBJGRP> <HD SOURCE="HED">Exhibits to Subpart A</HD> </SUBJGRP> <FP SOURCE="FP-2">Exhibit A—Notice to FmHA or its successor agency under Public Law 103-354 Borrowers</FP> <FP SOURCE="FP-2">Exhibit B—Notice of Change in Interest Rate</FP> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Collections</HD> <SECTNO>1951.51</SECTNO> <SUBJECT>General.</SUBJECT> <SECTNO>1951.52-1951.53</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.54</SECTNO> <SUBJECT>Authority.</SUBJECT> <SECTNO>1951.55</SECTNO> <SUBJECT>Receiving and processing collections.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Offsets of Federal Payments to USDA Agency Borrowers</HD> <SECTNO>1951.101</SECTNO> <SUBJECT>General.</SUBJECT> <SECTNO>1951.102</SECTNO> <SUBJECT>Administrative offset.</SUBJECT> <SECTNO>1951.103-1951.105</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.106</SECTNO> <SUBJECT>Offset of payments to entities related to debtors.</SUBJECT> <SECTNO>1951.107-1951.110</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.111</SECTNO> <SUBJECT>Salary offset.</SUBJECT> <SECTNO>1951.112-1951.149</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.150</SECTNO> <SUBJECT>OMB control number.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart D—Final Payment on Loans</HD> <SECTNO>1951.151</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1951.152</SECTNO> <SUBJECT>Definition.</SUBJECT> <SECTNO>1951.153</SECTNO> <SUBJECT>Chattel security or note-only cases.</SUBJECT> <SECTNO>1951.154</SECTNO> <SUBJECT>Satisfaction and release of documents.</SUBJECT> <SECTNO>1951.155</SECTNO> <SUBJECT>County and/or District Office actions.</SUBJECT> <SECTNO>1951.156-1951.200</SECTNO> <SUBJECT>[Reserved]</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart E—Servicing of Community and Direct Business Programs Loans and Grants</HD> <SECTNO>1951.201</SECTNO> <SUBJECT>Purposes.</SUBJECT> <SECTNO>1951.202</SECTNO> <SUBJECT>Objectives.</SUBJECT> <SECTNO>1951.203</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>1951.204</SECTNO> <SUBJECT>Nondiscrimination.</SUBJECT> <SECTNO>1951.205</SECTNO> <SUBJECT>Redelegation of authority.</SUBJECT> <SECTNO>1951.206</SECTNO> <SUBJECT>Forms.</SUBJECT> <SECTNO>1951.207</SECTNO> <SUBJECT>State supplements.</SUBJECT> <SECTNO>1951.208-1951.209</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.210</SECTNO> <SUBJECT>Environmental requirements.</SUBJECT> <SECTNO>1951.211</SECTNO> <SUBJECT>Refinancing requirements.</SUBJECT> <SECTNO>1951.212</SECTNO> <SUBJECT>Unauthorized financial assistance.</SUBJECT> <SECTNO>1951.213</SECTNO> <SUBJECT>Debt settlement.</SUBJECT> <SECTNO>1951.214</SECTNO> <SUBJECT>Care, management, and disposal of acquired property.</SUBJECT> <SECTNO>1951.215</SECTNO> <SUBJECT>Grants.</SUBJECT> <SECTNO>1951.216</SECTNO> <SUBJECT>Nonprogram (NP) loans.</SUBJECT> <SECTNO>1951.217</SECTNO> <SUBJECT>Public bodies.</SUBJECT> <SECTNO>1951.218-1951.219</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.220</SECTNO> <SUBJECT>General servicing actions.</SUBJECT> <SECTNO>1951.221</SECTNO> <SUBJECT>Collections, payments, and refunds.</SUBJECT> <SECTNO>1951.222</SECTNO> <SUBJECT>Subordination of security.</SUBJECT> <SECTNO>1951.223</SECTNO> <SUBJECT>Reamortization.</SUBJECT> <SECTNO>1951.224</SECTNO> <SUBJECT>Third party agreements.</SUBJECT> <SECTNO>1951.225</SECTNO> <SUBJECT>Liquidation of security.</SUBJECT> <SECTNO>1951.226</SECTNO> <SUBJECT>Sale or exchange of security property.</SUBJECT> <SECTNO>1951.227</SECTNO> <SUBJECT>Protective advances.</SUBJECT> <SECTNO>1951.228-1951.229</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.230</SECTNO> <SUBJECT>Transfer of security and assumption of loans.</SUBJECT> <SECTNO>1951.231</SECTNO> <SUBJECT>Special provisions applicable to Economic Opportunity (EO) Cooperative Loans.</SUBJECT> <SECTNO>1951.232</SECTNO> <SUBJECT>Water and waste disposal systems which have become part of an urban area.</SUBJECT> <SECTNO>1951.233-1951.239</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.240</SECTNO> <SUBJECT>State Director's additional authorizations and guidance.</SUBJECT> <SECTNO>1951.241</SECTNO> <SUBJECT>Special provision for interest rate change.</SUBJECT> <SECTNO>1951.242-1951.249</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.250</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <SUBJGRP> <HD SOURCE="HED">Exhibits to Subpart E</HD> </SUBJGRP> <FP SOURCE="FP-2">Exhibit A—Report on Servicing Action</FP> <FP SOURCE="FP-2">Exhibit B—Agreement for New Member (With or Without Withdrawing Member)</FP> <FP SOURCE="FP-2">Exhibit C—Agreement for Withdrawal of Member (Without New Member)</FP> <FP SOURCE="FP-2">Exhibit D—Items to be Included in Transfer and Assumption Dockets (if applicable)</FP> <FP SOURCE="FP-2">Exhibit E—Interest Rate Requirements and Effective Dates</FP> <FP SOURCE="FP-2">Exhibit F—Instruction to FmHA or its successor agency under Public Law 103-354 Personnel to Implement Public Law 100-233</FP> <FP SOURCE="FP-2">Exhibit G—Letter to Borrower Notifying of Choice of Interest Rate</FP> <FP SOURCE="FP-2">Exhibit H—Rescheduling Agreement—Public Bodies</FP> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart F—Analyzing Credit Needs and Graduation of Borrowers</HD> <SECTNO>1951.251</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1951.252</SECTNO> <SUBJECT>Definitions.<PRTPAGE P="12"/> </SUBJECT> <SECTNO>1951.253</SECTNO> <SUBJECT>Objectives.</SUBJECT> <SECTNO>1951.254</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.255</SECTNO> <SUBJECT>Nondiscrimination.</SUBJECT> <SECTNO>1951.256-1951.261</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.262</SECTNO> <SUBJECT>Farm Credit Programs-graduation of borrowers.</SUBJECT> <SECTNO>1951.263</SECTNO> <SUBJECT>Graduation on non-Farm Credit programs borrowers.</SUBJECT> <SECTNO>1951.264</SECTNO> <SUBJECT>Action when borrower fails to cooperate, respond or graduate.</SUBJECT> <SECTNO>1951.265</SECTNO> <SUBJECT>Application for subsequent loan, subordination, or consent to additional indebtedness from a borrower who has been requested to graduate.</SUBJECT> <SECTNO>1951.266</SECTNO> <SUBJECT>Special requirements for MFH borrowers.</SUBJECT> <SECTNO>1951.267-1951.299</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.300</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <SUBJGRP> <HD SOURCE="HED">Exhibits to Subpart F</HD> </SUBJGRP> <FP SOURCE="FP-2">Exhibit A[Reserved]</FP> <FP SOURCE="FP-2">Exhibit B—Suggested Outline for Seeking Information From Lenders on Credit Criteria for Graduation of Single Family Housing Loans</FP> </SUBPART> <SUBPART> <RESERVED>Subparts G-I [Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart J—Management and Collection of Nonprogram (NP) Loans</HD> <SECTNO>1951.451</SECTNO> <SUBJECT>General.</SUBJECT> <SECTNO>1951.452</SECTNO> <SUBJECT>Policy.</SUBJECT> <SECTNO>1951.453</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.454</SECTNO> <SUBJECT>Review of adverse decisions.</SUBJECT> <SECTNO>1951.455</SECTNO> <SUBJECT>NP loan making for Single Family Housing (SFH) and farm property (real and chattel).</SUBJECT> <SECTNO>1951.456</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.457</SECTNO> <SUBJECT>Payments.</SUBJECT> <SECTNO>1951.458</SECTNO> <SUBJECT>Servicing real estate taxes.</SUBJECT> <SECTNO>1951.459</SECTNO> <SUBJECT>Preservation of security.</SUBJECT> <SECTNO>1951.460</SECTNO> <SUBJECT>Release of security property or sale or lease of related property rights.</SUBJECT> <SECTNO>1951.461</SECTNO> <SUBJECT>Release of valueless FmHA or its successor agency under Public Law 103-354 lien without monetary consideration.</SUBJECT> <SECTNO>1951.462</SECTNO> <SUBJECT>Deceased borrower.</SUBJECT> <SECTNO>1951.463</SECTNO> <SUBJECT>Transfer of security and assumption of indebtedness.</SUBJECT> <SECTNO>1951.464-1951.467</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.468</SECTNO> <SUBJECT>Liquidation.</SUBJECT> <SECTNO>1951.469</SECTNO> <SUBJECT>Actions after liquidation of property.</SUBJECT> <SECTNO>1951.470-1951.478</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.479</SECTNO> <SUBJECT>Pilot projects.</SUBJECT> <SECTNO>1951.480</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.481</SECTNO> <SUBJECT>FmHA or its successor agency under Public Law 103-354 Instructions.</SUBJECT> <SECTNO>1951.482-1951.500</SECTNO> <RESERVED>[Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart K—Predetermined Amortization Schedule System (PASS) Account Servicing</HD> <SECTNO>1951.501</SECTNO> <SUBJECT>General.</SUBJECT> <SECTNO>1951.502</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.503</SECTNO> <SUBJECT>Authorities and responsibilities.</SUBJECT> <SECTNO>1951.504</SECTNO> <SUBJECT>Definitions and statements of policy.</SUBJECT> <SECTNO>1951.505</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.506</SECTNO> <SUBJECT>Processing payments.</SUBJECT> <SECTNO>1951.507</SECTNO> <SUBJECT>Maintaining borrower accounts.</SUBJECT> <SECTNO>1951.508-1951.509</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.510</SECTNO> <SUBJECT>Payment application.</SUBJECT> <SECTNO>1951.511</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.512</SECTNO> <SUBJECT>Changes in the application of loan payments.</SUBJECT> <SECTNO>1951.513</SECTNO> <SUBJECT>Overpayments and refunds to borrowers.</SUBJECT> <SECTNO>1951.514</SECTNO> <SUBJECT>Recoverable and non-recoverable cost charges.</SUBJECT> <SECTNO>1951.515</SECTNO> <SUBJECT>Promissory notes for borrowers who convert to PASS.</SUBJECT> <SECTNO>1951.516</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.517</SECTNO> <SUBJECT>Conversion from DIAS to PASS.</SUBJECT> <SECTNO>1951.518</SECTNO> <SUBJECT>Determining current loan balances for transfer.</SUBJECT> <SECTNO>1951.519-1951.547</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.548</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <SECTNO>1951.549</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.550</SECTNO> <SUBJECT>OMB control number.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart L—Servicing Cases Where Unauthorized Loan or Other Financial Assistance Was Received—Farmer Programs</HD> <SECTNO>1951.551</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1951.552</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>1951.553</SECTNO> <SUBJECT>Policy.</SUBJECT> <SECTNO>1951.554-1951.555</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.556</SECTNO> <SUBJECT>Initial determination that unauthorized assistance was received.</SUBJECT> <SECTNO>1951.557</SECTNO> <SUBJECT>Notification to borrower.</SUBJECT> <SECTNO>1951.558</SECTNO> <SUBJECT>Decision on servicing actions.</SUBJECT> <SECTNO>1951.559-1951.560</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.561</SECTNO> <SUBJECT>Servicing options in lieu of liquidation or legal action.</SUBJECT> <SECTNO>1951.562-1951.567</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.568</SECTNO> <SUBJECT>Account adjustments and reporting requirements.</SUBJECT> <SECTNO>1951.569</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <SECTNO>1951.570-1951.599</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.600</SECTNO> <SUBJECT>OMB control number.</SUBJECT> </SUBPART> <SUBPART> <RESERVED>Subpart M [Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart N—Servicing Cases Where Unauthorized Loan or Other Financial Assistance Was Received—Multiple Family Housing</HD> <SECTNO>1951.651</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1951.652</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>1951.653</SECTNO> <SUBJECT>Policy.</SUBJECT> <SECTNO>1951.654</SECTNO> <SUBJECT>Categories of unauthorized assistance.</SUBJECT> <SECTNO>1951.655</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.656</SECTNO> <SUBJECT>Initial determination that unauthorized assistance was received.</SUBJECT> <SECTNO>1951.657</SECTNO> <SUBJECT>Notification to recipient.</SUBJECT> <SECTNO>1951.658</SECTNO> <SUBJECT>Decision on servicing actions.</SUBJECT> <SECTNO>1951.659-1951.660</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.661</SECTNO> <SUBJECT>Servicing options in lieu of liquidation or legal action to collect.<PRTPAGE P="13"/> </SUBJECT> <SECTNO>1951.662-1951.667</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.668</SECTNO> <SUBJECT>Servicing unauthorized assistance accounts.</SUBJECT> <SECTNO>1951.669</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <SECTNO>1951.670-1951.699</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.700</SECTNO> <SUBJECT>OMB control number.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart O—Servicing Cases Where Unauthorized Loan(s) or Other Financial Assistance Was Received—Community and Insured Business Programs</HD> <SECTNO>1951.701</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1951.702</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>1951.703</SECTNO> <SUBJECT>Policy.</SUBJECT> <SECTNO>1951.704-1951.705</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.706</SECTNO> <SUBJECT>Initial determination that unauthorized assistance was received.</SUBJECT> <SECTNO>1951.707</SECTNO> <SUBJECT>Notification to recipient.</SUBJECT> <SECTNO>1951.708</SECTNO> <SUBJECT>Decision on servicing actions.</SUBJECT> <SECTNO>1951.709-1951.710</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.711</SECTNO> <SUBJECT>Servicing options in lieu of liquidation or legal action to collect.</SUBJECT> <SECTNO>1951.712-1951.714</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.715</SECTNO> <SUBJECT>Account adjustments and reporting requirement.</SUBJECT> <SECTNO>1951.716</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <SECTNO>1951.717-1951.749</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.750</SECTNO> <SUBJECT>OMB Control number.</SUBJECT> </SUBPART> <SUBPART> <RESERVED>Subparts P-Q[Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart R—Rural Development Loan Servicing</HD> <SECTNO>1951.851</SECTNO> <SUBJECT>Introduction.</SUBJECT> <SECTNO>1951.852</SECTNO> <SUBJECT>Definitions and abbreviations.</SUBJECT> <SECTNO>1951.853</SECTNO> <SUBJECT>Loan purposes for undisbursed RDLF loan funds from HHS.</SUBJECT> <SECTNO>1951.854</SECTNO> <SUBJECT>Ineligible assistance purposes.</SUBJECT> <SECTNO>1951.855-1951.858</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.859</SECTNO> <SUBJECT>Terms of loans.</SUBJECT> <SECTNO>1951.860</SECTNO> <SUBJECT>Interest on loans.</SUBJECT> <SECTNO>1951.861-1951.865</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.866</SECTNO> <SUBJECT>Security.</SUBJECT> <SECTNO>1951.867</SECTNO> <SUBJECT>Conflict of interest.</SUBJECT> <SECTNO>1951.868-1951.870</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.871</SECTNO> <SUBJECT>Post award requirements.</SUBJECT> <SECTNO>1951.872</SECTNO> <SUBJECT>Other regulatory requirements.</SUBJECT> <SECTNO>1951.873-1951.876</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.877</SECTNO> <SUBJECT>Loan agreements.</SUBJECT> <SECTNO>1951.878-1951.880</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.881</SECTNO> <SUBJECT>Loan servicing.</SUBJECT> <SECTNO>1951.882</SECTNO> <SUBJECT>Field visits.</SUBJECT> <SECTNO>1951.883</SECTNO> <SUBJECT>Reporting requirements.</SUBJECT> <SECTNO>1951.884</SECTNO> <SUBJECT>Non-Federal funds.</SUBJECT> <SECTNO>1951.885</SECTNO> <SUBJECT>Loan classifications.</SUBJECT> <SECTNO>1951.886-1951.888</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.889</SECTNO> <SUBJECT>Transfer and assumption.</SUBJECT> <SECTNO>1951.890</SECTNO> <SUBJECT>Office of Inspector General and Office of General Counsel referrals.</SUBJECT> <SECTNO>1951.891</SECTNO> <SUBJECT>Liquidation; default.</SUBJECT> <SECTNO>1951.892-1951.893</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.894</SECTNO> <SUBJECT>Debt settlement.</SUBJECT> <SECTNO>1951.895</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.896</SECTNO> <SUBJECT>Appeals.</SUBJECT> <SECTNO>1951.897</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <SECTNO>1951.898-1951.899</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.900</SECTNO> <SUBJECT>OMB control number.</SUBJECT> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart S—Farmer Program Account Servicing Policies</HD> <SECTNO>1951.901</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1951.902</SECTNO> <SUBJECT>General.</SUBJECT> <SECTNO>1951.903</SECTNO> <SUBJECT>Authorities and responsibilities.</SUBJECT> <SECTNO>1951.904</SECTNO> <SUBJECT>Mediation, reviews and appeals.</SUBJECT> <SECTNO>1951.905</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.906</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>1951.907</SECTNO> <SUBJECT>Notice of Loan Service Programs.</SUBJECT> <SECTNO>1951.908</SECTNO> <SUBJECT>Servicing financially distressed current borrowers.</SUBJECT> <SECTNO>1951.909</SECTNO> <SUBJECT>Processing primary loan service programs requests.</SUBJECT> <SECTNO>1951.910</SECTNO> <SUBJECT>Consideration of borrower's other assets for new applications.</SUBJECT> <SECTNO>1951.911</SECTNO> <SUBJECT>Homestead protection.</SUBJECT> <SECTNO>1951.912</SECTNO> <SUBJECT>Mediation.</SUBJECT> <SECTNO>1951.913</SECTNO> <SUBJECT>Servicing Net Recovery Buyout Recapture Agreements.</SUBJECT> <SECTNO>1951.914</SECTNO> <SUBJECT>Servicing shared appreciation agreements.</SUBJECT> <SECTNO>1951.915</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.916</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <SECTNO>1951.917-1951.949</SECTNO> <RESERVED>[Reserved]</RESERVED> <SECTNO>1951.950</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <EX>Exhibits to Subpart S</EX> <EX>Exhibit A—Notice of the Availability of Loan Servicing and Debt Settlement Programs for Delinquent Farm Borrowers</EX> <EX>Exhibit B—F [Reserved]</EX> <EX>Exhibit G—Deferral, Reamortization, and Reclassification of Distressed Farmer Program (FP) Loans for Softwood Timber Production (ST) Loans</EX> <EX>Exhibit H—Conservation Contract Program</EX> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart T—Disaster Set-Aside Program</HD> <SECTNO>1951.951</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1951.952</SECTNO> <SUBJECT>General.</SUBJECT> <SECTNO>1951.953</SECTNO> <SUBJECT>Notification and request for DSA.</SUBJECT> <SECTNO>1951.954</SECTNO> <SUBJECT>Eligibility and loan limitation requirements.</SUBJECT> <SECTNO>1951.955-1951.956</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.957</SECTNO> <SUBJECT>Eligibility determination and processing.</SUBJECT> <SECTNO>1951.958</SECTNO> <SUBJECT>Cancellation and reversal of DSA.</SUBJECT> <SECTNO>1951.959</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <SECTNO>1951.960-1951.999</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1951.1000</SECTNO> <SUBJECT>OMB control number.</SUBJECT> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority:</HD> <P>5 U.S.C. 301; 7 U.S.C. 1932 Note, 7 U.S.C. 1989, 42 U.S.C. 1480.</P> </AUTH> <EDNOTE> <HD SOURCE="HED">Editorial Note:</HD> <P>Some of the exhibits referenced in this part 1951 are not published in the Code of Federal Regulations. Exhibits are available in any FmHA or its successor agency under Public Law 103-354 office.</P> </EDNOTE> <SUBPART> <PRTPAGE P="14"/> <HD SOURCE="HED">Subpart A—Account Servicing Policies</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>50 FR 45764, Nov. 1. 1985, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.1</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>This subpart sets forth the policies and procedures to use in servicing Farmer Program loans (FP) which include Softwood Timber (ST), Operating Loan (OL), Farm Ownership (FO), Soil and Water (SW), Recreation Loan (RL), Emergency Loan (EM), Economic Emergency Loan (EE), Special Livestock Loan (SL), Economic Opportunity Loan (EO), and Rural Housing Loan for farm service buildings (RHF) accounts. This subpart also applies to Rural Rental Housing Loan (RRH), Rural Cooperative Housing Loan (RCH), Labor Housing Loan (LH), Rural Housing Site Loan (RHS), and Site Option Loan (SO) accounts not covered under the Predetermined Amortization Schedule System (PASS). Loans on PASS will be administered under subpart K of part 1951 of this chapter. Cases involving unauthorized assistance will be serviced under Subparts L and N of this part. Cases involving graduation of borrowers to other sources of credit will be serviced under Subpart F of this part.</P> <CITA>[52 FR 26134, July 13, 1987]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.2</SECTNO> <SUBJECT>Policy.</SUBJECT> <P>Borrowers are expected to pay their debts to the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) in accordance with their agreements and ability to pay. They will be encouraged to pay ahead of schedule, consistent with sound financial management. When borrowers have acted in good faith and have exercised due diligence in an effort to pay their indebtedness but cannot pay on schedule because of circumstances beyond their control, servicing actions will be consistent with the best interests of the borrower and the Government. It is the policy of this agency to service borrower loan account without regard to race, color, religion, sex, marital status, national origin, age, physical or mental handicap (borrower must possess the capacity to enter into a legal contract for services).</P> </SECTION> <SECTION> <SECTNO>§ 1951.3</SECTNO> <SUBJECT>Authorities and responsibilities.</SUBJECT> <P>County Supervisors and District Directors are responsible for servicing all FmHA or its successor agency under Public Law 103-354 accounts serviced by the County and District Offices as prescribed by this subpart under the general guidance and supervision of District Directors and State Office personnel. Full use will be made of the County Office Management System in account servicing. For the purposes of this Subpart, all references to “County Supervisor” shall be construed to mean “District Director” for all loans serviced by the District Office.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.4-1951.5</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.6</SECTNO> <SUBJECT>Handling payments.</SUBJECT> <P>(a) <E T="03">Payments on Rural Housing (RH) loans.</E> Payments on RH loans will be handled in accordance with subparts B and G of this part.</P> <P>(b) <E T="03">Payments for other than RH, FO and SW loans.</E> These payments will be handled in accordance with part 1951, subpart B.</P> <P>(c) <E T="03">Payments for FO and SW loans.</E> (1) Payments made through the County Office without direct payment coupons for FO and SW loans will be handled in accordance with part 1951, subpart B.</P> <P>(2) Payments for FO and SW individual loans made through the County Office with Form FmHA or its successor agency under Public Law 103-354 370-46A, Expanded Direct Payment Coupon, will be handled as follows:</P> <P>(i) County Supervisors may put FO and SW individual borrowers on the Expanded Direct Payment Coupon system if the borrower only needs limited credit counseling or only makes one annual installment payment per year on the loan.</P> <P>(ii) For new loans, the County Supervisor will indicate by checking the appropriate block on Form FmHA or its successor agency under Public Law 103-354 1940-1, “Request For Obligation of Funds,” that for selected borrowers Expanded Direct Payment Coupons are to be mailed to the County Office.<PRTPAGE P="15"/> </P> <P>(iii) An existing loan borrower may be put on or taken off this Expanded Direct Payment Coupon system by filling out Form FmHA or its successor agency under Public Law 103-354 1951-34, “Direct Payment Plan Change,” in accordance with the Forms Manual Insert (FMI) and entering it via the field office terminal system.</P> <P>(iv) Payments must be made by check or money order payable to the Farmer Home Administration. If a field office is on concentration banking, the checks and/or money orders are deposited in the concentrator bank. The coupons are forwarded directly to the Finance Office in accordance with concentration banking procedures. If a field office is not on concentration banking, the coupons and checks and/or money orders are placed in one envelope and mailed to the Finance Office with any other items being mailed that day.</P> <P>(v) The Finance Office, upon receipt of the payment coupon and check or money order, will credit the borrower's account with payment as of the date the payment is received in the field office.</P> <P>(vi) When the Finance Office received payment coupon number 10, a new supply of coupons will be mailed to the County Office. All 12 payment coupons should be used before using the new supply.</P> <P>(3) Direct payment for FO and SW loans mailed directly to the Finance Office by the borrower are handled as follows:</P> <P>(i) The County Supervisor will select the FO and SW borrowers who, in the Supervisor's opinion, are capable of making direct payments to the Financing Office. The County Supervisor will not select borrowers who (A) will need frequent credit counseling, (B) because of the lack of education or other reasons, are not capable of assuming responsibility for making payments directly to the Finance Office, or (C) have payments directly assigned to FmHA or its successor agency under Public Law 103-354, such as milk assignments. The fact that a borrower does not maintain a checking account will not, however, prevent selection for direct payments.</P> <P>(ii) For new loans the County Supervisor will indicate on Form FmHA or its successor agency under Public Law 103-354 1940-1 the selected borrowers by checking the appropriate box. The payment coupon packet will be forwarded to the County Office at the time the loan is obligated. It will be delivered to the borrower at loan closing, at which time the use of the payment coupons will be explained to the borrower.</P> <P>(iii) For Assumption Agreements, the packet will be mailed to the borrower at the time the Assumption Agreement is processed in the Finance Office.</P> <P>(iv) The payment coupons and pre-addressed envelopes, together with instructions on how to use the coupons and a record keeping card, will be asembled into an envelope in which the borrower may retain the records. The Form FmHA or its successor agency under Public Law 103-354 370-46, “Direct Payment Coupon,” will be numbered 1-12, even though the borrower may have less or more than 12 payments scheduled during the year.</P> <P>(v) The Finance Office, upon receipt of Form FmHA or its successor agency under Public Law 103-354 370-46 and a check or money order, will credit the borrower's account with payment as of the date the payment is received by the Finance Office.</P> <P>(vi) When the Finance Office receives Form FmHA or its successor agency under Public Law 103-354 370-46 for payment number 10, a new supply of Forms FmHA or its successor agency under Public Law 103-354 370-46 will be prepared and mailed to the borrower. All 12 copies of Form FmHA or its successor agency under Public Law 103-354 370-46 should be used before using the new supply.</P> <P>(vii) If a borrower is on direct payment and receives a subsequent FO or SW loan, the Finance Office will send a set of Form FmHA or its successor agency under Public Law 103-354 370-46 with “FO” or “SW” in the loan number block. This indicates the borrower has more than one loan of the particular type. The borrower will be instructed by the County Office to send a Form FmHA or its successor agency under Public Law 103-354 370-46 showing the amount and a check or money order for the total payment.<PRTPAGE P="16"/> </P> <P>(d) <E T="03">County Office handling of direct payment accounts.</E> Form FmHA or its successor agency under Public Law 103-354 1905-1, “Management System Card—Individual,” and Form FmHA or its successor agency under Public Law 103-354 1905-1, “Management System Card—Individual (Rural Housing only),” will be used in the County Office Management System Box. These forms and the transaction records will be maintained as prescribed in FmHA or its successor agency under Public Law 103-354 Instruction 1905-A (available in any FmHA or its successor agency under Public Law 103-354 office). In addition, an orange signal will be placed to the left of Position A on Form FmHA or its successor agency under Public Law 103-354 1905-1 to denote that the borrower is on the direct payment system. If a borrower fails to make payments as agreed, or becomes delinquent in taxes or insurance so that it is necessary for FmHA or its successor agency under Public Law 103-354 to pay taxes or insurance by voucher, the County Supervisor may request the Finance Office to remove the borrower from the direct payment method. If this decision is made, the County Supervisor will contact the borrower and collect the remaining supply of Forms FmHA or its successor agency under Public Law 103-354 370-46 which will be destroyed. The borrower will be informed that payments after that date should be made to the County Office. If at a later date the borrower is making payments on schedule, the County Supervisor may request the Finance Office to put the borrower back on the direct payment method and provided a new set of Forms FmHA or its successor agency under Public Law 103-354 370-46. These changes are made by filling out Form FmHA or its successor agency under Public Law 103-354 1951-34 in accordance with the FMI and entering it via the field office terminal system.</P> <P>(e) <E T="03">Account servicing actions retained by the County Office.</E> For those borrowers who make direct payments to the Finance Office, the County Supervisor will continue to handle the following servicing actions:</P> <P>(1) Any regular payments a borrower is to make prior to receiving the packet of payment coupons will be made through the County Office in the usual manner.</P> <P>(2) All payments other than regular payments will be made through the County Office in the usual manner.</P> <P>(3) The County Supervisor will counsel with borrowers concerning questions they have about their account. If assistance is needed, the County Supervisor will contact the State or Finance Office as appropriate.</P> <P>(4) If an uncollectible item is received, the Finance Office will reverse the amount from the borrower's account. The uncollectible item with a transmittal memorandum will be sent to the County Office. The County Office will return the uncollectible check to the borrower after it is fully redeemed. The borrower will make payment by sending a new check and a new payment coupon to the Finance Office. There will also be a noninterest accruing administrative cost charged to the borrower's account for uncollectible items due to insufficient funds. (The amounts of any such administrative charges are available from any FmHA or its successor agency under Public Law 103-354 office.) Therefore, the borrower's payment for the uncollectible item should be for the regular payment amount plus the administrative cost.</P> <P>(f) <E T="03">Borrowers receiving other type loans.</E> If a borrower is on direct payment and subsequently receives another type loan, the original loan may remain on the direct payment system.</P> <P>(g) <E T="03">Borrowers with RRH, RCH, or LH, loans on a Predetermined Amortization Schedule System (PASS).</E> Loans or PASS will be administered under Subpart K of this part.</P> <P>(h) <E T="03">Borrowers with RRH, RCH, LH, RHS and SO loans administered under this subpart.</E> RRH, RCH, LH, RHS and SO loans on a daily interest accrual system (DIAS) for applying payments administered under this subpart are subject to the direct billing and payment requirements in § 1951.506 of Subpart K of this part. All payments are due on the first day of the months following the date shown on the promissory note, except loans with principal and interest bonds issued before May 1, <PRTPAGE P="17"/>1985. All payments are considered delinquent for reporting purposes on the 15th day of the month following the payment due date if the unpaid portion of the payment exceeds $15.00.</P> <CITA>[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 29175, Aug. 6, 1987; 54 FR 46844, Nov. 8, 1989]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.7</SECTNO> <SUBJECT>Accounts of borrowers.</SUBJECT> <P>(a) <E T="03">Accounts of active borrowers.</E> The foundation for proper and timely debt payment is sound farm and home planning or budgeting, including plans for debt payment, supplemented by effective followup management assistance. Account servicing, therefore, must begin with initial planning and must be an integral part of analysis and subsequent planning, as well as follow-up management assistance.</P> <P>(b) <E T="03">Accounts of collection-only borrowers.</E> (1) Collection-only borrowers are expected to pay debts to FmHA or its successor agency under Public Law 103-354 in accordance with their ability to pay. Efforts to collect such debts, including use of collection letters and account servicing visits, must be coordinated with other program activities. If these borrowers are unable to pay in full, appropriate debt settlement policies should be promptly applied.</P> <P>(2) Envelopes addressed to collection-only borrowers will bear the legend “DO NOT FORWARD.” When an envelope is returned indicating the borrower has moved, appropriate steps will be taken to determine the borrower's correct address.</P> <P>(3) Regular County Office employees are generally expected to service the collection-only caseload when it is of moderate size. State Directors may assign additional employees to County Offices having large collection-only caseloads when necessary to service such cases to a prompt conclusion. State Directors may inform the National Office of the need for employing special collection personnel in urban areas having large collection-only caseloads when employees are not available to assign to such areas.</P> <P>(4) The following actions will be taken in servicing accounts owed by collection-only borrowers:</P> <P>(i) District Directors will review, yearly, all collection-only cases in each County Office with the County Supervisor as early in <E T="03">each</E> fiscal year as possible. They will jointly agree on the actions to take and will complete Form FmHA or its successor agency under Public Law 103-354 451-27, “Review of Collection-Only Accounts.”</P> <P>(ii) District Directors will establish with County Supervisors a systematic plan for collecting the accounts or initiating appropriate debt settlement actions during the year.</P> <P>(iii) County Supervisors will include in their monthly calendars plans for servicing these accounts.</P> <P>(iv) On visits to County Offices, District Directors will review the progress being made by County Supervisors to insure that goals will be reached.</P> <P>(v) For collection-only accounts in District Offices, the State Director will review the accounts as required in paragraphs (b)(4)(i) through (b)(4)(iv) of this section and the District Director will service the account.</P> <P>(c) <E T="03">Notifying borrowers of payments.</E> County Supervisors will notify borrowers of the dates and amounts of payments that have been agreed on for all types of accounts. Form FmHA or its successor agency under Public Law 103-354 451-3, “Reminder of Payment to be Made,” or similar form approved by the State Director, will be used. The form will not contain any language indicating that an account is delinquent. These notices will be timed to reach borrowers immediately before the receipt of the income from which the payments should be made or before the installment due date on the note, as appropriate, and may include other pertinent information such as a reference to agreements reached during the year and sources of income from which the payment was planned. Such notices need not be sent when frequent payments are scheduled and the borrower customarily makes the payments when due.</P> <P>(d) <E T="03">Subsequent servicing.</E> (1) When a Farmer Program borrower fails to make a payment as agreed, the County Supervisor will notify the borrower in accordance with subpart S of part 1951 of this chapter.</P> <P>(2) When a borrower other than a Farmer Program borrower fails to make a payment as agreed, the County <PRTPAGE P="18"/>Supervisor will contact the borrower to discuss the reasons why the payment was not made and to develop specific plans, for making the payment. Form FmHA or its successor agency under Public Law 103-354 451-32, “Notice of Payment Due,” may be used to notify borrowers who make payments directly to the Finance Office that their payment has not been received. Form FmHA or its successor agency under Public Law 103-354 450-13, “Request for Assignment of Income From Trust Property,” may be used when other methods of loan collection fail and debt repayment is possible from trust income. In the event the borrower refuses to make the payment when income is available, or if it is determined that income will not be available to make the payment within a reasonable length of time and will not be available to make future payments, action will be taken to protect the Government's interest in accordance with applicable regulations. Followup actions of subsequent servicing will be noted on appropriate Management System Cards.</P> <P>(e) <E T="03">Maintaining records of accounts in County Offices.</E> Records of the accounts of FmHA or its successor agency under Public Law 103-354 borrowers will be maintained in the County Office on Forms FmHA or its successor agency under Public Law 103-354 1905-1, FmHA or its successor agency under Public Law 103-354 1905-5, FmHA or its successor agency under Public Law 103-354 1905-10, “Management System Card-Association,” as provided in FmHA or its successor agency under Public Law 103-354 Instruction 1905-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(f) <E T="03">Inquiry for Multiple Family Housing (MFH) loans.</E> Inquiry for all RRH, RCH, LH, RHS and SO loans and grants will be made through field terminals using procedures in the “MFH Users Procedures” manual or by contacting the MFH Unit in the Finance Office.</P> <P>(g) <E T="03">Inquiry for other than Multiple Family Housing (MFH) loans.</E> Inquiry for these loan programs will be made through field terminals using procedures in the “Automated Discrepancy Processing System (ADPS)” manuals.</P> <P>(h) <E T="03">Loan Summary Statements.</E> Upon request of a borrower, FmHA or its successor agency under Public Law 103-354 issues a loan summary statement that shows the account activity for each loan made or insured under the Consolidated Farm and Rural Development Act. The field office will post on the bulletin board a notice informing the borrower of the availability of the loan summary statement. See Exhibit A for a sample of the required notice.</P> <P>(1) The loan summary statement period is from January 1 through December 31. The Finance Office forwards a copy of Form FmHA or its successor agency under Public Law 103-354 1951-9, “Annual Statement of Loan Account,” to field offices to be retained in borrower files as a permanent record of borrower activity for the year.</P> <P>(2) Quarterly Forms FmHA or its successor agency under Public Law 103-354 1951-9 are retained in the Finance Office on microfiche. These quarterly statements reflect cumulative data from the beginning of the current year through the end of the most recent quarter. If a borrower requests a loan summary statement with data through the most recent quarter, county supervisors may request copies of these quarterly or annual statements by sending Form FmHA or its successor agency under Public Law 103-354 1951-57, “Request for Loan Summary Statement,” to the Finance Office.</P> <P>(3) When a loan summary statement is requested by the borrower, the field office will copy the applicable annual or quarterly Forms FmHA or its successor agency under Public Law 103-354 1951-9. A copy(ies) of Form FmHA or its successor agency under Public Law 103-354 1951-9; a copy of Form FmHA or its successor agency under Public Law 103-354 1951-58, “Basis for Loan Account Payment Application for Farmer Program Loans;” and a copy of the promissory note showing borrower installments will constitute the loan summary statement provided to the borrower.</P> <CITA>[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 11457, Apr. 9, 1987; 53 FR 35716, Sept. 14, 1988; 54 FR 10269, Mar. 13, 1989]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.8</SECTNO> <SUBJECT>Types of payments.</SUBJECT> <P>(a) <E T="03">Regular payments.</E> Regular payments are all payments other than extra payments and refunds. Usually, <PRTPAGE P="19"/>regular payments are derived from farm income, as defined § 1962.4 of subpart A of part 1962 of this chapter. Regular payments also include payments derived from sources such as Agricultural Stabilization and Conservation Service payments (other than those referred to in paragraph (b) of this section), off-farm income, inheritances, life insurance, mineral royalties and income from mineral leases (see § 1965.17 (c) of subpart A of part 1965 of this chapter), including income from leases or bonuses. Regular payments in the case of a Section 502 RH loan to an applicant involved in a mutual self-help project will include loan funds advanced for the payment of any part of the first and second installments. All payments to the lock box facility(s) by direct payment borrowers are considered regular payments.</P> <P>(b) <E T="03">Extra payments.</E> Extra payments are payments derived from:</P> <P>(1) Sale of chattels other than chattels which will be sold to produce farm income or real estate security, including rental or lease of real estate security of a depreciating or depleting nature.</P> <P>(2) Refinancing of the real estate debt.</P> <P>(3) Cash proceeds of real property insurance as provided in subpart A of part 1806 of this chapter (FmHA or its successor agency under Public Law 103-354 Instruction 426.1).</P> <P>(4) A sale of real estate not mortgaged to the Government, pursuant to a condition of loan approval.</P> <P>(5) Agricultural Conservation Program payments as provided in subpart A of part 1941 of this chapter.</P> <P>(6) Transactions of a similar nature which reduce the value of security other than chattels which will be sold to produce farm income.</P> <P>(c) <E T="03">Refunds.</E> Refunds are payments derived from the return of unused loan or grant funds, except that the term “refunds” as used in Form 1940-17, “Promissory Note,” will be construed to mean the return of funds advanced for capital goods, when a loan is made for operating purposes.</P> <CITA>[50 FR 45764, Nov. 1. 1985, as amended at 51 FR 4137, Feb. 3, 1986; 53 FR 35717, Sept. 14, 1988; 58 FR 52646, Oct. 12, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.9</SECTNO> <SUBJECT>Distribution of payments when a borrower owes more than one type of FmHA or its successor agency under Public Law 103-354 loan.</SUBJECT> <P>“Distribution” means dividing a payment into parts according to the rules set out in this section. This section only applies after the County Supervisor determines the amount of proceeds that will be released for other purposes in accordance with the annual plan (Form FmHA or its successor agency under Public Law 103-354 431-2, “Farm and Home Plan”) and Form FmHA or its successor agency under Public Law 103-354 1962-1, “Agreement for the Use of Proceeds/Release of Chattel Security.”</P> <P>(a) <E T="03">Distribution of regular payments.</E> (1) When a borrower owes more than one type of FmHA or its successor agency under Public Law 103-354 loan, regular payments received from <E T="03">each crop year's income</E> will be distributed in accordance with the following priorities:</P> <P>(i) <E T="03">First,</E> to an amount equal to any advances made by FmHA or its successor agency under Public Law 103-354 for the crop year's living and operating expenses. If no advances were made, distribute the payment according to paragraph (a)(1)(ii) of this section. If the amount of the payment was greater than the amount of any advances, the excess should be distributed according to paragraph (a)(1)(ii) of this section.</P> <P>(ii) <E T="03">Second,</E> to FmHA or its successor agency under Public Law 103-354 loans in proportion to the approximate amounts due on each for the year. In determining the amounts due for the year, deduct an amount equal to any advances for the year's living and operating expenses. If the amount of the payment exceeds the amount of any advances <E T="03">plus</E> the amount due on each loan for the year, the excess should be distributed according to paragraph (a)(1)(iii) of this section.</P> <P>(iii) <E T="03">Third,</E> to FmHA or its successor agency under Public Law 103-354 loans in proportion to the delinquencies existing on each. If the amount of the payment exceeds the amount of any advances <E T="03">plus</E> the amount due on each <PRTPAGE P="20"/>loan for the year <E T="03">plus</E> any delinquencies, the excess should be distributed according to paragraph (a)(1)(iv) of this section.</P> <P>(iv) <E T="03">Fourth,</E> as advance payments on FmHA or its successor agency under Public Law 103-354 loans. In making such distribution consider the principal balance outstanding on each loan, the security position of the liens securing each loan, the borrower's request, and related circumstances.</P> <P>(2) When the County Supervisor determines it is reasonable to expect that the income which will be available for payment on FmHA or its successor agency under Public Law 103-354 debts will be sufficient to pay the installments scheduled for the year under the first and second priorities, collections may be distributed so as to avoid unnecessary delinquencies, and regular payments derived from rental or lease of real estate security after approval of foreclosure or voluntary conveyance will be distributed to the real estate lien of the highest priority.</P> <P>(3) Payments will be distributed differently than the priorities provided in this section if accounts are out of balance or a different distribution is needed to protect the government's interest.</P> <P>(4) Any income received from the sale of softwood timber on marginal land converted to the production of softwood timber must be applied on the ST loan(s).</P> <P>(b) <E T="03">Distribution of extra payments.</E> Extra payments will be distributed first to the FmHA or its successor agency under Public Law 103-354 loan having highest priority of lien on the security from which the payment was derived. When the payment is in excess of the unpaid balance of the FmHA or its successor agency under Public Law 103-354 lien having the highest priority, the balance of such payment will be distributed to the FmHA or its successor agency under Public Law 103-354 loan having the next highest priority.</P> <P>(c) <E T="03">Application of payments.</E> After the decision is reached as to the amount of each payment that is to be distributed to the different loan types, application of the payment will be governed by §§ 1951.10 or 1951.11 of this subpart as appropriate.</P> <CITA>[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 26134, July 13, 1987; 53 FR 35717, Sept. 14, 1988]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.10</SECTNO> <SUBJECT>Application of payments on production type loan accounts.</SUBJECT> <P>Employees receiving payments on OL, EO, SW codes “24,” EM for subtitle B purposes, EE operating-type, and other production-type loan accounts will select, in accordance with the provisions of this section, the account(s) to which such payment will be applied. All payments on OL and EM loans approved on or before December 31, 1971, will be credited first to any administrative costs, then to noncapitalized interest, then to the amount of accrued deferred interest, and then to principal. All payments on all other loans including OL and EM loans approved after December 31, 1971, will be credited first to any administrative costs, then to noncapitalized interest, then to the amount of accrued deferred interest, then to interest accrued to the date of the payment and then to principal, in accordance with the terms of the note. This section only applies after the County Supervisor determines the amount of proceeds that will be released for other purposes in accordance with the annual plan (Form FmHA or its successor agency under Public Law 103-354 431-2) and Form FmHA or its successor agency under Public Law 103-354 1962-1.</P> <P>(a) <E T="03">Rules for selection of accounts.</E> The following rules will govern the selection of accounts and installments to which payments will be applied. As used in this section, “recoverable costs” are those which the loan agreement documents say the borrower is primarily responsible for paying and which the government can charge to the borrower's account.</P> <P>(1) Payments from farm income or from assignments of income will be applied first to accounts with small balances, including recoverable costs, to remove such accounts from the records. Any balance will be applied on debts secured by the lien in the following order:<PRTPAGE P="21"/> </P> <P>(i) To amounts due or falling due on loans made in connection with the current year's operations, except:</P> <P>(A) When funds loaned for the purchase of capital goods were used to meet the current year's operating expenses, payments will be applied first to the final unpaid installments to the extent of the loan funds so used. These payments will be treated as extra payments.</P> <P>(B) When installments on loans previously made fall due before the installment on the loan for the current year's operations or when such loans are delinquent and it is anticipated that sufficient income will be received to meet the installment on the current year's operations when due, collections may be applied first to installments on loans made in previous years.</P> <P>(ii) To accounts having the oldest delinquencies, or if no delinquencies, to the oldest unpaid account, except that the amount available for payment on OL and EM loan accounts will be prorated between the two accounts on the basis of:</P> <P>(A) The delinquent amount owed on each, or</P> <P>(B) The total amount owed on each if there are no delinquencies.</P> <P>(2) Non-farm income and payments derived from the sale of real estate security, will be applied to the earliest account secured by the earliest lien covering such security. The amount to be applied to principal will be applied to the final unpaid installment(s).</P> <P>(3) On partial refunds of loan advances, the amount to be applied to the principal will be applied to the final unpaid installment on the note which evidences such advance; however, a refund of an advance for current farm and home expenses repayable within the year may be applied to the principal on the first unpaid installment on such note as a regular payment.</P> <P>(4) Total refunds of loan advances will be applied to the notes which evidence such advances.</P> <P>(5) In applying payments from sources other than those in paragraphs (a)(2), (3), and (4) of this section the borrower has the right to select the loan account or accounts on which such payments will be applied. In the absence of the borrower's selection, such payments generally will be applied in the following order:</P> <P>(i) To accounts with small balances, including recoverable costs.</P> <P>(ii) To accounts with the oldest unsecured note(s).</P> <P>(iii) To accounts with the oldest delinquencies.</P> <P>(iv) To accounts with the oldest secured note or notes.</P> <P>(6) Employees receiving collections are authorized to make exceptions to paragraphs (a)(1), (2), and (6) of this section when it is necessary to apply a part of a payment to delinquent accounts to prevent the Federal Statute of Limitations from being asserted as a defense in suits on FmHA or its successor agency under Public Law 103-354 claims.</P> <P>(b) <E T="03">Payments in full.</E> Errors of a significant amount in computation or collection will be called to the attention of the collection official by the Finance Office. The borrower's note will not be returned until the balance on the loan account is paid in full. Claims by or on behalf of the borrowers that the amounts owed have been computed incorrectly will be referred to the Finance Office.</P> <CITA>[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988; 54 FR 46844, Nov. 8, 1989; 57 FR 18680, Apr. 30, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.11</SECTNO> <SUBJECT>Application of payments on real estate accounts.</SUBJECT> <P>(a) <E T="03">Regular payments.</E> If a borrower owes more than one type of real estate loan, or has received initial and subsequent real estate loans on which separate accounts are maintained, payments on such accounts should be applied so as to maintain the note accounts approximately in balance at the end of the year with respect to installments due on the notes, other charges, and delinquencies.</P> <P>(b) <E T="03">Refunds and extra payments.</E> (1) Refunds will be applied to the note representing the loan from which the advance was made.</P> <P>(2) Extra payments will be applied to the note secured by the earliest mortgage on the property from which the extra payment was obtained.</P> <P>(3) Funds remaining from an RH grant or a combination loan and grant, after completion of development, will <PRTPAGE P="22"/>be refunded. If the borrower received a combination loan and grant, the remaining funds up to the amount of the grant are considered to be grant funds.</P> <P>(c) <E T="03">County Office actions.</E> (1) The collecting official will complete Form FmHA or its successor agency under Public Law 103-354 451-1, “Acknowledgment of Cash Payment,” in accordance with the FMI when cash or money orders are received as a payment.</P> <P>(2) The collection official will complete Form FmHA or its successor agency under Public Law 103-354 451-2, “Schedule of Remittances,” in accordance with the FMI.</P> <P>(d) <E T="03">Finance Office handling.</E> (1) Regular payment will be handled as follows.</P> <P>(i) Payments will be applied first to satisfy any administrative costs such as a charge for an uncollectible check. (The amounts of any such charges are available from any FmHA or its successor agency under Public Law 103-354 office.)</P> <P>(ii) Amounts paid on direct loan accounts will be credited to the borrower's account as of the date of Form FmHA or its successor agency under Public Law 103-354 451-2 or for direct payments the date payment is received in the Finance Office, and will be applied first to a portion of any interest which accrues during the deferral period, second to interest accrued to the date received and third to principal, in accordance with the terms of the note.</P> <P>(iii) Amounts paid on insured loan accounts will be credited to the borrower's account as of the date of Form FmHA or its successor agency under Public Law 103-354 451-2 or for direct payments the date payment is received in the Finance Office, and will be applied in the following order:</P> <P>(A) Advances from the insurance funds as shown on the latest <E T="03">Form FmHA or its successor agency under Public Law 103-354 389-404,</E> “Analysis of Accounts Maturing.” (If the collection is intended for final payment of the loan, or to pay the insurance account in connection with an assumption agreement, the collection will be applied first to the interest accrued on the advance to the date of the payment.)</P> <P>(B) Principal advanced from the insurance fund.</P> <P>(C) Unamortized costs.</P> <P>(D) Amount due for amortized costs for taxes and insurance.</P> <P>(E) Unpaid loan insurance charges, including the current year's charge, when applicable.</P> <P>(F) First to a portion of any interest which accrues during the deferral period, second to accrued interest to the date of the payment on the note account and then to the principal balance of the note account in accordance with the terms of the note.</P> <P>(2) Extra payments and refunds will be credited to the borrower's note account as of the date of Form FmHA or its successor agency under Public Law 103-354 451-2 and will be applied first to a portion of any interest which accures during the deferral period, second to interest accrued to the date of the receipt and third to principal in accordance with the terms of the note. The amount to be applied to principal will be applied to the final unpaid installment(s). Extra payments and refunds will not affect the schedule status of a borrower except indirectly in connection with the amortization of a direct loan.</P> <P>(3) The Finance Office will remit final payments promptly to lenders. Other collections (regular, extra, and refunds) applied to a borrower's insured note will be accumulated until the annual installment due date, and will be remitted along with any advances from the insurance fund to the lender within 30 days after the installment due date. All payments to a lender will be credited first to interest to the date of the Treasury check and then to principal. Since the application of a payment to a borrower's account with the Government and the Government's account with a lender is of a different effective date, the balance owed by a borrower to the government and by the Government to a lender ordinarily will not be the same.</P> <CITA>[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 46845, Nov. 8, 1989]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.12</SECTNO> <SUBJECT>Changes in the application of loan payments.</SUBJECT> <P>(a) <E T="03">Authority to change payments.</E> County Supervisors and Assistant County Supervisors are hereby authorized to approve requests for changes in <PRTPAGE P="23"/>the application of payments between loan accounts when payments have been applied in error and such requests conform to the policies expressed in this Subpart. However, no change will be made if the payment applied in error resulted in the payment in full of any FmHA or its successor agency under Public Law 103-354 loan and the canceled note or notes have been returned to the borrower.</P> <P>(b) Form FmHA or its successor agency under Public Law 103-354 1951-7, “Request for Change in Application.” Requests for changes in application of payments will be made on Form FmHA or its successor agency under Public Law 103-354 1951-7. For requests which County Supervisors or Assistant County Supervisors are authorized to approve, the County Supervisor or Assistant County Supervisor will sign the original of Form FmHA or its successor agency under Public Law 103-354 1951-7 and forward it to the Finance Office. The Finance Office will send Form FmHA or its successor agency under Public Law 103-354 451-26 to the County Office when the change is made on Finance Office records.</P> <P>(c) <E T="03">Changes by the Finance Office in application of remittances.</E> (1) When reapplication of collection is made by the Finance Office Form FmHA or its successor agency under Public Law 103-354 451-8, “Journal Voucher for Loan Account Adjustments,” will be prepared. Form FmHA or its successor agency under Public Law 103-354 451-26 will be forwarded to the County Office to show the reapplication.</P> <P>(2) When necessary, the Finance Office will correct Form FmHA or its successor agency under Public Law 103-354 451-2 as prepared by the County Office.</P> <CITA>[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 18883, May 3, 1989]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.13</SECTNO> <SUBJECT>Overpayments and refunds.</SUBJECT> <P>(a) The Finance Office will mail any overpayment refund check to the County Supervisor, who will verify that the refund is due before delivering the check.</P> <P>(b) Borrower requests for overpayment refunds must be in writing. Borrowers will be discouraged from requesting refunds when the County Office records show that a refund is not due, however, the County Supervisor will forward any request to the Finance Office. Finance Office computations will control in determining the amount of any refund.</P> <P>(c) Underpayments or overpayments of less than $10 will not be collected or refunded (except as provided in paragraph (b) of this section) since the expense of processing the action would be more than the amount involved.</P> </SECTION> <SECTION> <SECTNO>§ 1951.14</SECTNO> <SUBJECT>Recoverable and nonrecoverable cost charges.</SUBJECT> <P>(a) The County Supervisor will:</P> <P>(1) Prepare vouchers for recoverable and nonrecoverable cost charges according to the applicable instruction for the type of advance being made. (“Recoverable costs” is defined in § 1951.10(a) of this subpart).</P> <P>(2) If a recoverable cost, show on the voucher the fund code to which the advance is to be charged.</P> <P>(3) If the cost item relates to security for more than one type of account, show the code for the loan secured by the earliest promissory note (if lien secures more than one note).</P> <P>(b) The Finance Office will forward Form FmHA or its successor agency under Public Law 103-354 451-26, to the County Office when the recoverable cost charge is processed.</P> </SECTION> <SECTION> <SECTNO>§ 1951.15</SECTNO> <SUBJECT>Return of paid-in-full or satisfied notes to borrower.</SUBJECT> <P>(a) <E T="03">Notes not held in County Office.</E> When the original of the note is not held in the County Office the County Supervisor will request the Finance Office to acquire and forward the note to the County Office.</P> <P>(b) <E T="03">Return of notes after collection.</E> When a note (or loan-type account) evidencing an OL, EM, EE, EO, special livestock (SL), SW loan coded “24”, or other production-type loan has been satisfied by payment in full, the County Supervisor will examine the borrower's records in the County Office and determine that the account has been satisfied before delivering the note to the borrower (See § 1962.27 of subpart A of part 1962 on the satisfaction of chattel security instruments). The note(s) will be returned to the borrower immediately except that:<PRTPAGE P="24"/> </P> <P>(1) When the final payment is made in a form other than currency and coin, Treasury check, cashier's check, certified check, Postal or bank money order, bank draft, or a check issued by a responsible lending institution or a responsible title insurance or title and trust company, the note or notes will not be surrendered until 30 days after the date of final payment, and</P> <P>(2) When notes are needed in making marginal releases or satisfactions or security instruments, the notes will be held until the instruments are satisfied.</P> <P>(c) <E T="03">Surrender of notes to effect collection.</E> (1) County Supervisors are authorized to surrender notes to borrowers when final payment of the amount due is made in the form of currency and coin, Treasury check, cashier's check, certified check, Postal or bank money order, bank draft, or a check issued by a responsible lending institution or a responsible title insurance or title trust company.</P> <P>(2) The amount due on the note(s) to be surrendered will be confirmed with the Finance Office. County Supervisors will request the original note(s) from the Finance Office if it is not in the County Office.</P> <P>(d) <E T="03">Return of notes reduced to judgment.</E> Notes which have been reduced to judgment are a part of the court records and ordinarily cannot be withdrawn and returned to the borrower even after satisfaction of the judgment. Therefore, no effort will be made to obtain and return such notes except on the written request of the judgment debtor or debtor's attorney. Such requests will be referred to the Office of the General Counsel (OGC).</P> <P>(e) <E T="03">Debt settlement case.</E> See subparts B or C of part 1956 of this chapter for the handling of notes in debt settlement cases.</P> <P>(f) <E T="03">Lost notes.</E> (1) All promissory notes dated on or after 11-1-73 are held in the County Office. A few notes (with the exception of OL notes) are still held by investors. If a note dated prior to 11-1-73 cannot be located in the County Office and it is needed for servicing the case, the County Supervisor will write a memorandum to the Finance Office explaining why the note is needed. The request should give the name and case number of the borrower, date and original amount of the loan, type of loan and loan code.</P> <P>(2) If a promissory note is lost in the County Office and it is needed for servicing a case, the State Director may authorize the County Supervisor to execute an appropriate affidavit regarding the lost note. The form of such an affidavit will be provided by OGC.</P> <CITA>[50 FR 45764, Nov. 1, 1985, as amended at 51 FR 45432, Dec. 18, 1986; 53 FR 13100, Apr. 21, 1988; 56 FR 10147, Mar. 11, 1991]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.16</SECTNO> <SUBJECT>Other servicing actions on real estate type loan accounts.</SUBJECT> <P>(a) <E T="03">Installment on note and other charges—</E>(1) <E T="03">Direct loan accounts.</E> For a borrower with a direct loan, the term “installation on note and other charges,” as used in this Subpart, will be the sum of the following:</P> <P>(i) Annual installment for the year as provided in the promissory note(s).</P> <P>(ii) Any recoverable cost charges paid for the borrower during the year. (“Recoverable costs” is defined in § 1951.10(a) of this Subpart.)</P> <P>(2) <E T="03">Insured loan accounts.</E> “Loan insurance charge” means a separate insurance charge applying to FO and SW insured loans evidenced by promissory note forms bearing a form date before January 8, 1959. For all insured loans evidenced by note forms bearing a form date of January 8, 1959, or later, the insurance charge is called “annual charge” and is included in the interest position of the annual installment in the note. For a borrower with an insured loan, the term “Installment on note and other charge” means the sum of the following:</P> <P>(i) Annual installment for the year as provided in the promissory note.</P> <P>(ii) Amounts owed the Agricultural Credit Insurance Fund. These amounts are covered by the general term “Insurance Account” and consist of the following:</P> <P>(A) Unpaid loan insurance charges from prior years.</P> <P>(B) Loan insurance charge for the current year. The loan insurance charge is computed on the basis of the amount of the unpaid principal obligation as of the installment due date and is due and payable on or before the next installment due date.<PRTPAGE P="25"/> </P> <P>(C) Any unpaid balance on advances from the insurance fund, including any recoverable cost charges paid for the borrower during the year.</P> <P>(D) Any accrued interest on advances from the insurance fund.</P> <P>(iii) The amounts owned on the insurance account must be paid by regular payments each year whether or not the note account is ahead of schedule.</P> <P>(b) <E T="03">Schedule status.</E> For direct and insured loans, a borrower will be on schedule when the sum of regular payments through the last preceding due date of the note equals the sum of installments on the note and other charges due through the same date. Such a borrower will be ahead of schedule or behind schedule when the sum of such regular payments is larger or smaller, respectively, than the sum of such installments on the note and other charges.</P> <P>(c) <E T="03">Real estate payments.</E> A borrower may make regular payments ahead of schedule at any time and use them later to forego payments or to supplement the amount available during any year for payment on the annual installment on the note and other charges. Refunds and extra payments will not be used in this way.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.17-1951.24</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.25</SECTNO> <SUBJECT>Review of limited resource FO, OL, and SW loans.</SUBJECT> <P>(a) <E T="03">Frequency of reviews.</E> OL, FO, and SW loans will be reviewed each year at the time the analysis is conducted in accordance with subpart B of part 1924 of this chapter and any time a servicing action such as consolidation, rescheduling, reamortization or deferral is taken. The interest rate may not be changed more often than quarterly.</P> <P>(b) <E T="03">Method of review.</E> (1) Each loan will be considered on its own merit.</P> <P>(2) The County Supervisor should consider:</P> <P>(i) The borrower's income and repayment record during the preceding years;</P> <P>(ii) The projections shown on the most recent Farm and Home Plan or other similar plan or operation acceptable to FmHA or its successor agency under Public Law 103-354, in light of the previous year's projected figures and actual figures; (See subpart B of part 1924 of this chapter)</P> <P>(iii) Whether improved production practices have been or need to be implemented;</P> <P>(iv) The borrower's progress as a farmer; and</P> <P>(v) All other factors which the County Supervisor believes should be considered.</P> <P>(3) The Farm and Home Plan projections for the coming year must show that the “balance available to pay debts” exceeds the amount needed to pay debts by at least 10 percent before an increase in interest rate is put into effect. Borrowers that continually purchase unplanned items without the County Supervisor's approval will have the interest rate on their loans increased to the current rate for that loan type. Borrowers that fail to provide the County Supervisor with the information needed to conduct the analysis required in subpart B of part 1924 of this chapter will have their interest rate on their loan increased to the current rate for the OL, FO, or SW loan as applicable. The rate may increase in increments of whole numbers to the current regular interest rate for borrowers. In the borrower's case file, the County Supervisor must document the unplanned purchases and the failure to provide information in a timely manner. The County Supervisor must write the borrower a letter which sets out the facts documented in the case file and advises the borrower that the interest rate will be increased unless the unplanned purchases cease or unless the borrower provides information in a timely manner. Whenever it appears that the borrower has a substantial increase in income and repayment ability or ceases farming, either the interest rate may be increased to the current rate for FO, OL or SW loans, as applicable, or the borrower will be graduated from the program as provided in subpart F of this part.</P> <P>(4) The County Office will be responsible for scheduling and completing the reviews.</P> <P>(5) Borrowers who have received a deferral under Subpart S of this part will not have the interest rate increased on their limited resource loans during the deferral period.<PRTPAGE P="26"/> </P> <P>(c) <E T="03">Processing.</E> (1) If, after the review, the interest rate is to remain the same, no further action needs to be taken.</P> <P>(2) When the interest rate is increased to the current rate, the loan will be recorded as a regular loan and will no longer be considered a limited resource loan. The borrower must be notified in writing at least 30 days prior to the date of the change. Exhibit B of this subpart may be used as a guide. The effective date of the change in interest rate will be the effective date on Exhibit B. The borrower must be informed of the following for each loan:</P> <P>(i) The authorization for the change,</P> <P>(ii) Reason for change (repayment ability, etc.),</P> <P>(iii) The effective date and rate of the increase in interest,</P> <P>(iv) Amount of the new installments and dates due,</P> <P>(v) Right to appeal.</P> <P>(3) It is not necessary to obtain a new promissory note for this change in interest rate.</P> <CITA>[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988; 56 FR 3395, Jan. 30, 1991; 58 FR 15074, Mar. 19, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.26-1951.49</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.50</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The collection of information requirements in Subpart A of part 1951 have been approved by the Office of Management and Budget and assigned OMB control number 0575-0075.</P> <CITA>[52 FR 26137, July 13, 1987]</CITA> </SECTION> <SUBJGRP> <HD SOURCE="HED">Exhibits to Subpart A</HD> </SUBJGRP> <EXHIBIT> <EAR>Pt. 1951, Subpt. A, Exh. A</EAR> <HD SOURCE="HED">Exhibit A—Notice to FmHA or its successor agency under Public Law 103-354 Borrowers</HD> <P>FmHA or its successor agency under Public Law 103-354 borrowers with farmer program and community program loan types made under the Consolidated Farm and Rural Development Act may request a loan summary statement which shows the calendar year account activity for each loan. Interested borrowers may request these statements through their local FmHA or its successor agency under Public Law 103-354 office.</P> </EXHIBIT> <CITA>[54 FR 10270, Mar. 13, 1989]</CITA> <EXHIBIT> <EAR>Pt. 1951, Subpt. A, Exh. B</EAR> <HD SOURCE="HED">Exhibit B—Notice of Change in Interest Rate</HD> <HD SOURCE="HD3">(insert date)</HD> <HD SOURCE="HD2">Notice of Change in Interest Rate</HD> <FP SOURCE="FP-DASH"/> <P>(insert borrower's address)</P> <FP>Re: □ □</FP> <P>Fund code</P> <P>□ □</P> <P>Loan number</P> <P>□ □</P> <FP>Kind code</FP> <P>Dear (<E T="03">insert borrower's name and case number</E>): Your promissory note dated <E T="72">___</E>, for the original amount of <E T="72">___</E> dollars ($<E T="72">___</E>) provides for a change in interest rate for a limited resource loan in accordance with the Farmers Home Administration or its successor agency under Public Law 103-354 regulations.</P> <P>Effective (insert date) the interest rate on this loan will be <E T="72">__</E> percent (%) on the unpaid principal balance. Your installment due January 1, 19, will be <E T="72">___</E> dollars ($<E T="72">___</E>). This change in interest rate is for the reason indicated below. </P> <P>□ Increase in repayment ability as per Farm and Home Plan dated <E T="72">___</E>.</P> <P>□ <E T="03">(insert reason if other than above for increase in interest rate).</E> </P> <P>You may appeal this action by writing to (<E T="03">hearing officer),</E> (<E T="03">address),</E> within 30 calendar days of the date of this letter, giving the reason why you believe this matter should be decided differently. This time may be extended if you cannot notify the hearing officer within 30 days for reasons beyond your control.</P> </EXHIBIT> <CITA>[56 FR 3396, Jan. 30, 1991]</CITA> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Collections</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>53 FR 26591, July 14, 1988, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.51</SECTNO> <SUBJECT>General.</SUBJECT> <P>This subpart prescribes the policies and procedures of the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) for collection of loan payments and depositing payments through the Concentration Banking System (CBS). Under CBA, FmHA or its successor agency under Public Law 103-354 field offices select a local financial institution to maintain a Treasury Limited Account (TLA) for depositing FmHA or <PRTPAGE P="27"/>its successor agency under Public Law 103-354 loan collections. Deposits to these accounts are withdrawn daily by the concentrator bank for transfer to the Treasury. Under these procedures, the local FmHA or its successor agency under Public Law 103-354 office will deposit the daily office collections in a participating local financial institution and report the amount deposited to a data service facility that is under contract to the concentrator bank. The data service facility will inform the concentrator bank of the amount available in each local financial institution and the concentrator bank will use this information to transfer the funds to the concentrator bank and then to the Treasury.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.52-1951.53</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.54</SECTNO> <SUBJECT>Authority.</SUBJECT> <P>The provisions of this subpart are applicable to FmHA or its successor agency under Public Law 103-354 employees who are authorized to receive collections. Employees listed in Exhibit B of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) are hereby authorized to receive, receipt for, exchange for money orders or bank drafts, and transmit collections or deposit collections in a TLA.</P> </SECTION> <SECTION> <SECTNO>§ 1951.55</SECTNO> <SUBJECT>Receiving and processing collections.</SUBJECT> <P>FmHA or its successor agency under Public Law 103-354 offices receive borrower payments either through the mail or in person in the form of checks, money orders, and cash. Payments are recorded on the appropriate accounting forms which are Form FmHA or its successor agency under Public Law 103-354 451-2, Form FmHA or its successor agency under Public Law 103-354 1944-9, Form FmHA or its successor agency under Public Law 103-354 1951-55, or a payment coupon. Forms FmHA or its successor agency under Public Law 103-354 451-2 and FmHA or its successor agency under Public Law 103-354 1944-9 are used to transmit accounting information to the Finance Office. Form FmHA or its successor agency under Public Law 103-354 1951-55 is used to assemble payment information which the District Offices use to transmit MFH account information through field office terminals. In addition, the FmHA or its successor agency under Public Law 103-354 office records payments on a management system card, a servicing card, or a payment tracking form, as appropriate.</P> <CITA>[56 FR 28038, June 19, 1991]</CITA> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Offsets of Federal Payments to USDA Agency Borrowers</HD> <SECTION> <SECTNO>§ 1951.101</SECTNO> <SUBJECT>General.</SUBJECT> <P>Federal debt collection statutes provide for the use of administrative, salary, and Internal Revenue Service (IRS) offsets by government agencies, including the Farm Service Agency (FSA), Rural Housing Service (RHS), Rural Utilities Service (RUS) for its water and waste programs, and Rural Business-Cooperative Service (RBS), herein referred to collectively as “United States Department of Agriculture (USDA) Agency”, to collect delinquent debts. Any money that is or may become payable from the United States to an individual or entity indebted to a USDA Agency or other individual or entity indebted to a USDA Agency may be subject to offset for the collection of a debt owed to a USDA Agency. In addition, money may be collected from the debtor's retirement payments for delinquent amounts owed to the USDA Agency if the debtor is an employee or retiree of a Federal agency, the U.S. Postal Service, the Postal Rate Commission, or a member of the U.S. Armed Forces or the Reserve. Amounts collected will be processed as regular payments and credited to the borrower's account. USDA Agencies will process requests by other Federal agencies for offset in accordance with § 1951.102 of this subpart. This subpart does not apply to RHS direct single family housing loans. Nothing in this subpart affects the agency's common law right of set off.</P> <CITA>[65 FR 50602, Aug. 21, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.102</SECTNO> <SUBJECT>Administrative offset.</SUBJECT> <P>(a) <E T="03">General.</E> Collections of delinquent debts through administrative offset <PRTPAGE P="28"/>will be taken in accordance with 7 CFR part 3, subpart B and § 1951.106.</P> <P>(b) <E T="03">Definitions.</E> In this subpart:</P> <P>(1) <E T="03">Agency</E> means Farm Service Agency, Rural Housing Service, Rural Utilities Service, and Rural Business-Cooperative Service, or any successor agency.</P> <P>(2) <E T="03">Contracting officer</E> is any person who, by appointment in accordance with applicable regulations, has the authority to enter into and administer contracts and make determinations and findings with respect thereto. The term also includes the authorized representative of the contracting officer, acting within the limits of the representative's authority.</P> <P>(3) <E T="03">County Committee</E> means the local committee elected by farmers in the county, as authorized by the Soil Conservation and Domestic Allotment Act and the Department of Agriculture Reorganization Act of 1994, to administer FSA programs approved for the county as appropriate.</P> <P>(4) <E T="03">Creditor agency</E> means a Federal agency to whom a debtor owes a monetary debt. It need not be the same agency that effects the offset.</P> <P>(5) <E T="03">Debt management officer</E> means an agency employee responsible for collection by administrative offset of debts owed the United States.</P> <P>(6) <E T="03">Delinquent</E> means a payment that has not been paid within 30 calendar days after the due date.</P> <P>(7) <E T="03">Entity</E> means a corporation, joint stock company, association, general partnership, limited partnership, limited liability company, irrevocable trust, revocable trust, estate, charitable organization, or other similar organization participating in the farming operation.</P> <P>(8) <E T="03">FP</E> means Farm Programs.</P> <P>(9) <E T="03">FLP</E> means Farm Loan Programs.</P> <P>(10) <E T="03">FSA</E> means Farm Service Agency.</P> <P>(11) <E T="03">National Appeals Division</E> means the organization within the Department of Agriculture that conducts appeals of adverse decisions for program participants under the purview of 7 CFR part 11.</P> <P>(12) <E T="03">Offsetting agency</E> means an agency that withholds from its payment to a debtor an amount owed by the debtor to a creditor agency, and transfers the funds to the creditor agency for application to the debt.</P> <P>(13) <E T="03">Propriety</E> means the offset is feasible. It includes offsetting a debtor's payments due any entity in which the debtor participates either directly or indirectly equal to the debtor's interest in the entity. To be feasible the debt must exist and be 60 days delinquent or past due for 90 days or the borrower must be in default of other obligations to the Agency, which can be cured by the payment of money.</P> <P>(14) <E T="03">Reviewing officer</E> means an agency employee responsible for conducting a hearing or documentary review on the existence of debt and the propriety of administrative offset in accordance with 7 CFR 3.29. FSA District Directors or other State Executive Director designees are designated to conduct the hearings or reviews.</P> <CITA>[65 FR 50602, Aug. 21, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.103-1951.105</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.106</SECTNO> <SUBJECT>Offset of payments to entities related to debtors.</SUBJECT> <P>(a) <E T="03">General.</E> Collections of delinquent debts through administrative offset will be in accordance with 7 CFR part 3, subpart B, and paragraphs (b) and (c) of this section.</P> <P>(b) <E T="03">Offsetting entities.</E> Collections of delinquent debts through administrative offset may be taken against a debtor's pro rata share of payments due any entity in which the debtor participates when:</P> <P>(1) It is determined that FSA has a legally enforceable right under state law or Federal law, including program regulations at 7 CFR 792.7(l) and 1403.7(q), to pursue the entity payment;</P> <P>(2) A debtor has created a shell corporation before receiving a loan, or after receiving a loan, established an entity, or has reorganized, transferred ownership of, or otherwise changed in some manner the debtor's operation or the operation of a related entity for the purpose of avoiding payment of the FSA, FLP debt or otherwise circumventing Agency regulations;</P> <P>(3) Assets used in the entity's operation include assets pledged as security to the Agency which have been transferred to the entity without payment <PRTPAGE P="29"/>to the Agency of the value of the security or Agency consent to transfer of the assets;</P> <P>(4) A corporation to which a payment is due is the alter ego of a debtor; or</P> <P>(5) A debtor participates in, either directly or indirectly, the entity as determined by FSA.</P> <P>(c) <E T="03">Other remedies.</E> Nothing in this section shall be deemed to limit remedies otherwise available to the Agency under other applicable law.</P> <CITA>[65 FR 50603, Aug. 21, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.107-1951.110</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.111</SECTNO> <SUBJECT>Salary offset.</SUBJECT> <P>Salary offset may be used to collect debts arising from delinquent USDA Agency loans and other debts which arise through such activities as theft, embezzlement, fraud, salary overpayments, under withholding of amounts payable for life and health insurance, and any amount owed by former employees from loss of Federal funds through negligence and other matters. Salary offset may also be used by other Federal agencies to collect delinquent debts owed to them by employees of the USDA Agency, excluding county committee members. Administrative offset, rather than salary offset, will be used to collect money from Federal employee retirement benefits. Salary offset will not be initiated until after other servicing options available to the borrower have been utilized. In addition, for Farm Loan Programs loans, salary offset will not be instituted if the Federal salary has been considered on the Farm and Home Plan, and it was determined the funds were to be used for another purpose other than payment on the USDA Agency loan. When salary offset is used, payment for the debt will be deducted from the employee's pay and sent directly to the creditor agency. Not more than 15 percent of the employee's disposable pay can be offset per pay period, unless the employee agrees to a larger amount. The debt does not have to be reduced to judgment or be undisputed, and the payment does not have to be covered by a security instrument. This section describes the procedures which must be followed before the USDA Agency can ask a Federal agency to offset any amount against an employee's salary.</P> <P>(a) <E T="03">Authorities.</E> The following authorities are granted to USDA Agency employees in order that they may initiate and implement salary offset:</P> <P>(1) Certifying Officials are authorized to certify to the debtor's employing agency that the debt exists, the amount of the delinquency or debt, that the procedures in USDA Agency and United States Department of Agriculture's (USDA's) regulations regarding salary offsets have been followed, that the actions required by the Debt Collection Act have been taken; and to request that salary offset be initiated by the debtor's employing agency. This authority may not be redelegated.</P> <P>(2) Certifying Officials are authorized to advise the Finance Office to establish employee defalcation accounts and non-cash credits to borrower accounts in cases involving other debts, such as those arising from theft, fraud, embezzlement, loss of funds through negligence, and similar actions involving USDA Agency employees.</P> <P>(3) The Finance Office is authorized to establish defalcation accounts and non-cash credits to borrower accounts upon receipt of requests from the Certifying Officials.</P> <P>(b) <E T="03">Definitions—</E>(1) <E T="03">Certifying Officials</E>.—State Directors; State Executive Directors; the Assistant Administrator; Finance Office; Financial Management Director; Financial Management Division, and the Deputy Administrator for Management, National Office.</P> <P>(2) <E T="03">Debt or debts.</E> A term that refers to one or both of the following:</P> <P>(i) <E T="03">Delinquent debts.</E> A past due amount owed to the United States from sources which include, but are not limited to, insured or guaranteed loans, fees, leases, rents, royalties, services, sales of real or personal property, overpayments, penalties, damages, interest, fines and forfeitures (except those arising under the Uniform Code of Military Justice).</P> <P>(ii) <E T="03">Other debts.</E> An amount owed to the United States by an employee for pecuniary losses where the employee has been determined to be liable due to <PRTPAGE P="30"/>the employee's negligent, willful, unauthorized or illegal acts, including but not limited to:</P> <P>(A) Theft, misuse, or loss of Government funds;</P> <P>(B) False claims for services and travel;</P> <P>(C) Illegal, unauthorized obligations and expenditures of Government appropriations;</P> <P>(D) Using or authorizing the use of Government owned or leased equipment, facilities supplies, and services for other than official or approved purposes;</P> <P>(E) Lost, stolen, damaged, or destroyed Government property;</P> <P>(F) Erroneous entries on accounting record or reports; and,</P> <P>(G) Deliberate failure to provide physical security and control procedures for accountable officers, if such failure is determined to be the proximate cause for a loss of Government funds.</P> <P>(3) <E T="03">Defalcation account.</E> An account established in the Finance Office for other debts owed the Federal government in the amount missing due to the action of an employee or former employee.</P> <P>(4) <E T="03">Disposable pay.</E> Pay due an employee that remains after required deductions for Federal, State and local income taxes; Social Security taxes, including Medicare taxes; Federal retirement programs; premiums for life and health insurance benefits, and such other deductions required by law to be withheld.</P> <P>(5) <E T="03">Hearing Officer.</E> An Administrative Law Judge of the USDA or another individual not under the supervision or control of the USDA, designated by the Certifying Official to review the determination of the alleged debt.</P> <P>(6) <E T="03">Non-cash credit.</E> The accounting action taken by the Finance Office to credit and make a borrower's account whole for funds paid by the borrower but missing due to an employee's or former employee's actions.</P> <P>(7) <E T="03">Salary Offset.</E> The collection of a debt due to the U.S. by deducting a portion of the disposable pay of a Federal employee without the employee's consent.</P> <P>(c) <E T="03">Feasibility of salary offset.</E> The first step the Certifying Official must take to use this offset procedure is to decide, on a case by case basis, whether offset is feasible. If an offset is feasible, the directions in the following paragraphs of this section will be used to collect by salary offset. If the official making this determination decides that salary offset is not feasible, the reasons supporting this decision will be documented in the borrower's running case record in the case of delinquent debts, or the “For Official Use Only” file in cases of other debts. Ordinarily, and where possible, debts should be collected in one lump-sum; but payments may be made in installments. Installment deductions can be made over a period not greater than the anticipated period of employment. However, the amount deducted for a pay period will not exceed 15 percent of the disposable pay from which the deduction is made. If possible, the installment payment will be sufficient in size and frequency to liquidate the debt in approximately 3 years. Based on the Comptroller General's decisions, other debts by employees cannot be forgiven. If the employee retires or resigns, or if employment ends before collection of the debt is completed, final salary payment, lump-sum leave, etc. may be offset to the extent necessary to liquidate the debt. Salary offset is feasible if:</P> <P>(1) The cost to the Government of collecting salary offset does not exceed the amount of the debt. County Committee members are exempt from salary offset because the amount collected by salary offset would be so small as to be impractical.</P> <P>(2) There are not any legal restrictions to the debt, such as the debtor being under the jurisdiction of a bankruptcy court, or the statute of limitations having expired. The Debt Collection Act of 1982 permits offset of claims that have not been outstanding for more than 10 years.</P> <P>(d) <E T="03">Notice to debtor.</E> (1) After the Certifying Official determines that collection by salary offset is feasible, FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4 should be sent within 15 calendar days after that determination. This Guide Letter will notify the debtor of intended salary offset at least 30 days before the salary offset begins. FmHA or <PRTPAGE P="31"/>its successor agency under Public Law 103-354 Guide Letter 1951-C-4 will be personally delivered to the debtor or sent certified mail, Return Receipt Requested, with a copy sent by regular mail on the same day. If the certified mail receipt is returned, the date the debtor received the letter will be established and the time limits set out in FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4 will run from that date. If delivery by certified mail is not accomplished, FmHA or its successor agency under Public Law 103-354 will assume that the debtor received the letter by regular mail on the day the certified mail was refused or was unable to be delivered.</P> <P>(2) The Debt Collection Act of 1982 requires that the hearing officer issue a written decision not later than 60 days after the filing of the petition requesting the hearing; thus, the evidence upon which the decision to notify the debtor is based, to the extent possible, should be sufficient for FmHA or its successor agency under Public Law 103-354 to proceed at a hearing, should the debtor request a hearing under paragraph (f) of this section.</P> <P>(e) <E T="03">Notice requirement before salary offset.</E> Salary offset will not be made unless the employee receives 30 calendar days written notice. This Notice of Intent (FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4) will be addressed to the debtor or the debtor's representative. The Notice of Intent must be modified if it is addressed to the debtor's representative. In either case, the Notice of Intent will state:</P> <P>(1) It has been determined that the debt is owed, the amount of the debt, and the facts giving rise to the debt;</P> <P>(2) The cost to the Government of collecting salary offset does not exceed the amount of the debt;</P> <P>(3) There are not any legal restrictions that would bar collecting the debt;</P> <P>(4) The debt will be collected by means of deduction of not more than 15 percent from the employee's current disposable pay until the debt and all accumulated interest are paid in full;</P> <P>(5) The amount, frequency, approximate beginning date, and duration of the intended deductions;</P> <P>(6) An explanation of the requirements concerning interest, penalties and administrative costs, unless such payments are waived;</P> <P>(7) The employee's right to inspect and request a copy of records relating to the debt;</P> <P>(8) The employee's right to voluntarily enter into a written agreement for a repayment schedule with the agency different from that proposed by FmHA or its successor agency under Public Law 103-354, if the terms of the repayment proposed by the employee are agreeable with the agency;</P> <P>(9) That the employee has a right to a hearing conducted by an Administrative Law Judge of USDA or a hearing official not under the supervision or control of the Secretary of Agriculture, concerning the agency's determination of the existence or amount of the debt and the percentage of disposable pay to be deducted each pay period, if a petition for a hearing is filed by the employee as prescribed by FmHA or its successor agency under Public Law 103-354;</P> <P>(10) The timely filing of a petition for hearing will stay the collection proceedings;</P> <P>(11) That a final decision will be issued at the earliest practical date, but not later than 60 calendar days after the filing of petition requesting the hearing;</P> <P>(12) That any knowingly false or frivolous statements may subject the employee to disciplinary procedures, or penalties, under the applicable statutory authority;</P> <P>(13) Any other rights and remedies available to the employee under statutes or regulations governing the program for which the collection is being made;</P> <P>(14) That amounts paid on or deducted for the debt which are later waived or found not owed to the United States will be promptly refunded to the employee unless there are provisions to the contrary;</P> <P>(15) The method and time period for requesting a hearing; and<PRTPAGE P="32"/> </P> <P>(16) The name and address of an official of USDA to whom communications should be directed.</P> <P>(f) <E T="03">Debtor's request for records, offer to repay, request for a hearing or request for information concerning debt settlement.</E> </P> <P>(1) If a debtor responds to FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4 by asking to review and copy FmHA or its successor agency under Public Law 103-354's records relating to the debt, the Certifying Official will promptly respond by sending a letter which tells the debtor the location of the debtor's FmHA or its successor agency under Public Law 103-354 files and that the files may be reviewed and copied within the next 30 days. Copying costs (see subpart F of part 2018 of this Chapter) will be set out in the letter, as well as the hours the files will be available each day. If a debtor asks to have FmHA or its successor agency under Public Law 103-354 copy the records, a copy will be made within 30 days of the request.</P> <P>(2) If a debtor responds to FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4 by offering to repay the debt, the offer may be accepted by the Certifying Official, if it would be in the best interest of the government. FmHA or its successor agency under Public Law 103-354 Form Letter 1951-8 will be used if a repayment offer for an FmHA or its successor agency under Public Law 103-354 loan or grant is accepted. Upon receipt of an offer to repay, the Certifying Official will delay institution of a hearing until a decision is made on the repayment offer. Within 60 days after the initial offer to repay was made, the Certifying Official must decide whether to accept or reject the offer. This decision will be documented in the running case record or the “For Official Use Only” file, as appropriate, and the debtor will be sent a letter which sets out the decision to accept or reject the offer to repay. The decision to accept or reject a repayment offer should be based upon a realistic budget or farm and home plan and according to the servicing regulations for the type of loan(s) involved.</P> <P>(3) If a debtor responds to FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4 by asking for a hearing on FmHA or its successor agency under Public Law 103-354's determination that a debt exists and/or is due, or on the percentage of net pay to be deducted each pay period, the Certifying Official will notify the debtor in accordance with paragraph (g)(3) of this section and request the debtor's case file or the “For Official Use Only” file.</P> <P>(4) If a debtor is willing to have more than 15 percent of the disposable pay sent to FmHA or its successor agency under Public Law 103-354, a letter prepared and signed by the debtor clearly stating this must be placed in the debtor's case file or the “For Official Use Only” file.</P> <P>(5) If a debtor who is an FmHA or its successor agency under Public Law 103-354 borrower requests debt settlement, the account must be in collection-only status or be an inactive account for which there is no security. The Certifying Official must inform the borrower of how to apply for debt settlement. Any application will be considered independently of the salary offset. A salary offset should not be delayed because the borrower applied for debt settlement.</P> <P>(6) The time limits set in FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4 and in paragraphs (f) (1), (2), and (3) of this section run concurrently. In other words, if a debtor asks to review the FmHA or its successor agency under Public Law 103-354 file and offers to repay the debt, the debtor cannot take 30 days to ask to review the file and then take another 30 days to offer to repay. The request to review the file and the offer to repay must both be made within 30 days of the date the debtor receives the notification letter.</P> <P>(7) If an employee is included in a bargaining unit which has a negotiated grievance procedure that does not specifically exclude salary offset proceedings, the employee must grieve the matter in accordance with the negotiated procedure. Employees who are not covered by a negotiated procedure must utilize the salary offset proceedings as outlined in FmHA or its successor agency under Public Law 103-<PRTPAGE P="33"/>354 Guide Letter 1951-C-4. The employee must be informed, in writing, which procedure to follow and, as appropriate, reference should be made to the appropriate sections of the negotiated agreement.</P> <P>(g) <E T="03">Hearings.</E> (1) A hearing officer must be a USDA Administrative Law Judge or a person who is not a USDA employee. In order to ensure that a hearing officer will be available promptly when needed, Certifying Officials need to make appropriate arrangements with officials of nearby federal agencies for the use of each other's employees as hearing officers.</P> <P>(2) Not later than 30 days from the date the debtor receives the Notice of Intent (FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4), the employee must file with the Certifying Official issuing the notice, a written petition establishing his/her desire for a hearing on the existence and amount of the debt or the proposed offset schedule. The employee's petition must fully identify and explain all the information and evidence that supports his/her position. In addition, the petition must bear the employee's original signature and be dated upon receipt by the Certifying Official.</P> <P>(3) Certifying Officials are responsible for determining if the employee's petition for a hearing has been submitted in a timely fashion. Petitions received from employees after the 30-day time limitation expires will be accepted only if the employee can show the delay was because of circumstances beyond his/her control or because of failure to receive notice of the time limitation. Certifying Officials are required to provide written notification to the employee of the acceptance or non-acceptance of the employee's petition for hearing.</P> <P>(4) For those petitions accepted, FmHA or its successor agency under Public Law 103-354 will arrange for a hearing officer and notify the employee of the time and place of the hearing. The hearing location should be convenient to all parties involved. The employee will also be notified that the acceptance of the petition for hearing will stay the commencement of collection proceedings. Any payments collected in error due to untimely or delayed filing beyond the employee's control will be refunded unless there are applicable contractual or statutory provisions to the contrary.</P> <P>(5) The hearing will be based on written submissions and documentation provided by the debtor and FmHA or its successor agency under Public Law 103-354 unless:</P> <P>(i) A statute authorizes or requires consideration of waiving the debt, the debtor requests waiver of the debt, and the waiver determination turns on an issue of credibility or truth.</P> <P>(ii) The debtor requests reconsideration of the debt and the hearing officer determines that the question of the indebtedness cannot be resolved by a review of the documentary evidence; for example, when the validity of the debt turns on an issue of credibility or truth.</P> <P>(iii) The hearing officer determines that an oral hearing is appropriate.</P> <P>(6) Oral hearings may be conducted by conference call at the request of the debtor or at the discretion of the hearing officer. The hearing officer's determination that the offset hearing is on the written record is final and is not subject to review.</P> <P>(7) The hearing officer will issue a written decision not later than 60 days after the filing of the petition requesting the hearing, unless the employee requests and the Certifying Official grants a delay in the proceedings. The written decision will state the facts supporting the nature and origin of the debt, the hearing officer's analysis, findings and conclusions as to the amount and validity of the debt, and repayment schedule. Both the employee and FmHA or its successor agency under Public Law 103-354 will be provided with a copy of the hearing officer's written decision on the debt.</P> <P>(h) <E T="03">Processing delinquent debts.</E> (1) Form AD-343, “Payroll Action Request,” and FmHA or its successor agency under Public Law 103-354 Form Letter 1951-6 will be prepared and submitted by the Certifying Official to the National Office, FMAS, for coordination and forwarding to the debtor's employing agency if:</P> <P>(i) The borrower does not respond to FmHA or its successor agency under <PRTPAGE P="34"/>Public Law 103-354 Guide Letter 1951-C-4 within 30 days.</P> <P>(ii) The borrower responds to FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4 within 30 days and</P> <P>(A) Has had an opportunity to review the file, if requested,</P> <P>(B) Has received a hearing, if requested, and</P> <P>(C) A decision has been made by the hearing officer to uphold the offset.</P> <P>(2) A copy of Form AD-343 and the Form letter 1951-6 will be sent to the Finance Office, St. Louis, MO 63103, Attn: Account Settlement Unit.</P> <P>(3) If the debtor is an FmHA or its successor agency under Public Law 103-354 employee, Form AD-343 will be sent to the National Office, FMAS, and a copy to the Finance Office, St. Louis, MO, Attn: Account Settlement Unit. This form can be signed for the Certifying Official by an employment officer, an Administrative Officer, or a personnel management specialist, or signed by the Certifying Official.</P> <P>(4) If the debtor has agreed to have more or less than 15 percent of the disposable pay sent to FmHA or its successor agency under Public Law 103-354, a copy of the debtor's letter (FmHA or its successor agency under Public Law 103-354 Form Letter 1951-8) authorizing this must be attached to Form AD-343.</P> <P>(5) Field offices will be notified of payments received from salary offset by receipt of a transaction record from the Finance Office.</P> <P>(i) <E T="03">Deduction percentage.</E> (1) Generally, installment deductions will be made over a period not greater than the anticipated period of employment. If possible, the installment payment will be sufficient in size and frequency to liquidate the debt in approximately 3 years. The size and frequency of installment deductions will bear a reasonable relation to the size of the debt and the employee's ability to pay. Certifying Officials are responsible for determining the size and frequency of the deductions. However, the amount deducted for any period will not exceed 15 percent of the disposable pay from which the deduction is made, unless the employee has agreed in writing to the deduction of a greater amount. Installment payments of less than $25 per pay period or $50 a month will be accepted only in the most unusual circumstances.</P> <P>(2) Deductions will be made only from basic pay, incentive pay, retainer pay, or, in the case of an employee not entitled to basic pay, other authorized pay. If there is more than one salary offset, the maximum deduction for all salary offsets against an employee's disposable pay is 15 percent unless the employee has agreed in writing to a greater amount.</P> <P>(j) <E T="03">Agency/NFC responsibility for other debts.</E> (1) FmHA or its successor agency under Public Law 103-354 will inform NFC about other indebtedness by transmitting to NFC an AD-343. NFC will process the documents through the Payroll/Personnel System, calculate the net amount of the adjustment and generate a salary offset notice. This notice will be sent to the employee's employing office along with a duplicate copy for the FmHA or its successor agency under Public Law 103-354's records. FmHA or its successor agency under Public Law 103-354 is responsible for completing the necessary information and forwarding the employee's notice to the employee.</P> <P>(2) Other indebtedness falls into two categories:</P> <P>(i) An agency-initiated indebtedness (i.e. personal telephone calls, property damages, etc.).</P> <P>(ii) An NFC-initiated indebtedness (i.e. duplicate salary payments, etc.). NFC will send the salary offset notice to the employing office.</P> <P>(k) <E T="03">Establishing employees or former employees defalcation accounts and non-cash credits to borrower accounts.</E> In cases where a borrower made a payment on an FmHA or its successor agency under Public Law 103-354 account(s) and, due to theft, embezzlement, fraud, negligence, or some other action on the part of an FmHA or its successor agency under Public Law 103-354 employee or employees, the payment is not transmitted to the Finance Office for application to the borrower's account(s), certain accounting actions must be taken by the Finance Office to establish non-cash credits to the borrower's account and an employee defalcation account.<PRTPAGE P="35"/> </P> <P>(1) The Certifying Official will advise the Assistant Administrator, Finance Office by memorandum to establish a defalcation account. The memorandum must state the following information:</P> <P>(i) Employee's name (or former),</P> <P>(ii) Social Security Number,</P> <P>(iii) Present or last known address,</P> <P>(iv) Date of Payment, and</P> <P>(v) Amount of the defalcation account.</P> <P>(2) If a non-cash credit to a borrower's account(s) is required, the letter to the Finance Office will include:</P> <P>(i) Borrower's name and case number,</P> <P>(ii) Fund Code and Loan Code,</P> <P>(iii) Date and amount of missing payment,</P> <P>(iv) Copy of receipt issued for the missing payment, and</P> <P>(v) Name of employee who last had custody of the missing funds.</P> <P>(3) To assist and assure proper accounting for defalcation accounts and non-cash credits, the request should be made at the same time. Should requests be made separately, be sure to identify appropriately.</P> <P>(4) The Certifying Official shall furnish a copy of the memorandum and supporting documentation for paragraphs (k) (1) and (2) of this section to the Deputy Administrator for Management for distribution to the Financial and Management Analysis Staff (FMAS) and Employee Relations Branch, Personnel Division.</P> <P>(l) <E T="03">Application of payments, refunds and overpayments.</E> (1) If a debtor is delinquent or indebted on more than one FmHA or its successor agency under Public Law 103-354 loan or debt, amounts collected by offset will be applied as specified on Form AD-343, based on the advantage to agency or debtor. The check date will be used as the date of credit in applying payments to the borrower's accounts.</P> <P>(2) If a court or agency orders FmHA or its successor agency under Public Law 103-354 to refund the amount obtained by salary offset, a refund will be requested promptly by the Certifying Official in accordance with the order by sending FmHA or its successor agency under Public Law 103-354 Form Letter 1951-5 to the Finance Office. Processing FmHA or its successor agency under Public Law 103-354 Form Letter 1951-5 in the Finance Office will cause a refund to be sent to the debtor through the county office or other appropriate FmHA or its successor agency under Public Law 103-354 office. The debtor is not entitled to any payment of interest, on the refunded amount.</P> <P>(3) If a debtor does not request a hearing within the required time and it is later determined that the delay was due to circumstances beyond the debtor's control, any amount collected before the hearing decision is made will be refunded promptly by the Certifying Official in accordance with paragraphs (l) (1) and (2) of this section.</P> <P>(4) If FmHA or its successor agency under Public Law 103-354 receives money through an offset but the debtor is not delinquent or indebted at the time or the amount received is in excess of the delinquency or indebtedness, the entire amount or the amount in excess of the delinquency or indebtedness will be refunded promptly to the debtor by the Certifying Official in accordance with paragraphs (l) (1) and (2) of this section.</P> <P>(m) <E T="03">Cancellation of offset.</E> If a debtor's name has been submitted to another agency for offset and the debtor's account is brought current or otherwise satisfied, the Certifying Official will complete Form AD-343 and send it to the National Office, FMAS. FMAS will notify the paying agency with Form AD-343 that the debtor is no longer delinquent or indebted and to cancel the offset. A copy of the cancellation document will be sent to the debtor and the Finance Office, Attn: Account Settlement Unit.</P> <P>(n) <E T="03">Intra-departmental transfer.</E> When an FmHA or its successor agency under Public Law 103-354 employee who is indebted to one agency in USDA transfers to another agency within USDA, a copy of the repayment schedule should be forwarded by the agency personnel office to the new employing agency. The NFC will continue to make deductions until full recovery is effected.</P> <P>(o) <E T="03">Liquidation from final checks.</E> Upon the determination that an employee owing a debt to FmHA or its successor agency under Public Law 103-354 is to retire, resign, or employment otherwise ends, the Certifying Official <PRTPAGE P="36"/>should forward a telegram with the appropriate employee identification and amount of the debt to the NFC. The telegram should request that the debt be collected from final salary/lump sum leave or other funds due the employee, and, if necessary, to put a hold on the retirement funds. The telegram information should be confirmed by completion of Form AD-343. Collection from retirement funds will be in accordance with Departmental Administrative Offset procedures (7 CFR Part 3, Subpart B, § 3.32).</P> <P>(p) <E T="03">Coordination with other agencies.</E> (1) If FmHA or its successor agency under Public Law 103-354 is the creditor agency but not the paying agency, the Certifying Official will submit Form AD-343 to the National Office, FMAS, to begin salary offset against an indebted employee. The request will include a certification as to the determination of indebtedness, and that FmHA or its successor agency under Public Law 103-354 has complied with applicable regulations and instruction for submitting the funds to the Finance Office. (See FmHA or its successor agency under Public Law 103-354 Form Letter 1951-6).</P> <P>(2) When an employee of FmHA or its successor agency under Public Law 103-354 owes a debt to another Federal agency, salary offset may be used only when the Federal agency certifies that the person owes the debt and that the Federal agency has complied with its regulations. The request must include the creditor agency's certification as to the indebtedness, including the amount, and that the employee has been given the due process entitlements guaranteed by the Debt Collection Act of 1982. When a request for offset is received, FmHA or its successor agency under Public Law 103-354 will notify the employee and NFC and arrange for offset. (See FmHA or its successor agency under Public Law 103-354 Form Letter 1951-7).</P> <P>(q) <E T="03">Deductions by the National Finance Center (NFC).</E> The NFC will automatically deduct the full amount of the delinquency or indebtedness if less than 15 percent of disposable pay or 15 percent of disposable pay if the delinquency or indebtedness exceeds 15 percent, unless the creditor agency advises otherwise. Deductions will begin the second pay period after the 30-day notification period has expired unless FmHA or its successor agency under Public Law 103-354 issues the notice. If FmHA or its successor agency under Public Law 103-354 issues the notice, the NFC will begin deductions on the first pay period after receipt of the Form AD-343.</P> <P>(r) <E T="03">Interest, penalties and administrative costs.</E> Interest and administrative costs will normally be assessed on outstanding claims being collected by salary offset. However, penalties should not be charged routinely on debts being collected in installments by salary offsets, since it is not to be construed as a failure to pay within a given time period. Additional interest, penalties, and administrative costs will not be assessed on delinquent loans until FmHA or its successor agency under Public Law 103-354 publishes regulations permitting such charges.</P> <P>(s) <E T="03">Adjustment in rate of repayment.</E> (1) When an employee who is indebted receives a reduction in basic pay that would cause the current deductions to exceed 15 percent of disposable pay, and the employee has not consented in writing to a greater amount, FmHA or its successor agency under Public Law 103-354 must take action to reduce the amount of the deductions to 15 percent of the new amount of disposable pay. Upon an increase in basic pay which results in the current deductions to be less than the specified percentage, FmHA or its successor agency under Public Law 103-354 may increase the amount of the deductions accordingly. In either case, when a change is made the employee will be notified in writing.</P> <P>(2) When an employee has an existing reduced repayment schedule because of financial hardship, the creditor agency may arrange for a new repayment schedule.</P> <CITA>[52 FR 18544, May 18, 1987, as amended at 53 FR 44178, Nov. 2, 1988; 54 FR 26945, June 27, 1989; 62 FR 41799, Aug. 1, 1997; 65 FR 50603, Aug. 21, 2000]</CITA> </SECTION> <SECTION> <PRTPAGE P="37"/> <SECTNO>§§ 1951.112-1951.149</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.150</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0119.</P> <CITA>[51 FR 42821, Nov. 26, 1986]</CITA> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart D—Final Payment on Loans</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>57 FR 774, Jan. 9, 1992, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.151</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>This subpart prescribes authorizations, policies, and procedures of the Farm Service Agency (FSA), Rural Housing Service (RHS), Rural Utility Service (RUS) for its water and waste programs, and Rural Business-Cooperative Service (RBS), herein referred to as “Agency,” for processing final payment on all loans. This subpart does not apply to direct single family housing customers of the RHS.</P> <CITA>[61 FR 59778, Nov. 22, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.152</SECTNO> <SUBJECT>Definition.</SUBJECT> <P>As used in this subpart:</P> <P> <E T="03">Mortgage.</E> Includes real estate mortgage, deed of trust or any other form of security instrument or lien on real property.</P> </SECTION> <SECTION> <SECTNO>§ 1951.153</SECTNO> <SUBJECT>Chattel security or note-only cases.</SUBJECT> <P>(a) If a loan secured by both real estate and chattels is paid in full, the chattel security instrument will be satisfied or released in accordance with subpart A of part 1962 of this chapter.</P> <P>(b) When a loan is evidenced by only a note and the note is paid in full, FmHA or its successor agency under Public Law 103-354 will deliver the note to the borrower in the manner prescribed in § 1951.155(c) of this subpart.</P> </SECTION> <SECTION> <SECTNO>§ 1951.154</SECTNO> <SUBJECT>Satisfaction and release of documents.</SUBJECT> <P>(a) <E T="03">Authorization.</E> FmHA or its successor agency under Public Law 103-354 is authorized to execute the necessary releases and satisfactions and return security instruments and related documents to borrowers. Satisfaction and release of security documents takes place:</P> <P>(1) Upon receipt of payment in full of all amounts owed to the Government including any amounts owed to the loan insurance account, subsidy recapture amounts, all loan advances and/or other charges to the borrower's account;</P> <P>(2) Upon verification that the amount of payment received is sufficient to pay the full amount owed by the borrower; or</P> <P>(3) When a compromise or adjustment offer has been accepted and approved by the appropriate Government official in full settlement of the account and all required funds have been paid.</P> <P>(b) [Reserved]</P> <P>(c) <E T="03">Lost note.</E> If the original note is lost FmHA or its successor agency under Public Law 103-354 will give the borrower an affidavit of lost note so that the release or satisfaction may be processed.</P> </SECTION> <SECTION> <SECTNO>§ 1951.155</SECTNO> <SUBJECT>County and/or District Office actions.</SUBJECT> <P>(a) <E T="03">Funds remaining in supervised bank accounts.</E> When a borrower is ready to pay an insured or direct loan in full, any funds remaining in a supervised bank account will be withdrawn and remitted for application to the borrower's account. If the entire principal of the loan is refunded after the loan is closed, the borrower will be required to pay interest from the date of the note to the date of receipt of the refund.</P> <P>(b) <E T="03">Determining amount to be collected.</E> FmHA or its successor agency under Public Law 103-354 will compute and verify the amount to be collected for payment of an account in full. Requests for payoff balances on all accounts will be furnished in writing in a format specified by FmHA or its successor agency under Public Law 103-354 (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(c) <E T="03">Delivery of satisfaction, notes, and other documents.</E> When the remittance which paid an account in full has been processed by FmHA or its successor agency under Public Law 103-354, the paid note and satisfied mortgage may <PRTPAGE P="38"/>be returned to the borrower. If other provisions exist, the mortgage will not be satisfied until the total indebtedness secured by the mortgage is paid. For instance, in a situation where a rural housing loan is paid-in-full and there is a subsidy recapture receivable balance that the borrower elects to delay repaying, the amount of recapture to be repaid will be determined when the principal and interest balance is paid. The mortgage securing the RHS, RBS, RUS, and/or FSA or its successor agency under Public Law 103-354 debt will not be released of record until the total amount owed the Government is repaid. To permit graduation or refinancing by the borrower, the mortgage securing the recapture owed may be subordinated.</P> <P>(1) If FmHA or its successor agency under Public Law 103-354 receives final payments in a form other than cash, U.S. Treasury check, cashier's check, certified check, money order, bank draft, or check issued by an institution determined by FmHA or its successor agency under Public Law 103-354 to be financially responsible, the mortgage and paid note will not be released until after a 30-day waiting period. If other indebtedness to FmHA or its successor agency under Public Law 103-354 is not secured by the mortgage, FmHA or its successor agency under Public Law 103-354 will execute the satisfaction or release. When the stamped note is delivered to the borrower, FmHA or its successor agency under Public Law 103-354 will also deliver the real estate mortgage and related title papers such as title opinions, title insurance binders, certificates of title, and abstracts which are the property of the borrower. Any water stock certificates or other securities that are the property of the borrower will be returned to the borrower. Also, any assignments of income will be terminated as provided in the assignment forms.</P> <P>(2) Delivery of documents at the time of final payment will be made when payment is in the form of cash, U.S. Treasury check, cashier's check, certified check, money order, bank draft, or check issued by an institution determined by FmHA or its successor agency under Public Law 103-354 to be responsible. FmHA or its successor agency under Public Law 103-354 will not accept payment in the form of foreign currency, foreign checks or sight drafts. FmHA or its successor agency under Public Law 103-354 will execute the satisfaction or release (unless other indebtedness to FmHA or its successor agency under Public Law 103-354 is covered by the mortgage) and mark the original note with a paid-in-full legend based upon receipt of the full payment balance of the borrower's account(s), computed as of the date final payment is received. In unusual cases where an insured promissory note is held by a private holder, FmHA or its successor agency under Public Law 103-354 can release the mortgage and deliver the note when it is received.</P> <P>(d)-(e) [Reserved]</P> <P>(f) <E T="03">Cost of recording or filing of satisfaction.</E> The satisfaction or release will be delivered to the borrower for recording and the recording costs will be paid by the borrower, except when State law requires the mortgagee to record or file satisfactions or release and pay the recording costs.</P> <P>(g) <E T="03">Property insurance.</E> When the borrower's loan has been paid-in-full and the satisfaction or release of the mortgage has been executed, FmHA or its successor agency under Public Law 103-354 may release the mortgage interest in the insurance policy as provided in subpart A of part 1806 of this chapter (FmHA or its successor agency under Public Law 103-354 Instruction 426.1).</P> <P>(h) [Reserved]</P> <P>(i) <E T="03">Outstanding Loan Balance(s).</E> FmHA or its successor agency under Public Law 103-354 will attempt to collect any account balance(s) that may result from an error by FmHA or its successor agency under Public Law 103-354 in handling final payments according to paragraph 1951.155(b) of this section. If collection cannot be made, the debt will be settled according to subpart B of part 1956 of this chapter or reclassified to collection-only. A deficiency judgment may be considered if the balance is a significant amount ($1,000 or more) and the borrower has known assets. </P> <EXTRACT> <FP>57 FR 774, Jan. 9, 1992, as amended at 60 FR 55145, Oct. 27, 1995]</FP> </EXTRACT> </SECTION> <SECTION> <PRTPAGE P="39"/> <SECTNO>§§ 1951.156-1951.200</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart E—Servicing of Community and Direct Business Programs Loans and Grants</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>55 FR 4399, Feb. 8, 1990, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.201</SECTNO> <SUBJECT>Purposes.</SUBJECT> <P>This subpart prescribes the Rural Development mission area policies, authorizations, and procedures for servicing Water and Waste Disposal System loans and grants; Community Facility loans and grants; Rural Business Enterprise/Television Demonstration grants; loans for Grazing and other shift-in-land-use projects; Association Recreation loans; Association Irrigation and Drainage loans; Watershed loans and advances; Resource Conservation and Development loans; Direct Business loans; Economic Opportunity Cooperative loans; loans to Indian Tribes and Tribal Corporations; Rural Renewal loans; Energy Impacted Area Development Assistance Program grants; National Nonprofit Corporation grants; Water and Waste Disposal Technical Assistance and Training grants; Emergency Community Water Assistance grants; System for Delivery of Certain Rural Development Programs panel grants; section 306C WWD loans and grants; and Rural and Cooperative Development Grants in subpart F of part 4284 of this title. Rural Development State Offices act on behalf of the Rural Utilities Service, the Rural Business-Cooperative Service, and the Farm Service Agency as to loan and grant programs formerly administered by the Farmers Home Administration and the Rural Development Administration. Loans sold without insurance to the private sector will be serviced in the private sector and will not be serviced under this subpart. The provisions of this subpart are not applicable to such loans. Future changes to this subpart will not be made applicable to such loans.</P> <CITA>[62 FR 33510, June 19, 1997, as amended at 62 FR 42387, Aug. 7, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.202</SECTNO> <SUBJECT>Objectives.</SUBJECT> <P>The purpose of loan and grant servicing functions is to assist recipients to meet the objectives of loans and grants, repay loans on schedule, comply with agreements, and protect FmHA or its successor agency under Public Law 103-354's financial interest. Supervision by FmHA or its successor agency under Public Law 103-354 includes, but is not limited to, review of budgets, management reports, audits and financial statements; performing security inspections and providing, arranging for, or recommending technical assistance; evaluating environmental impacts of proposed actions by the borrower; and performing civil rights compliance reviews.</P> </SECTION> <SECTION> <SECTNO>§ 1951.203</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>(a) <E T="03">Approval official.</E> An official who has been delegated loan and/or grant approval authorities within applicable programs, subject to the dollar limitations of exhibits A, B, and C of subpart A of part 1901 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(b) <E T="03">Assumption of debt.</E> The agreement by one party to legally bind itself to pay the debt incurred by another.</P> <P>(c) <E T="03">CONACT.</E> The Consolidated Farm and Rural Development Act, as amended.</P> <P>(d) <E T="03">Eligible applicant.</E> An entity that would be legally qualified for financial assistance under the loan or grant program involved in the servicing action.</P> <P>(e) <E T="03">Ineligible applicant.</E> An entity or individual that would not be considered eligible for financial assistance under the loan or grant program involved in the servicing action.</P> <P>(f) <E T="03">Nonprogram (NP) loan.</E> An NP loan exists when credit is extended to an ineligible applicant and/or transferee in connection with loan assumptions or sale of inventory property; any recipient in cases of unauthorized assistance; or a recipient whose legal organization has changed as set forth in § 1951.220(e) of this subpart resulting in the borrower being ineligible for program benefits.</P> <P>(g) <E T="03">Servicing office.</E> The State, District, or County Office responsible for immediate servicing functions for the borrower or grantee.<PRTPAGE P="40"/> </P> <P>(h) <E T="03">Transfer fee.</E> A one-time nonrefundable application fee, charged to ineligible applicants for FmHA or its successor agency under Public Law 103-354 services rendered in the processing of a transfer and assumption.</P> </SECTION> <SECTION> <SECTNO>§ 1951.204</SECTNO> <SUBJECT>Nondiscrimination.</SUBJECT> <P>Each instrument of conveyance required for a transfer, assumption, or other servicing action under this subpart will contain the following covenant. </P> <EXTRACT> <P>The property described herein was obtained or improved with Federal financial assistance and is subject to the nondiscrimination provisions of title VI of the Civil Rights Act of 1964, title IX of the Education Amendments of 1972, section 504 of the Rehabilitation Act of 1973, and other similarly worded Federal statutes, and the regulations issued pursuant thereto that prohibit discrimination on the basis of race, color, national origin, handicap, religion, age, or sex in programs or activities receiving Federal financial assistance. Such provisions apply for as long as the property continues to be used for the same or similar purposes for which the Federal assistance was extended, for so long as the purchaser owns it, whichever is later.</P> </EXTRACT> </SECTION> <SECTION> <SECTNO>§ 1951.205</SECTNO> <SUBJECT>Redelegation of authority.</SUBJECT> <P>Servicing functions under this subpart which are specifically assigned to the State Director may be redelegated in writing to an appropriate sufficiently trained designee.</P> </SECTION> <SECTION> <SECTNO>§ 1951.206</SECTNO> <SUBJECT>Forms.</SUBJECT> <P>Forms utilized for actions under this subpart are to be modified appropriately where necessary to adapt the forms for use by corporate recipients rather than individuals.</P> </SECTION> <SECTION> <SECTNO>§ 1951.207</SECTNO> <SUBJECT>State supplements.</SUBJECT> <P>State supplements developed to carry out the provisions of this subpart will be prepared in accordance with subpart B of part 2006 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office) and applicable State laws and regulations. State supplements are to be used only when required by National Instructions or necessary to clarify the impact of State laws or regulations, and not to restate the provisions of National Instructions. Advice and guidance will be obtained as needed from the Office of the General Counsel (OGC).</P> </SECTION> <SECTION> <SECTNO>§§ 1951.208-1951.209</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.210</SECTNO> <SUBJECT>Environmental requirements.</SUBJECT> <P>Servicing activities such as transfers, assumptions, subordinations, sale or exchange of security property, and leasing of security will be reviewed for compliance with subpart G of part 1940 of this chapter. The appropriate environmental review will be completed prior to approval of the servicing action. When National Office approval is required, the completed environmental review will be included with other information submitted.</P> </SECTION> <SECTION> <SECTNO>§ 1951.211</SECTNO> <SUBJECT>Refinancing requirements.</SUBJECT> <P>In accordance with the CONACT, FmHA or its successor agency under Public Law 103-354 requires for most loans covered by this subpart that if at any time it shall appear to the Government that the borrower is able to refinance the amount of the indebtedness then outstanding, in whole or in part, by obtaining a loan for such purposes from responsible cooperative or private credit sources, at reasonable rates and terms for loans for similar purposes and periods of time, the borrower will, upon request of the Government, apply for and accept such loan in sufficient amount to repay the Government and will take all such actions as may be required in connection with such loan. Applicable requirements are set forth in subpart F of part 1951 of this chapter. A civil rights impact analysis is required.</P> <CITA>[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.212</SECTNO> <SUBJECT>Unauthorized financial assistance.</SUBJECT> <P>Subpart O of part 1951 of this chapter prescribes policies for servicing the loans and grants covered under this subpart when it is determined that a borrower or grantee was not eligible for all or part of the financial assistance received in the form of a loan, grant, subsidy, or any other direct financial assistance.</P> </SECTION> <SECTION> <PRTPAGE P="41"/> <SECTNO>§ 1951.213</SECTNO> <SUBJECT>Debt settlement.</SUBJECT> <P>Subpart C of part 1956 of this chapter prescribes policies and procedures for debt settlement actions for loans covered under this subpart when it is determined that a debt is eligible for settlement except as provided in §§ 1951.216 and 1951.231.</P> </SECTION> <SECTION> <SECTNO>§ 1951.214</SECTNO> <SUBJECT>Care, management, and disposal of acquired property.</SUBJECT> <P>Property acquired by Government or its successor agency under Public Law 103-354 will be handled according to subparts B and C of part 1955 of this chapter.</P> <CITA>[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.215</SECTNO> <SUBJECT>Grants.</SUBJECT> <P>No monitoring action by FmHA or its successor agency under Public Law 103-354 is required after grant closeout. Grant closeout is when all required work is completed, administrative actions relating to the completion of work and expenditure of funds have been accomplished, and FmHA or its successor agency under Public Law 103-354 accepts final expenditure information. However, grantees remain responsible in accordance with the terms of the grant for property acquired with grant funds.</P> <P>(a) <E T="03">Applicability of requirements.</E> Servicing actions relating to FmHA or its successor agency under Public Law 103-354 grants are governed by the provisions of this subpart, the terms of the Grant Agreement and, if applicable, the provisions of 7 CFR parts 3015, 3016, and 3017.</P> <P>(1) Servicing actions will be carried out in accordance with the terms of the “Association Water or Sewer System Grant Agreement,” and RUS Bulletin 1780-12, “Water and Waste Grant Agreement” (available from any USDA/Rural Development office or the Rural Utilities Service, United States Department of Agriculture, Washington, DC 20250-1500). Grant agreements with a revision date on or after January 29, 1979, require that the grantee request disposition instructions from the Agency before disposing of property which is no longer needed for original grant purposes.</P> <P>(2) When facilities financed in part by FmHA or its successor agency under Public Law 103-354 grants are transferred or sold, repayment of all or a portion of the grant is not required if the facility will be used for the same purposes and the new owner provides a written agreement to abide by the terms of the grant agreement.</P> <P>(3) 7 CFR 3015 first became effective on November 10, 1981; 7 CFR parts 3016 on October 1, 1988; and 7 CFR 3017 on March 18, 1989. Grants made on or after those dates are subject to the provisions of those regulations except to the extent of the express provisions of the Grant Agreement.</P> <P>(b) <E T="03">Authorities.</E> Subject to the requirements of § 1951.215(a), authority to approve servicing actions is as follows:</P> <P>(1) For water and waste disposal grants, the State Director is authorized to approve any servicing actions needed, except that prior approval of the Administrator is required when property acquired with grant funds is disposed of in accordance with §§ 1951.226, 1951.230, or 1951.232 of this subpart and the buyer or transferee refuses to assume all terms of the grant agreement.</P> <P>(2) All other grants will be serviced in accordance with the Grant Agreement and this subpart. Prior approval of the Administrator is required except for actions covered in the preceding paragraph.</P> <CITA>[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.216</SECTNO> <SUBJECT>Nonprogram (NP) loans.</SUBJECT> <P>Borrowers with NP loans are not eligible for any program benefits, including appeal rights. However, FmHA or its successor agency under Public Law 103-354 may use any servicing tool under this subpart necessary to protect the Government's security interest, including reamortization or rescheduling. The refinancing requirements of subpart F of part 1951 of this chapter do not apply to NP loans. Debt settlement actions relating to NP loans must be handled under the Federal Claims Collection Act; proposals will be submitted to the National Office for review and approval. Any exception to the servicing requirements of NP loans <PRTPAGE P="42"/>under this subpart must have prior concurrence of the National Office.</P> </SECTION> <SECTION> <SECTNO>§ 1951.217</SECTNO> <SUBJECT>Public bodies.</SUBJECT> <P>Servicing actions involving public bodies will be carried out to the extent feasible according to the provisions of this subpart. With prior National Office approval, the State Director is authorized to vary from such provisions if necessary and approved by OGC, provided such variation will not violate other regulatory or statutory provisions. To request approval, the case file, including copies of applicable documents, recommendations, and OGC comments, will be forwarded to the Administrator, Attention: (appropriate program division).</P> </SECTION> <SECTION> <SECTNO>§§ 1951.218-1951.219</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.220</SECTNO> <SUBJECT>General servicing actions.</SUBJECT> <P>(a) <E T="03">Payment in full.</E> Payment in full of a loan is handled according to subpart D of part 1951 of this chapter. When a loan is paid in full, the servicing official will:</P> <P>(1) Notify the company providing fidelity bond coverage in writing that the government no longer has an interest in the bond if the government is named co-obligee on the bond.</P> <P>(2) Release FmHA or its successor agency under Public Law 103-354's interest in insurance policies according to applicable provisions of subpart A of part 1806 (FmHA or its successor agency under Public Law 103-354 Instruction 426.1).</P> <P>(3) Release FmHA or its successor agency under Public Law 103-354's interest in any other security as appropriate, consulting with OGC if necessary.</P> <P>(b) <E T="03">Loan summary statements.</E> Upon request of a borrower, FmHA or its successor agency under Public Law 103-354 will issue a loan summary statement showing account activity for each loan made or insured under the CONACT. Field offices will post a notice on the bulletin board informing borrowers of the availability of loan summary statements. See exhibit A of subpart A of this part for a sample of the required notice.</P> <P>(1) The loan summary statement period is from January 1 through December 31. The Finance Office forwards to field offices a copy of Form FmHA or its successor agency under Public Law 103-354 1951-9, “Annual Statement of Loan Account,” to be retained in borrower files as a permanent record of account activity for the year.</P> <P>(2) Quarterly Forms FmHA or its successor agency under Public Law 103-354 1951-9 are retained in the Finance Office on microfiche. These statements reflect cumulative data from the beginning of the current year through the end of the most recent quarter. Servicing offices may request copies of these quarterly or annual statements by sending Form FmHA or its successor agency under Public Law 103-354 1951-57, “Request for Loan Summary Statement,” to the Finance Office.</P> <P>(3) The servicing office will provide a copy of the applicable loan summary statement to the borrower on request. A copy of Form FmHA or its successor agency under Public Law 103-354 1951-9 and, for loans with unamortized installments, a printout of future installments owed obtained using the borrower status screen option in the Automated Discrepancy Processing System (ADPS), will constitute the loan summary statement to be provided to the borrower.</P> <P>(c) <E T="03">Insurance.</E> FmHA or its successor agency under Public Law 103-354 borrowers shall maintain insurance coverage as follows:</P> <P>(1) Community and Insured Business Programs borrowers shall continuously maintain adequate insurance coverage as required by the loan agreement and § 1942.17(j)(3) of subpart A of part 1942 of this chapter. Insurance coverage must be monitored in accordance with the above-referenced section to determine that adequate policies and bonds are in force.</P> <P>(2) For all other types of loans covered by this subpart, property insurance will be serviced according to subpart A of part 1806 of this chapter (FmHA or its successor agency under Public Law 103-354 Instruction 426.1) in real estate mortgage cases, and according to the loan agreement in other cases.</P> <P>(d) <E T="03">Property taxes.</E> Real property taxes are serviced according to Subpart A of <PRTPAGE P="43"/>part 1925 of this chapter. If State statutes permit a personal property tax lien to have priority over FmHA or its successor agency under Public Law 103-354's lien, such taxes are serviced according to §§ 1925.3 and 1925.4 of subpart A of part 1925 of this chapter.</P> <P>(e) <E T="03">Changes in borrower's legal organization.</E> (1) The State Director may approve, with OGC's concurrence, changes in a recipient's legal organization, including revisions of articles of incorporation or charter and bylaws, when:</P> <P>(i) The change does not provide for a sole member type of organization;</P> <P>(ii) The borrower retains control over its assets and the operation, management, and maintenance of the facility, and continues to carry out its responsibilities as set forth in § 1942.17(b)(4) of subpart A of part 1942 of this chapter; and</P> <P>(iii) The borrower retains significant local ties with the rural community.</P> <P>(2) The State Director may approve, with prior concurrence of the Administrator, changes in a recipient's legal organization which result in a sole member type of organization, or any other change which results in a recipient's loss of control over its assets and/or the operation, management and maintenance of the facility, provided all of the following have been or will be met:</P> <P>(i) The change is in the best interest of the Government;</P> <P>(ii) The State Director determines and documents that other servicing options under this subpart, such as sale or transfer and assumption, have been explored and are not feasible;</P> <P>(iii) The loan is classified as a nonprogram loan;</P> <P>(iv) The borrower is notified that it is no longer eligible for any program benefits, but will remain responsible under the loan agreement; and</P> <P>(v) Prior concurrence of the Administrator is obtained. Requests will be forwarded to the Administrator: Attention (appropriate program division), and will include the case file; Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), appropriately completed; the proposed changes; OGC comments; and any other necessary supporting information.</P> <P>(f) <E T="03">Membership liability.</E> As a loan approval requirement, some borrowers may have special agreements with members of the purchase of shares of stock or for payment of a pro rata share of the loan in the event of default, or they may have authority in their corporate instruments to make special assessments in that event. Such agreements may be referred to as individual liability agreements and may be assigned to and held by FmHA or its successor agency under Public Law 103-354 as additional security. In other cases the borrower's note may be endorsed by individuals. The liability instruments will be serviced in a manner indicated by their contents and the advice of OGC to adequately protect FmHA or its successor agency under Public Law 103-354's interest. Servicing actions necessary due to such provisions will be noted on Form FmHA or its successor agency under Public Law 103-354 1905-10, “Management System Card—Association.”</P> <P>(g) <E T="03">Other security.</E> Other security such as collateral assignments, water stock certificates, notices of lienholder interest (Bureau of Land Management grazing permits) and waivers of grazing privileges (Forest Service grazing permits) will be serviced to protect the interest of FmHA or its successor agency under Public Law 103-354, and in compliance with any special servicing actions developed by the State Director with OGC assistance. Evidence of the security will be filed in the servicing office case file. Necessary servicing actions will be noted on Form FmHA or its successor agency under Public Law 103-354 1905-10.</P> <P>(h) <E T="03">Correcting errors in security instruments.</E> Land, buildings, or chattels included in a mortgage through mutual mistake may be released from the mortgage by the State Director when substantiated by the factual situation. The release is contingent on the State Director determining, with OGC advice, that the property was included due to mutual error.</P> <P>(i) <E T="03">Present market value determination.</E> For purposes of this subpart, the value of security is determined by the approval official as follows:<PRTPAGE P="44"/> </P> <P>(1) <E T="03">Security representing a relatively small portion of the total value of the security property.</E> The approval official will determine that the real estate and chattels are disposed of at a reasonable price. A current appraisal report may be required.</P> <P>(2) <E T="03">Security representing a relatively large portion of the total value of the security property.</E> The approval official will require a current appraisal report, and the sale prices of the real estate and chattels disposed of will at least equal the present market value as determined by this appraisal.</P> <P>(3) <E T="03">Appraisal report.</E> If required, a current appraisal report will be completed in accordance with § 1942.3 of subpart A of part 1942 of this chapter. The appraisal will be completed by a qualified FmHA or its successor agency under Public Law 103-354 employee or an independent appraiser as determined appropriate by the approval official.</P> <CITA>[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 775, Jan. 9, 1992; 57 FR 21199, May 19, 1992; 57 FR 36591, Aug. 14, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.221</SECTNO> <SUBJECT>Collections, payments and refunds.</SUBJECT> <P>Collections are processed in accordance with subpart B of part 1951 of this chapter. Payments and refunds are handled in accordance with the following:</P> <P>(a) <E T="03">Community and Insured Business Programs.</E> (1) Field offices can obtain data on principal installments due for Community and Insured Business Programs loans with unamortized installments using the borrower status screen option in the ADPS.</P> <P>(2) Regular payments for Community and Insured Business Programs borrowers are all payments other than extra payments and refunds. Such payments are usually derived from facility revenues, and do not include proceeds from the sale of security. They also include payments derived from sources which do not decrease the value of FmHA or its successor agency under Public Law 103-354's security.</P> <P>(i) Distribution of such payments is made as follows:</P> <P>(A) First, to the FmHA or its successor agency under Public Law 103-354 loan(s) in proportion to the delinquency existing on each. Any excess will be distributed in accordance with paragraphs (a)(2)(i) (B) and (C) of this section.</P> <P>(B) Second, to the FmHA or its successor agency under Public Law 103-354 loan or loans in proportion to the approximate amounts due on each. Any excess will be distributed according to paragraph (a)(2)(i)(C) of this section.</P> <P>(C) Third, as advance payments on FmHA or its successor agency under Public Law 103-354 loans. In making such distributions, consider the principal balance outstanding on each loan, the security position of the liens securing each loan, the borrower's request, and related circumstances.</P> <P>(ii) Unless otherwise established by the debt instrument, regular payments will be applied as follows:</P> <P>(A) For amortized loans, first to interest accrued (as of the date of receipt of the payment), and then to principal.</P> <P>(B) For principal-plus-interest loans, first to the interest due through the date of the next scheduled installment of principal and interest and then to principal due, with any balance applied to the next scheduled principal installment.</P> <P>(3) Extra payments are derived from sale of basic chattel or real estate security; refund of unused loan funds; cash proceeds of property insurance as provided in § 1806.5(b) of subpart A of part 1806 (paragraph V B of FmHA or its successor agency under Public Law 103-354 Instruction 426.1); and similar actions which reduce the value of basic security. At the option of the borrower, regular facility revenue may also be used as extra payments when regular payments are current. Unless otherwise established in the note or bond, extra payments will be distributed and applied as follows:</P> <P>(i) First to the account secured by the lowest priority of lien on the property from which the extra payment was obtained. Any balance will be applied to other FmHA or its successor agency under Public Law 103-354 loans in ascending order of priority.</P> <P>(ii) For amortized loans, first to interest accrued to the date payment is received, and then to principal. For debt instruments with installments of principal plus interest, such payments <PRTPAGE P="45"/>will be applied to the final unpaid principal installment.</P> <P>(b) <E T="03">Grazing Association Loans, Irrigation, Drainage and other Soil and Water Conservation Loans, and Indian Tribes and Tribal Corporation Loans.</E> (1) Regular payments for such loans are defined in § 1951.8(a) of subpart A of part 1951 of this chapter, and are distributed according to § 1951.9(a) of that subpart unless otherwise established by the note or bond.</P> <P>(2) Extra payments are defined in § 1951.8(b) of subpart A of part 1951 of this chapter, and are distributed according to § 1951.9(b) of that subpart.</P> </SECTION> <SECTION> <SECTNO>§ 1951.222</SECTNO> <SUBJECT>Subordination of security.</SUBJECT> <P>When a borrower requests FmHA or its successor agency under Public Law 103-354 to subordinate a security instrument so that another creditor or lender can refinance, extend, reamortize, or increase the amount of a prior lien; be on parity with; or place a lien ahead of the FmHA or its successor agency under Public Law 103-354 lien, it will submit a written request to the servicing office as provided below. For purposes of this subpart, subordination is defined to include cases where a parity security position is being considered.</P> <P>(a) <E T="03">General.</E> The following requirements must normally be met:</P> <P>(1) The request must be for subordination of a specific amount of the FmHA or its successor agency under Public Law 103-354 indebtedness, and the amount must be within the approval official's authority as set forth in exhibits A, B, and C of subpart A of part 1901 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(2) It must be determined that the borrower cannot refinance its FmHA or its successor agency under Public Law 103-354 debt in accordance with subpart F of part 1951 of this chapter.</P> <P>(3) The transaction will further the purposes for which the FmHA or its successor agency under Public Law 103-354 loan was made, not adversely affect the borrower's debt-paying ability, and result in the FmHA or its successor agency under Public Law 103-354 debt being adequately secured.</P> <P>(4) The terms and conditions of the prior lien will be such that the borrower can reasonably be expected to meet them as well as the requirements of all other debts.</P> <P>(5) Any proposed development work will be planned and performed according to § 1942.18 of subpart A of part 1942 of this chapter or in a manner directed by the creditor which reasonably attains the objectives of that section.</P> <P>(6) All contracts, pay estimates, and change orders will be reviewed and concurred in by the State Director.</P> <P>(7) In cases involving land purchase, the FmHA or its successor agency under Public Law 103-354 will obtain a mortgage on the purchased land.</P> <P>(8) When the transaction involves more than $10,000 or the approval official considers it necessary, a present market value appraisal report will be obtained. However, a new report need not be obtained if there is an appraisal report not over one year old which permits a proper determination of the present market value of the total property after the transaction.</P> <P>(9) The proposed action must not change the nature of the borrower's activities so as to make it ineligible for FmHA or its successor agency under Public Law 103-354 loan assistance.</P> <P>(10) Necessary consent and subordination of all other outstanding security interests must be obtained.</P> <P>(11) For Indian Tribes and Tribal Corporations, loan funds will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity as further explained in exhibit M of subpart G of part 1940 of this chapter. This requirement will be monitored throughout the term of the loan.</P> <P>(b) <E T="03">Authorities.</E> Proposals not meeting one or more of the above requirements will be submitted to the Administrator, Attention (appropriate program division) for prior concurrence. All other proposals may be approved by the official with loan approval authority under subpart A of part 1901 of this chapter.</P> <P>(c) <E T="03">Processing.</E> The case file is to include:</P> <P>(1) The borrower's written request on Form FmHA or its successor agency <PRTPAGE P="46"/>under Public Law 103-354 465-1, “Application for Partial Release, Subordination, or Consent,” if appropriate, or in other acceptable format. The request must contain the purpose of the subordination; exact amount of money or property involved; description of security property involved; type of security instrument; name, address, line of business and other general information pertaining to the party in favor of which the request is made; and other pertinent information to evaluate the need for the request;</P> <P>(2) Current balance sheet;</P> <P>(3) If development work is involved, an operating budget on Form FmHA or its successor agency under Public Law 103-354 442-7, “Operating Budget,” or similar form which projects income and expenses through the first full year of operation following completion of planned improvements; or if no development work is involved, an income statement and budget on Form FmHA or its successor agency under Public Law 103-354 442-2, “Statement of Budget, Income, and Equity,” schedules 1 and 2, or similar form;</P> <P>(4) Copy of proposed security instrument;</P> <P>(5) Appraisal report, when applicable;</P> <P>(6) OGC opinion on the request;</P> <P>(7) Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), appropriately completed;</P> <P>(8) Appropriate environmental review; and</P> <P>(9) Any other necessary supporting information.</P> <P>(d) <E T="03">Closing.</E> All requests for subordination will be closed according to instructions from OGC except those which affect only chattel liens other than pledges of revenue. FmHA or its successor agency under Public Law 103-354's consent on Form FmHA or its successor agency under Public Law 103-354 465-1 will be signed concurrently with Form FmHA or its successor agency under Public Law 103-354 460-2, “Subordination by the Government,” when applicable.</P> </SECTION> <SECTION> <SECTNO>§ 1951.223</SECTNO> <SUBJECT>Reamortization.</SUBJECT> <P>(a) <E T="03">State Director authorization.</E> The State Director is authorized to approve reamortization of loans under the following conditions:</P> <P>(1) The account is delinquent and cannot be brought current within one year while maintaining a reasonable reserve;</P> <P>(2) The borrower has demonstrated for at least one year by actual performance or has presented a budget which clearly indicates that it is able to meet the proposed payment schedule;</P> <P>(3) The amount being reamortized is within the State Director's loan approval authorization; and</P> <P>(4) There is no extension of the final maturity date.</P> <P>(b) <E T="03">Requests requiring National Office approval.</E> Reamortizations not meeting the above conditions require prior National Office approval. Requests will be forwarded to the National Office with the case file, including:</P> <P>(1) Current budget and cash flow prepared on Form FmHA or its successor agency under Public Law 103-354 442-2, schedules 1 and 2, or similar form;</P> <P>(2) Current balance sheet and income statement;</P> <P>(3) Exhibit A of this subpart, appropriately completed;</P> <P>(4) Form FmHA or its successor agency under Public Law 103-354 1951-33, “Reamortization Request,” completed in accordance with § 1951.223(c)(3) of this subpart, when applicable; and</P> <P>(5) Any other necessary supporting information.</P> <P>(c) <E T="03">Processing.</E> When legally permissible and administratively acceptable, the total outstanding principal and interest balances will be reamortized rather than only the delinquent amount. Accrued interest will be at the rate currently reflected in Finance Office records.</P> <P>(1) Reamortizations will be perfected in accordance with OGC closing instructions.</P> <P>(2) When debt instruments are being modified or new debt instruments executed, bond counsel or local counsel, as appropriate, must provide an opinion indicating any effect on FmHA or its successor agency under Public Law 103-354's security position. The FmHA or its successor agency under Public Law 103-354 approval official must determine that the government's interest <PRTPAGE P="47"/>will remain adequately protected if the security position will be affected.</P> <P>(3) <E T="03">Notes.</E> Except as provided in § 1951.223(c)(4), loans evidenced by notes will be reamortized through a new evidence of debt unless OGC recommends that the terms of the existing document be modified. Form FmHA or its successor agency under Public Law 103-354 1951-33 may be used to effect such modifications, if legally adequate, or other forms may be used if acceptable to FmHA or its successor agency under Public Law 103-354. The original of a new note or any endorsement required by OGC is to be attached to the existing note, filed in the servicing office, and retained until the account is paid in full or otherwise satisfied. A copy will be forwarded to the Finance Office.</P> <P>(4) <E T="03">Bonds and notes with other than real or chattel security pledged to FmHA or its successor agency under Public Law 103-354.</E> Loans evidenced by bonds, or by notes with other than real or chattel security pledged to FmHA or its successor agency under Public Law 103-354, may be reamortized using procedures acceptable to the State Director and legally permissible under State statutes in the opinion of the borrower's counsel and the OGC.</P> <P>(i) The procedure may consist of a new debt instrument or agreement for the total FmHA or its successor agency under Public Law 103-354 indebtedness, including the delinquency, or a new instrument or agreement whereby the borrower agrees to repay the delinquency plus interest. If a new instrument or agreement for only the delinquent amount is used, a new loan number will be assigned to the delinquent amount, and the borrower will be required to pay the amounts due under both the original and the new instruments.</P> <P>(ii) When a delinquent or problem loan cannot be reamortized by issuing a new debt instrument due to State statutes, or the cost of preparation and closing is prohibitive, the rescheduling agreement provided as Exhibit H of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), may be used.</P> <P>(iii) Section 1942.19 of subpart A of part 1942 of this chapter applies to any new bonds issued unless precluded by State statutes or an exception is approved by the National Office.</P> <P>(iv) If State statutes do not require the release of existing bonds, they will be retained with the new bond instrument or agreement in the FmHA or its successor agency under Public Law 103-354 office authorized to store such documents. If State statutes require release of existing bonds, the exchange will be accomplished by the District Director, and the new bond and/or agreement will be retained in the appropriate office.</P> <P>(5) <E T="03">New debt instruments or agreements.</E> (i) A copy will be sent to the Finance Office after execution, except that if serial bonds are used, the original bond(s) will be submitted to the Finance Office.</P> <P>(ii) Any agreement used will contain:</P> <P>(A) The amount delinquent, which must equal the total delinquency on the account and net advances (the unpaid principal on any advance and the accrued interest on any advance through the date of reamortization, less interest payments credited on the advance account);</P> <P>(B) The effective date of the reamortization;</P> <P>(C) The number of years over which the delinquency will be amortized;</P> <P>(D) The repayment schedule; and</P> <P>(E) The interest rate.</P> <P>(iii) A payment will be due on the next scheduled due date. Deferment of interest and/or principal payments is not authorized.</P> <P>(iv) A separate new instrument will be required for each loan being reamortized.</P> <P>(v) If amortized payments are not used, the schedule of principal installments developed will be such that combined payments of principal and interest closely approximate an amortized payment.</P> <P>(d) <E T="03">Reamortization with interest rate adjustment—Water and waste borrowers only.</E> A borrower that is seriously delinquent in loan payments may be eligible for loan reamortization with interest rate adjustment. The purpose of loan reamortization with interest rate adjustment is to provide relief for a borrower that is unable to service the outstanding loan in accordance with <PRTPAGE P="48"/>its existing terms and to enhance recovery on the loan. A borrower must meet the conditions of this subpart to be considered eligible for this provision.</P> <P>(1) <E T="03">Eligibility determination.</E> The State Director, Rural Development, may submit to the Administrator for approval an adjustment in the rate of interest charged on outstanding loans only for those borrowers who meet the following requirements:</P> <P>(i) The borrower has exhausted all other servicing provisions contained in this subpart;</P> <P>(ii) The borrower is experiencing severe financial problems;</P> <P>(iii) Any management deficiencies must have been corrected or the borrower must submit a plan acceptable to the State Office to correct any deficiencies before an interest rate adjustment may be considered;</P> <P>(iv) Borrower user rates must be comparable to similar systems. In addition, the operating expenses reported by the borrower must appear reasonable in relation to similar system expenses;</P> <P>(v) The borrower has cooperated with Rural Development in exploring alternative servicing options and has acted in good faith with regard to eliminating the delinquency and complying with its loan agreements and agency regulations; and</P> <P>(vi) The borrower's account must be delinquent at least one annual debt payment for 180 days.</P> <P>(2) <E T="03">Conditions of approval.</E> All borrowers approved for an adjustment in the rate of interest by the Administrator shall agree to the following conditions:</P> <P>(i) The borrower shall agree not to maintain cash or cash reserves beyond what is reasonable at the time of interest rate adjustment to meet debt service, operating, and reserve requirements.</P> <P>(ii) A review of the borrower's management and business operations may be required at the discretion of the State Director. This review shall be performed by an independent expert who has been recommended by the State Director and approved by the National Office. The borrower must agree to implement all recommendations made by the State Director as a result of the review.</P> <P>(iii) If requested, a copy of the latest audited financial statements or management report must be submitted to the Administrator.</P> <P>(3) <E T="03">Reamortization.</E> At the discretion of the Administrator, the interest rate charged on outstanding loans of eligible borrowers may be adjusted to no less than the poverty interest rate and the term of the loans may be extended up to a new 40 year term or the remaining useful life of the facility, whichever is less.</P> <CITA>[55 FR 4399, Feb. 8, 1990, as amended at 56 FR 25351, June 4, 1991; 63 FR 41714, Aug. 5, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.224</SECTNO> <SUBJECT>Third party agreements.</SUBJECT> <P>The State Director may authorize all or part of a facility to be operated, maintained or managed by a third party under a contract, management agreement, written lease, or other third party agreement as follows:</P> <P>(a) <E T="03">Leases—</E>(1) <E T="03">Lease of all or part of a facility (except when liquidation action is pending).</E> The State Director may consent to the leasing of all or a portion of security property when:</P> <P>(i) Leasing is the only feasible way to provide the service and is the customary practice as required under § 1942.17(b)(4) of subpart A of part 1942 of this chapter;</P> <P>(ii) The borrower retains ultimate responsibility for operating, maintaining, and managing the facility and for its continued availability and use at reasonable rates and terms as required under § 1942.17(b)(4) of subpart A of part 1942 of this chapter. The lease agreement must clearly reflect sufficient control by the borrower over the operation, maintenance, and management of the facility to assure that the borrower maintains this responsibility;</P> <P>(iii) The lease agreement contains provisions prohibiting any amendments to the lease or any subleasing arrangements without prior written approval from FmHA or its successor agency under Public Law 103-354;</P> <P>(iv) The lease document contains nondiscrimination requirements as set forth in § 1951.204 of this subpart;</P> <P>(v) The lease contains a provision which recognizes that FmHA or its successor agency under Public Law 103-354 <PRTPAGE P="49"/>is a lienholder on the subject facility and, as such, the lease is subordinate to the rights and claims of FmHA or its successor agency under Public Law 103-354 as lienholder; and</P> <P>(vi) The lease does not constitute a lease/purchase arrangement, unless permitted under § 1951.232 of this subpart.</P> <P>(2) <E T="03">Lease of all or part of a facility (pending liquidation action).</E> The State Director may consent to the leasing of all or a portion of security property when:</P> <P>(i) The lease will not adversely affect the repayment of the loan or the Government's rights under the security or other instruments;</P> <P>(ii) The State Director has determined that liquidation will likely be necessary and the lease is necessary until liquidation can be accomplished;</P> <P>(iii) Leasing is not an alternative to, or means of delaying, liquidation action;</P> <P>(iv) The lease and use of any proceeds from the lease will further the objective of the loan;</P> <P>(v) Rental income is assigned to FmHA or its successor agency under Public Law 103-354 in an amount sufficient to make regular payments on the loan and operate and maintain the facility unless such payments are otherwise adequately secured;</P> <P>(vi) The lease is advantageous to the borrower and is not disadvantageous to the Government;</P> <P>(vii) If foreclosure action has been approved and the case has been submitted to OGC, consent to lease and use of proceeds will be granted only with OGC's concurrence; and</P> <P>(viii) The lease does not exceed a one-year period. The property may not be under lease more than two consecutive years without authorization from the National Office. Long-term leases may be approved, with prior authorization from the National Office, if necessary to ensure the continuation of services for which the loan was made and if other servicing options contained in this subpart have been determined inappropriate for servicing the loan.</P> <P>(b) <E T="03">Mineral leases.</E> Unless liquidation is pending, the State Director is authorized to approve mineral leases when:</P> <P>(1) The lessee agrees, or is liable without any agreement, to pay adequate compensation for any damage to the real estate surface and improvements. Damage compensation will be assigned to FmHA or its successor agency under Public Law 103-354 or the prior lienholder by the use of Form FmHA or its successor agency under Public Law 103-354 443-16, “Assignment of Income from Real Estate Security,” or other appropriate instrument;</P> <P>(2) Royalty payments are adequate and are assigned to FmHA or its successor agency under Public Law 103-354 on Form FmHA or its successor agency under Public Law 103-354 443-16 in an amount determined by the State Director to be adequate to protect the Government's interest;</P> <P>(3) All or a portion of delay rentals and bonus payments may be assigned on Form FmHA or its successor agency under Public Law 103-354 443-16 if needed for protection of the Government's interest;</P> <P>(4) The lease, subordination, or consent form is acceptable to OGC;</P> <P>(5) The lease will not interfere with the purpose for which the loan or grant was made; and</P> <P>(6) When FmHA or its successor agency under Public Law 103-354 consent is required, the borrower submits a completed Form FmHA or its successor agency under Public Law 103-354 465-1. The form will include the terms of the proposed agreement and specify the use of all proceeds, including any to be released to the borrower.</P> <P>(c) <E T="03">Management agreements.</E> Management agreements should contain the minimum suggested contents contained in Guide 24 of part 1942, subpart A of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(d) <E T="03">Affiliation agreements.</E> An affiliation agreement between the borrower and a third party may be approved by the State Director, with OGC concurrence, if it provides for shared services between the parties and does not result in changes to the borrower's legal organizational structure which would result in its loss of control over its assets and/or over the operation, management, and maintenance of the facility to the extent that it cannot carry out <PRTPAGE P="50"/>its responsibilities as set forth in § 1942.17(b)(4) of subpart A of part 1942 of this chapter. However, affiliation agreements which result in a loss of borrower control may be approved with prior concurrence of the Administrator if the loan is reclassified as a nonprogram loan and the borrower is notified that it is no longer eligible for any program benefit. Requests forwarded to the Administrator will contain the case file, the proposed affiliation agreement, and necessary supporting information.</P> <P>(e) <E T="03">Processing.</E> The consent of other lienholders will be obtained when required. When National Office approval is required, or if the State Director wishes to have a transaction reviewed prior to approval, the case file will be forwarded to the National Office and will include:</P> <P>(1) A copy of the proposed agreement;</P> <P>(2) Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), appropriately completed;</P> <P>(3) Any other necessary supporting information.</P> <CITA>[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 21199, May 19, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.225</SECTNO> <SUBJECT>Liquidation of security.</SUBJECT> <P>When the District Director believes that continued servicing will not accomplish the objectives of the loan, he or she will complete Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), and submit it with the District Office file to the State Office. If the State Director determines the account should be liquidated, he or she will encourage the borrower to dispose of the FmHA or its successor agency under Public Law 103-354 security voluntarily through a sale or transfer and assumption, and establish a specified period, not to exceed 180 days, to accomplish the action. If a transfer or voluntary sale is not carried out, the loan will be liquidated according to subpart A of part 1955 of this chapter.</P> </SECTION> <SECTION> <SECTNO>§ 1951.226</SECTNO> <SUBJECT>Sale or exchange of security property.</SUBJECT> <P>A cash sale of all or a portion of a borrower's assets or an exchange of security property may be approved subject to the conditions set forth below.</P> <P>(a) <E T="03">Authorities</E>. (1) The District Director is authorized to approve actions under this section involving only chattels.</P> <P>(2) The State Director is authorized to approve real estate transactions except as noted in the following paragraph.</P> <P>(3) Approval of the Administrator must be obtained when a substantial loss to the Government will result from a sale; one or more members of the borrower's organization proposes to purchase the property; it is proposed to sell the property for less than the appraised value; or the buyer refuses to assume all the terms of the Grant Agreement. It is not FmHA or its successor agency under Public Law 103-354 policy to sell security property to one or more members of the borrower's organization at a price which will result in a loss to the Government.</P> <P>(b) <E T="03">General</E>. Approval may be given when the approval official determines and documents that:</P> <P>(1) The consideration is adequate;</P> <P>(2) The release will not prevent carrying out the purpose of the loan;</P> <P>(3) The remaining property is adequate security for the loan or the transaction will not adversely affect FmHA or its successor agency under Public Law 103-354's security position;</P> <P>(4) If the property to be sold or exchanged is to be used for the same or similar purposes for which the loan or grant was made, the purchaser will:</P> <P>(i) Execute Form FmHA or its successor agency under Public Law 103-354 400-4, “Assurance Agreement.” The covenants involved will remain in effect as long as the property continues to be used for the same or similar purposes for which the loan or grant was made. The instrument of conveyance will contain the covenant referenced in § 1951.204 of this subpart; and</P> <P>(ii) Provide to FmHA or its successor agency under Public Law 103-354 a written agreement assuming all rights and obligations of the original grantee if grant funds were provided. See § 1951.215 below for additional guidance on grant agreements.<PRTPAGE P="51"/> </P> <P>(5) The proceeds remaining after paying any reasonable and necessary selling expenses are used for one or more of the following purposes:</P> <P>(i) To pay on FmHA or its successor agency under Public Law 103-354 debts according to § 1951.221 of this subpart; on debts secured by a prior lien; and on debts secured by a subsequent lien if it is to FmHA or its successor agency under Public Law 103-354's advantage.</P> <P>(ii) To purchase or acquire through exchange property more suited to the borrower's needs, if the FmHA or its successor agency under Public Law 103-354 debt will be as well secured after the transaction as before.</P> <P>(iii) To develop or enlarge the facility if necessary to improve the borrower's debt-paying ability; place the operation on a sounder basis; or otherwise further the loan objectives and purposes.</P> <P>(6) Disposition of property acquired in whole or part with FmHA or its successor agency under Public Law 103-354 grant funds will be handled in accordance with the grant agreement.</P> <P>(c) <E T="03">Processing</E>. (1) The case file will contain the following:</P> <P>(i) Except for actions approved by the District Director, Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), appropriately completed;</P> <P>(ii) The appraisal report, if appropriate;</P> <P>(iii) Name of purchaser, anticipated sales price, and proposed terms and conditions;</P> <P>(iv) Form FmHA or its successor agency under Public Law 103-354 1965-8, “Release from Personal Liability,” including the County Committee memorandum and the State Director's recommendations;</P> <P>(v) An executed Form FmHA or its successor agency under Public Law 103-354 400-4, if applicable;</P> <P>(vi) An executed Form FmHA or its successor agency under Public Law 103-354 465-1, if applicable;</P> <P>(vii) Form FmHA or its successor agency under Public Law 103-354 460-4, “Satisfaction,” if a debt has been paid in full or satisfied by debt settlement action. For cases involving real estate, a similar form may be used if approved by OGC; and</P> <P>(viii) Written approval of the Administrator when required under § 1951.226(a)(3) of this subpart;</P> <P>(2) <E T="03">Releasing security</E>. (i) The District Director is authorized to satisfy or terminate chattel security instruments when § 1951.226(b) of this subpart and § 1962.17 and § 1962.27 of subpart A of part 1962 of this chapter have been complied with. Partial release may be made by using Form FmHA or its successor agency under Public Law 103-354 460-1, “Partial Release,” or Form FmHA or its successor agency under Public Law 103-354 462-12, “Statements of Continuation, Partial Release, Assignment, Etc.”</P> <P>(ii) Subject to § 1951.226(b) of this subpart, the State Director is authorized to release part or all of an interest in real estate security by approving Form FmHA or its successor agency under Public Law 103-354 465-1. Partial release of real estate security may be made by use of Form FmHA or its successor agency under Public Law 103-354 460-1 or other form approved by OGC.</P> <P>(3) FmHA or its successor agency under Public Law 103-354 liens will not be released until the sale proceeds are received for application on the Government's claim. In states where it is necessary to obtain the insured note from the lender to present to the recorder before releasing a portion of the land from the mortgage, the borrower must pay any cost for postage and insurance of the note while in transit. The District Director will advise the borrower when it requests a partial release that it must pay these costs. If the borrower is unable to pay the costs from its own funds, the amounts shown on the statement of actual costs furnished by the insured lender may be deducted from the sale proceeds.</P> <P>(d) <E T="03">Release from liability</E>. (1) When an FmHA or its successor agency under Public Law 103-354 debt is paid in full from the proceeds of a sale, the borrower will be released from liability by use of Form FmHA or its successor agency under Public Law 103-354 1965-8.</P> <P>(2) When sale proceeds are not sufficient to pay the FmHA or its successor agency under Public Law 103-354 debt in full, any balance remaining will be handled in accordance with procedures <PRTPAGE P="52"/>for debt settlement actions set forth in subpart C of part 1956 of this chapter.</P> <P>(i) In determining whether a borrower should be released from liability, the State Director will consider the borrower's debt-paying ability based on its assets and income at the time of the sale.</P> <P>(ii) Release from liability will be accomplished by using Form FmHA or its successor agency under Public Law 103-354 1965-8 and obtaining from the County Committee a memorandum recommending the release which contains the following statement: </P> <EXTRACT> <P> <E T="72">________</E> in our opinion does not have reasonable debt-paying ability to pay the balance of the debt after considering its assets and income at the time of the sale. The borrower has cooperated in good faith, used due diligence to maintain the security against loss, and otherwise fulfilled the covenants incident to the loan to the best of its ability. Therefore, we recommend that the borrower be released from liabilty upon the completion of the sale.</P> </EXTRACT> </SECTION> <SECTION> <SECTNO>§ 1951.227</SECTNO> <SUBJECT>Protective advances<E T="01">.</E> </SUBJECT> <P>The State Director is authorized to approve, without regard to any loan or total indebtedness limitation, vouchers to pay costs, including insurance and real estate taxes, to preserve and protect the security, the lien, or the priority of the lien securing the debt owed to or insured by FmHA or its successor agency under Public Law 103-354 if the debt instrument provides that FmHA or its successor agency under Public Law 103-354 may voucher the account to protect its lien or security. The State Director must determine that authorizing a protective advance is in the best interest of the government. For insurance, factors such as the amount of advance, occupancy of the structure, vulnerability to damage and present value of the structure and contents will be considered.</P> <P>(a) Protective advances are considered due and payable when advanced. Advances bear interest at the rate specified in the most recent debt instrument authorizing such an advance.</P> <P>(b) Protective advances are not to be used as a substitute for a loan.</P> <P>(c) Vouchers are prepared in accordance with applicable procedures set forth in FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <CITA>[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36591, Aug. 14, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.228-1951.229</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.230</SECTNO> <SUBJECT>Transfer of security and assumption of loans<E T="01">.</E> </SUBJECT> <P>(a) <E T="03">General.</E> It is FmHA or its successor agency under Public Law 103-354 policy to approve transfers and assumptions to transferees which will continue the original purpose of the loan in accordance with the following and specific requirements relating to eligible and ineligible borrowers set forth below:</P> <P>(1) The present borrower is unable or unwilling to accomplish the objectives of the loan.</P> <P>(2) The transfer will not be disadvantageous to the Government or adversely affect either FmHA or its successor agency under Public Law 103-354's security position or the FmHA or its successor agency under Public Law 103-354 program in the area.</P> <P>(3) Transfers to eligible applicants will receive preference over transfers to ineligible applicants if recovery to FmHA or its successor agency under Public Law 103-354 is not less than it would be if the transfer were to an ineligible applicant.</P> <P>(4) If the FmHA or its successor agency under Public Law 103-354 debt(s) exceed the present market value of the security as determined by the State Director, the transferee will assume an amount at least equal to the present value.</P> <P>(5) If the transfer and assumption is to one or more members of the borrower's organization, there must not be a loss to the government.</P> <P>(6) FmHA or its successor agency under Public Law 103-354 concurs in plans for disposition of funds in the transferor's debt service, reserve, operation and maintenance, and any other project account, including supervised bank accounts.</P> <P>(7) When the property to be transferred is to be used for the same or similar purposes for which the loan was made, the transferee will execute Form FmHA or its successor agency under <PRTPAGE P="53"/>Public Law 103-354 400-4 to continue nondiscrimination covenants and provide to FmHA or its successor agency under Public Law 103-354 a written certification assuming all terms of the Grant Agreement executed by the transferor. All instruments of conveyance will contain the covenant referenced in § 1951.204 of this subpart.</P> <P>(8) This subpart does not preclude the transferor from receiving equity payments when the full account of the FmHA or its successor agency under Public Law 103-354 debt is assumed. However, equity payments will not be made on more favorable terms than those on which the balance of the FmHA or its successor agency under Public Law 103-354 debt will be paid.</P> <P>(9) Transferees must have the ability to pay the FmHA or its successor agency under Public Law 103-354 debt as provided in the assumption agreement and the legal capacity to enter into the contract. The applicant will submit a current balanced sheet using Form FmHA or its successor agency under Public Law 103-354 442-3, “Balance Sheet,” and budget and cash flow information using Form FmHA or its successor agency under Public Law 103-354 442-2, or similar forms. For ineligible applicants, such information may be supplemented by a credit report from an independent source or verified by an independent certified public accountant.</P> <P>(10) For purposes of this subpart, transfers to eligible applicants will include mergers and consolidations. Mergers occur when two or more corporations combine in such a manner that only one remains in existence. In a consolidation, two or more corporations combine to form a new, consolidated corporation, with all of the original corporations ceasing to exist. In both mergers and consolidations, the surviving or emerging corporation takes the assets and assumes the liabilities of the corporation(s) which ceased to exist. Such transactions must be distinguished from transfers and assumptions, in which a transferor will not necessarily go out of existence and the transferee will not always take all assets or assume all liabilities of the transferor.</P> <P>(11) A current appraisal report to establish the present market value of the security will be completed in accordance with § 1951.220(i) of this subpart when the full debt is not being assumed.</P> <P>(12) There must be no lien, judgment, or similar claims of other parties against the FmHA or its successor agency under Public Law 103-354 security being transferred unless the transferee is willing to accept such claims and the FmHA or its successor agency under Public Law 103-354 approval official determines that they will not prevent the transferee from repaying the FmHA or its successor agency under Public Law 103-354 debt, meeting all operating and maintenance costs, and maintaining required reserves. The written consent of any other lienholder will be obtained where required.</P> <P>(b) <E T="03">Authorities.</E> The State Director is authorized to approve transfers and assumptions of FmHA or its successor agency under Public Law 103-354 loans in accordance with the provisions of paragraphs (c) and (d) of this section, except for the following, which require prior approval of the Administrator:</P> <P>(1) Proposals which will involve a loss to the Government;</P> <P>(2) Proposals involving a transfer to one or more members of the present borrower's organization;</P> <P>(3) Proposals involving rates and terms which are more liberal than those set forth in § 1951.230(c) of this subpart;</P> <P>(4) Proposals involving a cash payment to the present borrower which exceeds the actual sales expenses;</P> <P>(5) The transferee refuses to assume all terms of the Grant Agreement for a project financed in part with FmHA or its successor agency under Public Law 103-354 grant funds;</P> <P>(6) Proposed transfers to ineligible applicants when there is no significant downpayment and/or the repayment period is to exceed 25 years; and</P> <P>(7) For Indian Tribes and Tribal Corporations, the requirements found in exhibit M of subpart G of part 1940 of this chapter are not met.</P> <P>(c) <E T="03">Eligible applicants.</E> Except as noted in § 1951.230(b) of this subpart, the State Director is authorized to approve transfers of security property to and <PRTPAGE P="54"/>assumptions of FmHA or its successor agency under Public Law 103-354 debts by transferees who would be eligible for financial assistance under the loan program involved for the type of loan being transferred. The State Director must determine and document that eligibility requirements have been satisfied.</P> <P>(1) If a loan is evidenced and secured by a note and lien on real or chattel property, Form FmHA or its successor agency under Public Law 103-354 1951-15, “Community Programs Assumption Agreement,” will be executed by the transferee. When the terms of the loan are changed, the new repayment period may not exceed the lesser of the repayment period for a new loan of the type involved or the expected life of the facility. Interest will accrue at the rate currently reflected in Finance Office records.</P> <P>(2) If the loan is evidenced and secured by a bond, procedures will be followed which are acceptable to the State Director and legally permissible under State law in the opinion of the borrower's counsel and OGC. The interest rate will be the rate currently reflected in Finance Office records. Any new repayment period provided may not exceed the lesser of the repayment period for a new loan of the type involved or the expected life of the facility.</P> <P>(3) Loans being transferred and assumed may be combined when the security is the same, new terms are being provided, a new debt instrument will be issued, and the loans have the same interest rate and are for the same purpose. If applicable, § 1942.19(h)(11) will govern the preparation of any new debt instruments required.</P> <P>(4) A loan may be made in connection with a transfer if the transferee meets all eligibility and other requirements for the kind of loan being made. Such a loan will be considered as a separate loan, and must be evidenced by a separate debt instrument. However, it is permissible to have one authorizing loan resolution or ordinance if permitted by State statutes.</P> <P>(5) Any development funds remaining in a supervised bank account which are not to be refunded to FmHA or its successor agency under Public Law 103-354 will be transferred to a supervised bank account for the transferee simultaneously with the closing of the transfer for use in completing planned development.</P> <P>(d) <E T="03">Ineligible applicants.</E> Except as noted in § 1951.230(b) of this subpart, the State Director is authorized to approve transfer and assumptions to transferees who would not be eligible for financial assistance under the loan program involved for the type of loan being transferred. However, the State Director is authorized to approve all transfers of incorporated Economic Opportunity Cooperative loans to ineligible applicants without regard to the requirements set forth in § 1951.230(b). Such transfers are considered only when an eligible transferee is not available or when the recovery to FmHA or its successor agency under Public Law 103-354 from a transfer to an available eligible transferee would be less. Transfers are not to be considered as a means by which members of the transferor's governing body can obtain an equity or as a method of providing a source of easy credit for purchasers.</P> <P>(1) Ineligible applicants must pay a one-time nonrefundable transfer fee when they submit an application or proposal.</P> <P>(i) The National Office will issue a directive annually advising the field of the amount of the fee. Any cost for appraisals performed by non-FmHA or its successor agency under Public Law 103-354 personnel will be handled in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office), and will be added to the basic fee.</P> <P>(ii) Transfer fees will be deposited in accordance with current instructions governing the handling of collections. The fees will be identified as transfer fees on Form FmHA or its successor agency under Public Law 103-354 451-2, “Schedule of Remittances,” and will be included on the Daily Activity Report. The amount will be credited to the Rural Development Insurance Fund.</P> <P>(iii) If the State Director determines waiver of the transfer fee is in the best interest of the government, he or she <PRTPAGE P="55"/>will request prior approval by submitting the transfer case file established in accordance with processing requirements set forth below to the National Office, Attention (appropriate program division).</P> <P>(2) Any funds remaining in a supervised bank account will be refunded to FmHA or its successor agency under Public Law 103-354 and applied to the debt as a condition of transfer.</P> <P>(3) The interest rate will be the greater of the rate specified for the note in current Finance Office records or the market rate for Community Programs as of the transfer closing date.</P> <P>(4) The transferred loan will be identified as an NP loan and serviced in accordance with § 1951.216 of this subpart.</P> <P>(5) Form FmHA or its successor agency under Public Law 103-354 465-5, “Transfer of Real Estate Security,” will be used, and will be modified as appropriate before execution.</P> <P>(6) Consideration will be given to obtaining individual liability agreements from members of the transferee organization.</P> <P>(e) <E T="03">Release from liability.</E> Except when nonprogram loans or Economic Opportunity Cooperative loans are involved, transferors may be released from liability in accordance with the following:</P> <P>(1) If the full amount of the debt is assumed, the State Director may approve the release from liability by use of Form FmHA or its successor agency under Public Law 103-354 1965-8.</P> <P>(2) If less than the full amount of the debt is assumed, any balance remaining will be handled in accordance with procedures for debt settlement actions set forth in subpart C of part 1956 of this chapter.</P> <P>(i) In determining whether a borrower should be released from liability, the State Director will consider the borrower's debt-paying ability based on its assets and income at the time of the sale.</P> <P>(ii) Release from liability will be accomplished by using Form FmHA or its successor agency under Public Law 103-354 1965-8 and obtaining from the County Committee a memorandum recommending the release which contains the statement set forth in § 1951.226(d)(2)(ii) of this subpart.</P> <P>(f) <E T="03">Processing.</E> Transfers and assumptions will be processed in accordance with the following:</P> <P>(1) A transfer case file organized in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2033-A (available in any FmHA or its successor agency under Public Law 103-354 office) will be established, and will contain all documents and correspondence relating to the transfer. The forms utilized for transfers and assumptions are listed in Exhibit D (available in any FmHA or its successor agency under Public Law 103-354 office). All forms listed must be completed and included in the case file unless inappropriate for the particular situation.</P> <P>(2) A letter of conditions establishing requirements to be met in connection with the transfer and assumption will be issued, and the transferee will be required to execute Form FmHA or its successor agency under Public Law 103-354 442-46, “Letter of Intent to Meet Conditions,” prior to the closing of the transfer.</P> <P>(3) Both the transferee and transferor are responsible for obtaining the legal services necessary to accomplish the transfer.</P> <P>(4) Transfers will be closed in accordance with instructions provided by OGC.</P> <P>(5) When the transferee is a public body and Form FmHA or its successor agency under Public Law 103-354 1951-15 is not suitable, the transferee's attorney will prepare the documents necessary to effect the transfer and assumption and submit them for approval by FmHA or its successor agency under Public Law 103-354 and OGC.</P> <P>(6) Accrued interest to be entered in either Table 1 of Form FmHA or its successor agency under Public Law 103-354 1951-15 or other appropriate assumption agreement is to be obtained using the status screen option in ADPS.</P> <P>(7) The following forms, if utilized, will be sent immediately to the Finance Office:</P> <P>(i) Form FmHA or its successor agency under Public Law 103-354 1951-15 or other appropriate assumption agreement;<PRTPAGE P="56"/> </P> <P>(ii) A conformed copy of Form FmHA or its successor agency under Public Law 103-354 1965-8.</P> <P>(8) If an FmHA or its successor agency under Public Law 103-354 grant was made in conjunction with the loan being transferred, the transferee must agree in writing to assume all rights and obligations of the original grantee. See § 1951.215 for additional guidance on grant agreements.</P> <P>(9) The transferee will obtain insurance according to requirements for the loan(s) being transferred unless the approval official requires additional insurance. When the entire FmHA or its successor agency under Public Law 103-354 debt is being assumed and an amount has been advanced for insurance premiums or any other purposes, the transfer will not be completed until the Finance Office has charged the advance to the transferor's account.</P> <P>(10) <E T="03">Rates and terms.</E> (i) If the transfer will be closed at the same rates and terms, the transferee will be informed of the amount needed to be on schedule by the next installment due date.</P> <P>(ii) If the transfer will be closed at new rates and terms, the transferee will be informed of the amount of principal and interest owed based on information obtained using the ADPS status screen option.</P> <P>(11) The effective date of a transfer is the actual date the transfer is closed, which is the same date Form FmHA or its successor agency under Public Law 103-354 1951-15 or other appropriate assumption agreement is signed.</P> <P>(12) Title to all assets will be conveyed from the transferor to the transferee unless other arrangements are agreed upon by all parties concerned, including FmHA or its successor agency under Public Law 103-354. All instruments of conveyance will contain the covenant referenced in § 1951.204 of this subpart.</P> <P>(13) If an insured loan being held by an investor is involved, the Finance Office will have to repurchase the note prior to processing the assumption agreement.</P> <P>(14) When National Office approval is required, the transfer case file will be submitted to the Administrator, Attention: (appropriate program division), with Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), appropriately completed, and a cover memorandum which denotes any unusual circumstances.</P> <P>(15) The District Director must review Form FmHA or its successor agency under Public Law 103-354 1910-11, “Applicant Certification, Federal Collection Policies for Consumer or Commercial Debts,” with the applicant, and the form must be signed by the applicant and included in the file.</P> <CITA>[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36590, Aug. 14, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.231</SECTNO> <SUBJECT>Special provisions applicable to Economic Opportunity (EO) Cooperative Loans.</SUBJECT> <P>(a) <E T="03">Withdrawal of member and transfer to and assumption by new members of Unincorporated Cooperatives.</E> (1) Withdrawal of a member who is no longer utilizing the services of an association and transfer of withdrawing member interest in the association to a new member who will assume the entire unpaid balance of the indebtedness of the withdrawing member may be permitted, if the remaining members agree to accept the new member and the transfer will not adversely affect collection of the loan. The servicing office will submit to the State Office the borrow case file and the following:</P> <P>(i) Form FmHA or its successor agency under Public Law 103-354 1951-15 executed by the proposed new member;</P> <P>(ii) Statement of the current amount of the indebtedness involved;</P> <P>(iii) A description and statement of the value of the security property;</P> <P>(iv) A memorandum to justify the transaction;</P> <P>(v) Form FmHA or its successor agency under Public Law 103-354 440-2, “County Committee Certification or Recommendation;”</P> <P>(vi) Exhibit B of this subpart, “Agreement for New Member (With or Without Withdrawing Member),” (available in any FmHA or its successor agency under Public Law 103-354 office), executed by the remaining members of the association, the proposed new member, and the withdrawing member; and</P> <P>(vii) Form FmHA or its successor agency under Public Law 103-354 450-12, <PRTPAGE P="57"/>“Bill of Sale (Transfer by Withdrawing Member),” executed by the withdrawing member.</P> <P>(2) If the State Director determines after review of the above information that the proposed new member is eligible and the transfer is justified, the State Director may approve the transfer and assumption by executing Form FmHA or its successor agency under Public Law 103-354 1951-15.</P> <P>(3) Upon completion of the above actions, the State Director may release the outgoing member from personal liability using Form FmHA or its successor agency under Public Law 103-354 1965-8.</P> <P>(4) If Finance Office records must be changed due to changes in borrower name, address and/or case number, necessary documents, including Form FmHA or its successor agency under Public Law 103-354 1951-15 and, if applicable, Form FmHA or its successor agency under Public Law 103-354 1965-8, will be forwarded to the Finance Office immediately with a memorandum indicating that the purpose of the submission is only to establish liability for a new member and release an old member from liability.</P> <P>(b) <E T="03">Withdrawal of members from Unincorporated Cooperatives when new member not available.</E> Withdrawal of a member who no longer utilizes the services of an association may be permitted even though a new member is not available, provided:</P> <P>(1) The State Director determines that the remaining members have sufficient need for the property, and that the withdrawal of the member will not adversely affect collection of the loan; and</P> <P>(2) The remaining members obtain from the outgoing member an agreement conveying his or her interest in the cooperative property to them. They may also wish to agree to protect the outgoing member against liability on the debt owed to FmHA or its successor agency under Public Law 103-354 as well as any other debts. Exhibit C of this subpart, “Agreement for Withdrawal of Member (Without New Member),” (available in any FmHA or its successor agency under Public Law 103-354 office), may be used by the cooperative. FmHA or its successor agency under Public Law 103-354 will not be a party to the agreement.</P> <P>(c) <E T="03">Addition of new members (no withdrawing member or transfer involved) for both Incorporated and Unincorporated Cooperatives.</E> (1) A new member may be admitted to the association even though there is no withdrawing member, if:</P> <P>(i) The members of the association agree to accept the proposed new member, and</P> <P>(ii) The State Director determines that the association owns adequate facilities to provide service to the new member.</P> <P>(2) The servicing office will submit to the State Office the case file and items (i) through (vi) of § 1951.231(a)(1).</P> <P>(3) If the State Director determines after the review of the above information that the proposed new member is eligible and the transaction is justified, the State Director may approve the transaction by executing Form FmHA or its successor agency under Public Law 103-354 1951-15.</P> <P>(4) Form FmHA or its successor agency under Public Law 103-354 1951-15 will be forwarded immediatly to the Finance Office with a memorandum indicating that the form is intended only to establish liability for a new member.</P> <P>(d) <E T="03">Deceased members of Unincorporated Cooperatives.</E> Form FmHA or its successor agency under Public Law 103-354 442-24, “Operating Agreement,” (now obsolete) was executed by recipients of these loans. Paragraph 10 of that form provides that in case of the death of any member, the heirs or personal representative of the deceased member shall take the deceased member's place in the association. This provision also covers sale of the decedent's interest in the association if the sale is necessary to pay debts of the estate.</P> <P>(1) If the heirs or personal representative do not wish to continue membership in the association, the remaining members may be permitted to continue to operate the property if FmHA or its successor agency under Public Law 103-354's financial interest will not be jeopardized. The remaining members should obtain from the deceased member's estate an agreement conveying the estate's interest in the cooperative <PRTPAGE P="58"/>property to them. The remaining members may wish to agree to protect the estate against liability on the debt to FmHA or its successor agency under Public Law 103-354 as well as any other debts of the cooperative.</P> <P>(2) The requirement of § 1962.46(h) of subpart A of part 1962 will also be followed.</P> <P>(e) <E T="03">Action which affects individual members of Unincorporated EO Cooperative security.</E> The borrower will be expected to protect its own interest in condemnation, trespass, quiet title, and other cases affecting the security. The servicing office will immediately furnish the complete facts concerning any action taken against individual members of Unincorporated Cooperatives to the State Director together with the case file.</P> <P>(f) <E T="03">Debt Settlement.</E> Debt settlement actions for Economic Opportunity Cooperative loans must be handled under the Federal Claims Collection Act; proposals will be submitted to the National Office for review and approval.</P> </SECTION> <SECTION> <SECTNO>§ 1951.232</SECTNO> <SUBJECT>Water and waste disposal systems which have become part of an urban area.</SUBJECT> <P>A water and/or waste disposal system serving an area which was formerly a rural area as defined in § 1942.17(b)(2)(iii) and (iv) of subpart A of part 1942 of this chapter, but which has become in its entirety part of an urban area, will be serviced in accordance with this section.</P> <P>(a) <E T="03">Curtailment or limitation of service.</E> Service may not be curtailed or limited by the inclusion of a system within an urban area.</P> <P>(b) <E T="03">Sale or transfer and assumption.</E> (1) The urban community or another entity may purchase the facility involved and immediately pay the FmHA or its successor agency under Public Law 103-354 debt in full; or</P> <P>(2) The urban community or another entity may accept a transfer of the FmHA or its successor agency under Public Law 103-354 debt on an ineligible applicant basis.</P> <P>(3) When a grant is involved, the entity will agree in writing to assume all rights and obligations of the original grantee. See § 1951.215 for additional guidance on grant agreements.</P> <P>(c) <E T="03">Lease-purchase arrangement.</E> If § 1951.232(b) (l) and (2) of this section are not practicable, the urban community may, with prior approval of the National Office, operate and maintain the system under a lease-purchase arrangement which provides that:</P> <P>(1) The urban community will:</P> <P>(i) Assume responsibility for operation and maintenance of the facility, subject to nondiscrimination and all other requirements which are applicable to the borrower, which are to be specified in the agreement between the parties; and</P> <P>(ii) Pay the association annually an amount sufficient to enable it to meet all its obligations, including reserve account requirements.</P> <P>(2) The FmHA or its successor agency under Public Law 103-354 borrower will:</P> <P>(i) Meet its debt service and reserve account requirements to FmHA or its successor agency under Public Law 103-354;</P> <P>(ii) Retain its corporate existence until FmHA or its successor agency under Public Law 103-354 has been paid in full; and</P> <P>(iii) If agreed upon by both parties, convey title to the facility to the urban community when the FmHA or its successor agency under Public Law 103-354 debt has been paid in full.</P> <P>(d) <E T="03">Processing.</E> (1) Sale of a borrower's assets will be handled in accordance with § 1951.226 of this subpart.</P> <P>(2) Transfer and assumption of a borrower's assets and indebtedness will be handled in accordance with § 1951.230 of this subpart.</P> <P>(3) Lease-operation-to-purchase arrangements are not permitted.</P> <P>(4) When a lease-purchase arrangement is proposed, the State Director will obtain a proposed agreement drafted by either the borrower or the urban community. The following will be forwarded to the Administrator, Attention: Water and Waste Disposal Division, for review and approval authorization:</P> <P>(i) A copy of the proposed agreement;</P> <P>(ii) Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), appropriately completed;</P> <P>(iii) OGC comments;<PRTPAGE P="59"/> </P> <P>(iv) The case file, including all documentation appropriate for the type of servicing action involved.</P> <CITA>[55 FR 4399, Feb. 8, 1992, as amended at 57 FR 21199, May 19, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.233-1951.239</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.240</SECTNO> <SUBJECT>State Director's additional authorizations and guidance.</SUBJECT> <P>(a) <E T="03">Promote financing purposes and improve or maintain collectibility.</E> The State Director is authorized to perform the following functions when the action is determined likely to promote the loan or grant purposes without jeopardizing collectibility of the loan or imparing the adequacy of the security; will strengthen the security; or will facilitate, improve, or maintain the orderly collection of the loan:</P> <P>(1) Approve requests for permission to modify bylaws, articles of incorporation, or other rules and regulations of recipients, including changes in rate or fee schedules. Changes affecting the recipient's legal organizational structure must be approved by OGC.</P> <P>(2) Consent to requests by the recipient to incur additional indebtedness, subject to applicable FmHA or its successor agency under Public Law 103-354 instructions and covenants in the loan or grant agreement.</P> <P>(3) Renew existing security instruments.</P> <P>(4) Approve the extension or expansion of facilities and services.</P> <P>(5) Require additional security when:</P> <P>(i) Existing security is inadequate and the loan or security instruments obligate the borrower to give additional security; or</P> <P>(ii) The loan is in default and additional security is acceptable in lieu of other servicing actions.</P> <P>(6) Release properties being sold by the borrower from mortgages securing Rural Renewal loans if the amount of the notes and mortgages given by the purchaser to the borrower equal the present market value and are assigned and pledged to FmHA or its successor agency under Public Law 103-354, and any money payable to the borrower is applied as an extra payment on the Rural Renewal loan.</P> <P>(7) Approve requests for rights-of-way and easements and any subordination necessary in connection with such requests.</P> <P>(b) <E T="03">Referrals to National Office.</E> All proposed servicing actions which the State Director is not authorized by this subpart to approve will be referred to the National Office.</P> <P>(c) <E T="03">Defeasance of FmHA or its successor agency under Public Law 103-354 indebtedness.</E> Defeasance is the use of invested proceeds from a new bond issue to repay outstanding bonds in accordance with the repayment schedule of the outstanding bonds. The new issue supersedes the contractual agreements the borrower agreed to in the prior issue. Defeasance, or amending outstanding loan instruments and agreements to permit defeasance, of FmHA or its successor agency under Public Law 103-354 debt instruments is not authorized, since defeasance limits, or eliminates entirely, the borrower's ability to comply with statutory refinancing requirements implemented by subpart F of part 1951 of this chapter.</P> </SECTION> <SECTION> <SECTNO>§ 1951.241</SECTNO> <SUBJECT>Special provision for interest rate change.</SUBJECT> <P>(a) <E T="03">General.</E> Effective October 1, 1981, and thereafter, upon request of the borrower, the interest rate charged by FmHA or its successor agency under Public Law 103-354 to water and waste disposal and community facility borrowers shall be the lower of the rates in effect at either the time of loan approval or loan closing. Pub. L. 99-88 provides that any FmHA or its successor agency under Public Law 103-354 grant funds associated with such loans shall be set in the amount based on the interest rate in effect at the time of loan approval. Loans closed October 1, 1981, through October 25, 1985, were closed at the interest rate in effect at the time of loan approval and that interest rate is reflected in the borrower's debt instrument. For community facility and water and waste disposal loans closed on or after October 1, 1981, and for which the interest rate in effect at the time of loan closing is lower than the interest rate in effect at the time of loan approval, the borrower may request to be charged the lower interest rate. The loan closing interest rate will be determined by FmHA or its successor agency under Public Law 103-<PRTPAGE P="60"/>354 based upon requirements in effect at the date of loan closing. Exhibit E of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) contains a summary of interest rate requirements for specific time periods. Exhibit C of Subpart O of this part (available in any FmHA or its successor agency under Public Law 103-354 office) will be used to determine the interest rate and effective dates by category of poverty, intermediate, and market rates. Exhibit F of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) contains the instructions on how to process a change of interest rate. Loans meeting the criteria of this section that have been paid in full are eligible for the borrower to request the lower interest rate. For loan(s) that involved multiple advances of FmHA or its successor agency under Public Law 103-354 funds using temporary debt instruments, wherein the borrower requests the interest rate in effect at loan closing, the interest rate charged shall be the rate in effect on the date when the first temporary debt instrument was issued.</P> <P>(b) <E T="03">Notification to borrower and borrower selection of interest rate.</E> (1) FmHA or its successor agency under Public Law 103-354 servicing officials will notify each borrower meeting the provisions of this section of the availability of a choice of interest rate. The notification will be made in writing at the earliest possible date, utilizing Exhibit G of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), and sent by certified mail, return receipt requested. Borrowers will be advised at the time of notification that if a change of interest rate is requested, the change will be accomplished administratively by FmHA or its successor agency under Public Law 103-354. The effect of the change on the loan account will also be fully explained to the borrower.</P> <P>(2) Borrowers must notify FmHA or its successor agency under Public Law 103-354 within 90 calendar days of the date of FmHA or its successor agency under Public Law 103-354 notification indicating their election to retain the rate in effect at loan approval or to change the rate to the rate in effect at the time of loan closing. If the borrower does not respond within the 90-day period, FmHA or its successor agency under Public Law 103-354 will not consider a future request for a lower interest rate under the provisions of this subpart.</P> <P>(3) The borrower is responsible for assuring that the official executing the letter requesting the change of interest rate is duly authorized and any action(s) necessary for this authorization have been taken as required. Any costs associated with a change of interest rate will be the responsibility of the borrower.</P> <P>(c) <E T="03">Processing loan interest rate change.</E> The State Director is authorized to approve loan interest rate changes which meet the requirements of this section. Loan interest rate changes will be accomplished as follows:</P> <P>(1) All loan payments already applied to the account(s) will be reversed and reapplied by FmHA or its successor agency under Public Law 103-354 utilizing the changed interest rate. The balance remaining after the completion of the reversal and reapplication procedures will be applied first to any delinquency on the account and then to principal.</P> <P>(2) For paid-in-full accounts which meet the criteria of § 1951.241(a) of this subpart, the balance of loan payments after completion of the reversal and reapplication procedures will be returned to the borrower unless the borrower is delinquent on another FmHA or its successor agency under Public Law 103-354 loan of the same type. In those cases the amount will be applied to the delinquent amount owed, with any balance refunded to the borrower.</P> <P>(3) The Finance Office will administratively change the interest rate on a borrower's account in accordance with notification from the servicing official. The installment schedule set forth in each borrower's debt instrument will not change. The original principal schedule for principal-plus-interest accounts where principal <E T="03">only</E> is stipulated will continue to be used for payment calculation by the Finance Office. Amortized accounts will adhere to the original payment schedule and amount. The last scheduled principal <PRTPAGE P="61"/>installment will be reduced by the amount of the balance previously generated by the reversal and reapplication of payments.</P> <P>(4) When FmHA or its successor agency under Public Law 103-354 has processed a change of interest rate for an amortized loan and a reduction in installment amounts is needed to provide for a sound operation, the borrower may request reamortization in accordance with § 1951.223 of this subpart.</P> <P>(5) The borrower will be notified in writing of the new interest rate as changed.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.242-1951.249</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.250</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The reporting and recordkeeping requirements contained in this regulation have been approved by the Office of Management and Budget and have been assigned OMB Control Number 0575-0066. Public reporting burden for this collection of information is estimated to vary from fifteen minutes to three hours per response including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Agriculture, Clearance Officer, OIRM, Room 404-W, Washington, DC 20250; and to the Office of Management and Budget, Washington, DC 20503.</P> <HD SOURCE="HD1">Exhibits to Subpart E</HD> <EDNOTE> <HD SOURCE="HED">Editorial Note:</HD> <P>Exhibits A through H are not published in the Code of Federal Regulations.</P> </EDNOTE> <HD SOURCE="HD1">Exhibit A—Report on Servicing Action</HD> <HD SOURCE="HD1">Exhibit B—Agreement for New Member (With or Without Withdrawing Member)</HD> <HD SOURCE="HD1">Exhibit C—Agreement for Withdrawal of Member (Without New Member)</HD> <HD SOURCE="HD1">Exhibit D—Items to be Included in Transfer and Assumption Dockets (if applicable)</HD> <HD SOURCE="HD1">Exhibit E—Interest Rate Requirements and Effective Dates</HD> <HD SOURCE="HD1">Exhibit F—Instruction to FmHA or its successor agency under Public Law <E T="01">103-354</E> <E T="04">Personnel to Implement Public Law</E> 100-233</HD> <HD SOURCE="HD1">Exhibit G—Letter to Borrower Notifying of Choice of Interest Rate</HD> <HD SOURCE="HD1">Exhibit H—Rescheduling Agreement—Public Bodies</HD> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart F—Analyzing Credit Needs and Graduation of Borrowers</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>61 FR 35927, July 9, 1996, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.251</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>This subpart prescribes the policies to be followed when analyzing a direct borrower's needs for continued Agency supervision, further credit, and graduation. All loan accounts will be reviewed for graduation in accordance with this subpart, with the exception of Guaranteed, Watershed, Resource Conservation and Development, Rural Development Loan Funds, and Rural Rental Housing loans made to build or acquire new units pursuant to contracts entered into on or after December 15, 1989, and Intermediary Relending Program loans. The term “Agency” used in this subpart refers to the Farm Service Agency (FSA) including its <PRTPAGE P="62"/>county and state committees and their personnel), Rural Utilities Service (RUS), Rural Housing Service (RHS), or Rural Business-Cooperative Service (RBS), depending upon the loan program discussed herein. This subpart does not apply to RHS direct single family housing (SFH) customers.</P> <CITA>[61 FR 35927, July 9, 1996, as amended at 61 FR 59778, Nov. 22, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.252</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P> <E T="03">Commercial classified.</E> The Agency's highest quality Farm Credit Programs (FCP) accounts. The financial condition of the borrowers is strong enough to enable them to absorb the normal adversities of agricultural production and marketing. There is ample security for all loans, there is sufficient cash flow to meet the expenses of the agricultural enterprise and the financial needs of the family, and to service debts. The account is of such quality that commercial lenders would likely view the loans as a profitable investment.</P> <P> <E T="03">Farm Credit Programs (FCP) loans.</E> FSA Farm Ownership (FO), Operating (OL), Soil and Water (SW), Recreation (RL), Emergency (EM), Economic Emergency (EE), Economic Opportunity (EO), Special Livestock (SL), Softwood Timber (ST) loans, and Rural Housing loans for farm service buildings (RHF).</P> <P> <E T="03">Graduation, FCP.</E> The payment in full of all FCP loans or all FCP loans of one type (i.e., all loans made for chattel purposes or all loans made for real estate purposes) by refinancing with other credit sources either with or without an Agency loan guarantee. A loan made for both chattel and real estate purposes, for example an EM loan, will be classified according to how the majority of the loan's funds were expended. Borrowers must continue with their farming operations to be considered as graduated.</P> <P> <E T="03">Graduation, other programs.</E> The payment in full of any direct loan for Community and Business Programs, and all direct loans for housing programs, before maturity by refinancing with other credit sources. Graduated housing borrowers must continue to hold title to the property. Graduation, for other than FCP, does not include credit which is guaranteed by the United States.</P> <P> <E T="03">Prospectus, FCP.</E> Consists of a transmittal letter with a current balance sheet and projected year's budget attached. The applicant's or borrower's name and address need not be withheld from the lender. The prospectus is used to determine lender interest in financing or refinancing specific Agency direct loan applicants and borrowers. The prospectus will provide information regarding the availability of an Agency loan guarantee and interest assistance.</P> <P> <E T="03">Reasonable rates and terms.</E> Those commercial rates and terms which borrowers are expected to meet when borrowing for similar purposes and similar periods of time. The “similar periods of time” of available commercial loans will be measured against, but need not be the same as, the remaining or original term of the loan. In the case of Multi-Family Housing (MFH) loans, “reasonable rates and terms” would be considered to mean financing that would allow the units to be offered to eligible tenants at rates consistent with other multi-family housing.</P> <P> <E T="03">Servicing official.</E> The district or county office official responsible for the immediate servicing functions of the borrower.</P> <P> <E T="03">Standard classified.</E> These loan accounts are fully acceptable by Agency standards. Loan risk and potential loan servicing costs are higher than would be acceptable to other lenders, but all loans are adequately secured. Repayment ability is adequate, and there is a high probability that all loans will be repaid as scheduled and in full.</P> </SECTION> <SECTION> <SECTNO>§ 1951.253</SECTNO> <SUBJECT>Objectives.</SUBJECT> <P>(a) [Reserved]</P> <P>(b) Borrowers must graduate to other credit at reasonable rates and terms when they are able to do so.</P> <P>(c) If a borrower refuses to graduate, the account will be liquidated under the following conditions:</P> <P>(1) The borrower has the legal capacity and financial ability to obtain other credit.</P> <P>(2) Other credit is available from a commercial lender at reasonable rates and terms. In the case of Labor Housing (LH), Rural Rental Housing (RRH), <PRTPAGE P="63"/>and Rural Cooperative Housing (RCH) Programs, reasonable rates and terms must also permit the borrowers to continue providing housing for low and moderate income persons at rental rates tenants can afford considering the loss of any subsidy which will be canceled when the loan is paid in full.</P> <P>(d) The Agency will enforce borrower graduation.</P> </SECTION> <SECTION> <SECTNO>§ 1951.254</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.255</SECTNO> <SUBJECT>Nondiscrimination.</SUBJECT> <P>All loan servicing actions described in this subpart will be conducted without regard to race, color, religion, sex, familial status, national origin, age, or physical or mental handicap.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.256-1951.261</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.262</SECTNO> <SUBJECT>Farm Credit Programs—graduation of borrowers.</SUBJECT> <P>(a)-(d) [Reserved]</P> <P>(e) <E T="03">Graduation candidates.</E> Borrowers who are classified “commercial” or “standard” are graduation candidates. At least every 2 years, all borrowers who have a current classification of commercial or standard must submit a year-end balance sheet, actual financial performance information for the most recent year, and a projected budget for the current year to enable the Agency to reclassify their status and determine their ability to graduate.</P> <P>(f) <E T="03">Sending prospectus information to lenders.</E> (1) The Agency will distribute a borrower's prospectus to local lenders for possible refinancing. The borrower's permission is not required, however, the borrower must be notified of this action.</P> <P>(2) The borrower is responsible for any application fees. The borrower has 30 days from the date the borrower is notified of lender interest in refinancing to make application, if required by the lender, and refinance the FLP loan. For good cause, the borrower may be granted a reasonable amount of additional time by the Agency.</P> <CITA>[61 FR 35927, July 9, 1996, as amended at 62 FR 10120, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.263</SECTNO> <SUBJECT>Graduation of non-Farm Credit programs borrowers.</SUBJECT> <P>(a)-(b) [Reserved]</P> <P>(c) <E T="03">The thorough review.</E> Borrowers are required to supply such financial information as the Agency deems necessary to determine whether they are able to graduate to other credit. At a minimum, the financial statements requested from the borrower must include a balance sheet and a statement of income and expenses. Ordinarily, the financial statements will be those normally required at the end of the particular borrower's fiscal year. For borrowers who are not requested to furnish audited financial statements, the balance sheet and statement of income and expenses may be of the borrower's own format if the borrower's financial situation is accurately reflected. The borrower has 60 days for group type loans and 30 days for individual type loans to supply the financial information requested.</P> <P>(d) [Reserved]</P> <P>(e) <E T="03">Requesting the borrower to graduate.</E> (1) The Agency will send written notice to borrowers found able to graduate requesting them to graduate. The borrower must seek a loan only in the amount necessary to repay the unpaid balance.</P> <P>(2) Borrowers must provide evidence of their ability or inability to graduate within 30 days for RH borrowers, and 90 days for group type borrowers, after the date of the request. The Agency may allow additional time for good cause, for example when a borrower expects to receive income in the near future for the payment of accounts which would substantially reduce the amount required for refinancing, or when a borrower is a public body and must issue bonds to accomplish graduation.</P> <P>(3) If a borrower is unable to graduate the full amount of the loan, the borrower must furnish evidence to the Agency, showing:</P> <P>(i) The names of other lenders contacted;</P> <P>(ii) The amount of loan requested by the borrower and the amount, if any, offered by the lenders;</P> <P>(iii) The rates and terms offered by the lenders or the specific reasons why other credit is not available; and</P> <P>(iv) The purpose of the loan request.<PRTPAGE P="64"/> </P> <P>(4) The difference in interest rates between the Agency and other lenders will not be sufficient reason for failure to graduate if the other credit is available at rates and terms which the borrower can reasonably be expected to pay. An exception is made where there is an interest rate ceiling imposed by Federal law or contained in the note or mortgage.</P> <P>(5) The Agency will notify the borrower in writing if it determines that the borrower can graduate. The borrower must take positive steps to graduate within 15 days for individual loans and 60 days for group loans from such notice to avoid legal action. The servicing official may grant a longer period where warranted.</P> </SECTION> <SECTION> <SECTNO>§ 1951.264</SECTNO> <SUBJECT>Action when borrower fails to cooperate, respond or graduate.</SUBJECT> <P>(a) When borrowers with other than FCP loans fail to:</P> <P>(1) Provide information following receipt of both FmHA Guide Letters 1951-1 and 1951-2 (available in any Agency office), or letters of similar format, they are in default of the terms of their security instruments. The approval official may, when appropriate, accelerate the account based on the borrower's failure to perform as required by this subpart and the loan and security instruments.</P> <P>(2) Apply for or accept other credit following receipt of both FmHA Guide Letters 1951-F-5 and 1951-6 (available in any Agency office), or letters of similar format, they are in default under the graduation requirement of their security instruments. If the Agency determines the borrower is able to graduate, foreclosure action will be initiated in accordance with § 1955.15(d)(2)(ii). If the borrower's account is accelerated, the borrower may appeal the decision.</P> <P>(b) If an FCP borrower fails to cooperate after a lender expresses a willingness to consider refinancing the Agency loan, the account will be referred for legal action.</P> </SECTION> <SECTION> <SECTNO>§ 1951.265</SECTNO> <SUBJECT>Application for subsequent loan, subordination, or consent to additional indebtedness from a borrower who has been requested to graduate.</SUBJECT> <P>(a) Any borrower who appears to meet the local commercial lending standards, taking into consideration the Agency's loan guarantee program, will not be considered for a subsequent loan, subordination, or consent to additional indebtedness until the borrower's ability or inability to graduate has been confirmed. An exception may be made where the proposed action is needed to alleviate an emergency situation, such as meeting applicable health or sanitary standards which require immediate attention.</P> <P>(b) If the borrower has been requested to graduate and has also been denied a request for a subsequent loan, subordination, or consent to additional indebtedness, the borrower may appeal both issues.</P> </SECTION> <SECTION> <SECTNO>§ 1951.266</SECTNO> <SUBJECT>Special requirements for MFH borrowers.</SUBJECT> <P>All requirements of subpart E of part 1965 must be met prior to graduation and acceptance of the full payment from an MFH borrower.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.267-1951.299</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.300</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The reporting requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0093.</P> </SECTION> <SUBJGRP> <HD SOURCE="HED">Exhibits to Subpart F</HD> <HD SOURCE="HED">Exhibit A[Reserved]</HD> </SUBJGRP> <EXHIBIT> <EAR>Pt. 1951, Subpt. F, Exh. B</EAR> <HD SOURCE="HED">Exhibit B—Suggested Outline for Seeking Information From Lenders on Credit Criteria for Graduation of Single Family Housing Loans</HD> <FP SOURCE="FP-DASH">Date:</FP> <FP SOURCE="FP-DASH">Name of Lender:</FP> <FP SOURCE="FP-DASH">Title:</FP> <FP SOURCE="FP-DASH">Address:</FP> <FP SOURCE="FP-DASH">Name of County Supervisor:</FP> <FP SOURCE="FP-DASH">Service Area:<PRTPAGE P="65"/> </FP> <P>1. Is the lender interested in making loans to refinance rural housing borrowers? Yes:<E T="72">__</E>; No:<E T="72">__</E>.</P> <FP SOURCE="FP-DASH">If later, when?</FP> <P>How much credit does the lender expect to have available in the next three to four months for making such loans? $<E T="72">______</E> </P> <P>In the next twelve (12) months? $<E T="72">______</E> </P> <P>2. What are the loan terms? <E T="72">______</E> </P> <P>3. What is the current interest rate? <E T="72">______</E> <E T="61">□</E> Variable rate. <E T="61">□</E> Fixed rate.</P> <P>If variable, how is it determined? <E T="72">______</E> </P> <P>4. Is a risk differential used in establishing interest rates charged for new customers? Yes: <E T="72">__</E>; No: <E T="72">__</E>.</P> <FP SOURCE="FP-DASH">If yes, explain:</FP> <P>5. What can a typical loan applicant be expected to pay for:</P> <GPOTABLE CDEF="s50,12,12" COLS="3" OPTS="L2"> <BOXHD> <CHED H="1"/> <CHED H="1">Dollars</CHED> <CHED H="1">Or percent</CHED> </BOXHD> <ROW> <ENT I="01">a. Filing an application</ENT> <ENT/> <ENT/> </ROW> <ROW> <ENT I="01">b. Real estate appraisal</ENT> <ENT/> <ENT/> </ROW> <ROW> <ENT I="01">c. Credit report</ENT> <ENT/> <ENT/> </ROW> <ROW> <ENT I="01">d. Loan orgination fee</ENT> <ENT/> <ENT/> </ROW> <ROW> <ENT I="01">e. Loan closing costs</ENT> <ENT/> <ENT/> </ROW> </GPOTABLE> <P>6. Is mortgage guarantee insurance required? Yes: <E T="72">__</E>; No: <E T="72">__</E>. If yes, how many years? <E T="72">__</E>. Cost? <E T="72">______</E>. </P> <P>7. Is there a minimum or maximum loan size policy? Yes: <E T="72">__</E>; No: <E T="72">__</E>.</P> <FP SOURCE="FP-DASH">If yes, explain: —</FP> <P>8. Is there a minimum and maximum home value the lender will loan on? Yes: <E T="72">__</E>; No: <E T="72">__</E>. If yes, minimum: $<E T="72">______</E>; maximum: $<E T="72">______</E>. </P> <P>9. Does the lender use a loan to market value ratio? <E T="72">______</E> </P> <P>10. Is there a minimum net and gross income criteria? Yes: <E T="72">__</E>; No: <E T="72">__</E>. If yes, net: $<E T="72">______</E>; gross: $<E T="72">______</E>. </P> <P>11. Does the lender use a minimum loan or home value to income ratio? Yes: <E T="72">__</E>; No: <E T="72">__</E>. If yes, loan to income ratio: <E T="72">______</E> Value to income ratio: <E T="72">______</E> </P> <P>12. Is there a percentage of gross income a typical applicant should have available to pay housing costs? <E T="72">______</E> </P> <P>a. To pay for principal, interest, taxes and insurance (PITI)? <E T="72">__</E>%. </P> <P>b. To pay for the total housing costs and other credit obligations? <E T="72">__</E>%. </P> <P>13. Are there any age of home, housing type, site size, and/or geographic restriction policies? Yes: <E T="72">__</E>; No: <E T="72">__</E>.</P> <FP SOURCE="FP-DASH">If yes, List:</FP> <FP SOURCE="FP-DASH">14. Other Comments:</FP> <P>15. For the purpose of reducing the number of inappropriate referrals, would the lender like the opportunity to review specific borrower financial information prior to the borrower being asked to file a formal application? Yes: <E T="72">__</E>; No: <E T="72">__</E>. If the answer is yes, <E T="03">only</E> those borrowers who are listed on Form FmHA or its successor agency under Public Law 103-354 1951-24 will be referred to the bank. The lenders should be advised, however, the information supplied to them will not include the borrower's name, social security number, exact address, or place of employment that could be used to link a specific borrower to the information being provided by FmHA or its successor agency under Public Law 103-354.</P> </EXHIBIT> <CITA>[48 FR 40203, Sept. 6, 1983; 48 FR 41142, Sept. 14, 1983]</CITA> </SUBPART> <SUBPART> <RESERVED>Subpart G-I [Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart J—Management and Collection of Nonprogram (NP) Loans</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>58 FR 52646, Oct. 12, 1993, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.451</SECTNO> <SUBJECT>General.</SUBJECT> <P>This subpart contains policies and procedures of the Farm Service Agency (FSA) for making, managing, collecting, liquidating, and servicing loans on nonprogram (NP) terms. All references in this subpart to farm real estate, farm property and farm chattels also include nonfarm property that was security for a Farm Credit debt of the FSA.</P> <P>(a) An NP loan is a loan on terms more stringent than terms for a program loan and it is an extension of credit for the convenience of the Government because the applicant does not qualify for program assistance or the property to be financed is not suited for program purposes. Such loans are made or continued only when it is in the best interest of the Government. NP loans include:</P> <P>(1) Sale of inventory property on NP terms;</P> <P>(2) Assumption of a program loan on NP terms;</P> <P>(3) Loans converted to NP status as a result of receipt of unauthorized assistance;</P> <P>(4) Loans converted to NP status when only a portion of the security property is being transferred and the FmHA or its successor agency under Public Law 103-354 debt is not paid in full;<PRTPAGE P="66"/> </P> <P>(5) Sale of the real property that was security for an FP loan to the previous owner under the Leaseback/Buyback program on NP terms;</P> <P>(6) Sale of the real property of an FP borrower under the Homestead Protection program; or</P> <P>(7) FP accounts rescheduled under an accelerated repayment agreement.</P> <P>(b) C&BP/NP and MFH/NP transactions involving transfer of the security property will be submitted to the National Office for review, authorization and processing guidance. The submission must include a justification for the proposed action, a servicing and management plan, the State Director's recommendations, and the case files. The sale of C&BP and MFH inventory property to NP purchasers will be handled in accordance with subpart C of part 1955 of this chapter.</P> <P>(c) Borrowers who have program and NP loans will have their loan accounts serviced and liquidated in accordance with the regulation applicable to the particular loan(s). Therefore, NP loans are not eligible for any program servicing except those permitted in this subpart. However, even though the NP loan will not be eligible for program servicing benefits or entitlements, the borrower is not precluded from receiving assistance on the program loan (e.g., having an NP farm loan should not preclude a borrower from being considered for debt restructuring assistance in the form of a deferral, rescheduling, consolidation, etc., on a FP program loan). When the decision has been made to liquidate the program loan of a borrower who is also indebted for an NP loan and the NP security is also additional security for the program loan the NP loan will be accelerated at the same time as the program loan using the program acceleration notice. Likewise, if an NP loan is to be liquidated and the borrower is also indebted for a program loan which serves as additional security for the NP loan the program loan will be accelerated at the same time as the NP loan using the program acceleration notice. Any appeal of an adverse decision involving both an NP and program loan would affect only the program loan.</P> <CITA>[58 FR 52646, Oct. 12, 1993, as amended at 61 FR 59778, Nov. 22, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.452</SECTNO> <SUBJECT>Policy.</SUBJECT> <P>NP credit is extended for the convenience of the Government in servicing an existing loan or to facilitate sale of inventory property. Where a borrower has both program and NP loans outstanding, servicing will be according to the regulation applicable to the particular loan(s). NP borrowers are not eligible for program entitlements or servicing actions such as subsidy, moratorium, reamortization, rescheduling, consolidation, deferral, limited resource assistance, buyout, writedown and conservation easements. Neither are NP borrowers subject to occupancy/operation requirements, graduation or other similar requirements imposed on program borrowers. NP borrowers are required to adequately maintain the security, pay real estate taxes and/or assessments when due or make scheduled escrow installments for taxes and insurance when required by FmHA or its successor agency under Public Law 103-354, and keep buildings insured according to the promissory note and mortgage or security agreement, but may lease all or a portion of the security without FmHA or its successor agency under Public Law 103-354's consent, except as provided in § 1951.460 (a) and (b) of this subpart.</P> </SECTION> <SECTION> <SECTNO>§ 1951.453</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.454</SECTNO> <SUBJECT>Review of adverse decisions.</SUBJECT> <P>NP applicants and borrowers are not entitled to appeal rights under subpart B of part 1900 of this chapter or parts 11 and 780 of this title. However, decisions involving NP applicants, borrowers or property are reviewable by the next level supervisor.</P> <CITA>[58 FR 52646, Oct. 12, 1993, as amended at 62 FR 10120, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.455</SECTNO> <SUBJECT>NP loan making for Single Family Housing (SFH) and farm property (real and chattel).</SUBJECT> <P>(a) <E T="03">Application for NP credit.</E> Applications for credit on NP terms are made at the County Office serving the area where the property is located or through an approved packager or real estate broker if so instructed by County Office personnel. To apply for NP credit, except Homestead Protection <PRTPAGE P="67"/>program, standard forms used to process program applications may be utilized or comparable documentation which contains information to establish financial stability, creditworthiness, and repayment ability for the requested credit. However, the loan approval official will have the discretion to determine what information is required to support approval of the loan. For property purchased under the Homestead Protection program the information required to support approval of the loan will be in accordance with subpart S of part 1951 of this chapter. The creditworthiness standards in § 1944.9 of subpart A of part 1944 of this chapter will be used to evaluate an NP applicant's eligibility for assistance to purchase a single family residence. The application is not complete until all information requested by the Agency is received.</P> <P>(b) <E T="03">Fees.</E> In addition, credit reports will be ordered to determine the eligibility of NP applicants requesting FLP credit. A nonrefundable credit report fee will be charged the applicant. The amounts of these fees change periodically; current fees will be quoted by county office personnel upon request. A borrower whose loan is reclassified as NP because unauthorized assistance was received; or only a portion of the security property is being transferred and the FLP debt is not paid in full; or FLP accounts rescheduled under an accelerated repayment agreement will not be required to submit an application or pay the application fee.</P> <P>(c) <E T="03">Eligibility restrictions</E>. If farm property is being purchased or the debt assumed, and an individual or member, stockholder, partner, or joint operator of a proposed entity transferee or purchaser has been convicted after December 23, 1985, under Federal or State law of planting, cultivating, growing, producing, harvesting, or storing a controlled substance (see 21 CFR part 1308, which is exhibit C of subpart A of part 1941 of this chapter (available in any agency office), for the definition of “controlled substance”) prior to the approval of the credit sale or assumption in any crop year, the individual or entity shall be ineligible for FLP credit for the crop year in which the individual was convicted four succeeding crop years following the conviction. Purchasers will attest on the application form used that as individuals or that its members, if an entity, have not been convicted of such crime after December 23, 1985.</P> <P>(d) [Reserved]</P> <P>(e) <E T="03">Downpayment.</E> A downpayment must be collected at closing and remitted in accordance with subpart B of this part 1951 (available in any agency office). The minimum downpayment will be based on the purchase price for a credit sale and the current market value (less any prior liens for chattel security) or the debt, whichever is lower, for an assumption. Downpayment requirements vary from time to time and vary by type of property. Current downpayment requirements will be provided by county office personnel upon request.</P> <P>(f) <E T="03">Interest rate</E>. The FP/NP interest rate for real property or chattel property, as applicable, in effect at the time of loan approval, will be charged on NP assumptions and credit sales involving all other types of sales, except as otherwise stated. The Homestead Protection program interest rate in effect at the time of loan approval will be charged on Homestead Protection properties.</P> <P>(g) <E T="03">Terms</E>. The purchase price for credit sales or the FLP debt being assumed, less the downpayment amount, will be amortized as follows, except the term will never be longer than the period for which the property will serve as adequate security:</P> <P>(1) <E T="03">Farm property (real estate security) and CONACT residential property classified as surplus</E>. The note amount will be amortized over a period not to exceed 15 years. When an NP loan was initially scheduled for repayment in 15 years or less together with a 25-year amortization, the agency may authorize an extension not to exceed a total of 25 years from the date the NP assumption or credit sale was closed provided it is in the Government's best interest and the agency retains the same lien priority.</P> <P>(2) <E T="03">Farm property (chattels security).</E> The note amount will be amortized over a period not to exceed 5 years.<PRTPAGE P="68"/> </P> <P>(3) <E T="03">Homestead protection.</E> The note amount will be amortized over a period not to exceed 35 years.</P> <P>(h) <E T="03">Modification of security instruments.</E> Any convenants in the promissory note and/or security instruments (mortgage or deed of trust) relating to graduation to other credit, inability to secure other financing, restrictions on leasing, FLP operation requirements, and consent to junior lien encumbrance will be deleted.</P> <P>(i) <E T="03">Security.</E> The security requirements for NP loans on farm real estate will be in accordance with subpart A of part 1943 of this chapter and NP loans on chattel property will be secured in accordance with subpart A of part 1962 of this chapter. Except that, an NP loan will be secured only by the property purchased.</P> <P>(j) <E T="03">Closing.</E> Title clearance, preparation of deeds, loan closing and property insurance requirements are the same as for a program loan on the same type property, except the purchaser must pay his/her own closing costs.</P> <CITA>[58 FR 52646, Oct. 12, 1993, as amended at 62 FR 10120, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.456</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.457</SECTNO> <SUBJECT>Payments.</SUBJECT> <P>(a) <E T="03">Receiving payments.</E> Borrowers will mail or bring their payments to the county office. Borrowers will be responsible for any fees associated with converting cash payments to money orders. If the fee is not paid, it will be deducted from the payment.</P> <P>(b) Payments not received when due. NP borrowers are expected to make scheduled payments when due. The Agency personnel are not required to provide program supervision, servicing, management or credit counseling in accordance the agency servicing instructions if payments are not received when due. To ensure consistency, a series of contacts will be made when servicing delinquent accounts. All actions taken, agreements reached and recommendations made in the servicing of the borrower's account are to be documented. When appropriate, the Agency may work out a reasonable agreement with an NP borrower to cure a delinquency; however, such an agreement will not usually exceed 1 year. Failure to make payments as agreed will result in actions determined by the agency to best protect the Government's interest. Collection of a delinquency from an Internal Revenue Service (IRS) offset will be used to the extent permitted by law.</P> <CITA>[58 FR 52646, Oct. 12, 1993, as amended at 60 FR 55146, Oct. 27, 1995; 62 FR 10120, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.458</SECTNO> <SUBJECT> Servicing real estate taxes.</SUBJECT> <P>Refer to subpart A of part 1925 of this chapter for servicing real estate taxes.</P> <CITA>[62 FR 10120, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.459</SECTNO> <SUBJECT>Preservation of security.</SUBJECT> <P>(a) <E T="03">Inspections of NP security property</E>. Inspections will be made on NP security as necessary to protect FmHA or its successor agency under Public Law 103-354's security interest. In the event of abandonment, servicing actions will be taken according to § 1955.55 of subpart B of part 1955 of this chapter.</P> <P>(b) <E T="03">Subordination</E>. Subordination is not authorized where an NP borrower only owes FmHA or its successor agency under Public Law 103-354 an NP loan(s). Subordination of a mortgage may be permitted to refinance, extend, reamortize, increase the amount of an existing prior lien, or to permit a prior lien only when the security for the NP loan is also security for an FmHA or its successor agency under Public Law 103-354 program loan, the request for the subordination meets all the requirements for the subordination of the FmHA or its successor agency under Public Law 103-354 program loan and is in the best interest of the Government.</P> <P>(c) <E T="03">Bankruptcy</E>. NP loans on single family residences will be serviced in accordance with subpart C of part 1965 of this chapter, farm real estate in accordance with subpart A of part 1965 of this chapter, and farm chattel in accordance with subpart A of part 1962 of this chapter.</P> </SECTION> <SECTION> <SECTNO>§ 1951.460</SECTNO> <SUBJECT>Release of security property or sale or lease of related property rights.</SUBJECT> <P>(a) <E T="03">Partial release</E>. Release of a portion of the security property may be made when the borrower requests it and FmHA or its successor agency <PRTPAGE P="69"/>under Public Law 103-354 determines the release will not adversely affect the Government's interest. Release may be approved when payment is received by FmHA or its successor agency under Public Law 103-354 in the amount of the market value, as determined by FmHA or its successor agency under Public Law 103-354, of the property to be released. Proceeds from such transactions (less related expenses authorized by FmHA or its successor agency under Public Law 103-354) will be applied to the FmHA or its successor agency under Public Law 103-354 indebtedness as an extra payment or to prior liens in order of lien priority.</P> <P>(b) <E T="03">Easements, right-of-ways, and lease of mineral rights or other rights</E>. Consent may be given by FmHA or its successor agency under Public Law 103-354 for the borrower to grant an easement or lease mineral rights when it is determined by FmHA or its successor agency under Public Law 103-354 the action will not adversely affect the Government's interest. The granting of an easement or right-of-way and lease of mineral rights may be approved when payment is received by FmHA or its successor agency under Public Law 103-354 in the amount of the market value, as determined by FmHA or its successor agency under Public Law 103-354, for rights granted or benefits are derived which are equal to or greater than the value of the property being disposed of. Proceeds from these transactions (less related expenses authorized by FmHA or its successor agency under Public Law 103-354) will be applied to the FmHA or its successor agency under Public Law 103-354 debt as an extra payment or to prior liens in order of lien priority.</P> <P>(c)-(d) [Reserved]</P> </SECTION> <SECTION> <SECTNO>§ 1951.461</SECTNO> <SUBJECT>Release of valueless FmHA or its successor agency under Public Law 103-354 lien without monetary consideration.</SUBJECT> <P>Release of an FmHA or its successor agency under Public Law 103-354 lien without monetary consideration may be granted when it is determined by FmHA or its successor agency under Public Law 103-354 to have no present or prospective value or when enforcement would be ineffectual or uneconomical. Judgment liens or statutory redemption rights may be released only with prior consent of OGC.</P> </SECTION> <SECTION> <SECTNO>§ 1951.462</SECTNO> <SUBJECT>Deceased borrower.</SUBJECT> <P>When an NP borrower dies, FmHA or its successor agency under Public Law 103-354 will determine whether or not arrangements can be effected for continuation of the loan under one of the provisions of this section. If not, the loan may be liquidated according to § 1951.468 of this subpart. The servicing actions and the circumstances under which they may be considered are outlined in paragraphs (a) through (d) of this section.</P> <P>(a) <E T="03">Continue with jointly liable borrower</E>. If a jointly liable borrower will repay the loan and fulfill other obligations of the loan, FmHA or its successor agency under Public Law 103-354 will take no action to liquidate the loan.</P> <P>(b) <E T="03">Assumption by spouse not liable for the FmHA or its successor agency under Public Law 103-354 debt</E>. The spouse of a deceased borrower who is not liable for the FmHA or its successor agency under Public Law 103-354 debt and who wishes to assume the debt may do so in accordance with § 1951.463(d)(1) of this subpart.</P> <P>(c) <E T="03">Continue with joint tenant, tenant by the entirety, or other person</E>. When a joint tenant, tenant by the entirety, or other person who inherits title to (or an interest in) the security property, on which the principal residence is located, by devise, descent, or operation of law upon the death of a borrower makes payments as scheduled in the promissory note (or assumption agreement), FmHA or its successor agency under Public Law 103-354 may not take action to liquidate the loan as long as the property is adequately maintained, real estate taxes and assessments are paid when due, and the dwelling is not known to be uninsured (if funds for taxes and insurance are being escrowed, the escrow is a part of the scheduled payments). The loan may be assumed in accordance with § 1951.463(d) of this subpart; however, assumption of the indebtedness is not required. Continuation with a joint tenant, tenant by the entirety, or other person under <PRTPAGE P="70"/>the provisions of this paragraph applies only to the transfer of title resulting from death of the borrower; it does not apply to any subsequent transfer of title by the inheritor(s) except by devise, descent, or operation of law upon the death of the inheritors or sale of interests among inheritors to consolidate title. Any other subsequent transfer of title will be treated as a sale and is subject to the requirements of § 1951.463 of this subpart.</P> <P>(d) <E T="03">Assumption by a person, other than the spouse, who is not liable for the FmHA or its successor agency under Public Law 103-354 loan</E>. A person other than the deceased borrower's spouse who wishes to assume the loan for the benefit of persons who were dependent on the deceased borrower at the time of death, without receiving title to the property, may do so in accordance with § 1951.463(d)(1) of this subpart provided:</P> <P>(1) The residence will continue to be occupied by one or more persons who were dependent on the borrower at the time of death; and</P> <P>(2) There is reasonable prospect for orderly repayment of the loan and other obligations of the loan will be met.</P> </SECTION> <SECTION> <SECTNO>§ 1951.463</SECTNO> <SUBJECT>Transfer of security and assumption of indebtedness.</SUBJECT> <P>When a borrower proposes to sell security property, assumption of the indebtedness may be approved on program or NP terms, as applicable, subject to the provisions of paragraphs (c) and (d) of this section. Assumptions under paragraphs (b)(2), (b)(3), (b)(4), (b)(5) and (d) of this section only are authorized on existing terms. When security property is sold (or title is otherwise conveyed), whether by full conveyance or by land contract, contract-for-deed, or other similar instrument, and the FmHA or its successor agency under Public Law 103-354 debt is not assumed by the purchaser (new owner) or paid in full, the conveyance will not be approved, except as provided in paragraphs (b)(2) and (b)(5) of this section or § 1951.462 of this subpart. If the conveyance is not approved the loan must be liquidated unless FmHA or its successor agency under Public Law 103-354 determines it is not in the Government's best interest. If FmHA or its successor agency under Public Law 103-354 decides to continue with the loan, the account will be serviced in the borrower's name and the borrower will remain liable for the loan under the terms of the security instrument.</P> <P>(a) [Reserved]</P> <P>(b) <E T="03">General.</E> The following policies apply to all transfers and assumptions under this subpart:</P> <P>(1) <E T="03">Amount of assumption.</E> Except for transfers covered in paragraphs (b)(2), (b)(3), (b)(4), (b)(5) and (d) of this section, the transferee will assume the lesser of the indebtedness, or current market value as determined by FmHA or its successor agency under Public Law 103-354, less any prior liens and the downpayment.</P> <P>(2) <E T="03">Conveyance of security property by borrower to spouse or child.</E> When a borrower conveys security property to his/her spouse or children, assumption of the indebtedness is not required and FmHA or its successor agency under Public Law 103-354 may not take action to liquidate the loan as long as payments are made as scheduled and other obligations of the loan are met. In the event the transferee(s) wishes to assume the indebtedness, it may be assumed on the terms outlined in paragraph (d)(1) of this section as applicable to the circumstances.</P> <P>(3) <E T="03">Withdrawal of jointly liable borrower.</E> When a stockholder/member/partner/joint operator of an entity who is personally liable on the note withdraws from the entity or dies, and all of the remaining individuals are not personally liable on the note(s), the loan must be assumed by all remaining parties.</P> <P>(4) <E T="03">Addition of new transferee(s).</E> When new stockholders/members/-partners/-joint operators enter an entity, assumption of the indebtedness is required, however, the indebtedness may be assumed on existing terms. A downpayment based on the unpaid balance of the loan is required when the assumption is closed.</P> <P>(5) <E T="03">Conveyance of security property into an inter vivos trust.</E> When the borrower conveys security property into an inter vivos trust, whereby the borrower does not transfer rights of occupancy in the property, FmHA or its successor agency under Public Law 103-354 may not <PRTPAGE P="71"/>take action to liquidate the loan as long as payments are made as scheduled and other obligations of the loan are met.</P> <P>(c) <E T="03">Program assumption.</E> A NP loan may be assumed by an eligible program applicant if the property meets the eligibility requirements for a currently authorized program (SFH, Farm Ownership (FO), etc.). In such cases, the assumption will be at the interest rate and up to the maximum term in effect for the type loan involved at the time the assumption is approved. After assumption on program terms, the loan will be reclassified as Rural Housing (RH), FO, etc., as applicable.</P> <P>(d) <E T="03">NP assumption.</E> The rates and terms for an NP assumption will be as provided in § 1951.455 of this subpart. A loan may be assumed on existing terms only in the situations outlined in paragraphs (b)(2), (b)(3), (b)(4), (b)(5), (d)(1), (d)(2), and (d)(3) of this section. An individual not liable for the loan who acquires title to or an interest in the security by means of one of the situations mentioned may assume the indebtedness on existing terms or current terms if more favorable, in which case a downpayment based on the unpaid balance would be required. The interest rate, final due date, payment date, and account status (current, delinquent, ahead of schedule) will not be changed by virtue of an assumption on existing terms, after assumption compliance with loan conditions is required. If a same terms assumption is consummated and the account is delinquent, it may be reamortized in accordance with applicable program regulations. Situations where these terms are authorized are:</P> <P>(1) An individual who acquires title to or an interest in the security property by virtue of death, divorce, or deed from a spouse or parent but is not liable for the debt and who wishes to assume the loan may do so. Any subsequent transfer of title, except between inheritors to consolidate title, will be treated as a sale and is not covered by these provisions. Individuals in this category are:</P> <P>(i) A deceased borrower's surviving spouse.</P> <P>(ii) A divorced borrower's spouse.</P> <P>(iii) A joint tenant with right of survivorship or relative of a deceased borrower.</P> <P>(2) The spouse or child of a living borrower to whom title to the security property has been conveyed by spouse or parent.</P> <P>(3) A person other than the deceased borrower's spouse who wishes to continue with the loan under conditions outlined in § 1951.462 (c) or (d) of this subpart may do so.</P> <P>(e) <E T="03">County Committee actions on Farmer Program assumptions.</E> On program assumptions, the County Committee must certify the transferee's eligibility for the type of loan to be assumed.</P> <P>(f) <E T="03">Title clearance and loan closing.</E> Title clearance and closing will be the same as for any program loan of the same type.</P> <P>(g) <E T="03">Release from liability.</E> Release from liability of NP borrowers is not authorized.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.464-1951.467</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.468</SECTNO> <SUBJECT>Liquidation.</SUBJECT> <P>When it is determined an NP borrower cannot or will not successfully repay the loan, FmHA or its successor agency under Public Law 103-354 will attempt to have the borrower liquidate voluntarily.</P> <P>(a) <E T="03">Voluntary.</E> If an NP borrower in default indicates a willingness to voluntarily liquidate, other liquidation actions by FmHA or its successor agency under Public Law 103-354 may be delayed for a reasonable period, usually not to exceed 120 days for real estate, if the borrower is earnestly seeking other financing, or has the security property listed or offered for sale and it is being actively marketed at a reasonable price.</P> <P>(b) <E T="03">Foreclosure.</E> If an NP borrower in default (monetary or nonmonetary) does not cure the default and is not willing or able to voluntarily liquidate, the servicing official will refer the case to the next level supervisor with a recommendation for further action. If foreclosure is approved, the account will be accelerated. NP borrowers do not have appeal rights under subpart B of part 1900 of this chapter; however, the NP borrower may request a review of the decision to foreclose by the next <PRTPAGE P="72"/>level supervisor to consider evidence that the loan is not in default. If the borrower fails to satisfy the account during the period specified in the demand letter, FmHA or its successor agency under Public Law 103-354 will proceed with foreclosure without further notice or extension of time.</P> <P>(c) <E T="03">Conveyance to FmHA or its successor agency under Public Law 103-354.</E> FmHA or its successor agency under Public Law 103-354 does not solicit or encourage conveyance of NP security property to the Government and will consider a borrower's offer to convey by deed in lieu of foreclosure only after the debt has been accelerated and when it is in the Government's best interest. Release of the borrower from liability is not authorized. Upon receipt of an offer to convey, FmHA or its successor agency under Public Law 103-354 will remind the borrower of provisions for voluntary liquidation under paragraph (a) of this section. The borrower will also be informed of the consequences of a conveyance by deed in lieu of foreclosure as follows:</P> <P>(1) All costs related to the conveyance which FmHA or its successor agency under Public Law 103-354 pays will be added to the debt;</P> <P>(2) A credit equal to the market value of the property, as determined by FmHA or its successor agency under Public Law 103-354, less prior liens, will be applied to the debt; and</P> <P>(3) If the credit does not satisfy the debt, the debtor remains liable for the payment of the account balance and the account will be debt settled.</P> <P>(d) <E T="03">Consent to sale of real estate security when the FmHA or its successor agency under Public Law 103-354 debt and authorized selling expenses exceed market value.</E> If an NP borrower proposes to sell real estate security for an amount which will be insufficient to pay the FmHA or its successor agency under Public Law 103-354 debt, prior lien(s) if any, and sale expenses authorized by FmHA or its successor agency under Public Law 103-354, an appraisal will be completed and FmHA or its successor agency under Public Law 103-354 may consent to the sale if the proposed sale price is not less than the market value. No commission will be allowed or paid under this paragraph when the sale is to the broker, broker's salesperson(s), to persons living in his/her or salesperson(s) immediate household or to legal entities in which the broker or salesperson(s) have an interest if the sale involves FmHA or its successor agency under Public Law 103-354 credit. If credit is not being extended to the persons mentioned in the preceding sentence (a cash sale), a commission will be allowed or paid. In no case will the borrower (seller) receive any cash proceeds from the sale. Any real estate taxes due from the transferor and other authorized selling expenses for which there is insufficient equity proceeds for payment at closing will be charged to the borrower's account prior to loan closing. Authorized selling expenses will not be considered or included in the amount assumed. Release from liability is not authorized.</P> </SECTION> <SECTION> <SECTNO>§ 1951.469</SECTNO> <SUBJECT>Actions after liquidation of property.</SUBJECT> <P>(a) [Reserved]</P> <P>(b) <E T="03">Servicing unsatisfied account balances.</E> A current financial statement will be obtained, if possible, when application of sale proceeds does not satisfy an NP loan; or if a conveyance to FmHA or its successor agency under Public Law 103-354 has been accepted and credit of the market value less prior liens and estimated inventory handling expenses does not satisfy the debt, FmHA or its successor agency under Public Law 103-354 will pursue collection if there appears to be income or assets from which to collect. Where the borrower owns other real estate, or if the borrower is known to be in the process of purchasing other real estate (such as another dwelling), a judgment for the remaining debt including expenses paid by FmHA or its successor agency under Public Law 103-354 will be sought.</P> <P>(c) [Reserved]</P> </SECTION> <SECTION> <SECTNO>§§ 1951.470-1951.478</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.479</SECTNO> <SUBJECT>Pilot projects.</SUBJECT> <P>From time to time FmHA or its successor agency under Public Law 103-354 conducts pilot projects to test concepts related to the management and/or sale of SFH inventory property which may <PRTPAGE P="73"/>deviate from the provisions of this subpart, but will not be inconsistent with provisions of the authorizing statutes, or other Acts affecting FmHA or its successor agency under Public Law 103-354's loan programs. Prior to initiation of a pilot project, FmHA or its successor agency under Public Law 103-354 will publish in the <E T="04">Federal Register</E> a Notice outlining the nature, scope, and duration of the pilot. The pilot projects may be handled by FmHA or its successor agency under Public Law 103-354 employees and/or under contract with persons, firms, or other entities in the private sector.</P> </SECTION> <SECTION> <SECTNO>§ 1951.480</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.481</SECTNO> <SUBJECT>FmHA or its successor agency under Public Law 103-354 Instructions.</SUBJECT> <P>Detailed FmHA or its successor agency under Public Law 103-354 Instructions for administering this subpart are available in any FmHA or its successor agency under Public Law 103-354 office (FmHA or its successor agency under Public Law 103-354 Instruction 1951-J).</P> </SECTION> <SECTION> <SECTNO>§§ 1951.482-1951.500</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart K—Predetermined Amortization Schedule System (PASS) Account Servicing</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>50 FR 8597, Mar. 4, 1985, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.501</SECTNO> <SUBJECT>General.</SUBJECT> <P>(a) This subpart prescribes the policies, authorizations, and procedures for implementing and servicing PASS for all of the following Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) Multiple Family Housing (MFH) loan recipients which includes Farm Labor Housing (LH) and Rural Rental Housing (RRH) including Rural Cooperative Housing (RCH) and Congregate Housing and includes:</P> <P>(1) All MFH loans, credit sales, reamortizations, and transfers closed on or after May 1, 1985, and</P> <P>(2) All MFH loan recipients converting from the Daily Interest Accrual System (DIAS) to PASS according to § 1951.517 of this subpart, except:</P> <P>(i) Seasonal LH and LH loans to individual farmers may be closed on monthly or annual payment schedules and also may be closed on Daily Interest Accrual under subpart A of part 1951 of this chapter. Instructions for scheduling payments are according to the Forms Manual Insert (FMI) for Form FmHA or its successor agency under Public Law 103-354 1944-52, “Multiple Family Housing Promissory Note.”</P> <P>(ii) Rural Housing Site (RHS) loans and Site Option (SO) loans will be closed and serviced on Daily Interest Accrual under subpart A of part 1951 of this chapter. Payment billings are subject to § 1951.506 of this subpart.</P> <P>(b) All MFH loan recipients not described in paragraph (a) of this section will continue to be subject to the servicing and collection requirements of subpart A of part 1951 of this chapter. For the purposes of this subpart, all references to “County Supervisor” in subpart A of part 1951 shall be construed to mean “District Director.”</P> <P>(c) All FmHA or its successor agency under Public Law 103-354 MFH loans (RRH, RCH, LH, RHS, and SO) whether DIAS or PASS, are subject to the definitions contained in § 1951.504 of this subpart, and payment application as outlined in § 1951.510 of this subpart.</P> <P>(d) All MFH loan payments will be processed using Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <CITA>[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16244, May 6, 1988; 56 FR 28038, June 19, 1991]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.502</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.503</SECTNO> <SUBJECT>Authorities and responsibilities.</SUBJECT> <P>District Directors are responsible for administering this subpart under the general guidance and supervision of the State Director. The District Office Management System will be fully used to accomplish this responsibility.</P> </SECTION> <SECTION> <PRTPAGE P="74"/> <SECTNO>§ 1951.504</SECTNO> <SUBJECT>Definitions and statements of policy.</SUBJECT> <P> <E T="03">Advance regular payment.</E> Regular payments made at election of the borrower to pay the account ahead of schedule. These payments may be either full or partial payments and will be applied to the amortized payment schedule by the Finance Office.</P> <P> <E T="03">Amortization schedule.</E> An amortization schedule is the projected application of periodic payments to principal and interest at the promissory note rate so the debt will be paid in full over the number of periods specified in the promissory note, assumption agreement (new terms), or reamortization agreement. Computation is based on a 30-day month and a 360-day year.</P> <P> <E T="03">Amortized recoverable costs.</E> Recoverable cost items may be amortized over a period up to 5 years. This function will allow the servicing official to voucher recoverable cost items such as taxes.</P> <P>(1) <E T="03">Payment of real estate taxes.</E> When a borrower's taxes are paid by voucher, the amortization period of the tax advance will be the number of months for which the taxes are being vouchered with a maximum of 5 years.</P> <P>(2) <E T="03">Costs other than real estate taxes.</E> Advances for costs other than real estate taxes will be amortized for 12 months unless, based on the borrower's repayment ability, a longer period is needed. An amortization period of more than 12 months will be used only when the cost is of a nonrecurring type. In no case, however, will the repayment period exceed 5 years.</P> <P>(3) <E T="03">Retroactive amortization of recoverable costs.</E> Recoverable costs which have been vouchered since May 1, 1985, may, with National Office approval, be retroactively amortized for applicable time periods as shown in paragraphs (c)(1) and (c)(2) of this section, if payments made since the costs were vouchered are sufficient to bring both the loan and cost accounts current. The following information should be forwarded to the National Office for approval of the reclassification to amortized status, and forwarded to the Finance Office for processing: An audit showing all costs vouchered along with payments made since the date of the cost item and to be made prior to the reclassification; the estimated reapplication of the payments due to reclassification showing that the account will be current after the reclassification; and the proposed budget and management case files.</P> <P> <E T="03">Audit receivables.</E> Loan, grant or subsidy funds which were used by the borrower for unauthorized purposes; have been identified by the Office of Inspector General (OIG) in an audit; and, which FmHA or its successor agency under Public Law 103-354 is requiring the borrower to repay.</P> <P> <E T="03">Conversion.</E> The act of changing a borrower's account from DIAS to PASS.</P> <P> <E T="03">Daily Interest Accrual System (DIAS).</E> A system whereby interest is charged daily from the date a payment is received in the District Office to the next date a payment is received. A daily interest accrual factor is computed by multiplying the outstanding principal balance by the effective interest rate and dividing by 365 days. Computation is always based on a 365 day year. Interest on each payment is charged on the actual number of days that a principal balance is outstanding.</P> <P> <E T="03">District Director.</E> For the purpose of this subpart the term includes the Assistant District Director, and other qualified District staff who may be delegated responsibilities according to § 1930.143 of subpart C of part 1930 of this chapter, and the provisions of subpart F of part 2006 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office). In the case of LH loans still being serviced in the County Office, this definition also includes qualified County Office staff. This definition further includes the Area Loan Specialists in Alaska, Island Directors in Hawaii, Directors of Western Pacific Territories, and other qualified staff members in Alaska, Hawaii, and Western Pacific Territories, respectively.</P> <P> <E T="03">Extra payment.</E> Extra payments are applied all to principal on the end of the loan and are funds derived from:</P> <P>(1) Sale of basic chattel or real estate security, including rental or lease of real estate security of a depreciating or depleting nature.</P> <P>(2) Refinancing of real estate debt.</P> <P>(3) Mineral royalties.<PRTPAGE P="75"/> </P> <P>(4) Cash proceeds of real property insurance as provided in subpart A of part 1806 of this chapter (FmHA or its successor agency under Public Law 103-354 Instruction 426.1).</P> <P>(5) Sale of real estate not mortgaged to the Government, pursuant to a condition of loan approval.</P> <P>(6) Transactions of a similar nature which reduce the value of the security for the loan(s).</P> <P> <E T="03">Non-recoverable costs.</E> Payments charged to a loan program insurance fund by use of a fund code. These costs are only incurred after Government acquisition of title to the property, and are therefore charged to an inventory account.</P> <P> <E T="03">Overage.</E> This term refers to both “overage” and “surcharge” described in exhibit H to subpart C of part 1930 of this chapter.</P> <P> <E T="03">Payment effective date.</E> The payment effective date is the day of the month on which payments will be effectively applied to the account by the Finance Office for the month payment is due regardless of the payment reception date. On PASS all payments will be applied as of the first day of the month.</P> <P> <E T="03">Payment reception date.</E> The day of the month the payment is received in the District Office.</P> <P> <E T="03">Predetermined Amortization Schedule System (PASS).</E> System whereby FmHA or its successor agency under Public Law 103-354 will apply loan payments based on an amortization schedule.</P> <P> <E T="03">Project late fee.</E> The amount charged a borrower's project account for a delinquent payment according to § 1951.510(c)(2) of this subpart, or when an uncollectible regular payment has been processed according to § 1951.506(c) of this subpart.</P> <P> <E T="03">Promissory note installment.</E> The unrounded amortized installment shown on the promissory note, conversion agreement, assumption agreement or reamortization agreement, whichever is currently in effect.</P> <P> <E T="03">Recoverable costs.</E> Additional project costs such as vouchered insurance or taxes which FmHA or its successor agency under Public Law 103-354 requires a borrower to pay.</P> <P> <E T="03">Refund payment.</E> Payments from unused loan funds which are applied to principal on the end of the loan account.</P> <P> <E T="03">Regular payment.</E> All monthly payments scheduled according to PASS. Does not include extra payments, advance regular payments, refund payments or voluntary additional principal payments.</P> <P> <E T="03">Subsidized installment.</E> The promissory note installment reduced by the terms of Form FmHA or its successor agency under Public Law 103-354 1944-7, “Multiple Family Housing Interest Credit and Rental Assistance Agreement.” The subsidized installment is the unrounded amortized installment computed at the subsidized interest rate.</P> <P> <E T="03">Subsidy credit.</E> The difference between a borrower's monthly promissory note installment and the monthly subsidized installment.</P> <P> <E T="03">Voluntary additional principal payment.</E> Payments applied all to principal which are made at the election of the borrower in addition to regularly scheduled payments and with FmHA or its successor agency under Public Law 103-354 approval. Such payments will not affect the schedule payment status or change the amount of the regular monthly payments. Funds for voluntary additional principal payments are derived from sources other than extra payment sources. Payments will be applied to current loans only.</P> <CITA>[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 2194, Jan. 26, 1988; 53 FR 16244, May 6, 1988; 55 FR 25078, June 20, 1990; 56 FR 66961, Dec. 27, 1991; 62 FR 25070, May 7, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.505</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.506</SECTNO> <SUBJECT>Processing payments.</SUBJECT> <P>(a) <E T="03">Regular payments.</E> Regular payments and advance regular payments will be processed as follows:</P> <P>(1) All payments will be based on tenants occupying the units as of the first day of the month prior to the payment due date. For example, a payment due on July 1 is based on tenants occupying the units June 1. For the purposes of this subpart, the word “tenant” also means RCH “member.”</P> <P>(2) The borrower must deliver all Forms FmHA or its successor agency <PRTPAGE P="76"/>under Public Law 103-354 1944-8, “Tenant Certification,” or for tenants receiving Section 8 assistance, the acceptable Department of Housing and Urban Development (HUD) form to the District Director according to paragraph VII F 1 of exhibit B to subpart C to part 1930 of this chapter. The District Director will date stamp each certification and will verify the information on the tenant certification also as required in paragraph VII F of exhibit B to subpart C of part 1930 of this chapter. The data from the tenant certifications must be entered into the Multi-Family Housing Tenant File System (MTFS) which will calculate the tenant's rent payment.</P> <P>(i) If the calculations on the tenant certification do not agree with MTFS, the District Office will contact the borrower/management to resolve the discrepancy. MTFS calculations will be used to calculate interest credit and rental assistance due the borrower.</P> <P>(ii) A copy of MTFS “Project Worksheet—Interest Credit and Rental Assistance,” an automated printout, will be generated and compared to the borrower's Form FmHA or its successor agency under Public Law 103-354 1944-29, “Project Worksheet for Interest Credit and Rental Assistance.” Only tenants with current tenant certifications shown on MTFS will be certified for interest credit or rental assistance when processing payments.</P> <P>(iii) A copy of the monthly MTFS project worksheet report will be filed with Form FmHA or its successor agency under Public Law 103-354 1944-29 to document the approved subsidies.</P> <P>(iv) At the borrower's request, a copy of the MTFS project worksheet report may be used as Parts I and II in lieu of Form FmHA or its successor agency under Public Law 103-354 1944-29. The District Office will provide a copy of the MTFS project worksheet report to the borrower about the 20th of the month. When using the MTFS project worksheet report as Parts I and II of Form FmHA or its successor agency under Public Law 103-354 1944-29, the borrower will verify the data, sign the MTFS project worksheet report, and return it with the monthly payment to the District Office. Borrowers using the MTFS project worksheet report as Part II, only, will complete, sign, and attach Part I of Form FmHA or its successor agency under Public Law 103-354 1944-29 to the MTFS project worksheet report, before returning it with the monthly payment. Borrowers with Section 8 units who are reporting overage payment, and/or excess HUD contract rent to the reserve account are required to complete Part I of either Form FmHA or its successor agency under Public Law 103-354 1944-29 or the MTFS project worksheet report.</P> <P>(3) On or about the 11th day of each month, the Finance Office will generate and mail to each borrower that is delinquent and/or has late fees, Form FmHA or its successor agency under Public Law 103-354 1944-9A, “Multiple Family Housing Statement of Payment Due,” showing the current monthly payment due, unpaid late fees, and delinquent payments, if any, due on the first day of the following month. This payment statement will be determined from current Finance Office records but will not reflect overage due from the borrower or rental assistance (RA) due the borrower.</P> <P>(4) Each borrower will submit to the District Office Form FmHA or its successor agency under Public Law 103-354 1944-29 with the required monthly payment indicated or adjusted as indicated in paragraph (a)(5) of this section regardless of whether or not Form FmHA or its successor agency under Public Law 103-354 1944-9A is received.</P> <P>(5) Form FmHA or its successor agency under Public Law 103-354 1944-29, prepared by the borrower must reflect the following:</P> <P>(i) Only tenants occupying units the first day of the month prior to the payment due date.</P> <P>(ii) Interest credit and (RA) may be claimed only for tenants with current tenant certification as specified in paragraph VII F 2 of exhibit B to subpart F of part 1930 of this chapter.</P> <P>(iii) Overage up to the market rent must be paid to FmHA or its successor agency under Public Law 103-354 by the borrower for tenants without current tenant certifications unless there is a formal eviction in process, then the payment will be calculated based on the expired tenant certificate. The District Director may determine that the <PRTPAGE P="77"/>tenant may be required to reimburse the borrower for that overage as allowed in paragraph VII F 6 c of exhibit B to subpart C of part 1930 of this chapter.</P> <P>(iv) The borrower may subtract any RA due the project (supported by current tenant certifications) from the payment due and remit a “net” payment. Calculations supporting the “net” payment must be shown on Part I of Form FmHA or its successor agency under Public Law 103-354 1944-29. The Finance Office will net enough RA to bring the account status current and pay any unpaid overage, late fees, interest on delinquent principal, etc., based on the payment reception date. If the account is on or ahead of schedule on the payment reception date, enough RA will be netted to pay one full installment and any unpaid coverage, interest on delinquent principal, etc.</P> <P>(6) The District Director will certify that data on current tenant certifications held in the District Office supports claims on Form FmHA or its successor agency under Public Law 103-354 1944-29. The District Director will transmit payments as directed in exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(7) Payment input by FmHA or its successor agency under Public Law 103-354 will be based on correct amounts regardless of the amount remitted by the borrower.</P> <P>(b) <E T="03">Other payments.</E> Payments made through the District Office will be processed according to subpart B of part 1951 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(c) <E T="03">Uncollectible payment.</E> Uncollectible payments will be handled under subpart B of this part 1951 of this chapter. The payment effective date for the replacement payment will be the date the replacement payment is received in the District Office, not the date of the original payment.</P> <CITA>[50 FR 8597, Mar. 4, 1985, as amended at 51 FR 27671, Aug. 1, 1986; 55 FR 25078, June 20, 1990; 56 FR 28038, June 19, 1991; 58 FR 40954, July 30, 1993; 59 FR 54789, Nov. 2, 1994; 62 FR 25065, 25070, May 7, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.507</SECTNO> <SUBJECT>Maintaining borrower accounts.</SUBJECT> <P>(a) <E T="03">Accounts of active borrowers.</E> The foundation for proper and timely debt payment is sound budgeting and monthly review of income and expenses by the borrower and, as necessary, the District Office staff. Account maintenance, therefore, must begin with initial planning and must be an integral part of ongoing analysis, planning and follow-up management assistance.</P> <P>(b) <E T="03">Accounts of collection-only borrowers.</E> Collection only accounts will be serviced according to § 1951.7(b) of subpart A of this part.</P> <P>(c) <E T="03">Notifying borrowers of late fees and past due payments.</E> The Finance Office will automatically notify each borrower of late fees for payments which were unpaid on the 10th day of the month. A copy of the notice will be mailed to the District Office servicing the account.</P> <P>(d) <E T="03">Subsequent servicing.</E> Delinquent accounts will be serviced according to the respective program requirements. Accounts will also be serviced under subpart B of part 1965 of this chapter.</P> <P>(e) <E T="03">District Office monitoring.</E> District Offices should review each account at least monthly by accessing the Automated Multi-Housing Accounting System (AMAS) through field office terminals. For projects on PASS, the Management System card will be flagged with an orange signal between Position “5” and “RRH.” Exhibit A-1 of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) should be used to track payments.</P> <CITA>[50 FR 8597, Mar. 4, 1985, as amended at 58 FR 40955, July 30, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ § 1951.508-1951.509</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.510</SECTNO> <SUBJECT>Payment application.</SUBJECT> <P>(a) <E T="03">Regular payment due date.</E> The regular payment due date is the first day of each month. All months will be counted as 30 days (360 day year).</P> <P>(b) <E T="03">First regular payment.</E> (1) The first regular amortized payment after loan closing for transfers (new terms), reamortizations, voluntary conversions, credit sales, or loans closed after interim financing <E T="03">must</E> be at least one (1) month from closing. For example, if a <PRTPAGE P="78"/>loan is closed on January 31, the first regular amortized payment will be due March 1. For multiple advance loans the first payment must be at least one (1) month after the final advance.</P> <P>(2) For transfers (same terms) payments on loans already on PASS will be due on the next scheduled due date.</P> <P>(3) Transfers (same terms) converting from DIAS to PASS are loans retaining the same interest rate and final due date and regular amortized payments will be due 30 days form either the date of closing or the interest only installment, whichever is later.</P> <P>(c) <E T="03">Delinquent payments.</E> (1) A loan payment is due on the first day of a month. A loan payment is considered past due when it is received on the second day or a subsequent day through the close of business of the tenth day of the month. A loan payment is late when it is received after normal business hours of the tenth day of the month, without regard to weekends, holidays or payment transmission factors. Thereafter, a late fee will be charged as described in paragraphs (c)(2) and (c)(4) of this section.</P> <P>(2) The project account will be charged a late fee when the regular payment is not received in the District Office by close of business of the tenth (10) day of the month the payment is due or when the payment is applied by the Finance Office and does not fully pay the regular payment and other charges for each project loan. Late fees collected by the Finance Office will be deposited in the Rural Housing Insurance Fund (RHIF).</P> <P>(i) The project late fee is six percent of the total regular payment(s) due shown on the promissory note(s), conversion agreement(s), assumption agreement(s) or reamortization agreement(s).</P> <P>(ii) A project late fee will be charged for any unpaid portion of the regular payment(s) exceeding $15.00.</P> <P>(iii) A project late fee will be charged one time only, for each regular payment.</P> <P>(iv) Except for cooperative housing, project late fees may not be paid from project income as specified in paragraph XIII B2a(4) of exhibit B to subpart C of part 1930 of this chapter.</P> <P>(v) Exceptions may be made to late fee charges only as follows:</P> <P>(A) The State Director may allow an exception for any project for three (3) monthly project late fee charges in any calendar year, based on the State Director's determination that the late fees place an unfair burden on the project. For each exception requested, the borrower must provide a written explanation of the circumstances which caused the late payment and what actions will be taken to bring the account current.</P> <P>(B) The National Office may authorize exceptions to late fees for borrowers who have late fees exceeding the State Director's exception authority. When the State Director determines that the application of a late fee would place an unfair burden on the borrower, the State Director may submit a request for an exception to the late fee to the National Office. The request will include an explanation of the circumstances, a recommendation for action and all relevant case file material. The National Office will review the request and notify the State Director what action should be taken on the account.</P> <P>(C) When an exception to late fees is granted, the State Director will notify the borrower on Form FmHA or its successor agency under Public Law 103-354 1951-51, “Multiple Family Housing Exception to Late Fees,” completed according to the FMI.</P> <P>(D) When an application for late fee exception is denied the State Director must give the borrower appeal rights under subpart B of part 1900 of this chapter.</P> <P>(3) A project is considered delinquent on the 30th day of the month when any due amount is unpaid.</P> <P>(4) When a regular PASS payment continues to be delinquent on the first of the month following the delinquent payment due date, interest will be charged on the unpaid delinquent principal at the note rate from the date the principal was due until all regular payments, recoverable cost charges, late fees, and occupancy surcharges have been paid current in accordance with <PRTPAGE P="79"/>the number of full installments required by the promissory note. This interest will be in addition to the scheduled interest of the regular payment. The interest on delinquent principal will be added to the regular payment amount due for the month.</P> <P>(d) <E T="03">Subsidy credit.</E> When the Finance Office receives the regular payment, subsidy credit will be applied to the loan account before any payment or other credit is applied to the account. Subsidy credit will be applied first to accrued interest and then to principal after all interest is paid. Subsidy credit will not be applied to late fees, audit receivables, or recoverable cost charges.</P> <P>(e) <E T="03">Regular payments.</E> Regular payments will be applied in the following priority:</P> <P>(1) Amortized audit receivables.</P> <P>(2) Unamortized audit receivables.</P> <P>(3) All project late fees due.</P> <P>(4) Occupancy surcharges.</P> <P>(5) Amortized recoverable costs due.</P> <P>(6) Unamortized recoverable costs due.</P> <P>(7) Overage.</P> <P>(8) All other interest due.</P> <P>(9) Principal.</P> <P>(10) Any remaining regular payment will be applied as an advance regular payment unless specifically designated otherwise.</P> <P>(f) <E T="03">Advance regular payments.</E> These payments affect the payment status of the loan. The loan account must be current before a payment can be applied as an advance payment. The payment effective date will be the due date of the next regular payment which is not fully paid.</P> <P>(g) <E T="03">Extra and refund payments.</E> Both will be applied as principal to the last installment to become due under the note.</P> <P>(h) <E T="03">Voluntary additional principal payments.</E> These payments will only be credited to the account when all regularly scheduled payments on the account have been paid. Voluntary additional principal payments are credited all to principal, as of the payment effective date, and do not affect the payment status of the loan.</P> <P>(i) <E T="03">Projects with initial and subsequent loan(s).</E> Regular payments on projects with an initial and subsequent loan(s) will be applied according to the priorities listed in § 1951.510(e) of this subpart. Each priority item will be paid for all project loans before moving to the next item.</P> <FP>Payments will be applied for each priority item in accordance with the loan number, beginning with the initial loan and ending with the highest numbered subsequent loan.</FP> <P>(j) <E T="03">Final payments.</E> Final payments will be applied on the next payment due date or the final due date shown on the promissory note, assumption agreement or reamortization agreement, whichever is sooner. The District Office must contact the Finance Office for the amount of the final payment. Final payment should be accepted under conditions specified in § 1965.90 of subpart B to part 1965 of this chapter.</P> <CITA>[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16245, May 6, 1988; 55 FR 5975, Feb. 21, 1990; 55 FR 25078, June 20, 1990; 56 FR 2257, Jan. 22, 1991; 58 FR 40955, July 30, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.511</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.512</SECTNO> <SUBJECT>Changes in the application of loan payments.</SUBJECT> <P>District Office employees with State Director authorization according to § 1930.143 of subpart C to part 1039 of this chapter are authorized to approve reapplication of loan payments between accounts when payments have been applied in error. All authorization for reapplication of payments must conform to the policies expressed in this subpart. No change may be made if the loan is paid in full, the cancelled note or notes have been returned to the borrower, and the security instruments have been satisfied. The District Director will process the changes as prescribed in exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) by the AMAS Coordinator.</P> <CITA>[56 FR 28038, June 19, 1991, as amended at 58 FR 40955, July 30, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.513</SECTNO> <SUBJECT>Overpayments and refunds to borrowers.</SUBJECT> <P>Overpayments and refunds to borrowers will be processed according to § 1951.13 of Subpart A of this part.</P> </SECTION> <SECTION> <PRTPAGE P="80"/> <SECTNO>§ 1951.514</SECTNO> <SUBJECT>Recoverable and non-recoverable cost charges.</SUBJECT> <P>The District Director will service recoverable and non-recoverable cost items according to § 1951.14 of subpart A of this part and FmHA or its successor agency under Public Law 103-354 Instruction 2024-A which is available in any FmHA or its successor agency under Public Law 103-354 office. (Recoverable and non-recoverable costs are defined in § 1951.504 of this subpart.)</P> <CITA>[53 FR 16245, May 6, 1988, as amended at 57 FR 36591, Aug. 14, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.515</SECTNO> <SUBJECT>Promissory notes for borrowers who convert to PASS.</SUBJECT> <P>Promissory notes in the hands of investors when a loan is converted to PASS will be repurchased by the Finance Office and forwarded to the District Office for storage.</P> </SECTION> <SECTION> <SECTNO>§ 1951.516</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.517</SECTNO> <SUBJECT>Conversion from DIAS to PASS.</SUBJECT> <P>(a) <E T="03">Conversion prior to May 1, 1985.</E> The account of any existing RRH loan recipient who elected to convert to PASS before October 31, 1983, by following instructions prescribed by FmHA or its successor agency under Public Law 103-354, and who signed their conversion documents before May 1, 1985, or any recipient of a new loan, credit sale, or transfer (new terms) closed between November 1, 1983, and April 30, 1985, who elected to convert to PASS, was converted, as if the loan has been on an amortization schedule from the date of the loan, transfer (new terms), or reamortization (new terms), whichever occurred later.</P> <P>(b) <E T="03">Conversion on or after May 1, 1985</E>—(1) <E T="03">Required conversion.</E> After <E T="03">May 1, 1985,</E> all MFH loans, transfers or reamortizations must be closed on PASS, except LH loans specified in § 1951.501(a)(2)(i) of this subpart. All borrowers receiving subsequent loans or reamortizations must convert all initial and subsequent loans on the project to PASS. If the subsequent loan and conversion are not closed on the first of the month, the interest from the date of closing to the first of the month will be capitalized. Recoverable costs and unpaid interest may be capitalized on coversions required by subsequent loans or reamortization of one loan on the project account.</P> <P>(2) <E T="03">Voluntary conversion.</E> District Directors shall approve voluntary conversion of any account from DIAS to PASS upon a request by the borrower, when the following conditions are met:</P> <P>(i) The loan account and reserve account are current less any authorized withdrawals at the time of conversion.</P> <P>(ii) Conversion does not result in a rent increase.</P> <P>(iii) The conversion is effective the first day of the month.</P> <P>(3) <E T="03">Processing conversions.</E> The following actions must be taken to convert an account from DIAS to PASS:</P> <P>(i) Form FmHA or its successor agency under Public Law 103-354 1951-50, “Multiple Family Housing Conversion Agreement,” will be completed according to the FMI except loans converted on Form FmHA or its successor agency under Public Law 103-354 1965-9, “Multiple Family Housing Assumption Agreement,” or FmHA or its successor agency under Public Law 103-354 1965-16, “Multiple Family Housing Reamortization Agreement.” The terms of Forms FmHA or its successor agency under Public Law 103-354 1965-9 and FmHA or its successor agency under Public Law 103-354 1965-16 convert the account to PASS.</P> <P>(ii) When the borrower will continue to receive interest credit following conversion, the current interest credit plan type will be passed through to the PASS loan. However, a new Form FmHA or its successor agency under Public Law 103-354 1944-7 must be prepared to reflect the PASS payment and subsidy amount.</P> <P>(iii) On the back of the original note or assumption agreement (new terms), below all signatures and endorsements, the District Director will insert the following: “A Form FmHA or its successor agency under Public Law 103-354 1951-50 dated <E T="72">___</E> 198<E T="72">_</E>, in the principal sum of $<E T="72">___</E>, has been given to modify the payment schedule of the note.</P> <P>(4) <E T="03">Principal balance to be converted.</E> For transfers and reamortizations, the applicable transfer or reamortization form will convert the account to PASS. The principal balance converted to <PRTPAGE P="81"/>PASS will be established according to the FMI for Forms FmHA or its successor agency under Public Law 103-354 1965-9, FmHA or its successor agency under Public Law 103-354 1965-10, “Information on Assumption of Multiple Family Housing Loans,” or FmHA or its successor agency under Public Law 103-354 1965-16, and the following:</P> <P>(i) For DIAS to PASS transactions (new terms):</P> <P>(A) First of the month closings: The unpaid interest, overage and late fees accrued through the last day of the previous month will be capitalized.</P> <P>(B) Other than the first of the month closing: Accrued interest, overage and late fees through the date of closing will be capitalized. An interest only installment from the date of closing through the 30th day of the month will be collected from the transferee and applied to the transferee's account. This interest only installment will be calculated on the same interest credit rate in effect for the previous borrower.</P> <P>(ii) For DIAS to PASS transactions (same terms):</P> <P>(A) First of the month closings: Accrued interest, overage and late fees through the last day of the previous month will be collected from the transferor at closing and credited to the transferor's account.</P> <P>(B) Other than the first of the month closings: Accrued interest, overage and late fees through the date of closing will be collected from the transferor at closing and credited to the transferor's account. The date of credit is the day before closing. An interest only installment from the date of closing through the 30th day of the month will be collected from the transferee and credited to the transferee's account. This interest only installment will be calculated on the same interest credit rate in effect for the previous borrower.</P> <P>(iii) Reamortizations will always be effective the first day of the month. Unpaid interest, including any unpaid overage and late fees may be capitalized as follows: DIAS to PASS transactions, through the last day of the previous month; PASS to PASS transactions, through the 30th day of the previous month.</P> <P>(iv) Audit receivables may not be transferred or reamortized. They will be established as a “Collection Only” account for the transferor and must be collected or charged off.</P> <P>(5) <E T="03">Terms of conversion.</E> All conversion on Form FmHA or its successor agency under Public Law 103-354 1951-50 will be at the interest rate and within the remaining terms shown on the converting promissory note, assumption agreement (new terms) or reamortization agreement (new terms).</P> <CITA>[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16245, May 6, 1988; 58 FR 40955, July 30, 1993; 62 FR 25065, May 7, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.518</SECTNO> <SUBJECT>Determining current loan balances for transfer.</SUBJECT> <P>Same terms transfers, when the transferor has been converted to PASS, must take place in a current loan status on the date of the transfer. Any delinquent principal and interest must be brought current. Overpayments and advance regular payments made on PASS accounts result in the creation of a “future paid” status account under AMAS. These advance payments must be reversed off and applied to the transferor's principal balance prior to determining the loan balance to be transferred. If the future payments have been made through rental assistance, they must be refunded to the transferor and reapplied in the form of cash on the loan balance.</P> <CITA>[53 FR 16245, May 6, 1988]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.519-1951.547</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.548</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <P>The Administrator of the Farmers Home Administration or its successor agency under Public Law 103-354 may, in individual cases, make an exception to any requirements of this Subpart not required by the authorizing statute if the Administrator finds that application of such requirement would adversely affect the interest of the Government. The Administrator will exercise the authority only at the request of the State Director. The District Director will submit the request supported by data: demonstrating the adverse impact; identifying the particular requirement involved; showing proper alternative courses of action; and, identifying how the adverse impact will be eliminated.</P> </SECTION> <SECTION> <PRTPAGE P="82"/> <SECTNO>§ 1951.549</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.550</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0106. Public reporting burden for this collection of information is estimated to be 15 minutes per response, with an average of 15 minutes per response including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Agriculture, Clearance Office, OIRM, Room 404-W, Washington, DC 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB #0575-0106), Washington, DC 20503.</P> <CITA>[56 FR 28039, June 19, 1991]</CITA> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart L—Servicing Cases Where Unauthorized Loan or Other Financial Assistence was Received—Farmer Programs</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>50 FR 45777, Nov. 1, 1985, unless otherwised noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.551</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>This subpart prescribes the policies and procedures for servicing insured Operating (OL), Farm Ownership (FO), Soil and Water (SW), Recreation (RL), Emergency (EM), Economic Emergency (EE), Special Livestock (SL), Softwood Timber (ST), Economic Opportunity (EO) loans, and Rural Housing loans for farm service buildings (RHF) (referred to as farmer program (FP) loans), when it is determined that the borrower was not eligible for all or part of the financial assistance received in the form of a loan or subsidy granted. It does not apply to guaranteed loans.</P> <CITA>[52 FR 26138, July 13, 1987]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.552</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this subpart, the following definitions apply:</P> <P>(a) <E T="03">Active borrower.</E> A borrower who has an outstanding account in the records of the Finance Office, including collection-only or an unsatisfied account balance where a voluntary conveyance was accepted without borrower being released from liability or where liquidation did not satisfy the indebtedness.</P> <P>(b) <E T="03">Assistance.</E> Financial assistance in the form of a loan or interest subsidy received.</P> <P>(c) <E T="03">Debt instrument.</E> Used as a collective term to include promissory note or assumption agreement.</P> <P>(d) <E T="03">False information.</E> Information, known to be incorrect, provided with the intent to obtain benefits which would not have been obtainable based on correction information.</P> <P>(e) <E T="03">Inaccurate information.</E> Incorrect information provided inadvertently without intent to obtain benefits fraudulently.</P> <P>(f) <E T="03">Inactive borrower.</E> A former active borrower whose loan(s) has(have) been paid in full or assumed by another party(ies), and who does not have an outstanding account in the records of the Finance Office.</P> <P>(g) <E T="03">Unauthorized Assistance.</E> Any loan, primary loan servicing action, including Net Recovery Buyout, or interest subsidy received for which there was no authorization, for which the borrower was not eligible, or which was obligated from the wrong appropriation or fund. An unauthorized interest subsidy is a benefit received through a loan that was made at a lower interest rate than that to which the borrower was entitled, whether the incorrect interest rate was selected erroneously by the approval official, or the documents were prepared in error.</P> <CITA>[50 FR 45777, Nov. 1, 1985, as amended at 56 FR 33862, July 24, 1991]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.553</SECTNO> <SUBJECT>Policy.</SUBJECT> <P>When it is determined that unauthorized assistance has been received, an effort must be made to collect from the borrower the sum which is determined to be unauthorized, regardless of amount, unless any applicable Statute of Limitations has expired.</P> </SECTION> <SECTION> <PRTPAGE P="83"/> <SECTNO>§§ 1951.554-1951.555</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.556</SECTNO> <SUBJECT>Initial determination that unauthorized assistance was received.</SUBJECT> <P>Unauthorized assistance may be identified through audits conducted by the Office of the Inspector General (OIG), USDA; through reviews made by Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) personnel; or through other means such as information provided by a private citizen which documents that unauthorized assistance has been received by a borrower. If FmHA or its successor agency under Public Law 103-354 has reason to believe unauthorized assistance was received, but is unable to determine whether or not the assistance was in fact unauthorized, the case will be referred to the Office of the General Counsel (OGC) or the National Office, as appropriate, for review and advice. In every case where it is known or believed by FmHA or its successor agency under Public Law 103-354 that the assistance was based on false information, investigation by the OIG will be requested, as provided for in FmHA or its successor agency under Public Law 103-354 Instruction 2012-B (available in any FmHA or its successor agency under Public Law 103-354 office). If OIG conducts an investigation, the actions outlined in § 1951.557 of this subpart will be deferred until the OIG investigation is completed and the report is received. The reason(s) for the unauthorized assistance being received by the borrower will be well documented in the case file, and will specifically state whether it was due to:</P> <P>(a) Submission of inaccurate information by the borrower;</P> <P>(b) Submission of false information by the borrower;</P> <P>(c) Submission of inaccurate or false information by another party on the borrower's behalf such as a seller, developer, real estate broker, or attorney, when the borrower did not know the other party had submitted inaccurate or false information;</P> <P>(d) Error by FmHA or its successor agency under Public Law 103-354 personnel, either in making computations or failure to follow published regulations or other agency issuances; or</P> <P>(e) Error in preparation of a debt instrument which caused a loan to be closed at an interest rate lower than the correct rate in effect when the loan was approved.</P> </SECTION> <SECTION> <SECTNO>§ 1951.557</SECTNO> <SUBJECT>Notification to borrower.</SUBJECT> <P>(a) Collection efforts will be initiated by the County Supervisor by a letter substantially similar to Exhibit A of this Subpart (available in any FmHA or its successor agency under Public Law 103-354 office), and mailed to the borrower by “Certified Mail, Return Receipt Requested,” with a copy to the State Director; and, for a case identified in an OIG audit report, copies to the OIG office which conducted the audit and the Planning and Analysis Staff of the National Office. This letter will be sent to all borrowers who received unauthorized assistance, regardless of amount. The letter will:</P> <P>(1) Specify in detail the reason(s) the assistance was determined to be unauthorized;</P> <P>(2) State the amount of unauthorized assistance to be repaid according to Exhibit D of this Subpart (available in any FmHA or its successor agency under Public Law 103-354 office); and</P> <P>(3) Establish an appointment for the borrower to discuss with the County Supervisor the basis for FmHA or its successor agency under Public Law 103-354's claim; and give the borrower an opportunity to provide facts, figures, written records or other information which might refute FmHA or its successor agency under Public Law 103-354's determination that the assistance received was unauthorized.</P> <P>(b) If the borrower meets with the County Supervisor, the County Supervisor will outline to the borrower why the assistance was determined to be unauthorized. The borrower will be given an opportunity to provide information to refute FmHA or its successor agency under Public Law 103-354's findings. When requested by the borrower, the County Supervisor may grant additional time for the borrower to assemble documentation. When an extension is granted, the County Supervisor will specify a definite number of days to be allowed and establish the <PRTPAGE P="84"/>follow up necessary to assure that servicing of the case continues without undue delay.</P> </SECTION> <SECTION> <SECTNO>§ 1951.558</SECTNO> <SUBJECT>Decision on servicing actions.</SUBJECT> <P>When the County Supervisor is the same official who approved the unauthorized assistance, the District Director must review the case before further actions are taken by the County Supervisor.</P> <P>(a) <E T="03">Payment in full.</E> If the borrower agrees with FmHA or its successor agency under Public Law 103-354's determination and agrees to repay in a lump sum, the County Supervisor may allow a reasonable period of time (not to exceed 90 days) for the borrower to arrange for repayment. The amount due will be the amount stated in the letter as shown in Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office). The County Supervisor will remit collections to the Finance Office according to the Forms Manual Insert (FMI) for Form FmHA or its successor agency under Public Law 103-354 451-2, “Schedule of Remittances,” for application to the borrower's account as an extra payment. After a borrower repays an unauthorized interest subsidy benefit in a lump sum, the loan will be serviced in accordance with § 1951.561(a)(3) of this subpart. In the case of unauthorized assistance which was identified in an OIG audit, the County Supervisor will report the repayment as outlined in § 1951.568(a) of this subpart.</P> <P>(b) <E T="03">Continuation with borrower.</E> If the borrower agrees with FmHA or its successor agency under Public Law 103--354's determination or is willing to repay but cannot repay the unauthorized assistance in a lump sum within a reasonable period of time, continuation may be authorized. Servicing actions outlined in § 1951.561 of this subpart will be taken, provided all of the following conditions are met:</P> <P>(1) The borrower did not provide false information as defined in § 1951.552(d) of this subpart.</P> <P>(2) It would be highly inequitable to require prompt repayment of the unauthorized assistance; and</P> <P>(3) Failure to collect the unauthorized assistance in full will not adversely affect FmHA or its successor agency under Public Law 103-354's financial interests.</P> <P>(c) <E T="03">Liquidation of loan(s) or legal action to enforce collection.</E> When a case cannot be handled according to the provisions of paragraph (a) or (b) of this section, or if the borrower refuses to execute the documents necessary to make account adjustments or establish an obligation to repay the unauthorized assistance as provided in § 1951.561 of this subpart, or when a borrower fails to respond to the initial letter prescribed in § 1951.557 of this subpart within 30 days, one of the following actions will be taken:</P> <P>(1) <E T="03">Active borrower with a secured loan.</E> (i) The County Supervisor will send Exhibit B of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office.)</P> <P>(ii) If the borrower wants to voluntarily convey, the County Supervisor will follow the directions in § 1955.10 or § 1955.20 as applicable, of subpart A of part 1955 of this chapter.</P> <P>(iii) If the borrower does not appeal, does not repay the unauthorized assistance in full, does not voluntarily convey, voluntarily sell or refinance the entire FmHA or its successor agency under Public Law 103-354 debt, the borrower's account will be accelerated and there will be no appeal of this action. The County Supervisor and District Director will follow the directions in § 1955.15 of subpart A of part 1955 of this chapter.</P> <P>(iv) Forced liquidation will not be pursued when:</P> <P>(A) The amount of unauthorized assistance outstanding, including principal, accrued interest, and recoverable costs charged to the account, is less that $1,000; or</P> <P>(B) It can be clearly documented that it would not be in the best financial interest of the Government to force liquidation. If the servicing official wishes to make an exception to forced liquidation under paragraph (c)(1)(B) of this section, a request for an exception under § 1951.569 of this subpart will be made.</P> <P>(v) Account adjustments will be made by FmHA or its successor agency under <PRTPAGE P="85"/>Public Law 103-354 without the signature of the borrower according to § 1951.568(a)(5) of this subpart. In these cases, the borrower will be notified by letter of the actions taken with a copy of Forms FmHA or its successor agency under Public Law 103-354 1951-12, “Correction of Loan Account,” or 1951-13, “Change in Interest Rate,” as applicable, enclosed to reflect the adjustments.</P> <P>(2) <E T="03">(Inactive borrower or active borrower with unsecured loan such as collection-only or unsatisfied balance after liquidation).</E> The County Supervisor will document the facts in the case and submit it to the State Director who will request the advice of OGC on pursuing legal action to effect collection. The State Director will tell OGC what assets, if any, are available from which to collect.</P> <CITA>[50 FR 45777, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.559-1951.560</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.561</SECTNO> <SUBJECT>Servicing options in lieu of liquidation or legal action.</SUBJECT> <P>When all of the conditions outlined in § 1951.558(b) of this subpart are met, servicing options outlined in this section will be considered; and accounts will be serviced according to this section and § 1951.568 of this subpart.</P> <P>(a) <E T="03">Active borrower—</E>(1) <E T="03">Entire loan, or loan servicing unauthorized.</E> When the entire loan, or all or a portion of primary loan servicing, is determined to be unauthorized because the borrower was not eligible, or because the loan or primary loan servicing was approved for unauthorized purposes, the following alternatives will be considered in the order listed:</P> <P>(i) Execution of Form FmHA or its successor agency under Public Law 103-354 1965-11, “Accelerated Repayment Agreement,” according to § 1965.26(e) of subpart A of part 1965 of this chapter, for loans secured by real estate, or rescheduling according to Subpart A of this part, for loans not secured by real estate, based on the borrower's repayment ability.</P> <P>(ii) Refinancing with another type of FmHA or its successor agency under Public Law 103-354 loan to repay the unauthorized loan, if the borrower is eligible for the type loan being considered.</P> <P>(iii) When the case cannot be handled according to paragraph (a)(1)(i) or (a)(1)(ii) of this section, continuance with the loan on the existing terms may be approved, and the loan will, thereafter, be serviced as an authorized loan.</P> <P>(2) <E T="03">Portion of loan unauthorized.</E> When a portion of a loan is determined to be unauthorized, the Finance Office will be instructed to separate the authorized and unauthorized portions of the loan, setting up each as a separate loan at the correct interest rate. The correct interest rate will be taken from Exhibit C of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) as of the date of loan approval. All payments made on the loan being corrected will be reversed and reapplied to the unauthorized portion. If after reapplication of payments the unauthorized portion is not paid in full, the options outlined in paragraph (a) of this section may be considered for repayment of the balance of the unauthorized portion; and the authorized portion will be serviced as an outlined loan. See § 1951.568 of this subpart for instructions on setting up separate accounts.</P> <P>(3) <E T="03">Unauthorized interest subsidy benefits received.</E> When the borrower was eligible for the loan, but should properly have been charged a higher interest rate than that shown in the debt instrument on all or a portion of the loan, resulting in the receipt of unauthorized interest subsidy benefits, the case will be handled as outlined below. The unauthorized interest rate will be corrected to the interest rate in effect on the date the original loan was approved as outlined in paragraph (a)(3)(iii) of this section.</P> <P>(i) When a subsidized interest rate was incorrectly charged on the entire loan, all payments made will be reversed and reapplied at the correct interest rate; and future installments will be scheduled at the correct interest rate. After reapplication of payments, the loan will be treated as an authorized loan.</P> <P>(ii) When a subsidized interest rate was incorrectly charged on only a portion of the loan, the Finance Office will <PRTPAGE P="86"/>be instructed by the County Supervisor to separate the loan into two portions, with the correct interest rate established for the portion having the incorrect subsidized interest rate. All payments made on the loan being adjusted will be reversed and reapplied, first to the portion with the corrected interest rate. After reapplication of payments at the correct interest rate, both portions will be serviced as authorized loans.</P> <P>(iii) Incorrect interest rates will be corrected as follows referring to Exhibit C of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) for interest rates in effect on specific dates:</P> <P>(A) For disaster Emergency (EM) loans, to the rate for EM annual production loans.</P> <P>(B) For Operating Loans—Limited Resource (OL-LR), to the rate for regular Operating Loans (OL).</P> <P>(C) For Farm Ownership—Limited Resource (FO-LR), to the rate for regular Farm Ownership (FO).</P> <P>(D) For all other types of FP loans, to the correct rate for the type loan involved which was in effect when the loan was approved.</P> <P>(b) <E T="03">Inactive borrower.</E> When the individual or entity does not have an outstanding account in the records of the Finance Office, the following actions will be taken:</P> <P>(1) Have the inactive borrower execute a promissory note in the amount of the assistance determined to be unauthorized according to § 1951.557 of this subpart. This note will bear interest at the rate which was in effect for the type loan associated with the unauthorized assistance when it was approved. The term will not exceed 10 years or the term of the original loan, whichever is the shorter term.</P> <P>(2) Take the best lien obtainable on any collateral having equity value to secure the note.</P> <CITA>[50 FR 45777, Nov. 1, 1985, as amended at 51 FR 4138, Feb. 3, 1986; 56 FR 33862, July 24, 1991]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.562-1951.567</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.568</SECTNO> <SUBJECT>Account adjustments and reporting requirements.</SUBJECT> <P>When a final determination has been made that unauthorized assistance has been granted, the Finance Office will be notified of necessary account adjustments as outlined in this section, depending upon whether the case of unauthorized assistance was identified by OIG in an audit report or by another means. The Finance Office will service the accounts as prescribed in this section.</P> <P>(a) <E T="03">Audit cases.</E> Only cases of unauthorized assistance identified by OIG will be reported to the Finance Office by submission on Form FmHA or its successor agency under Public Law 103-354 1951-12 completed in accordance with the FMI. The Finance Office will flag the account for monitoring and reporting as required. Each payment reversed will be reapplied as of the original date of credit. “Loan” refers to an account with an active borrower unless specified as “inactive.” If the borrower has arranged to repay in a lump sum, the payment will be remitted with Form FmHA or its successor agency under Public Law 103-354 451-2, according to the FMI. Form FmHA or its successor agency under Public Law 103-354 1951-12 will reflect the amount and the Schedule Number.</P> <P>(1) <E T="03">Entire loan unauthorized.</E> When the entire loan is unauthorized because the borrower was not eligible or because the loan was approved for unauthorized purposes, and continuation is authorized, the Finance Office will be advised as follows:</P> <P>(i) <E T="03">Accelerated repayment agreement or loan rescheduled.</E> If the borrower has executed Form FmHA or its successor agency under Public Law 103-354 1965-11 for loans secured by real estate; or has executed Form FmHA or its successor agency under Public Law 103-354 1951-4 for loans not secured by real estate, the form(s) will be prepared and distributed according to the FMIs, attaching the original form(s) to Form FmHA or its successor agency under Public Law 103-354 1951-12.<PRTPAGE P="87"/> </P> <P>(ii) <E T="03">Continuation with loan on existing terms.</E> When it is determined that all the conditions outlined in § 1951.558(b) of this subpart are met and continuation with the loan on the existing terms is approved, the servicing official will submit Form FmHA or its successor agency under Public Law 103-354 1951-12 to the Finance Office to reflect this.</P> <P>(2) <E T="03">Portion of loan unauthorized.</E> When a loan is to be separated into authorized and unauthorized portions, the authorized portion will retain the original loan number, and the original principal amount will be reduced by the unauthorized amount. A new loan in the unauthorized amount will be established as the unauthorized loan with the next available number assigned by the Finance Office. Payments made on the loan being adjusted will be reversed and reapplied first to the unauthorized loan. If the reapplication of payments does not pay the unauthorized loan in full, upon receipt of Forms FmHA or its successor agency under Public Law 103-354 451-26, “Transaction Record,” showing the balances of the authorized and unauthorized loans, the servicing official will proceed under the provisions of § 1951.561(a)(2) and will submit a revised Form FmHA or its successor agency under Public Law 103-354 1951-12 (along with a copy of the original Form FmHA or its successor agency under Public Law 103-354 1951-12).</P> <P>(3) <E T="03">Unauthorized subsidy benefits received.</E> (i) <E T="03">Entire loan.</E> When the interest rate on an entire loan is changed, Form FmHA or its successor agency under Public Law 103-354 1951-12 will be submitted to notify the Finance Office of the correct interest rate to be charged from the original loan closing date. Payments made will be reversed and reapplied at the corrected interest rate, after which the unauthorized subsidy benefits will be reported to OIG as resolved. The loan will then be treated as an authorized loan.</P> <P>(ii) <E T="03">Portion of loan.</E> When the interest rate on only a portion of a loan must be changed, the portion which has the incorrect interest rate will be established as a new loan at the correct interest rate shown on Form FmHA or its successor agency under Public Law 103-354 1951-12. Payments made on the loan being adjusted will be reversed and reapplied first to the loan with the corrected interest rate. Both loans will then be treated as authorized loans.</P> <P>(4) <E T="03">Liquidation pending.</E> When liquidation is initiated under the provisions of this subpart, Form FmHA or its successor agency under Public Law 103-354 1951-12 will be submitted to advise the Finance Office to establish the unauthorized assistance account. This account will be flagged “FAP” (Foreclosure Action Pending) or “CAP” (Court Action Pending), as applicable.</P> <P>(5) <E T="03">Liquidation not initiated.</E> Cases in which liquidation would normally be initiated, but where it is not because of the provisions of § 1951.558 (c)(1)(iv)(A) or (c)(1)(iv)(B) of this subpart, will be adjusted according to § 1951.561 (a)(2) or (a)(3) of this subpart and this section, and the adjustments will be reflected on Form FmHA or its successor agency under Public Law 103-354 1951-12. In this instance <E T="03">only,</E> account adjustments will be made even though the borrower does not sign Form FmHA or its successor agency under Public Law 103-354 1951-12 and any related documents.</P> <P>(6) <E T="03">Establishment of account of inactive borrower.</E> (i) When an inactive borrower agrees to repay unauthorized assistance and executes documents to evidence such an obligation, Form FmHA or its successor agency under Public Law 103-354 1951-12 will reflect this, and the Finance Office will establish or the account according to the terms indicated on Form FmHA or its successor agency under Public Law 103-354 1951-12.</P> <P>(ii) When a judgment is obtained against such a borrower, Form FmHA or its successor agency under Public Law 103-354 1962-20, “Notice of Judgment,” will be prepared and distributed in accordance with the FMI to establish a judgment account. The FmHA or its successor agency under Public Law 103-354 field office will process the judgment or the third party judgment via the FmHA or its successor agency under Public Law 103-354 field office terminal system.<PRTPAGE P="88"/> </P> <P>(7) <E T="03">Payments on authorized and unauthorized loans concurrently.</E> When a borrower has both authorized and unauthorized loans outstanding, installments may be scheduled to be paid concurrently on all loans. Payments may be adjusted by means of rescheduling or reamortizing to coincide with the borrower's repayment ability according to servicing regulations for the type loan involved. The County Supervisor will complete Form FmHA or its successor agency under Public Law 103-354 451-2 so that payments received will be applied first to the unauthorized loan account to maintain it current, with the remainder of the payment applied to the other loan(s).</P> <P>(8) <E T="03">Reporting.</E> At prescribed intervals, the Finance Office will report to the OIG on the status of cases involving unauthorized assistance which were identified by OIG in audit reports. For reporting purposes, the following applies:</P> <P>(i) For an unauthorized loan account established as provided in paragraph (a) (1), (2), or (6) of this section, reporting will be as follows:</P> <P>(A) When unauthorized assistance is paid in full, it will be reported on the next scheduled report <E T="03">only,</E> giving the amount collected.</P> <P>(B) When unauthorized assistance is to be repaid under an accelerated repayment agreement, the unpaid balance will be reported initially and the collections and status will be included on each scheduled report until the account is paid in full.</P> <P>(C) When continuation with the loan on existing terms is approved, or after a loan is rescheduled or reamortized, it will be reported as resolved on the next scheduled report, and no further reporting is required.</P> <P>(ii) For unauthorized subsidy cases as provided in paragraph (a)(3) of this section, when the unauthorized amount has been repaid, or payments have been reversed and reapplied at the correct interest rate, the unauthorized subsidy will be reported as resolved on the next scheduled report. No further reporting is required.</P> <P>(iii) When an account is established with liquidation action pending as provided in paragraph (a)(4) of this section, the status will be included on each scheduled report until the liquidation is completed or the account is otherwise paid in full.</P> <P>(iv) When liquidation is not initiated as provided in paragraph (a)(5) of this section, it will be reported on the next scheduled report (along with collections, if any). No further reporting is required.</P> <P>(b) <E T="03">Nonaudit cases.</E> Basically, servicing options which may be used are the same for audit and nonaudit cases; however, when receipt of unauthorized assistance is identified by a means other than an OIG audit report, the Finance Office will be notified only if adjustments to an account or reinstatement of an inactive account are necessary. Once adjustments are made as provided in this paragraph, the loan(s) will be treated as an authorized loan(s). Each payment reversed will be reapplied as of the original date of credit. After payments are reversed and reapplied, the servicing official will receive Forms FmHA or its successor agency under Public Law 103-354 451-26 from the Finance Office reflecting the account status.</P> <P>(1) Account adjustments will be handled as follows:</P> <P>(i) When a change in interest rate is necessary, retroactive to the date of loan closing on all or a portion of a loan, Form FmHA or its successor agency under Public Law 103-354 1951-13 will be completed according to the FMI and submitted to the Finance Office. Payments will be reversed and reapplied accordingly.</P> <P>(ii) For accounts to be rescheduled or reamortized, Forms FmHA or its successor agency under Public Law 103-354 1951-4, or 1965-11, as applicable, will be prepared and submitted in accordance with the respective FMI.</P> <P>(iii) When an inactive borrower agrees to repay unauthorized assistance and executes documents to evidence such an obligation, the County Supervisor will notify the Finance Office by memorandum, attaching a copy of the promissory note. The Finance Office will establish or reinstate the account according to the terms of the promissory note.</P> <P>(iv) If a loan is paid in full, the remittance will be handled in the same manner as any other final payment.<PRTPAGE P="89"/> </P> <P>(2) A delinquency created through reversal and reapplication of payments to effect corrections outlined in paragraph (b)(1) of this section will be serviced according to the applicable servicing regulations for the type loan involved.</P> <CITA>[50 FR 45777, Nov. 1, 1985, as amended at 55 FR 35295, Aug. 29, 1990]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.569</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <P>The Administrator may in individual cases make an exception to any requirement or provision of this subpart which is not inconsistent with the authorizing statute or other applicable law if the Administrator determines that application of the requirement or provision would adversely effect the Government's interest. The Administrator will exercise this authority only at the request of the State Director and on the recommendation of the appropriate Program Assistant Administrator. Requests for exceptions must be made in writing by the State Director and supported with documentation to explain the adverse effect on the Government's interest, propose alternative courses of action, and show how the adverse effect will be eliminated or minimized if the exception is granted.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.570-1951.599</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.600</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0102.</P> </SECTION> </SUBPART> <SUBPART> <RESERVED>Subpart M [Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart N—Servicing Cases Where Unauthorized Loan or Other Financial Assistance Was Received—Multiple Family Housing</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>50 FR 12996, Apr. 2, 1985, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.651</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>This subpart prescribes the policies and procedures for servicing multiple family housing (MFH) loans and/or grants made by Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) when it is determined that the borrower or grantee was not eligible for all or part of the financial assistance received in the form of a loan, grant, subsidy granted, any other direct financial assistance, or was not made subject to restrictive-use provisions required by law and/or regulation. As used in this subpart, MFH loans and grants are section 515 rural rental housing (RRH) and rural cooperative housing (RCH) loans and sections 514 and 516 labor housing (LH) loans and grants.</P> <CITA>[58 FR 38926, July 21, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.652</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this subpart, the following definitions apply:</P> <P>(a) <E T="03">Active borrower.</E> A borrower who has an outstanding account in the records of the Finance Office, including collection-only or an unsatisfied account balance where a voluntary conveyance was accepted without release from liability or foreclosure did not satisfy the indebtedness.</P> <P>(b) <E T="03">Assistance.</E> Financial assistance in the form of a loan, grant, or subsidy received.</P> <P>(c) <E T="03">Debt instrument.</E> Used as a collective term to include promissory note, assumption agreement, grant agreement/resolution, or bond.</P> <P>(d) <E T="03">False information.</E> Information, known to be incorrect, provided with the intent to obtain benefits which would not have been obtainable based on correct information.</P> <P>(e) <E T="03">Inaccurate information.</E> Incorrect information provided inadvertently without intent to obtain benefits fraudulently.</P> <P>(f) <E T="03">Inactive borrower.</E> A former borrower whose loan(s) has(have) been paid in full or assumed by another party(ies) and who does not have an outstanding account in the records of the Finance Office.</P> <P>(g) <E T="03">Recipient.</E> “Recipient” refers to an individual or entity that received a loan, or portion of a loan, an interest subsidy, or a grant which was unauthorized or was not made subject to restrictive-use provisions required by law and/or regulation.<PRTPAGE P="90"/> </P> <P>(h) <E T="03">Unauthorized assistance.</E> Any loan, interest subsidy, or grant, or any portion thereof, received by a borrower or grantee for which there was no regulatory authorization, or for which the recipient was not eligible.</P> <FP>Interest subsidy includes interest credits, rental assistance, and subsidy benefits received because a loan was made at a lower interest rate than that to which the recipient was entitled, whether the incorrect interest rate was selected erroneously by the approval official, or the documents were prepared in error.</FP> <CITA>[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.653</SECTNO> <SUBJECT>Policy.</SUBJECT> <P>When unauthorized assistance has been received, an effort must be made to collect the sum which is determined to be unauthorized from the recipient, regardless of amount, unless any applicable statute of limitations has expired.</P> <CITA>[58 FR 38926, July 21, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.654</SECTNO> <SUBJECT>Categories of unauthorized assistance.</SUBJECT> <P>Unauthorized assistance includes, but is not limited to, these categories:</P> <P>(a) The recipient was not eligible for the assistance.</P> <P>(b) The property, as approved, does not qualify for the program. For example: An RRH or LH project which clearly is above modest in size, design and/or cost or was not located in an area designated as rural when the initial loan was made.</P> <P>(c) The loan or grant was made for unauthorized purposes. For example: Purchase of an excessive amount of land.</P> <P>(d) The recipient was granted unauthorized subsidy in the form of:</P> <P>(1) Interest credits (IC) on an RRH loan;</P> <P>(2) Rental Assistance (RA) in connection with an RRH or LH loan; or</P> <P>(3) A subsidy benefit received through use of an incorrect interest rate.</P> <P>(e) The recipient was not subjected to obligations required by the assistance, such as restrictive-use provisions, at the time the assistance was provided.</P> <CITA>[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.655</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.656</SECTNO> <SUBJECT>Initial determination that unauthorized assistance was received.</SUBJECT> <P>Unauthorized assistance may be identified through audits conducted by the Office of the Inspector General, USDA, (OIG); through reviews made by FmHA or its successor agency under Public Law 103-354 personnel; or through other means such as information provided by a private citizen which documents that unauthorized assistance has been received by a recipient of FmHA or its successor agency under Public Law 103-354 assistance. If FmHA or its successor agency under Public Law 103-354 has reason to believe unauthorized assistance was received, but is unable to determine whether or not the assistance was in fact unauthorized, the case will be referred to the Regional Office of the General Counsel (OGC) or the National Office, as appropriate, for review and advice. In every case where it is known or believed by FmHA or its successor agency under Public Law 103-354 that the assistance was based on false information, investigation by the Office of the Inspector General (OIG) will be requested as provided for in FmHA or its successor agency under Public Law 103-354 Instruction 2012-B (available in any FmHA or its successor agency under Public Law 103-354 office). If OIG conducts an investigation, the actions outlined in § 1951.657 of this subpart will be deferred until the OIG investigation is completed and the report is received. The reason(s) for the unauthorized assistance being received by the recipient will be well documented in the case file, and will specifically state whether it was due to:</P> <P>(a) Submission of inaccurate information by the recipient;</P> <P>(b) Submission of false information by the recipient;</P> <P>(c) Submission of inaccurate or false information by another party on the recipient's behalf such as a loan packager, developer, real estate broker, or <PRTPAGE P="91"/>professional consultants such as engineers, architects, management agents and attorneys, when the recipient did not know the other party had submitted inaccurate or false information;</P> <P>(d) Error by FmHA or its successor agency under Public Law 103-354 personnel, either in making computations or failure to follow published regulations or other agency issuances; or</P> <P>(e) Error in preparation of a debt instrument which caused a loan to be closed at an interest rate lower than the correct rate in effect when the loan was approved or which was caused by omission from the instrument of language required by applicable regulation.</P> <CITA>[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.657</SECTNO> <SUBJECT>Notification to recipient.</SUBJECT> <P>(a) Collection efforts will be initiated by the District Director by a letter substantially similar to exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), and mailed by the servicing official to the recipient by “Certified Mail, Return Receipt Requested,” with a copy to the State Director and, for a case identified in an OIG audit report, a copy to the OIG office which conducted the audit and the Planning and Analysis Staff of the National Office. This letter will be sent to all recipients who received unauthorized assistance, regardless of amount. The letter will:</P> <P>(1) Specify in detail the reason(s) the assistance was determined to be unauthorized;</P> <P>(2) State the amount of unauthorized assistance to be repaid according to exhibit C of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office); and</P> <P>(3) Establish an appointment for the recipient to discuss with the District Director the basis for FmHA or its successor agency under Public Law 103-354's claim; and give the recipient an opportunity to provide facts, figures, written records or other information which might alter FmHA or its successor agency under Public Law 103-354's determination that the assistance received was unauthorized.</P> <P>(b) If the recipient meets with the District Director, the District Director will outline to the recipient why the assistance was determined to be unauthorized. The recipient will be given an opportunity to provide information to refute FmHA or its successor agency under Public Law 103-354's findings. When requested by the recipient, the District Director may grant additional time for the recipient to assemble documentation. When an extension is granted, the District Director will specify a definite number of days to be allowed and establish the followup necessary to assure that servicing of the case continues without undue delay.</P> </SECTION> <SECTION> <SECTNO>§ 1951.658</SECTNO> <SUBJECT>Decision on servicing actions.</SUBJECT> <P>When the District Director is the same individual who approved the unauthorized assistance, the State Director must review the case before further actions are taken by the District Director.</P> <P>(a) <E T="03">Payment in full.</E> If the recipient agrees with FmHA or its successor agency under Public Law 103-354's determination or will pay in a lump sum, the District Director may allow a reasonable period of time (usually not to exceed 90 days) for the recipient to arrange for repayment. The amount due will be the amount stated in the letter as shown in exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office). The requirements of subpart E of part 1965 will be followed with appropriate modifications for prepayments under this subpart. If the loan was subject to restrictive-use provisions prior to the request for payment in full, the project will remain subject to restrictive-use provisions. Wherever feasible, appropriate, or necessary to protect tenants and the low- and moderate-income population of the community, all attempts to encourage the borrower to sell the project to an acceptable transferee will be made before the prepayment is accepted. All tenant notifications and restrictive-use provisions, when applicable, must be followed when prepayment of all debt on an MFH project is demanded. The District Director will remit collections as follows:<PRTPAGE P="92"/> </P> <P>(1) In the case of the loan, for application to the borrower's account as an extra payment.</P> <P>(2) In the case of a grant, as a “Miscellaneous Collection for Application to the General Fund.”</P> <P>(3) In the case of a loan or grant which was identified in an OIG audit, the District Director will report the repayment as outlined in § 1951.668 (a)(1)((i), (a)(3), or (a)(6) as applicable.</P> <P>(4) In the case of RA, the repayment will be handled as outlined in § 1951.661 (a)(3) and exhibit E to FmHA or its successor agency under Public Law 103-354 Instruction 1930-C.</P> <P>(b) <E T="03">Continuation with recipient.</E> If the recipient agrees with FmHA or its successor agency under Public Law 103-354's determination or is willing to pay the amount in question but cannot repay the unauthorized assistance within a reasonable period of time, continuation is authorized and servicing actions outlined in § 1951.668 will be taken provided all of the following conditions are met:</P> <P>(1) The recipient did not provide false information as defined in § 1951.652 (d);</P> <P>(2) It would be highly inequitable to require prompt repayment of the unauthorized assistance; and</P> <P>(3) Failure to collect the unauthorized assistance in full will not adversely affect FmHA or its successor agency under Public Law 103-354's financial interests.</P> <P>(c) <E T="03">Notice of determination when agreement is not reached.</E> If the recipient does not agree with FmHA or its successor agency under Public Law 103-354's determination, or if the recipient fails to respond to the initial letter prescribed in § 1951.657 within 30 days, the District Director will notify the recipient by letter substantially similar to exhibit B of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) (sent by Certified Mail, Return Receipt Requested), with a copy to the State Director, and for a case identified in an OIG audit report, a copy to the OIG office which conducted the audit and the Planning and Analysis Staff of the National Office. This letter will include:</P> <P>(1) The amount of assistance finally determined by FmHA or its successor agency under Public Law 103-354 to be unauthorized;</P> <P>(2) A statement of further actions to be taken by FmHA or its successor agency under Public Law 103-354 as outlined in paragraph (e)(1) or (e)(2) of this section; and</P> <P>(3) The appeal rights as prescribed in exhibit B of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(d) <E T="03">Appeals.</E> Appeals resulting from the letter prescribed in paragraph (c) of this section will be handled according to subpart B of part 1900 of this chapter. All appeal provisions will be concluded before proceeding with further actions. If the recipient does not prevail in an appeal, or when an appeal is not made during the time allowed, the District Director will proceed with the actions outlined in paragraph (e) of this section, as applicable. If during the course of appeal the appellant decides to agree with FmHA or its successor agency under Public Law 103-354's findings or is willing to repay the unauthorized assistance, the District Director will proceed with the actions outlined in paragraph (a) or (b) of this section.</P> <P>(e) <E T="03">Liquidation of loan(s) or legal action to enforce collection.</E> If the recipient is unwilling or unable to arrange for repayment as provided in paragraph (a) of this section or continuation is not feasible as provided in paragraph (b) of this section, one of the following actions, as appropriate, will be taken:</P> <P>(1) <E T="03">Active borrower with a secured loan.</E> (i) The District Director will attempt to have the recipient liquidate voluntarily. If the recipient agrees to liquidate voluntarily, this will be documented by an entry in the running record of the case file. Where real property is involved, a letter will be prepared by the District Director and signed by the recipient agreeing to voluntary liquidation. For organizations, a resolution of the governing body may be necessary in addition to the running record notation. If the recipient does not agree to voluntary liquidation, or agrees but it cannot be accomplished within a reasonable period of time (usually not more than 90 days), forced liquidation action will be initiated in <PRTPAGE P="93"/>accordance with subpart A of 1955 of this chapter unless:</P> <P>(A) The amount of unauthorized assistance outstanding, including principal, accrued interest, and any recoverable costs charged to the account, is less than $1,000; or</P> <P>(B) It can be clearly documented that it would not be in the best financial interest of the Government to force liquidation. If the District Director wishes to make an exception to forced liquidation under paragraph (e)(1)(i)(B) of this section, a request for an exception under § 1951.669 will be made.</P> <P>(ii) When all of the conditions of paragraph (a) or (b) or this section are met, but the recipient does not repay or refuses to execute documents to effect necessary account adjustments according to the provisions of § 1951.661, liquidation action will be initiated as provided in paragraph (e)(1)(i) of this section.</P> <P>(iii) When forced liquidation would be initiated except that the loan is being handled under paragraph (e)(1)(i)(A) or (e)(1)(i)(B) of this section account adjustments will be made by FmHA or its successor agency under Public Law 103-354 without the signature of the recipient according to § 1951.668(a)(5). In these cases, the recipient will be notified by letter of the actions taken with a copy of Form FmHA or its successor agency under Public Law 103-354 1951-12, “Correction of Loan Account,” if applicable.</P> <P>(2) <E T="03">Grantee, inactive borrower, or active borrower with unsecured loan (such as collection-only, or unsatisfied balance after liquidation).</E> The District Director will document the facts in the case and submit it to the State Director who will request the advice of OGC on pursuing legal action to effect collection. The State Director will tell OGC what assets, if any, are available from which to collect. The case file, recommendation of State Director and OGC comments will be forwarded to the National Office for review and authorization to implement recommended servicing actions.</P> <CITA>[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.659-1951.660</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.661</SECTNO> <SUBJECT>Servicing options in lieu of liquidation or legal action to collect.</SUBJECT> <P>When all of the conditions outlined in § 1951.658(b) are met, an unauthorized loan or grant will be serviced according to this section and § 1951.668, provided the recipient has the legal and financial capabilities.</P> <P>(a) <E T="03">Active borrower/grantee—</E>(1) <E T="03">Unauthorized loan.</E> (i) <E T="03">Correction of problem.</E> If the problem causing the assistance to be unauthorized can be corrected, corrective action will be required. For example, where a loan was in excess of the authorized amount, the recipient will be required to refund the difference; or where the loan included funds for purchase of excess land, the recipient will be required to sell the excess land and the proceeds will be applied to the account as an extra payment; or where a restrictive-use provision was omitted from a loan document, the provision will be inserted.</P> <P>(ii) <E T="03">Continuation on existing terms.</E> When there is no specific problem which can be corrected, continuation on the existing terms is authorized.</P> <P>(2) <E T="03">Unauthorized subsidy benefits received through use of incorrect interest rate.</E> When the recipient was eligible for the loan but should properly have been charged a higher interest rate than that shown in the debt instrument, resulting in the receipt of unauthorized subsidy benefits, the interest rate must be corrected to that which was in effect when the loan was approved. All payments made will be reversed and reapplied at the correct interest rate and future installments will be scheduled at the correct interest rate. A delinquency which is created will be serviced according to subpart B of part 1965 of this chapter. After reapplication of payments, the loan will be serviced as an authorized loan. Change in interest rate will be accomplished according to § 1951.668. When the recipient is a public body with loans secured by bonds on which interest rate cannot legally be changed or payments reversed or reapplied, continuation on existing terms is authorized.<PRTPAGE P="94"/> </P> <P>(3) <E T="03">Unauthorized interest credits or rental assistance.</E> In cases involving RA and/or IC, the subsidy benefits should be terminated as provided in the Interest Credit and Rental Assistance Agreement. Unauthorized RA will be serviced as a delinquent account according to paragraph X B of exhibit E of subpart C of part 1930 of this chapter.</P> <P>(i) <E T="03">Tenant's failure to properly report changes in income or size of the household to the borrower.</E> In cases where a tenant has received RA and/or IC benefits to which he/she was not entitled because of the tenant's failure to properly report income or changes in household size, the borrower-landlord will provide the tenant with a notice of intent to recoup improperly advanced rental subsidy benefits. Such a notice must inform the tenant of the amount improperly advanced and the lump sum or monthly amount that will be added to the tenant's rent to recoup the improper rental subsidy. The borrower will inform the District Director of the unauthorized benefits and of the agreement made by the tenant to repay. Money collected will be remitted according to the FMI for Form FmHA or its successor agency under Public Law 103-354 1944-9. If the borrower has rental assistance, that portion attributable to RA will be credited to the borrower's RA account. In the event that the tenant does not repay through active collection efforts including legal remedy, the borrower will report the facts to the District Director. The District Director will report to the State Director who will obtain the advice of OGC on further actions.</P> <P>(ii) <E T="03">Tenant knowingly misrepresented income or number of occupants to the borrower.</E> If it appears the tenant has knowingly misrepresented income to the borrower, the District Director will look into the case to determine the facts. If the District Director determines that income or number of occupants was misrepresented, he/she will direct the borrower-landlord to demand and to attempt to recoup improperly received rental subsidy from the tenant. Money collected will be remitted to the Finance Office according to the FMI for Form FmHA or its successor agency under Public Law 103-354 1944-9. If the tenant fails to make restitution, the District Director will refer the case to the State Director who will request the advice of OGC on further actions.</P> <P>(iii) <E T="03">Unauthorized RA and/or IC paid due to borrower's error.</E> Whether unauthorized RA or IC was received by the borrower due to miscalculation or oversight by the borrower or the borrower's management agent, the borrower is required to make restitution to FmHA or its successor agency under Public Law 103-354. This restitution will not be charged to any tenant or to the project as any part of the budget or operating expense. The restitution will be handled as a refund according to the FMI for Form FmHA or its successor agency under Public Law 103-354 1944-49. In the case of a nonprofit or public body borrower, when funds from nonproject sources are not available, the State Director may make an exception and allow project income not required for approved operating budget items to cover the cost of restitution.</P> <P>(iv) <E T="03">Rental assistance assigned to wrong household.</E> When the tenant has correctly reported income and household size, but RA was assigned by the borrower to the household in error, the tenant's RA benefit will be cancelled and reassigned.</P> <P>(A) <E T="03">Notification and cancellation.</E> Before the borrower notifies the tenant, the borrower or management agent will review the case with the District Director. If the District Director verifies that an error was made based on information available at the time the unit was assigned, the tenant will be given 30 days written notice by the borrower or management agent that the unit was assigned in error and that the RA benefit will be cancelled effective on the next monthly rental payment due after the end of the 30-day notice period. The written notice will provide that:</P> <P>(<E T="03">1</E>) The tenant has the right to cancel the lease based on the loss of subsidy benefit to the tenant.</P> <P>(<E T="03">2</E>) The RA granted in error will not be recaptured.</P> <P>(<E T="03">3</E>) The tenant may meet with management to discuss the cancellation and the facts on which the decision was <PRTPAGE P="95"/>based. The borrower must give the tenant appeal rights under subpart L or part 1944 of this chapter.</P> <P>(B) <E T="03">Reassignment of RA.</E> Rental assistance will be reassigned in accordance with paragraph XII of exhibit E to subpart C of part 1930 of this chapter.</P> <P>(v) <E T="03">Rental assistance in excess of contract.</E> When rental assistance is advanced in excess of the RA contract limit, the District Director will send a report of the facts and a recommendation of proposed action through the State Director to the Assistant Administrator, Housing. The Assistant Administrator will determine the disposition of the case and notify the State Director, who will instruct the District Director of the required action.</P> <P>(4) <E T="03">Unauthorized grant assistance.</E> (i) When the recipient will repay unauthorized grant assistance over a period of time, interest will be charged at the rate specified in the grant agreement for default from the date received until paid. Repayment will be scheduled over a period consistent with the recipient's repayment ability but not to exceed 10 years. The District Director must maintain collection records as the Finance Office cannot set upon an account for repayment of a grant. The District Director will attempt to collect the monies due, and all collections will be remitted with Form FmHA or its successor agency under Public Law 103-354 451-2, “Schedule of Remittances,” as a “Miscellaneous Collection for Application to the General Fund.” For cases identified in OIG audits only, the District Director will report quarterly to the State Office according to § 1951.668 (a)(6).</P> <P>(ii) If it is determined the recipient cannot repay unauthorized grant assistance, the assistance may be left outstanding under the terms of the grant agreement. In the case of committed funds not yet disbursed, no further disbursements will be made without prior consent of the Administrator.</P> <P>(5) <E T="03">Cases where recipient has both authorized and unauthorized loans outstanding.</E> When a recipient has both authorized and unauthorized loans outstanding, installments will be scheduled to be paid concurrently on all loans. Each loan will be serviced according to the loan servicing regulations in effect for an authorized loan of its type.</P> <P>(b) <E T="03">Inactive borrower.</E> When a borrower no longer has an outstanding account in the records of the Finance Office, the following actions will be taken:</P> <P>(1) Have the recipient execute a promissory note in the amount of the assistance determined to be unauthorized in the exhibit A (available in any FmHA or its successor agency under Public Law 103-354 office) letter according to § 1951.657. This note will bear interest at the rate which was in effect for the type loan associated with the unauthorized assistance when it was approved. The term will not exceed 10 years.</P> <P>(2) Take the best mortgage obtainable to secure the note.</P> <CITA>[50 FR 12996, Apr. 2, 1985, as amended at 51 FR 11563, Apr. 4, 1986; 58 FR 38926, July 21, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.662-1951.667</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.668</SECTNO> <SUBJECT>Servicing unauthorized assistance accounts.</SUBJECT> <P>When a final determination has been made that unauthorized assistance has been granted, the Finance Office will be notifed of necessary account adjustments as outlined in this section, depending upon whether the case or unauthorized assistance was identified by OIG in an audit report or by another means. The Finance Office will service the accounts as prescribed in this section.</P> <P>(a) <E T="03">Audit cases.</E> Ony the cases of unauthorized assistance identified by OIG will be reported to the Finance Office. Form FmHA or its successor agency under Public Law 103-354 1951-12 will be completed in accordance with the FMI, and the District Director will prepare and submit Form FmHA or its successor agency under Public Law 103-354 1951-52, “MFH Record Adjustment—Audit Claim,” according to the FMI to advise the Finance Office. The Finance Office will flag the account for monitoring and reporting as required. Each payment reversed will be reapplied as of the original date of credit. “Loan” as used in this section refers to an account with an active borrower unless specified as “inactive.”<PRTPAGE P="96"/> </P> <P>(1) <E T="03">Unauthorized loan.</E> When the loan is unauthorized because the recipient was not eligible or because the loan was approved for unauthorized purposes, the Finance Office will be advised as follows:</P> <P>(i) <E T="03">Repayment in full.</E> If the recipient has arranged to repay the unauthorized loan, the payment will be remitted with Form FmHA or its successor agency under Public Law 103-354 1944-9, in accordance with the FMI. Forms FmHA or its successor agency under Public Law 103-354 1951-12 and 1951-52 will reflect the amount and the Schedule Number from Form FmHA or its successor agency under Public Law 103-354 1944-9.</P> <P>(ii) <E T="03">Continuation with loan on existing terms.</E> When continuation with the loan on the existing terms is approved according to § 1951.661 (a)(1)(ii), the District Director will submit Form FmHA or its successor agency under Public Law 103-354 1951-52 to the Finance Office to reflect this.</P> <P>(2) <E T="03">Unauthorized subsidy benefits received through use of incorrect interest rate.</E> When the interest rate on an entire loan is changed, Form FmHA or its successor agency under Public Law 103-354 1951-52 will be submitted to notify the Finance Office of the correct interest rate to be charged from the loan closing date. Payments made will be reversed and reapplied at the corrected interest rate, after which the unauthorized subsidy benefits will be reported to OIG as resolved. The loan will thereafter be treated as an authorized loan.</P> <P>(3) <E T="03">Unauthorized interest credits and/or rental assistance.</E> Unauthorized rental assistance and/or interest credits will be recovered according to the provisions of § 1951.661. The District Director will report to the State Office by the 1st of March, June, September, and December of each year, the repayment of unauthorized rental assistance and/or interest credits by account name, case number, account code, audit report number, finding number, date of claim, amount of claim, amount collected during period, and balance owed at end of reporting period. The State Office will forward a consolidated report to the Finance Office no later than the 15th of March, June, September, and December of each year for inclusion in the OIG report.</P> <P>(4) <E T="03">Liquidation pending.</E> When liquidation is initiated under the provisions of this subpart, Form FmHA or its successor agency under Public Law 103-354 1951-52 will be submitted to advise the Finance Office of the unauthorized assistance account to be established. This account will be flagged “FAP” (Foreclosure Action Pending) or “CAP” (Court Action Pending), as applicable. The account status will also be amended in the MFH Information Tracking and Retrieval System (MISTR) according to subpart G of part 2033 (available in any FmHA or its successor agency under Public Law 103-354 State or District Office).</P> <P>(5) <E T="03">Liquidation not initiated.</E> Cases in which Liquidation has not been initiated because of the provisions of § 1951.658 (e)(1)(i)(A) or (e)(1)(i)(B) will be adjusted according to §1951.661 and this section of this subpart, and the adjustments will be reflected on Form FmHA or its successor agency under Public Law 103-354 1951-52. In this instance only, account adjustments will be made even though the recipient does not sign Form FmHA or its successor agency under Public Law 103-354 1951-52 and any related documents.</P> <P>(6) <E T="03">Unauthorized grant assistance.</E> When grant funds are to be repaid as provided in § 1951.661(a)(4) the District Director will report to the State Office by the 1st of March, June, September, and December of each year, the amount of collections by account name, case number, fund code, audit report number, finding number, date of claim, original amount of claim, amount collected during period, and the balance owed at end of reporting period on the unauthorized grant assistance. The State Office will submit a composite report to the Finance Office by the 15th of March, June, September, and December of each year.</P> <P>(7) <E T="03">Establishment of account for inactive borrower.</E> When an inactive borrower agrees to repay unauthorized assistance and executes documents to evidence such an obligation, Forms FmHA or its successor agency under Public Law 103-354 1951-12 and 1951-52 will be completed according to the FMIs. The Finance Office will establish <PRTPAGE P="97"/>the account according to the terms indicated on Form FmHA or its successor agency under Public Law 103-354 1951-52.</P> <P>(8) <E T="03">Reporting.</E> At prescribed intervals, the Finance Office will report to the OIG on the status of cases involving unauthorized assistance which were identified by OIG in audit reports. The amounts to be reported will be determined by the Finance Office after account servicing actions have been completed. For reporting purposes, the following applies:</P> <P>(i) For an unauthorized loan account as provided in paragraph (a)(1) or (a)(4) of this section, reporting will be as follows:</P> <P>(A) When unauthorized assistance is paid in full, this will be reported on the next scheduled report only.</P> <P>(B) When continuation with the loan on existing terms is approved, the case will be reported as resolved on the next scheduled report, and no further reporting is required.</P> <P>(ii) For unauthorized subsidy cases as provided in paragraph (a)(2) or (a)(3) of this section, after the unauthorized amount has been repaid or payments have been reversed and reapplied at the correct interest rate, the unauthorized subsidy will be reported as resolved on the next scheduled report. No further reporting is required.</P> <P>(iii) When an account is established with liquidation action pending as provided in paragraph (a)(4) of this section, the status will be included on each scheduled report until the liquidation is completed or the account is otherwise paid in full.</P> <P>(iv) When liquidation is not initiated as provided in paragraph (a)(5) of this section, this will be reported on the next scheduled report (along with collections, if any). No further reporting is required.</P> <P>(v) When unauthorized grant assistance is scheduled to be repaid, the collections and status reported by the State Office to the Finance Office by memorandum according to paragraph (a)(6) of this section will be included in the OIG Report until the account is paid in full.</P> <P>(vi) When an inactive borrower has agreed to repay unauthorized assistance according to paragraph (a)(7) of this section, the account will be reported initially, and collections and status will be included in each scheduled report until the account is paid in full.</P> <P>(b) <E T="03">Nonaudit cases.</E> Basically, servicing is the same for audit and nonaudit case; however, when receipt of unauthorized assistance is identified by a means other than an OIG audit report, the Finance Office will be notified only if adjustments to an active account or reinstatement of an inactive account are necessary, or grant funds are repaid. Once adjustments are made as provided in this paragraph, the loan(s) will be treated as an authorized loan(s). Any payment reversed will be reapplied as of the original date of credit. After payments are reversed and reapplied, the District Director will receive Form FmHA or its successor agency under Public Law 103-354 451-26, “Transaction Record,” from the Finance Office reflecting the account status.</P> <P>(1) Account adjustments will be handled as follows:</P> <P>(i) When a change in interest rate retroactive to the date of loan closing is necessary, Form FmHA or its successor agency under Public Law 103-354 1951-13, “Change in Interest Rate,” will be completed according to the FMI and executed by the borrower. Form FmHA or its successor agency under Public Law 103-354 1951-521 will be submitted to the Finance Office. Payments will be reversed and reapplied accordingly.</P> <P>(ii) When an inactive borrower agrees to repay unauthorized assistance and executes documents to evidence such an obligation, the District Director will notify the Finance Office by memorandum, attaching a copy of the promissory note. The Finance Office will establish or reinstate the account according to the terms of the promissory note.</P> <P>(iii) If a loan is paid in full, the remittance will be handled in the same manner as any other final payment.</P> <P>(2) A delinquency created through reversal and reapplication of payments to effect corrections outlined in paragraph (b)(1)(i) of this section will be serviced according to subpart B of part 1965 of this chapter.<PRTPAGE P="98"/> </P> <P>(c) <E T="03">Collection of unauthorized assistance.</E> Collection of unauthorized assistance will be made in accordance with the appropriate sections of subpart K of part 1951 of this chapter. If full prepayment of an MFH loan is required, the prepayment will be accepted in accordance with the requirements of subpart E of part 1965 of this chapter, and appropriate restrictive-use provisions, if applicable, will remain in the deeds of release.</P> <CITA>[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.669</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <P>The Administrator may in individual cases make an exception to any requirement or provision of this subpart which is not inconsistent with any applicable law or opinion of the Comptroller General, provided the Administrator determines that application of the requirement or provision would adversely affect the Government's interest. Requests for exceptions must be made in writing by the State Director and submitted through the Assistant Administrator, Housing. Requests will be supported with documentation to explain the adverse effect on the Government's interest, proposed alternative courses of action, and show how the adverse effect will be eliminated or minimized if the exception is granted.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.670-1951.699</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.700</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0104.</P> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart O—Servicing Cases Where Unauthorized Loan(s) or Other Financial Assistance Was Received—Community and Insured Business Programs</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>50 FR 13000, Apr. 2, 1985, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.701</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>This subpart prescribes the policies and procedures for servicing Community and Business Program loans and/or grants made by Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) when it is determined that the borrower or grantee was not eligible for all or part of the financial assistance received in the form of a loan, grant, or subsidy granted, or any other direct financial assistance. It does not apply to guaranteed loans. Loans sold without insurance by the FmHA or its successor agency under Public Law 103-354 to the private sector will be serviced in the private sector and will not be serviced under this subpart. The provisions of this subpart are not applicable to such loans. Future changes to this subpart will not be made applicable to such loans.</P> <CITA>[52 FR 38908, Oct. 20, 1987]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.702</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this subpart, the following definitions apply:</P> <P>(a) <E T="03">Active borrower.</E> A borrower who has an outstanding account in the records of the Finance Office, including collection-only or an unsatisfied account balance where a voluntary conveyance was accepted without release from liability of foreclosure did not satisfy the indebtedness.</P> <P>(b) <E T="03">Assistance.</E> Finance assistance in the form of a loan, grant, or subsidy received.</P> <P>(c) <E T="03">Debt instrument.</E> Used as a collective term to include promissory note, assumption agreement, grant agreement agreement/resolution, or bond.</P> <P>(d) <E T="03">False information.</E> Information, known to be incorrect, provided with the intent to obtain benefits which would not have been obtainable based on correct information.</P> <P>(e) <E T="03">Inaccurate information.</E> Incorrect information provided inadvertently without intent to obtain benefits fraudulently.</P> <P>(f) <E T="03">Inactive borrower.</E> A former borrower whose loan(s) has (have) been paid in full or assumed by another party(ies) and who does not have an outstanding account in the records of the Finance Office.</P> <P>(g) <E T="03">Recipient.</E> “Recipient” refers to an individual or entity that received a loan, or portion of a loan, an interest <PRTPAGE P="99"/>subsidy, a grant, or a portion of a grant which was unauthorized.</P> <P>(h) <E T="03">Servicing official.</E> For Community Programs, the servicing official is the District Director, an Assistant District Director, or a District Loan Specialist so designated. For Business Programs, the servicing official is the State Director or Designee.</P> <P>(i) <E T="03">Unauthorized assistance.</E> Any loan, interest subsidy, grant, or portion thereof received by a recipient for which there was no regulatory authorization for which the recipient was not eligible. Interest subsidy includes subsidy benefits received because a loan was closed at a lower interest rate than that to which the recipient was entitled, whether the incorrect interest rate was selected erroneously by the approval official or the documents were prepared in error.</P> </SECTION> <SECTION> <SECTNO>§ 1951.703</SECTNO> <SUBJECT>Policy.</SUBJECT> <P>When unauthorized assistance has been received, an effort must be made to collect from the recipient the sum which is determined to be unauthorized, regardless of amount, unless any applicable Statute of Limitation has expired.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.704-1951.705</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.706</SECTNO> <SUBJECT>Initial determination that unauthorized assistance was received.</SUBJECT> <P>Unauthorized assistance may be identified through audits conducted by the Office of the Inspector General, USDA, (OIG); through reviews made by FmHA or its successor agency under Public Law 103-354 personnel; or through other means such as information provided by a private citizen which documents that unauthorized assistance has been receive by a recipient of FmHA or its successor agency under Public Law 103-354 assistance. If the servicing official has reason to believe unauthorized assistance was received, but is unable to determine whether or not the assistance was in fact unauthorized, the case file including the advice of the Regional Office of the General Counsel (OGC) will be referred to the National Office for review and comment. In every case where it is known or believed by FmHA or its successor agency under Public Law 103-354 that the assistance was based on false information, investigation by the OIG will be requested as provided for in FmHA or its successor agency under Public Law 103-354 Instruction 2012-B (available in any FmHA or its successor agency under Public Law 103-354 office). If OIG conducts an investigation, the actions outlined in § 1951.707 will be deferred until the OIG investigation is completed and the report is received. The reason(s) for the unauthorized assistance being received by the recipient will be well documented in the case file, and will specifically state whether it was due to:</P> <P>(a) Submission of inaccurate information by the recipient;</P> <P>(b) Submission of false information by the recipient.</P> <P>(c) Submission of inaccurate or false information by another authorized party acting on the recipient's behalf including professional consultant such as engineers, architects, and attorneys, when the recipient did not know the other part had submitted inaccurate or false information;</P> <P>(d) Error by FmHA or its successor agency under Public Law 103-354 personnel, either in making computations or failure to follow published regulations or other agency issuances; or</P> <P>(e) Error in preparation of a debt instrument which caused a loan to be closed at an interest rate lower than the correct rate in effect when the loan was approved.</P> </SECTION> <SECTION> <SECTNO>§ 1951.707</SECTNO> <SUBJECT>Notification to recipient.</SUBJECT> <P>(a) Collection efforts will be initiated by the servicing official by a letter substantially similar to exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), and mailed to the recipient by “Certified Mail, Return Receipt Requested,” with a copy to the State Director and, for a case identifed in an OIG audit report, a copy to the OIG office which conducted the audit and the Planning and Analysis Staff of the National Office. This letter will be sent to all recipients who received unauthorized assistance, regardless of amount. The letter will:<PRTPAGE P="100"/> </P> <P>(1) Specify in detail the reason(s) the assistance was determined to be unauthorized;</P> <P>(2) State the amount of unauthorized assistance, including any accrued interest to be repaid; and</P> <P>(3) Establish an appointment for the recipient to discuss with the servicing official the basis for FmHA or its successor agency under Public Law 103-354's claim; and give the recipient an opportunity to provide facts, figures, written records or other information which might alter FmHA or its successor agency under Public Law 103-354's determination that the assistance received was unauthorized.</P> <P>(b) If the recipient meets with the servicing official, the servicing official will outline to the recipient why the assistance was determined to be unauthorized. The recipient will be given an opportunity to provide information to refute FmHA or its successor agency under Public Law 103-354's findings. When requested by the recipient, the servicing official may grant additional time for the recipient to assemble documentation. When an extension is granted, the servicing official will specify a definite number of days to be allowed and establish the follow up necessary to assure that servicing of the case continues without undue delay.</P> </SECTION> <SECTION> <SECTNO>§ 1951.708</SECTNO> <SUBJECT>Decision on servicing actions.</SUBJECT> <P>When the servicing official is the same individual who approved the unauthorized assistance, the next-higher supervisory official must review the case before further actions are taken by the servicing official.</P> <P>(a) <E T="03">Payment in full.</E> If the recipient agrees with FmHA or its successor agency under Public Law 103-354's determination or will pay the amount in question, the servicing official may allow a reasonable period of time (usually not to exceed 90 days) for the recipient to arrange for repayment. The amount due will be determined according to § 1951.711(a). the servicing official will remit collections to the Finance Office according to the Forms Manual Insert (FMI) for Form FmHA or its successor agency under Public Law 103-354 451-2, “Schedule of Remittances,” as follows:</P> <P>(1) In the case of a loan, for application to the borrower's account as an extra payment.</P> <P>(2) In the case of a grant, as a “Miscellaneous Collection for Application to the General Fund.”</P> <P>(3) In the case of a loan or grant which was identified in an OIG audit, the servicing official will report the repayment as outlined in § 1951.711(b)(2) or 1951.715 as applicable.</P> <P>(b) <E T="03">Continuation with recipient.</E> If the recipient agrees with FmHA or its successor agency under Public Law 103-354's determination or is willing to pay the amount in question but cannot repay the unauthorized assistance within a reasonable period of time, continuation is authorized and servicing actions outlined in § 1951.711 will be taken provided all of the following conditions are met:</P> <P>(1) The recipient did not provide false information as defined in §1951.702(d);</P> <P>(2) It would be highly inequitable to require prompt repayment of the unauthorized assistance; and</P> <P>(3) Failure to collect the unauthorized assistance in full will not adversely affect FmHA or its successor agency under Public Law 103-354's financial interests.</P> <P>(c) <E T="03">Notice of determination when agreement is not reached.</E> If the recipient does not agree with FmHA or its successor agency under Public Law 103-354's determination, or if the recipient fails to respond to the initial letter prescribed in § 1951.707 within 30 days, the servicing official will notify the recipient by letter substantially similar to exhibit B of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) (sent by Certified Mail, Return Receipt Requested), with a copy to the State Director, and for a case identified in an OIG audit report, a copy to the OIG office which conducted the audit and the Planning and Analysis Staff of the National Office. This letter will include:</P> <P>(1) The amount of assistance finally determined by FmHA or its successor agency under Public Law 103-354 to be unauthorized including any accrued interest.<PRTPAGE P="101"/> </P> <P>(2) A statement of further actions to be taken by FmHA or its successor agency under Public Law 103-354 as outlined in paragraph (e)(1) or (e)(2) of this section; and</P> <P>(3) The appeal rights as prescribed in exhibit B of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(d) <E T="03">Appeals.</E> Appeals resulting from the letter prescribed in paragraph (c) of this section will be handled according to subpart B of part 1900 of this chapter. All appeal provisions will be concluded before proceeding with further actions. If the recipient does not prevail in an appeal, or when an apeal is not made during the time allowed, the servicing official will document the facts in the case file and submit to State Director, if the servicing official is other than State Director, who will proceed with the actions outlined in paragraph (e) of this section, as applicable. If during the course of appeal the appellant decides to agree with FmHA or its successor agency under Public Law 103-354's findings or is willing to repay the unauthorized assistance, the servicing official will proceed with the actions outlined in paragraph (a), (b), or (e) of this section.</P> <P>(e) <E T="03">Liquidation of loan(s) or legal action to enforce collection.</E> When a case cannot be handled according to the provisions of paragraph (a) or (b) of this section, or if the recipient refuses to execute the documents necessary to establish an obligation to repay the unauthorized assistance as provided in §1951.711, one of the following actions will be taken:</P> <P>(1) <E T="03">Active borrower with a secured loan.</E> (i) The servicing official will attempt to have the recipient liquidate voluntarily. If the recipient agrees to liquidate voluntarily, this will be documented in the case file. Where real property is involved, a letter will be prepared by the servicing official and signed by the recipient agreeing to voluntary liquidation. A resolution of the governing body may be required. If the recipient does not agree to voluntary liquidation, or agrees but it cannot be accomplished within a reasonable period of time (usually not more than 90 days), forced liquidation action will be initiated in accordance with applicable provisions of subpart A of part 1955 of this chapter unless:</P> <P>(A) The amount of unauthorized assistance outstanding, including principal, accrued interest, and any recoverable costs charged to the account, is less than $1,000; or</P> <P>(B) It can be clearly documented that it would not be in the best financial interest of the Government to force liquidation. If the servicing official wishes to make an exception to forced liquidation under paragraph (e)(1)(i)(B) of this section, a request for an exception under § 951.716 will be made.</P> <P>(ii) When all of the conditions of paragraph (a) or (b) of this section are met, but the recipient does not repay or refuses to execute documents to effect necessary account adjustments according of the provisions of § 1951.711, liquidation action will be initiated as provided in paragraph (e)(1)(i) of this section.</P> <P>(iii) When forced liquidation would be initiated except that the loan is being handled under paragraph (e)(1)(i)(A) or (e)(1)(i)(B) of this section, continuation with the loan on existing terms will be provided. In these cases, the recipient will be notified by letter of the actions taken.</P> <P>(2) <E T="03">Grantee, inactive borrower, or active borrower with unsecured loan (such as collection-only, or unsatisfied balance after liquidation).</E> The servicing official will document the facts in the case file and submit it to the State Director, if the servicing official is other than the State Director, who will request the advice of the OGC on pursuing legal action to effect collection. The case file, recommendation of State Director and OGC comments will be forwarded to the National Office for review and authorization to implement recommended servicing actions. The State Director will tell OGC what assets, if any, are available from which to collect.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.709-1951.710</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.711</SECTNO> <SUBJECT>Servicing options in lieu of liquidation or legal action to collect.</SUBJECT> <P>When the conditions outlined in § 1951.708(b) are met, the servicing options outlined in this section will be <PRTPAGE P="102"/>considered. Accounts will be serviced according to this section and § 1951.715.</P> <P>(a) <E T="03">Determination of unauthorized loan and/or grant assistance amount</E>—(1) <E T="03">Unauthorized loan amount.</E> The principal loan amount that was unauthorized will be determined. The unauthorized amount will be the unauthorized principal plus any accrued interest on the unauthorized principal at the note interest rate until the date paid in accordance with § 1951.708(a), or until the date other satisfactory financial arrangements are made in accordance with paragraph (b)(1) or (c) of this section.</P> <P>(2) <E T="03">Unauthorized grant amount.</E> The unauthorized grant actually expended will be determined. The unauthorized amount will be the unauthorized grant with accrued interest at the interest rate stipulated in the respective executed grant agreement for default cases until the date paid in accordance with § 1951.708(a), or until the date other satisfactory financial arrangements are made in accordance with paragraph (b)(2) or (c) of this section.</P> <P>(b) <E T="03">Continuation on modified terms.</E> When the recipient has the legal and financial capabilities, the case will be serviced according to one of the following, as appropriate. In each instance, the servicing official will advise the Finance Office by memorandum of the actions necessary to effect the account adjustment.</P> <P>(1) <E T="03">Unauthorized loan.</E> A loan for the unauthorized amount determined according to paragraph (a)(1) of this section will be established at the interest rate specified in the outstanding debt instrument or at the present market interest rate, whichever is greater, for the respective Community and Business program area. The loan will be amortized for a period not to exceed fifteen (15) years, the remaining term of the original loan, or the remaining useful life of the facility whichever is shorter.</P> <P>(2) <E T="03">Unauthorized grant.</E> The unauthorized grant amount determined according to paragraph (a)(2) of this section will be converted to a loan at the market interest rate for the respective Community and Business Programs area in effect on the date the financial assistance was provided, and will be amortized for a period not to exceed fifteen (15) years. The recipient will be required to execute a debt instrument to evidence this obligaton, and the best security position practicable in a manner which will adequately protect the FmHA or its successor agency under Public Law 103-354's interests during the repayment period will be taken as security. When the recipient is to repay grant assistance, the servicing official must maintain records on the “account” as the Finance Office cannot set up an account for repayment of a grant. The servicing official will attempt to collect the monies due and all collections will be remitted with Form FmHA or its successor agency under Public Law 103-354 451-2 to the Finance Office as “Miscellaneous Collections for Application to the General Fund.” For cases identified in OIG audits only, the servicing official will report by the 1st of March, June, September, and December of each year the following information on cases of this type to the State Director: Recipient's name, fund code, audit report number, audit finding number, date of claim, amount of claim, amount collected during the reporting period, and the balance owed on the unauthorized grant assistance.</P> <P>(3) <E T="03">Unauthorized subsidy benefits received.</E> When the recipient was eligible for the loan but should have been charged a higher interest rate than that in the debt instrument, which resulted in the receipt of unauthorized subsidy benefits, the case will be handled as outlined in this paragraph. The recipient will be given the option to submit a written request that the interest rate be adjusted to the lower of the rate for which they were eligible that was in effect at the date of loan approval or loan closing. (See exhibit C of this subpart for interest rates (available in any FmHA or its successor agency under Public Law 103-354 office).) FmHA or its successor agency under Public Law 103-354 servicing officials will make a concerted effort to collect all unauthorized subsidy benefits from the recipient and will contact the Office of General Counsel in each case for advice in accomplishing corrective actions.</P> <P>(c) <E T="03">Continuation on existing terms.</E> When the recipient does not have the <PRTPAGE P="103"/>legal and/or financial capabilities for the options outlined in paragraph (b)(1), (b)(2), or (b)(3) of this section, as appropriate, to be exercised, the recipient may be allowed to continue to meet the loan/grant obligations outlined in the existing loan/grant instruments. Unless the unauthorized assistance was identified in an OIG audit, no Finance Office notification or action is necessary. If identified by OIG, the servicing official will advise the Finance Office by memorandum of the determination to continue with the recipient on the existing terms of the loan/grant.</P> <P>(d) <E T="03">Reporting requirements to National Office.</E> An annual report will be submitted by the State Office to the Assistant Administrator, Community and Business Programs, within 30 days following the end of the Government's fiscal year for each case of unauthorized assistance or subsidy benefits. The report will include for each case the account name, case number, fund code, OIG audit number (if applicable), amount collected during period, and the balance owed on the unauthorized assistance. Each State Office is responsible for coordinating with the servicing official's office so that this information can be accumulated and consolidated by the State Office within the allotted time. A negative report is required from States which have no unauthorized assistance cases.</P> <CITA>[50 FR 13000, Apr. 2, 1985, as amended at 51 FR 11563, Apr. 4, 1986; 54 FR 28020, July 5, 1989]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.712-1951.714</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.715</SECTNO> <SUBJECT>Account adjustments and reporting requirement.</SUBJECT> <P>Cases of unauthorized assistance which require Finance Office notification and action, regardless of whether they were identified in an OIG audit or by other means, will be submitted to the Finance Office by memorandum from the servicing official, as provided in applicable paragraphs of § 1951.711 of this subpart. Each memorandum should include account (borrower) name, case number, audit report number (if applicable), finding number (if applicable), fund code, loan number, and an explanation of the actions to be taken. If the unauthorized assistance was identified in an OIG audit report, the memorandum should be clearly annotated “Audit Claim for OIG Report” as a part of the subject. The explanation should provide sufficient details to allow the Finance Office to properly adjust the account. The State Office will forward a consolidated report on unauthorized grant assistance identified in an OIG audit to the Finance Office by the 15th of March, June, September, and December of each year reflecting the information reported by servicing officials in accordance with § 1951.711(b)(2) for inclusion in the report to OIG.</P> <P>(a) <E T="03">Entire loan unauthorized.</E> When the entire loan is unauthorized because the recipient was not eligible or because the loan was approved for unauthorized purposes, the servicing official will advise the Finance Office, by memorandum, which of the following servicing actions will be taken.</P> <P>(1) <E T="03">Repayment in full.</E> If the recipient has arranged to repay the unauthorized loan in full through refinancing or other available resources, the payment will be remitted with Form FmHA or its successor agency under Public Law 103-354 451-2 and the schedule number will be included in the memorandum.</P> <P>(2) <E T="03">Continuation with loan on existing or modified terms.</E> When it is determined, according to § 1951.711 (b)(1) or (c), that continuation with the loan on the existing or modified terms will be provided, the servicing official will advise the Finance Office by memorandum of this determination including an explanation of the terms, if modified.</P> <P>(b) <E T="03">Portion of loan unauthorized.</E> When only a portion of the loan has been determined to be for unauthorized purposes, the servicing official will advise the Finance Office, by memorandum, of the servicing actions as follows:</P> <P>(1) <E T="03">Repayment in full of unauthorized portion.</E> If the recipient has arranged to repay the unauthorized portion of the loan through refinancing or other available resources, the remittance will be submitted with Form FmHA or its successor agency under Public Law 103-354 451-2, and the schedule number will be included in the memorandum.<PRTPAGE P="104"/> </P> <P>(2) <E T="03">Continuation with unauthorized portion of loan on existing or modified terms.</E> When it is determined, according to § 1951.711 (b)(1) or (c), that continuation with the unauthorized portion of the loan on the existing or modified terms will be provided, the servicing official will advise the Finance Office by memorandum of this determination, including an explanation of the terms if modified. The authorized portion will retain the original loan number with installments adjusted accordingly. Payments previously made will not be reversed and reapplied. The amortized unauthorized amount will be assigned the next available loan number. Installments for the authorized and unauthorized loans will be scheduled and paid concurrently.</P> <P>(c) <E T="03">Unauthorized subsidy benefits received.</E> The unauthorized subsidy benefits received will be serviced according to § 1951.711 (b)(3) or (c).</P> <P>(d) <E T="03">Liquidation pending.</E> When liquidation is initiated under the provisions of this subpart, the servicing official will advise the Finance Office, by memorandum, that an unauthorized assistance account is to be established. This account will be flagged “FAP” (Foreclosure Action Pending) or “CAP” (Court Action Pending), as applicable.</P> <P>(e) <E T="03">Liquidation not initiated.</E> Cases in which liquidation would normally be initiated, but where it is not because of the provisions of § 1951.708(e)(1), will be serviced in accordance with § 1951.708(e)(1)(iii). If the unauthorized assistance was identified through means other than an OIG audit report, the Finance Office will not be notified and no action is necessary.</P> <P>(f) <E T="03">Unauthorized grant assistance.</E> A grant that is to be repaid will be serviced according to § 1951.711(b)(2). If the unauthorized assistance was identified through means other than an OIG audit report and a determination has been made not to recover, the Finance Office will not be notified and no action is necessary.</P> <P>(g) <E T="03">Reporting.</E> At prescribed intervals, the Finance Office will report to the OIG on the status of cases involving unauthorized assistance which were identified by OIG in audit reports. The amounts to be reported will be determined by the Finance Office after account servicing actions have been completed. For reporting purposes, the following applies:</P> <P>(1) For an unauthorized loan account established as provided in paragraph (a) or (b) of this section, reporting will be as follows:</P> <P>(i) When unauthorized assistance is paid in full, this will be reported on the next scheduled report only.</P> <P>(ii) When continuation with the loan on existing or modified terms is approved, this will be reported on the next scheduled report, and no further reporting is required.</P> <P>(2) For unauthorized subsidy cases as provided in paragraph (c) of this section, once the interest rate has been appropriately adjusted, the unauthorized subsidy will be reported as resolved on the next scheduled report. No further reporting is required.</P> <P>(3) When an account is established with liquidation action pending as provided in paragraph (d) of this section, the status will be included on each scheduled report until the liquidation is completed or the account is otherwise paid in full.</P> <P>(4) When liquidation is not initiated as provided in paragraph (e) of this section, this will be reported on the next scheduled report. No further reporting is required.</P> <P>(5) When unauthorized grant assistance is scheduled to be repaid as provided in paragraph (f) of this section, collections and status will be included in the report to OIG until the amount is paid in full.</P> </SECTION> <SECTION> <SECTNO>§ 1951.716</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <P>The Administrator may in individual cases make an exception to any requirement or provision of this subpart which is not inconsistent with any applicable law or opinion of the Comptroller General, provided the Administrator determines that application of the requirement or provision would adversely affect the Government's interest. Requests for exceptions must be made in writing by the State Director and submitted through the Assistant Administrator, Community and Business Programs. Requests will be supported with documentation to explain the adverse effect on the Government's interest, propose alternative courses of <PRTPAGE P="105"/>action, and show how the adverse effect will be eliminated or minimized if the exception is granted.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.717-1951.749</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.750</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0103.</P> </SECTION> </SUBPART> <SUBPART> <RESERVED>Subparts P-Q[Reserved]</RESERVED> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart R—Rural Development Loan Servicing</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>53 FR 30656, Aug. 15, 1988, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.851</SECTNO> <SUBJECT>Introduction.</SUBJECT> <P>(a) This subpart contains regulations for servicing or liquidating loans made by the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) under the Intermediary Relending Program (IRP) to eligible IRP intermediaries and applies to ultimate recipients and other involved parties. The provisions of this subpart supersede conflicting provisions of any other subpart.</P> <P>(b) This subpart also contains regulations for servicing the existing Rural Development Loan Fund (RDLF) loans previously approved and administered by the U.S. Department of Health and Human Services (HHS) under 45 CFR part 1076. This action is needed to implement the provisions of Section 1323 of the Food Security Act of 1985, Pub. L. 99-198, which provides for the transfer of the loan servicing authority for those loans from the HHS to the U.S. Department of Agriculture (USDA).</P> <P>(c) The portion of this regulation pertaining to loanmaking applies to RDLF intermediaries cited in § 1951.851(b) which have RDLF funds from HHS and have not fully utilized relending of those funds to ultimate recipients at the date of these regulations. The loanmaking of all other IRP loans serviced by this regulation is in accordance with part 1948, subpart C of this chapter.</P> <P>(d) These regulations do not negate contractual arrangements that were previously made by the HHS, Office of Community Services (OCS), or the intermediaries operating relending programs that have already been entered into with ultimate recipients under previous regulations.</P> <P>(e) The loan program is administered by the FmHA or its successor agency under Public Law 103-354 National Office. The Director, Business and Industry Division, is the point of contact for servicing activities unless otherwise delegated by the Administrator.</P> </SECTION> <SECTION> <SECTNO>§ 1951.852</SECTNO> <SUBJECT>Definitions and abbreviations.</SUBJECT> <P>(a) <E T="03">General definitions.</E> The following definitions are applicable to the terms used in this subpart.</P> <P>(1) <E T="03">Intermediary</E> (Borrower). The entity receiving FmHA or its successor agency under Public Law 103-354 loan funds for relending to ultimate recipients. FmHA or its successor agency under Public Law 103-354 becomes an intermediary in the event it takes over loan servicing and/or liquidation.</P> <P>(2) <E T="03">Loan Agreement.</E> The signed agreement between FmHA or its successor agency under Public Law 103-354 and the intermediary setting forth the terms and conditions of the loan.</P> <P>(3) <E T="03">Low-income.</E> The level of income of a person or family which is at or below the Poverty Guidelines as defined in section 673(2) of the Community Services Block Grant Act (42 U.S.C. 9902(2)).</P> <P>(4) <E T="03">Market value.</E> The most probable price which property should bring, as of a specific date in a competitive and open market, assuming the buyer and seller are prudent and knowledgeable, and the price is not affected by undue stimulus such as forced sale or loan interest subsidy.</P> <P>(5) <E T="03">Principals of intermediary.</E> Includes members, officers, directors, and other entities directly involved in the operation and management of an intermediary organization.</P> <P>(6) <E T="03">Ultimate recipient.</E> The entity receiving financial assistance from the intermediary. This may be interchangeable with the term “subrecipient” in some documents previously issued by HHS.<PRTPAGE P="106"/> </P> <P>(7) <E T="03">Rural area.</E> Includes all territory of a State that is not within the outer boundary of any city having a population of twenty-five thousand or more.</P> <P>(8) <E T="03">State.</E> Any of the fifty States, the Commonwealth of Puerto Rico, the Virgin Islands of the United States, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.</P> <P>(9) <E T="03">Technical assistance or service.</E> Technical assistance or service is any function unreimbursed by FmHA or its successor agency under Public Law 103-354 performed by the intermediary for the benefit of the ultimate recipient.</P> <P>(10) <E T="03">Working capital.</E> The excess of current assets over current liabilities. It identifies the liquid portion of total enterprise capital which constitutes a margin or buffer for meeting obligations within the ordinary operating cycle of the business.</P> <P>(b) <E T="03">Abbreviations.</E> The following abbreviations are applicable:</P> <P> <E T="03">B&I</E>—Business and Industry</P> <P> <E T="03">CSA</E>—Community Services Administration</P> <P> <E T="03">EIS</E>—Environmental Impact Statement</P> <P> <E T="03">HHS</E>—U.S. Department of Health and Human Services</P> <P> <E T="03">IRP</E>—Intermediary Relending Program</P> <P> <E T="03">OCS</E>—Office of Community Services</P> <P> <E T="03">OIG</E>—Office of Inspector General</P> <P> <E T="03">OGC</E>—Office of the General Counsel</P> <P> <E T="03">RDLF</E>—Rural Development Loan Fund</P> <P> <E T="03">USDA</E>—United States Department of Agriculture</P> <CITA>[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6052, Feb. 6, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.853</SECTNO> <SUBJECT>Loan purposes for undisbursed RDLF loan funds from HHS.</SUBJECT> <P>(a) <E T="03">RDLF Intermediaries.</E> Rural Development Loan funds will be used by the RDLF intermediary to provide loans to ultimate recipients in accordance with paragraph (b) of this section. Interest income, service fees, and other authorized financing charges received by RDLF intermediaries operating relending programs may be used to pay for: The costs of administering the RDLF relending program, the provision of technical assistance to borrowers, the absorption of bad debts associated with RDLF loans, and repayment of debt. All proceeds in excess of those needed to cover authorized expenses, as described above, must be returned to the Agency.</P> <P>(b) <E T="03">Ultimate recipients</E>.</P> <P>(1) Financial assistance from the intermediary to the ultimate recipient must be for business facilities and community development projects in rural areas.</P> <P>(2) Financial assistance involving Rural Development Loan funds from the intermediary to the ultimate recipient may include but not be limited to:</P> <P>(i) Business acquisitions, construction, conversion, enlargement, repair, modernization, or development cost.</P> <P>(ii) Purchasing and development of land, easements, rights-of-way, building, facilities, leases, or materials.</P> <P>(iii) Purchasing of equipment, leasehold improvements, machinery or supplies.</P> <P>(iv) Pollution control and abatement.</P> <P>(v) Transportation services.</P> <P>(vi) Startup operating costs and working capital.</P> <P>(vii) Interest (including interest on interim financing) during the period before the facility becomes income producing, but not to exceed 3 years.</P> <P>(viii) Feasibility studies.</P> <P>(ix) Reasonable fees and charges only as specifically listed in this subparagraph. Authorized fees include loan packaging fees, environmental data collection fees, and other professional fees rendered by professionals generally licensed by individual State or accreditation associations, such as engineers, architects, lawyers, accountants, and appraisers. The amount of fee will be what is reasonable and customary in the community or region where the project is located. Any such fees are to be fully documented and justified.</P> <P>(x) Aquaculture including conservation, development, and utilization of water for aquaculture. Aquaculture means the culture or husbandry of aquatic animals or plants by private industry for commercial purposes including the culture and growing of fish by private industry for the purpose of <PRTPAGE P="107"/>granting or augmenting publicly-owned or regulated stock of fish.</P> <CITA>[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6053, Feb. 6, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.854</SECTNO> <SUBJECT>Ineligible assistance purposes.</SUBJECT> <P>(a) <E T="03">RDLF Intermediaries.</E> RDLF loans may <E T="03">not</E> be used by the intermediary:</P> <P>(1) For payment of the intermediary's own administrative costs or expenses.</P> <P>(2) To purchase goods or services or render assistance in excess of what is needed to accomplish the purpose of the ultimate recipient project.</P> <P>(3) For distribution or payment to the owner, partners, shareholders, or beneficiaries of the ultimate recipient or members of their families when such persons will retain any portion of their equity in the ultimate recipient.</P> <P>(4) For charitable and educational institutions, churches, organizations affiliated with or sponsored by churches, and fraternal organizations.</P> <P>(5) For assistance to government employees, military personnel, or principals or employees of the intermediary who are directors, officers or have major ownership (20 percent or more) in the ultimate recipient.</P> <P>(6) For relending in a city with a population of twenty-five thousand or more as determined by the latest decennial census.</P> <P>(7) For a loan to an ultimate recipient which has applied or received a loan from another intermediary unless FmHA or its successor agency under Public Law 103-354 provides prior written approval for such loan.</P> <P>(8) For any line of credit.</P> <P>(9) To finance more than 75 percent of the total cost of a project by the ultimate recipient. The total amount of RDLF loan funds requested by the ultimate recipient plus the outstanding balance of any existing RDLF loan(s) will not exceed $150,000. Other loans, grants, and/or intermediary or ultimate recipient contributions or funds from other sources must be used to make up the difference between the total cost and the assistance provided with RDLF funds.</P> <P>(10) For any investments in securities or certificates of deposit of over 30-day duration without the concurrence of FmHA or its successor agency under Public Law 103-354. If the RDLF funds have been unused to make loans to ultimate recipients for 6 months or more, those funds will be returned to FmHA or its successor agency under Public Law 103-354 unless FmHA or its successor agency under Public Law 103-354 provides an exception to the RDLF intermediary. Any exception would be based on evidence satisfactory to FmHA or its successor agency under Public Law 103-354 that every effort is being made by the intermediary to utilize the RDLF funding in conformance with program objectives.</P> <P>(b) <E T="03">Ultimate recipients.</E> Ultimate recipients may <E T="03">not</E> use assistance received from RDLF intermediaries involving RDLF funds:</P> <P>(1) For agricultural production, which means the cultivation, production (growing), harvesting, either directly or through integrated operations, of agricultural products (crops, animals, birds and marine life, either for fiber or food for human consumption, and disposal or marketing thereof, the raising, housing, feeding, breeding, hatching, control and/or management of farm and domestic animals). Exceptions to this definition are:</P> <P>(i) Aquaculture as identified under eligible purposes.</P> <P>(ii) Commercial nurseries primarily engaged in the production of ornamental plants and trees and other nursery products such as bulbs, florists’ greens, flowers, shrubbery, flower and vegetable seeds, sod, the growing of vegetables from seed to the transplant stage.</P> <P>(iii) Forestry, which includes establishments primarily engaged in the operation of timber tracts, tree farms, forest nurseries, and related activities such as reforestation.</P> <P>(iv) Financial assistance for livestock and poultry processing as identified under eligible purposes.</P> <P>(v) The growing of mushrooms or hydroponics.</P> <P>(2) For the transfer of ownership unless the loan will keep the business from closing, or prevent the loss of employment opportunities in the area, or provide expanded job opportunities.</P> <P>(3) For community antenna television services or facilities.<PRTPAGE P="108"/> </P> <P>(4) For any legitimate business activity when more than 10 percent of the annual gross revenue is derived from legalized gambling activity.</P> <P>(5) For any illegal activity.</P> <P>(6) For any otherwise eligible project that is in violation of either a Federal, State or local environmental protection law or regulation or an enforceable land use restriction unless the financial assistance required will result in curing or removing the violation.</P> <P>(7) For any hotels, motels, tourist homes, or convention centers.</P> <P>(8) For any tourist, recreation, or amusement centers.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.855-1951.858</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.859</SECTNO> <SUBJECT>Term of loans.</SUBJECT> <P>(a) No loans shall be extended for a period exceeding 30 years. Principal payments on loans will be made at least annually. The initial principal payment may be deferred not more than 3 years.</P> <P>(b) The terms of loan repayment will be those stipulated in the loan agreement and/or promissory note.</P> </SECTION> <SECTION> <SECTNO>§ 1951.860</SECTNO> <SUBJECT>Interest on loans.</SUBJECT> <P>(a) RDLF intermediaries: When the RDLF loan portfolio was transferred from HHS to USDA as required under Pub. L. 99-198, section 1323 of the Food Security Act of 1985, there were provisions that affected the interest rates on those loans.</P> <P>(1) Those loans made in 1980 and 1981 carried an original note rate of 1 percent interest when they were first issued. The legislation provides for those loans made in 1980 and 1981 to have a permanent interest rate reduction to 1 percent effective December 23, 1985, to maturity. However, the interest rates on the loans made in 1983 and 1984 may remain the same as the original note rate.</P> <P>(2) Loans made in 1983 and 1984 do not automatically qualify for a lower rate than the level of interest rates when the notes were first issued. Section 407 of Pub. L. 99-425 provides for a weighted average requirement that would affect those loans made in 1983 and 1984 to intermediary borrowers.</P> <P>(3) In those cases where loans were made in RDLF intermediaries and the weighted average of all loans made by the RDLF intermediary after December 31, 1982, does not exceed the sum of 6 percent plus the interest rate to the intermediary (7 percent), the interest rate to be charged the RDLF intermediary will be the rate charged on such loans made in 1980, or 1 percent. Should the weighted average exceed 7 percent, the note rate will control.</P> <P>(i) In order for FmHA or its successor agency under Public Law 103-354 to determine the weighted average of the loan portfolio, the RDLF intermediary will be required to complete a weighted loan average rate on its outstanding portfolio. The schedule prepared for FmHA or its successor agency under Public Law 103-354's review should include:</P> <P>(A) Calculations of the interest amount scheduled to accrue on each loan outstanding over a 1-year period based on the current interest rate of each ultimate recipient's loan.</P> <P>(B) The sum total of interest on each individual loan will be added together to determine the total interest amount scheduled to accrue over a 1-year period.</P> <P>(C) Divide the total of paragraph (a)(2) of this section by the total principal outstanding to determine the average interest percent yield in the intermediary's loan portfolio.</P> <P>(D) The loans to be included in determining the weighted interest average will be those made from January 1, 1983, forward.</P> <P>(E) FmHA or its successor agency under Public Law 103-354 will use the anniversary date of October 1 of each year to request the intermediary to complete a weighted interest average to determine the interest rate on its RDLF loan for the coming calendar year, January 1 through December 31. All loans made in 1980 and 1981 have had the interest rate permanently reduced by legislation to 1 percent, effective December 25, 1985.</P> <P>(F) The weighted loan average interest rate on the outstanding loan portfolio as referenced in this section will be forwarded to FmHA or its successor agency under Public Law 103-354 along with sufficient documentation which <PRTPAGE P="109"/>should include calculations, list of outstanding loans, current interest rate being charged on the loan, etc.</P> <P>(b) Interest rates charged by intermediaries to the ultimate recipients shall be at rates negotiated by those parties. Intermediaries are encouraged to make loans to ultimate recipients at the lowest possible rate, taking into account the cost of the loan funds to the intermediary and the cost of administering the loan portfolio.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.861-1951.865</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.866</SECTNO> <SUBJECT>Security.</SUBJECT> <P>(a) <E T="03">Loans from RDLF intermediaries to ultimate recipients.</E> Security requirements for loans from intermediaries to ultimate recipients will be negotiated between the intermediaries and ultimate recipients. FmHA or its successor agency under Public Law 103-354 concurrence in the intermediary's security proposal is required only when security for the loan from the intermediary to the ultimate recipient will also serve as security for the FmHA or its successor agency under Public Law 103-354 loan.</P> <P>(b) <E T="03">Additional security.</E> The FmHA or its successor agency under Public Law 103-354 may require additional security at any time during the term of a loan to an intermediary if, after review and monitoring, an assessment indicates the need for such security.</P> <P>(c) <E T="03">Appraisals.</E> Real property serving as security for all loans to intermediaries and for loans to ultimate recipients serving as security for loans to intermediaries will be appraised by a qualified appraiser. For all other types of property, a valuation shall be made using any recognized, standard technique for the type of property involved (including standard reference manuals), and this valuation shall be described in the loan file.</P> </SECTION> <SECTION> <SECTNO>§ 1951.867</SECTNO> <SUBJECT>Conflict of interest.</SUBJECT> <P>The intermediary will, for each proposed loan to an ultimate recipient, inform FmHA or its successor agency under Public Law 103-354 in writing and furnish such additional evidence as FmHA or its successor agency under Public Law 103-354 requests as to whether and the extent to which the intermediary or its principal officers (including immediate family) hold any legal or financial interest or influence in the ultimate recipient or the ultimate recipient or any of its principal officers (including immediate family) holds any legal or financial interest or influence in the intermediary. FmHA or its successor agency under Public Law 103-354 shall determine whether such ownership, influence or financial interest is sufficient to create potential conflict of interest. In the event FmHA or its successor agency under Public Law 103-354 determines there is a conflict of interest, the intermediary's assistance to the ultimate recipient will not be approved until such conflict is eliminated.</P> </SECTION> <SECTION> <SECTNO>§ 1951.868-1951.870</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.871</SECTNO> <SUBJECT>Post award requirements.</SUBJECT> <P>(a) RDLF intermediaries with undisbursed RDLF loan funds shall be governed by these regulations, the loan agreement, the approved work program, security interests, and other conditions which FmHA or its successor agency under Public Law 103-354 may require in awarding a loan.</P> <P>(b) Unless otherwise specifically agreed to in writing by the FmHA or its successor agency under Public Law 103-354, any loan funds held by an intermediary and any funds obtained from loaning FmHA or its successor agency under Public Law 103-354-derived funds and recollecting them that are not immediately needed by the intermediary for an ultimate recipient should be deposited in an interest-bearing account in a bank or other financial institution which will be covered by a form of Federal deposit insurance. Any interest or income earned as a result of such deposits shall be used by the intermediary only for purposes authorized by FmHA or its successor agency under Public Law 103-354.</P> <P>(c) Intermediaries operating relending programs must maintain separate ledgers and segregated accounts for RDLF funds at all times.</P> <P>(d) Reporting requirements shall be those delineated in the loan agreement between the United States and the intermediary and such subsequent requirements as FmHA or its successor <PRTPAGE P="110"/>agency under Public Law 103-354 deems appropriate. The intermediaries must document periodically the extent to which increased employment, income and ownership opportunities are provided to rural residents for each loan made by such intermediary.</P> <P>(e) No intermediary may make a loan to an ultimate recipient who has applied for or received a loan from another intermediary unless FmHA or its successor agency under Public Law 103-354 provides prior written approval for such loan.</P> <P>(f) All loan payments that are due on RDLF loans will be made payable to the Farmers Home Administration or its successor agency under Public Law 103-354, using the number assigned, and mailed directly to: Farmers Home Administration or its successor agency under Public Law 103-354, Finance Office, FC 35, 1520 Market Street, St. Louis, Missouri 63103.</P> </SECTION> <SECTION> <SECTNO>§ 1951.872</SECTNO> <SUBJECT>Other regulatory requirements.</SUBJECT> <P>(a) <E T="03">Intergovenmental consultation.</E> The RDLF program is subject to the provisions of Executive Order 12372 which requires intergovernmental consultation with State and local officials. For each ultimate recipient to be assisted with a loan under this subpart and for which the State in which the ultimate recipient is to be located has elected to review the program under their intergovernmental review process, the State Point of Contact must be notified. Notification, in the form of a project description, can be initiated by the intermediary or the ultimate recipient. Any comments from the State must be included with the intermediary's request to use the loan funds for the ultimate recipient. Prior to FmHA or its successor agency under Public Law 103-354's decision on the request, compliance with the requirements of intergovernmental consultation must be demonstrated for each ultimate recipient. These requirements should be carried out in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 1940-J, “Intergovernmental Review of Farmers Home Administration or its successor agency under Public Law 103-354 Programs and Activities,” available in any FmHA or its successor agency under Public Law 103-354 office.</P> <P>(b) <E T="03">Environmental requirements.</E> (1) Unless specifically modified by this section, the requirements of subpart G of part 1940 of this chapter apply to this subpart. FmHA or its successor agency under Public Law 103-354 will give particular emphasis to ensuring compliance with the environmental policies contained in §§1940.303 and 1940.304 in subpart G of part 1940 of this chapter. Intermediaries and ultimate recipients of loans must consider the potential environmental impacts of their projects at the earliest planning stages and develop plans to minimize the potential to adversely impact the environment.</P> <P>(2) As part of the intermediary's request to FmHA or its successor agency under Public Law 103-354 for concurrence to make a loan to an ultimate recipient, the intermediary will include for the ultimate recipient a properly completed Form FmHA or its successor agency under Public Law 103-354 1940-20, “Request for Environmental Information,” if it is classified as a Class I or Class II action. FmHA or its successor agency under Public Law 103-354 will complete the environmental review required by subpart G of part 1940 of this chapter. The results of this review will be used by FmHA or its successor agency under Public Law 103-354 in making its decision on the request.</P> <P>(c) <E T="03">Equal opportunity and nondiscrimination requirements.</E> </P> <P>(1) In accordance with Title V of Pub. L. 93-495, the Equal Credit Opportunity Act, neither the intermediary nor FmHA or its successor agency under Public Law 103-354 will discriminate against any applicant on the basis of race, color, religion, national origin, age, physical or mental handicap (provided that the applicant has the capacity to enter into a binding contract), sex or marital status with respect to any aspect of a credit transaction anytime Federal funds are involved.</P> <P>(2) The regulations contained in part 1901, subpart E of this chapter apply to loans made under this program.</P> <P>(3) The Administrator will assure that equal opportunity and nondiscrimination requirements are met in accordance with Title VI of the Civil <PRTPAGE P="111"/>Rights Act of 1964, “Nondiscrimination in Federally Assisted Programs,” 42 U.S.C. 2000d-2000d-4. If there is indication of noncompliance with these requirements, such facts will be reported in writing to the Administrator, ATTN: Equal Opportunity Officer.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.873-1951.876</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.877</SECTNO> <SUBJECT>Loan agreements.</SUBJECT> <P>(a) A loan agreement will have been executed by the RDLF intermediary and OCS or HHS for each loan. The loan agreement ordinarily would contain the following provisions:</P> <P>(1) The amount of the loan.</P> <P>(2) The interest rate.</P> <P>(3) The term and repayment schedule.</P> <P>(4) The provisions for late charges.</P> <P>(5) Provisions regarding default.</P> <P>(6) Disbursement procedure.</P> <P>(7) Insurance requirements.</P> <P>(i) Hazard insurance with a standard mortgage clause naming the intermediary as beneficiary will be required on every ultimate recipient in an amount that is at least the lesser of the depreciated replacement value of the property being insured or the amount of the loan. Hazard insurance includes fire, windstorm, lightning, hail, business interruption, explosion, riot, civil commotion, aircraft, vehicle, marine, smoke, builder's risk, public liability, property damage, flood or mudslide, or any other hazard insurance that may be required to protect the security. The RDLF intermediary's interest in the insurance ordinarily will be assigned to the FmHA or its successor agency under Public Law 103-354.</P> <P>(ii) Ordinarily, life insurance, which may be decreasing term insurance, is required for the principals and key employees of the ultimate recipient and will be assigned or pledged to the RDLF intermediary and subsequently to FmHA or its successor agency under Public Law 103-354. A schedule of life insurance available for the benefit of the loan will be included as part of the application.</P> <P>(iii) Workmen's compensation insurance on ultimate recipients is required in accordance with State law.</P> <P>(iv) The RDLF intermediary is responsible for determining if an ultimate recipient is located in a special flood or mudslide hazard area anytime Federal funds are involved. If the ultimate recipient is in a flood or mudslide area, then flood or mudslide insurance must be provided.</P> <P>(b) The RDLF intermediary will agree:</P> <P>(1) Not to make any changes in the RDLF intermediary's articles of incorporation, charter or bylaws without the concurrence of FmHA or its successor agency under Public Law 103-354.</P> <P>(2) Not to make a loan commitment to an ultimate recipient without first receiving FmHA or its successor agency under Public Law 103-354's written concurrence in the proposed use of loan funds.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.878-1951.880</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.881</SECTNO> <SUBJECT>Loan servicing.</SUBJECT> <P>(a) These regulations do not negate contractual arrangements that were previously made by the HHS, Office of Community Services (OCS), or the intermediaries operating relending programs that have already been entered into with ultimate recipients under previous regulations. preexisting documents control when in conflict with these regulations. The loan is governed by terms of existing legal documents of each intermediary. The RDLF/IRP intermediary is responsible for compliance with the terms and conditions of the loan agreement.</P> <P>(b) Each intermediary will be monitored by FmHA or its successor agency under Public Law 103-354 based on progress reports submitted by the intermediary, audit findings, disbursement transactions, visitations, and other contract with the intermediary as necessary.</P> <P>(c) Loan servicing is intended to be preventive rather than a curative action. Prompt followup on delinquent accounts and early recognition of potential problems and pursuing a solution to them are keys to resolving many problem loan cases.</P> <P>(d) Written notices on payments coming due will be prepared and sent to the intermediary by the FmHA or its successor agency under Public Law 103-354 Finance Office approximately 15 days <PRTPAGE P="112"/>in advance of the due date of the payments. A copy of the notice will be sent to the FmHA or its successor agency under Public Law 103-354 Administrator or designee.</P> <P>(e) If the scheduled payment is not made by the intermediary within 30 days after the due date of the payment, the Finance Office will send a past due notice to the intermediary. The notice will show the late charge amount, if applicable, and the interest amount past due. The late charge amount, if applicable, and the interest past due amount will be capitalized as principal due 30 days after the due date of the monthly payment unless existing loan documents prior to this regulation state otherwise. If the loan documents state when late charge amounts or interest accruals are to be capitalized, the loan documents will prevail.</P> <P>(1) A per diem amount will be shown on the late notice sent to the intermediary. The Finance Office will send this notice to the Administrator or designee 30 days after the past due notice has been sent to the intermediary and the account remains delinquent. Thereafter, further notices by FmHA or its successor agency under Public Law 103-354 designee will be sent to the intermediary on the late payments or any further payments until the account is in a current status.</P> <P>(2) The Finance Office will notify the Administrator or designee on any payments due from the delinquent intermediary. It will be the responsibility of the Administrator or designee to follow up on delinquent payments to bring the account to a current status.</P> <P>(3) A copy of any correspondence or notice generated by the Administrator or designee on any delinquent loan will be sent to the Finance Office.</P> <P>(4) Interest will be computed on a 365-day basis unless legal documents state otherwise.</P> <P>(f) It is the responsibility of the Finance Office to maintain complete accounting records for each intermediary. The Finance Office will:</P> <P>(1) Coordinate with the Administrator or designee to assure that interest and principal payments received are in accordance with the promissory notes and its companion documents, and the effective amortization schedule. If the payments received appear to be incorrect, the Finance Office will advise the Administrator or designee. The Administrator or designee will take the necessary action to clear the issue and promptly advise the Finance Office of the proper accounting procedure.</P> <P>(2) Send monthly statements to the National Office reflecting all payments received to date on each borrower.</P> <P>(3) Send to the Administrator or designee a monthly summary of all intermediary loans as follows:</P> <P>(i) Number and amount of all loans.</P> <P>(ii) Total advanced on all loans.</P> <P>(iii) Total interest and principal received on the loans.</P> <P>(iv) Total outstanding balance on all loans.</P> <P>(4) Prepare reamortization schedules needed as a result of restructuring any loans and send to the Administrator or designee.</P> <P>(5) Furnish in writing to the Administrator or designee a per diem amount on the actual interest amount due when requested by the Administrator.</P> <P>(g) It is the responsibility of the Administrator or designee to:</P> <P>(1) Review and analyze the semiannual report of the intermediaries and reconcile same to the annual audits.</P> <P>(2) Review the annual audits of intermediaries.</P> <P>(3) Review the semiannual reports of the intermediaries and take appropriate action when necessary.</P> <P>(4) Follow up on delinquent intermediaries to bring the account current.</P> <P>(5) Notify the Finance Office in writing when a loan is determined to be uncollectible in order for the Finance Office to make provisions for an appropriate timely entry to the loss account.</P> <P>(6) Furnish to the Finance Office the necessary information to produce reamortization schedules.</P> <P>(7) Provide the Finance Office a copy of any correspondence in regard to the restructuring of the loans.</P> <P>(8) Review reamortization schedules, the schedule will then be forwarded to the intermediary.</P> <P>(9) Confirm account balances. Payment history of loans and any other related matter will be furnished to the requesting party, (i.e. third party auditing firms) if warranted and proper. <PRTPAGE P="113"/>If there are discrepancies in any loan balances being confirmed, the Finance Office should be consulted before the Administrator or designee writes the requested parties.</P> <P>(10) Furnish upon request by the Finance Office, the information necessary to help reconcile account balances, obtain evidence of payments made by the borrower, and any other related data necessary to keep the financial records correct and in balance.</P> <P>(11) Answer Congressional and other correspondence.</P> <P>(12) Review intermediary's plans, cash flow projections, balance sheets, and operating statements.</P> </SECTION> <SECTION> <SECTNO>§ 1951.882</SECTNO> <SUBJECT>Field visits.</SUBJECT> <P>(a) During or in preparation for field visits to RDLF/IRP intermediaries by FmHA or its successor agency under Public Law 103-354 personnel, the following loan servicing activities are to be performed:</P> <P>(1) Review what is being done to inform eligible applicants of the program's existence.</P> <P>(2) Obtain current and proper financial information and analyze for trends on all RDLF/IRP intermediaries. Also determine if there is a sufficient interest rate spread between the interest rate charged the intermediary and the interest rate charged the ultimate recipients to cover the administrative costs, including bad debts of operating the program.</P> <P>(3) Include in the writeups of the field visit any issues or problems not resolved from the last visitation in the agenda.</P> <P>(4) Review credit elsewhere information (has the ultimate recipient been refused funds by other sources?) to determine if this information is in the files.</P> <P>(5) Observe collateral and its condition, maintenance, protection and utilization by the intermediary or ultimate recipient.</P> <P>(6) Review the process for handling loan proceeds to assure they are deposited in an interest-bearing account or time deposit in a bank or other financial institution fully protected by Federal or State insurance.</P> <P>(7) Review materials to determine if the purpose of the program is being fulfilled; i.e., loan funds are being used in accordance with FmHA or its successor agency under Public Law 103-354 policies, procedures, the approved work plan and the Loan Agreement.</P> <P>(8) A report of the visit will be made on “RDLF/IRP Review Summary Sheet,” or otherwise documented and included in the loan file in the format of the “RDLF/IRP Review Summary Sheet.” The report should include an opinion on the financial condition of the intermediary based upon the review of the annual audited financial statement, periodic financial statements, and observations made during the visit and other sources.</P> <P>(9) Determine if the ultimate recipients’ files are complete, organized, and current.</P> <P>(10) Any instructions, directions, or corrective action should be confirmed by letter to the intermediaries.</P> <P>(b) All intermediaries are required to provide an annual audited financial statement as well as a summary sheet of their lending program on each ultimate recipient receiving Federal funds. The summary sheet of their lending program on each ultimate recipient should include but not be limited to: the borrower's name and address, type of business, use of loan funds, loan amount, date of note, outstanding balance, date of final payment, interest rate, amount and type of collateral, insurance information, loan status, and the date of FmHA or its successor agency under Public Law 103-354 approval, if applicable.</P> <P>(c) The intermediary should perform an analysis on its ultimate recipients and follow up in writing on any servicing action required. A copy of the analysis will be provided to FmHA or its successor agency under Public Law 103-354 for those ultimate recipients having Federal funds.</P> </SECTION> <SECTION> <SECTNO>§ 1951.883</SECTNO> <SUBJECT>Reporting requirements.</SUBJECT> <P>(a) Intermediaries are to provide FmHA or its successor agency under Public Law 103-354 with reports as required in their respective loan agreements, applicable statutes and as required by FmHA or its successor agency under Public Law 103-354. The report shall include the following:<PRTPAGE P="114"/> </P> <P>(1) An annual audit; dates of audit report period need not necessarily coincide with other reports on the RDLF/IRP. Audits shall be due 90 days following the audit period. Audits must cover all of the intermediary's activities. Audits will be performed by an independent certified public accountant or by an independent public accountant licensed and certified on or before December 31, 1970, by a regulatory authority of a State or other political subdivision of the United States. An acceptable audit will be performed in accordance with generally accepted auditing standards and include such tests of the accounting records as the auditor considers necessary in order to express an opinion on the financial condition of the intermediary. FmHA or its successor agency under Public Law 103-354 does not require an unqualified audit opinion as a result of the audit. Compilations or reviews do not satisfy the audit requirement.</P> <P>(2) Quarterly or semiannual reports (due 30 days after the end of the period).</P> <P>(i) Reports will be required quarterly during the first year after loan closing and, if all loan funds are not utilized during the first year, quarterly reports will be continued until at least 90 percent of the Agency IRP loan funds have been advanced to ultimate recipients. Thereafter, reports will be required semiannually. Also, the Agency may require quarterly reports if the intermediary becomes delinquent in repayment of its loan or otherwise fails to fully comply with the provisions of its work plan or Loan Agreement, or the Agency determines that the intermediary's IRP revolving fund is not adequately protected by the current sound worth and paying capacity of the ultimate recipients.</P> <P>(ii) These reports shall contain only information on the IRP revolving loan fund, or if other funds are included, the IRP loan program portion shall be segregated from the others; and in the case where the intermediary has more than one IRP revolving fund from the Agency a separate report shall be made for each of the IRP revolving funds.</P> <P>(iii) The reports will include, on a form provided by the Agency, information on the intermediary's lending activity, income and expenses, financial condition, and a summary of names and characteristics of the ultimate recipients the intermediary has financed.</P> <P>(3) An annual report on the extent to which increased employment income and ownership opportunities are provided to low-income persons, farm families, and displaced farm families for each loan made by such intermediary.</P> <P>(4) Proposed budget for the following year.</P> <P>(5) Other reports as FmHA or its successor agency under Public Law 103-354 may require from time to time.</P> <P>(b) Intermediaries shall report to FmHA or its successor agency under Public Law 103-354 whenever an ultimate recipient is more than 90 days in arrears in the repayment of principal or interest.</P> <CITA>[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6053, Feb. 6, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.884</SECTNO> <SUBJECT>Non-Federal funds.</SUBJECT> <P>Once all the FmHA or its successor agency under Public Law 103-354-derived loan funds have been utilized by the intermediary for assistance to ultimate recipients according to the provisions of these regulations and the loan agreement, assistance to new ultimate recipients financed thereafter from the intermediary's revolving loan fund shall not be considered as being derived from Federal funds and the requirements of these regulations will not be imposed on those new ultimate recipients. Ultimate recipients assisted by the intermediary with FmHA or its successor agency under Public Law 103-354-derived loan funds shall be required to comply with the provisions of these regulations and/or loan agreement.</P> </SECTION> <SECTION> <SECTNO>§ 1951.885</SECTNO> <SUBJECT>Loan classifications.</SUBJECT> <P>All loans to intermediaries in the FmHA or its successor agency under Public Law 103-354 portfolio will be classified by FmHA or its successor agency under Public Law 103-354 at loan closing and again whenever there is a change in the loan which would impact on the original classification. No one classification should be viewed as more important than others. The uncollectibility aspect of Doubtful and Loss classifications is of obvious importance. However, the function of the <PRTPAGE P="115"/>Substandard classification is to indicate those loans that are unduly risky which may result in future losses. Substandard, Doubtful and Loss are adverse classifications. The special mention classification is for loans which are not adversely classified but which require the attention and followup of FmHA or its successor agency under Public Law 103-354. The loans will be classified as follows:</P> <P>(a) <E T="03">Seasoned loan classification.</E> To be classified as a seasoned loan, a loan must:</P> <P>(1) Have a remaining principal loan balance of two-thirds or less of the original aggregate of all existing loans made to that intermediary.</P> <P>(2) Be in compliance with all loan conditions and FmHA or its successor agency under Public Law 103-354 regulations.</P> <P>(3) Have been current on the loan(s) payments for 24 consecutive months.</P> <P>(4) Be secured by collateral which is determined to be adequate to ensure there will be no loss on the loan.</P> <P>(b) <E T="03">Current non-problem classification.</E> This classification includes those loans which have been current for less than 24 consecutive months and are in compliance with the loan conditions and FmHA or its successor agency under Public Law 103-354 regulations, and are not considered to pose a credit risk to FmHA or its successor agency under Public Law 103-354. These loans would be classified as seasoned but for the “24 months” and “two-thirds” requirements for seasoned loans.</P> <P>(c) <E T="03">Special mention classification.</E> This classification includes loans which do not presently expose FmHA or its successor agency under Public Law 103-354 to a sufficient degree of risk to warrant a Substandard classification but do possess credit deficiencies deserving FmHA or its successor agency under Public Law 103-354's close attention because the failure to correct these deficiencies could result in greater risk in the future. This classification would include loans that may be high quality, but which FmHA or its successor agency under Public Law 103-354 is unable to supervise properly because of an inadequate loan agreement, the condition or lack of control over the collateral, failure to obtain proper documentation or any other deviations from prudent lending practices. Adverse trends in the intermediary's operation or an imbalanced position in the balance sheet which has not reached a point that jeopardizes the repayment of the loan should be assigned to this classification. Loans in which actual, not potential, weaknesses are evident and significant should be considered for a Substandard classification.</P> <P>(d) <E T="03">Substandard classification.</E> This classification includes loans which are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans in this classification must have a well defined weakness or weaknesses that jeopardize the payment in full of the debt. If the deficiencies are not corrected, there is a distinct possibility that FmHA or its successor agency under Public Law 103-354 will sustain some loss.</P> <P>(e) <E T="03">Doubtful classification.</E> This classification includes those loans which have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, highly questionable and improbable.</P> <P>(f) <E T="03">Loss classification.</E> This classification includes those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted. Even though partial recovery may be effected in the future, it is not practical or desirable to defer writing off these basically worthless loans.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.886-1951.888</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.889</SECTNO> <SUBJECT>Transfer and assumption.</SUBJECT> <P>(a) All transfers and assumptions must be approved in advance in writing by FmHA or its successor agency under Public Law 103-354. Such transfers and assumptions must be to an eligible intermediary.</P> <P>(b) Available transfer and assumption options to eligible intermediaries include the following:</P> <P>(1) The total indebtedness may be transferred to another eligible intermediary on the same terms.<PRTPAGE P="116"/> </P> <P>(2) The total indebtedness may be transferred to another eligible intermediary on different terms not to exceed those terms for which an initial loan can be made to an organization that would have been eligible originally.</P> <P>(3) Less than total indebtedness may be transferred to another eligible intermediary on the same terms.</P> <P>(4) Less than total indebtedness may be transferred to another eligible intermediary on different terms.</P> <P>(c) The transferor will prepare the transfer document for FmHA or its successor agency under Public Law 103-354's review prior to the transfer and assumption.</P> <P>(d) The transferee will provide FmHA or its successor agency under Public Law 103-354 with a copy of its latest financial statement and a copy of its annual financial statement for the past 3 years if available; its Federal Tax Identification number; organizational charter; minutes from the Board of Directors authorizing the transaction; certification of good standing from the Secretary of State or whatever regulatory agency oversees nonprofit corporations for that State or Commonwealth where the entity is headquartered; and any other information that FmHA or its successor agency under Public Law 103-354 deems necessary for its review.</P> <P>(e) The assumption agreement will contain the FmHA or its successor agency under Public Law 103-354 case nunber of the transferor and transferee.</P> <P>(f) When the transferee makes a cash downpayment in connection with the transfer and assumption, any proceeds received by the transferor will be credited on the transferor's loan debt in inverse order of maturity.</P> <P>(g) The Administrator or designee will approve or decline all transfers and assumptions.</P> </SECTION> <SECTION> <SECTNO>§ 1951.890</SECTNO> <SUBJECT>Office of Inspector General and Office of General Counsel referrals.</SUBJECT> <P>When facts or circumstances indicate that criminal violations, civil fraud, misrepresentations, or regulatory violations may have been committed by an applicant or an intermediary, FmHA or its successor agency under Public Law 103-354 will refer the case to the appropriate Regional Inspector General for Investigations, OIG, USDA, in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2012-B (available in any FmHA or its successor agency under Public Law 103-354 office) for criminal investigation. Any questions as to whether a matter should be referred will be resolved through consultation with OIG and FmHA or its successor agency under Public Law 103-354 and confirmed in writing. In order to assure protection of the financial and other interests of the Government, a duplicate of the notification will be sent to the OGC. OGC will be consulted on legal questions. After OIG has accepted any matter for investigation, FmHA or its successor agency under Public Law 103-354 staff must coordinate with OIG in advance regarding routine servicing actions on existing loans.</P> </SECTION> <SECTION> <SECTNO>§ 1951.891</SECTNO> <SUBJECT>Liquidation; default.</SUBJECT> <P>(a) In the event that FmHA or its successor agency under Public Law 103-354 takes over the servicing of the ultimate recipient of an intermediary, those loans will be serviced by this regulation and in accordance with the contractual arrangement between the intermediary and the ultimate recipient. Should the FmHA or its successor agency under Public Law 103-354 determine that it is necessary or desirable to take action to protect or further the interests of FmHA or its successor agency under Public Law 103-354 in connection with any default or breach of conditions under any loan made hereunder, the FmHA or its successor agency under Public Law 103-354 may:</P> <P>(1) Declare that the loan is immediately due and payable.</P> <P>(2) Assign or sell at public or private sale, or otherwise dispose of for cash or credit at its discretion and upon such terms and conditions as FmHA or its successor agency under Public Law 103-354 shall determine to be reasonable, any evidence of debt, contract, claim, personal or real property or security assigned to or held by the FmHA or its successor agency under Public Law 103-354 in connection with financial assistance extended hereunder.<PRTPAGE P="117"/> </P> <P>(3) Adjust interest rates, use fixed or variable rates, grant moratoriums on repayment of principal and interest, collect or compromise any obligations held by FmHA or its successor agency under Public Law 103-354 and take such actions in respect to such loans as are necessary or appropriate, consistent with the purpose of the program and this subpart. The Administrator will notify the FmHA or its successor agency under Public Law 103-354 Finance Office of any change in payment terms, such as reamortizations or interest rate adjustments, and effective dates of any changes resulting from servicing actions.</P> <P>(b) Failure by an ultimate recipient to comply with the provisions of these regulations and/or loan agreement shall constitute grounds for a declaration of default and the demand for immediate and full repayment of its loan.</P> <P>(c) Failure by an intermediary to comply with the provisions of these regulations or to relend funds in accordance with an approved work plan or loan agreement shall constitute grounds for a declaration of default and the demand for immediate and full repayment of the loan.</P> <P>(d) In the event of default, the intermediary will promptly be informed in writing of the consequences of failing to comply with loan covenant(s).</P> <P>(e) Protective advances to the intermediary will not be made in lieu of additional loans, in particular working capital loans. Protective advances are advances made by FmHA or its successor agency under Public Law 103-354 for the purpose of preserving and protecting the collateral where the intermediary has failed to and will not or cannot meet its obligations. The Administrator or designee must approve in writing all protective advances.</P> <P>(f) In the event of bankruptcy by the intermediary and/or ultimate recipient, FmHA or its successor agency under Public Law 103-354 is responsible for protecting the interests of the Government. All bankruptcy cases should be reported immediately to the Regional Attorney. The Administrator must approve in advance and in writing the estimated liquidation expenses on loans in liquidation backruptcy. These expenses must be considered by FmHA or its successor agency under Public Law 103-354 to be reasonable and customary.</P> <P>(g) Liquidation, management, and disposal of inventory property will be handled in accordance with subparts A, B, and C of part 1955 of this chapter.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.892-1951.893</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.894</SECTNO> <SUBJECT>Debt settlement.</SUBJECT> <P>Debt settlement of all claims will be handled in accordance with the Federal Claims Collection Standards (4 CFR parts 101-105).</P> </SECTION> <SECTION> <SECTNO>§ 1951.895</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.896</SECTNO> <SUBJECT>Appeals.</SUBJECT> <P>Any appealable adverse decision made by FmHA or its successor agency under Public Law 103-354 which affects the borrower may be appealed upon written request of the aggrieved party in accordance with subpart B of part 1900 of this chapter.</P> </SECTION> <SECTION> <SECTNO>§ 1951.897</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <P>The Administrator may, in individual cases, grant an exception to any requirement or provision of this subpart which is not inconsistent with an applicable law or opinion of the Comptroller General, provided the Administrator determines that application of the requirement or provision would adversely affect the Government's interest. The basis for this exception will be fully documented. The documentation will: demonstrate the adverse impact; identify the particular requirement involved; and show how the adverse impact will be eliminated.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.898-1951.899</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.900</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB Control Number 0575.0131. In accordance with 5 CFR part 1320, summarized below is the annualized public reporting burden for this regulation.<PRTPAGE P="118"/> </P> <GPOTABLE CDEF="xs75,r75,xs42,10,xs42,10,10,10" COLS="8" OPTS="L2(,0),i1"> <BOXHD> <CHED H="1">Sect. of regulations</CHED> <CHED H="1">Title</CHED> <CHED H="1">Form No. (if any)</CHED> <CHED H="1">Estimated No. of respondents</CHED> <CHED H="1">Report filed annually</CHED> <CHED H="1">Total annual responses (d) × (e)</CHED> <CHED H="1">Est. No. of man-hrs. per response</CHED> <CHED H="1">Est. total manhours (f) × (g)</CHED> </BOXHD> <ROW RUL="s"> <ENT I="25">(A)</ENT> <ENT>(B)</ENT> <ENT>(C)</ENT> <ENT>(D)</ENT> <ENT>(E)</ENT> <ENT>(F)</ENT> <ENT>(G)</ENT> <ENT>(H)</ENT> </ROW> <ROW EXPSTB="07" RUL="03,s"> <ENT I="11">Reporting Requirements—No Forms</ENT> </ROW> <ROW EXPSTB="00"> <ENT I="01">1951.860(a)(3)(i)</ENT> <ENT>Weighted average interest calculation</ENT> <ENT>Written</ENT> <ENT>12</ENT> <ENT>1</ENT> <ENT>12</ENT> <ENT>3.0</ENT> <ENT>36</ENT> </ROW> <ROW> <ENT I="01">1951.877(a)(7)(i)</ENT> <ENT>Insurance</ENT> <ENT>Assignment</ENT> <ENT>36</ENT> <ENT>On occasion</ENT> <ENT>100</ENT> <ENT>1.0</ENT> <ENT>100</ENT> </ROW> <ROW> <ENT I="01">1951.882(a)</ENT> <ENT>Intermediary visitations</ENT> <ENT>Meeting</ENT> <ENT>36</ENT> <ENT>1</ENT> <ENT>36</ENT> <ENT>4.5</ENT> <ENT>162</ENT> </ROW> <ROW> <ENT I="01">1951.882(b)</ENT> <ENT>Audited financial statement</ENT> <ENT>Written</ENT> <ENT>36</ENT> <ENT>1</ENT> <ENT>36</ENT> <ENT>.5</ENT> <ENT>18</ENT> </ROW> <ROW> <ENT I="01">1951.883(a)(2)(ii)</ENT> <ENT>Program narrative</ENT> <ENT>Written</ENT> <ENT/> <ENT/> <ENT/> <ENT/> <ENT/> </ROW> <ROW> <ENT I="22"/> <ENT>IRP borrower</ENT> <ENT/> <ENT>10</ENT> <ENT>4</ENT> <ENT>40</ENT> <ENT>4.0</ENT> <ENT>160</ENT> </ROW> <ROW> <ENT I="22"/> <ENT>RDLF borrower</ENT> <ENT/> <ENT>26</ENT> <ENT>2</ENT> <ENT>52</ENT> <ENT>4.0</ENT> <ENT>208</ENT> </ROW> <ROW> <ENT I="01">1951.833(a)(2)(iii)</ENT> <ENT>Employment/income narrative</ENT> <ENT>Written</ENT> <ENT>36</ENT> <ENT>1</ENT> <ENT>36</ENT> <ENT>1.5</ENT> <ENT>54</ENT> </ROW> <ROW> <ENT I="01">1951.883(a)(2)(iv)</ENT> <ENT>Proposed budget</ENT> <ENT>Written</ENT> <ENT>36</ENT> <ENT>1</ENT> <ENT>36</ENT> <ENT>2.5</ENT> <ENT>90</ENT> </ROW> <ROW> <ENT I="01">1951.883(c)</ENT> <ENT>Intermediary's report of loans 90 days in arrears</ENT> <ENT>Written</ENT> <ENT>36</ENT> <ENT>On occasion</ENT> <ENT>50</ENT> <ENT>1.0</ENT> <ENT>50</ENT> </ROW> <ROW> <ENT I="01">1951.889(c)</ENT> <ENT>Assumption Agreement</ENT> <ENT>Written</ENT> <ENT>2</ENT> <ENT>1</ENT> <ENT>2</ENT> <ENT>3.5</ENT> <ENT>7</ENT> </ROW> <ROW RUL="s"> <ENT I="01">1951.889(d)</ENT> <ENT>Transferee financial statement</ENT> <ENT>Written</ENT> <ENT>2</ENT> <ENT>1</ENT> <ENT>2</ENT> <ENT>.5</ENT> <ENT>1</ENT> </ROW> <ROW EXPSTB="07" RUL="03,s"> <ENT I="11">Form Approved with this Docket</ENT> </ROW> <ROW EXPSTB="00"> <ENT I="01">1951.883(a)(2)</ENT> <ENT>IRP Lending Activity Report</ENT> <ENT>1951-4</ENT> <ENT/> <ENT/> <ENT/> <ENT/> <ENT/> </ROW> <ROW> <ENT I="22"/> <ENT>IRP borrower</ENT> <ENT/> <ENT>10</ENT> <ENT>4</ENT> <ENT>40</ENT> <ENT>20</ENT> <ENT>800</ENT> </ROW> <ROW RUL="s"> <ENT I="22"/> <ENT>RDLF borrower</ENT> <ENT/> <ENT>26</ENT> <ENT>2</ENT> <ENT>52</ENT> <ENT>20</ENT> <ENT>1040</ENT> </ROW> <ROW EXPSTB="07" RUL="03,s"> <ENT I="11">Reporting Requirements Under Other Numbers</ENT> </ROW> <ROW EXPSTB="00"> <ENT I="01">1951.872(b)</ENT> <ENT>Request for Environmental Information</ENT> <ENT>1940-20 (0575-0094)</ENT> <ENT/> <ENT/> <ENT/> <ENT/> <ENT/> </ROW> <ROW> <ENT I="22"/> <ENT O="xl"/> <ENT O="xl"/> <ENT/> <ENT O="xl"/> <ENT> <SU>1</SU>494</ENT> <ENT/> <ENT> <SU>2</SU>2,726</ENT> </ROW> <TNOTE> <SU>1</SU> Docket totals.<SU>2</SU> Total hours.</TNOTE> </GPOTABLE> </SECTION> </SUBPART> <SUBPART> <PRTPAGE P="119"/> <HD SOURCE="HED">Subpart S—Farmer Program Account Servicing Policies</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>57 FR 18626, Apr. 30, 1992, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.901</SECTNO> <SUBJECT> Purpose.</SUBJECT> <P>This subpart describes the policies and procedures that the agency will use in servicing most Farm Loan Program (FLP) loans. The loans include Operating Loan (OL), Farm Ownership Loan (FO), Soil and Water Loan (SW), Softwood Timber Production Loan (ST), Emergency Loan (EM), Economic Emergency Loan (EE), Economic Opportunity Loan (EO), Recreation Loan (RL), and Rural Housing Loan for farm service buildings (RHF) accounts. Shared Appreciation Loans (SA) may be reamortized under this subpart if the borrower also has outstanding Farm Loan Programs loans. Cases involving unauthorized assistance will be serviced as described in subpart L of this part. When it has been determined that all the conditions outlined in § 1951.558(b) of subpart L of this part have been met, the loan will be treated as an authorized loan and may be serviced under this subpart. Cases involving graduation of borrowers to other sources of credit will be serviced as described in subpart F of this part. This subpart does not apply to FLP Non-Program (NP) loans. Examples of Primary Loan Servicing actions are: consolidation, rescheduling and/or reamortization, deferral of principal and interest payments, reclassifying to ST loans, reducing interest rate on the loan, writedown of debt and conservation contract, or a combination of these actions. Preservation loan servicing is the Homestead Protection program. Any processing or servicing activity conducted pursuant to this subpart involving authorized assistance to agency employees, members of their families, known close relatives, or business or close personal associates, is subject to the provisions of subpart D of part 1900 of this chapter. Applicants for this assistance are required to identify any known relationship or association with an agency employee.</P> <CITA>[62 FR 10120, Mar. 5, 1997, as amended at 63 FR 6628, Feb. 10, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.902</SECTNO> <SUBJECT> General.</SUBJECT> <P> <E T="03">Supervision and Servicing.</E> It is a primary objective of the Agency to provide supervised credit to borrowers in financial, production or other difficulty in a manner that will assure the maximum opportunity for their recovery and, at the same time, get the best recovery for the Government. Supervision and servicing are continuing processes that begin the day a farmer comes into the office. Providing supervised credit has two objectives:</P> <P>(a) To help farmers set goals, work on problem areas and work toward graduation to commercial credit;</P> <P>(b) To recover the maximum possible amount for the Government.</P> <CITA>[62 FR 10120, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.903</SECTNO> <SUBJECT> Authorities and responsibilities.</SUBJECT> <P>(a) <E T="03">Responsibilities.</E> Servicing officials will make full use of the National automated tracked system to track and manage the FLP primary and preservation loan servicing and debt settlement programs.</P> <P>(b) <E T="03">Authorities.</E> All loan servicing decisions except as set forth in this section will be made by the servicing official except the approval of writedown and buyout of a borrower's debt. Also, all applications for debt settlement of FLP loans must be recommended by the County Committee (except where the debt has been discharged through bankruptcy), approved by the State Executive Director or the Administrator (depending upon the amount of debt to be settled), and processed in accordance with the provisions of subpart B of part 1956 of this chapter. Servicing officials are authorized to accept a buyout payment when the borrower(s) pays the current market value of the security set forth in § 1951.909 of this Instruction. Only State Executive Directors are authorized to approve writedown and buyout in accordance with § 1951.909 of this part and release a divorced spouse from liability on the debt in accordance with § 1951.909(a) of this part.</P> <CITA>[62 FR 10121, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <PRTPAGE P="120"/> <SECTNO>§ 1951.904</SECTNO> <SUBJECT>Mediation, reviews and appeals.</SUBJECT> <P>(a) <E T="03">Participant rights.</E> (1) For loan servicing under this subpart, mediation or a voluntary meeting of creditors will be offered if the DALR$ calculations indicate that a feasible plan of operation cannot be developed considering all primary loan service programs, Softwood Timber, and Conservation Contracts. In states with a USDA Certified Mediation Program, mediation will be offered. In all other states, a voluntary meeting of creditors will be offered.</P> <P>(2) Any negotiation of an Agency appraisal must be completed prior to the meeting of creditors or mediation.</P> <P>(3) If the borrower does not request mediation or a voluntary meeting of creditors as offered in Exhibit E of this subpart within 45 days, the servicing official will issue the appropriate “Notice of Intent to Accelerate or to Continue Acceleration and Notice of Borrowers’ Rights.”</P> <P>(4) Whenever the servicing official makes a decision that will adversely affect a participant, the participant will be informed that the decision can be reviewed in accordance with 7 CFR part 780 and indicate whether it can be appealed to the USDA National Appeals Division (NAD) according to regulations set forth in 7 CFR part 11. Nonprogram (NP) participants are not entitled to appeal rights.</P> <P>(b) <E T="03">Non-appealable decisions.</E> The following types of decisions are not appealable:</P> <P>(1) Decisions made by parties outside the agency, even when those decisions are used as a basis for the agency's decisions.</P> <P>(2) Decisions that do not meet the eligibility requirements of 7 CFR part 11.</P> <P>(3) Interest rates as set forth in Agency procedures, except appeals alleging application of the incorrect interest rate.</P> <P>(4) Refusal to request or grant an administrative waiver permitted by program regulations.</P> <P>(5) Denials of assistance due to lack of funds.</P> <P>(6) In cases where the adverse decision is based on both appealable and non-appealable actions, the adverse action is not appealable.</P> <P>(7) Determinations previously made by the Agency that have been appealed, and a NAD decision adverse to the participant has been entered; or upon which the time frame for appeal has expired with no appeal being requested.</P> <P>(c) <E T="03">Next-level review.</E> Any adverse decision, whether appealable or non-appealable, may be reviewed in accordance with 7 CFR part 780.</P> <P>(d) <E T="03">NAD review.</E> (1) A participant may request that NAD review the Agency's determination that the decision may not be appealed.</P> <P>(2) A participant may request that NAD review any decision that is appealable.</P> <P>(3) NAD will review the participant's request in accordance with 7 CFR part 11.</P> <P>(e) <E T="03">Agency actions pending outcome of appeal.</E> Assistance will not be discontinued pending the outcome of an appeal of any adverse action. Releases for essential family living and farm operating expenses will not be terminated until the account has been accelerated.</P> <P>(f) <E T="03">Time limits.</E> Time limits for action under this subpart will be tolled during the pendency of an appeal, but not during the pendency of a request that NAD determine that a matter is or is not appealable.</P> <CITA>[62 FR 10121, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 951.905</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.906</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this subpart, the following definitions apply:</P> <P> <E T="03">Borrower.</E> An individual or entity which has outstanding obligations to the agency under any Farm Loan Programs (FLP) loan, without regard to whether the loan has been accelerated. This does not include any such debtor whose total loans and accounts have been foreclosed or liquidated, voluntarily or otherwise. Collection-only borrowers are considered borrowers. Borrower also includes any other party liable for the FLP debt. Nonprogram (NP) borrowers are not considered borrowers for the purposes of this subpart.</P> <P> <E T="03">CONACT or CONACT property.</E> Property which secured a loan made or insured under the Consolidated Farm and <PRTPAGE P="121"/>Rural Development Act. Within this part, it shall also be construed to cover property which secured other FLP loans.</P> <P> <E T="03">Conservation contract.</E> A contract under which a borrower agrees to set aside land for conservation, recreation or wildlife purposes in exchange for cancellation of a portion of an outstanding FLP debt. Relief obtained in this manner is not considered debt forgiveness as defined in this section.</P> <P> <E T="03">Consolidation.</E> The combining and rescheduling of the rates and terms of two or more notes of the same type of OL or EO loans, EE operating-type loans or EM loans. EM actual loss loans will not be consolidated.</P> <P> <E T="03">Current market value buyout.</E> Termination of a borrower's loan obligations to the agency in exchange for payment of the current appraised value of the security property, less any prior liens.</P> <P> <E T="03">Debt forgiveness.</E> For the purposes of loan servicing, debt forgiveness is defined as a reduction or termination of a direct FLP loan in a manner that results in a loss to the Agency. Included, but not limited to, are losses from a writedown or writeoff under this subpart, subpart J of this part, subpart B of part 1956 of this chapter, after discharge under the bankruptcy code, and associated with release of liability. Debt cancellation through conservation contracts is not considered debt forgiveness under this subpart.</P> <P> <E T="03">Debt settlement.</E> The settlement of debts owed the United States for FLP loans. The types of debt settlement programs are: compromise, adjustment, cancellation and chargeoff.These programs are administered in accordance with subpart B of part 1956 of this chapter. Any action through debt settlement which results in a loss to the Agency will be considered debt forgiveness.</P> <P> <E T="03">Deferral.</E> An approved delay in making regularly scheduled payments, including softwood timber (ST) loans. Deferral is not considered debt forgiveness.</P> <P> <E T="03">Delinquent borrower.</E> A borrower who has failed to make all or part of a payment which is due for 30 or more calendar days after the due date.</P> <P> <E T="03">Entity.</E> A corporation, partnership, joint operation, or cooperative.</P> <P> <E T="03">Farm Loan Programs (FLP) loans.</E> This refers to Farm Ownership (FO), Soil and Water (SW), Recreation (RL), Economic Opportunity (EO), Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood Timber (ST) loans, and Rural Housing loans for farm service buildings (RHF).</P> <P> <E T="03">Farm plan.</E> Form FmHA 431-2, “Farm and Home Plan,” or other plans or documents acceptable to the agency that will accurately reflect the production and financial management of the farming operation for one production cycle. The agency will not require the use of consolidated financial statements.</P> <P> <E T="03">Feasible plan.</E> A feasible plan must be based upon the applicant or borrower's actual records that show the farming operation's actual income, production and expenses. These records will include income tax returns and supporting documents (hereafter called income tax records). The records must be for the most recent five-year period or, if the borrower has been farming less than five years, for the period which the borrower has farmed. For borrowers who have been farming for less than five years, other available records will be used in the order listed in section § 1924.57(d)(1) of subpart B of part 1924 of this chapter to complete a five-year history. Future production yields will be based on an average of the most recent past five years’ actual production yields. Borrowers with yields affected by disasters in at least two of the five most recent years may exclude the crop year with the lowest actual yield. In addition, in accordance with section § 1924.57(d)(1) of subpart B of part 1924 of this chapter, if the applicant's remaining disaster years’ yields are less than the County average yield, and the borrower's yields were affected by the disaster, County average yields will be used for those years. If County average yields are not available, State average yields will be used. These records will be used along with realistic anticipated prices, including any planned FLP loan payments, to determine that the income from the farming operation, and any reliable off-farm income, will provide the income necessary for an applicant or borrower to at least be able to:<PRTPAGE P="122"/> </P> <P>(1) Pay all operating expenses and taxes which are due during the projected farm business accounting period.</P> <P>(2) Meet scheduled payments on all debts.</P> <P>(3) Meet up to 110 percent, but not less than 100 percent, of the amount indicated for payment of farm operating expenses, debt servicing obligations and family living expenses. The Agency will assume that a borrower needs this margin to meet all obligations and continue farming. However, this will not prohibit a borrower from receiving debt restructuring because the farm and home plan shows less than such a margin. In no case will a borrower with a cash flow of less than 100 percent receive restructuring.</P> <P>(d) Provide living expenses for the family members of an individual borrower or a wage for the farm operator in the case of a cooperative, corporation, partnership, or joint operation borrower, which is in accordance with the essential family needs. Family members include the individual borrower or farm operator in the case of an entity, and the immediate members of the family which reside in the same household.</P> <P> <E T="03">Financially distressed.</E> A financially distressed borrower is one who will not be able to make payments as planned for the current or next business accounting period. Borrowers will also be considered as in financial distress if it is determined that they will not be able to project a feasible plan of operation for the next business accounting period.</P> <P> <E T="03">Foreclosed.</E> The completed act of selling security either under the “power of sale” in the security instrument or through court proceedings.</P> <P> <E T="03">Good faith.</E> An eligibility requirement for Primary Loan Servicing and Current Market Value Buyout. Borrowers are considered to have acted in “good faith” if they have demonstrated “honesty” and “sincerity” in complying with the requirements of Form 1962-1, “Agreement for the Use of Proceeds/Release of Chattel Security,” and any other written agreements made with the agency, as documented in the case file. In addition, the agency must substantiate any allegations of fraud, waste, or conversion with a written legal opinion from the Office of the General Counsel (OGC) when such allegations are used to deny a servicing request. A borrower will not be considered to lack “good faith” if the sole basis for such a determination was the disposition of normal income security (§ 1962.4 of subpart A of part 1962 of this chapter) prior to October 14, 1988, without the Agency's consent and the borrower demonstrates that the proceeds were used to pay essential family living and farm operating expenses that could have been approved according to § 1962.17 of subpart A of part 1962 of this chapter.</P> <P> <E T="03">Homestead Protection.</E> The right of a former owner to apply to lease, with an option to purchase the Homestead Protection property, not to exceed 10 acres.</P> <P> <E T="03">Homestead Protection property.</E> This refers to the principal residence which secured a FLP loan.</P> <P> <E T="03">Indian Reservation.</E> Indian reservation means all land located within the limits of any Indian reservation under the jurisdiction of the United States, notwithstanding the issuance of any patent, and including rights-of-way running through the reservation; trust or restricted land located within the boundaries of a former reservation of a Federally recognized Indian tribe in the State of Oklahoma; or all Indian allotments the Indian titles to which have not been extinguished if such allotments are subject to the jurisdiction of a Federally recognized Indian Tribe.</P> <P> <E T="03">Limited Resource Program.</E> A reduction of interest rates for operating loans (OL), farm ownership loans (FO) and soil and water loans (SW).</P> <P> <E T="03">Liquidated.</E> The completed act of voluntarily selling security to end the obligation for the debt, or involuntarily as the result of a completed civil suit against a borrower to recover collateral against the debt. The filing of a claim in a bankruptcy action is not a complete liquidation of the borrower's accounts. Collection-only accounts are not considered liquidated.</P> <P> <E T="03">Loan service program.</E> A Primary Loan Servicing program or a Preservation Loan Servicing program (Homestead Protection) for FLP loan borrowers.</P> <P> <E T="03">New application.</E> An application submitted on or after November 28, 1990, <PRTPAGE P="123"/>for loan servicing programs. This does not include an application reconsidered after an appeal or revision of an application submitted before November 28, 1990.</P> <P> <E T="03">Nonessential assets.</E> Nonessential assets are those in which the borrower has an ownership interest, that:</P> <P>(1) Do not contribute a net income to pay essential family living expenses or to maintain a sound farming operation (see 1962.17 of subpart A of part 1962 of this chapter); and</P> <P>(2) Are not exempt from judgment creditors or in a bankruptcy action. Each State Executive Director, with the guidance of the Office of the General Counsel, will issue a State Supplement to establish guidelines on items that are exempt from judgment creditors and are exempt under bankruptcy law in accordance with statute.</P> <P> <E T="03">Nonprogram (NP) loan.</E> An NP loan results when a loan is made to an ineligible applicant or transferee in connection with a loan assumption and sale of inventory properties at ineligible terms. Borrowers originally determined eligible by the agency and found to be ineligible after the loan was made due to an agency error are not considered to have nonprogram loans.</P> <P> <E T="03">Preservation loan service program.</E> See Homestead Protection.</P> <P> <E T="03">Primary loan service program.</E> Primary loan service program means:</P> <P>(1) Loan consolidation, rescheduling, or reamortization;</P> <P>(2) Interest rate reduction, including use of the limited resource program;</P> <P>(3) Loan restructuring, including deferral, or writing down of the principal or accumulated interest; or</P> <P>(4) Any combination of the above.</P> <P> <E T="03">Reamortization.</E> Reamortization is rearranging the installment payments of a real estate loan, and may include changing the interest rate and terms of a loan made for Subtitle A purposes.</P> <P> <E T="03">Rescheduling.</E> Rescheduling is rewriting the rates and/or terms of OL, SL, EO loans, EE operating-type loans or EM loans made for Subtitle B purposes.</P> <P> <E T="03">Writedown.</E> For purposes of this subpart, writedown is reducing a borrower's debt to an amount that will result in a feasible plan of operation.</P> <CITA>[62 FR 10121, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.907</SECTNO> <SUBJECT>Notice of Loan Service Programs.</SUBJECT> <P>In those instances where the applicable notice is sent certified mail, and the certified mail is not accepted by the borrower, the County Supervisor will immediately send the documents from the certified mail package to the borrower's last known address, first class mail. The appropriate response time will commence 3 days following the date of first class mailing.</P> <P>(a) <E T="03">Notification of borrowers who file bankruptcy.</E> The account will be serviced in accordance with instructions from the Regional Office of the General Counsel (OGC), and in accordance with § 1962.47(a)(3) of subpart A of part 1962 of this chapter.</P> <P>(b) <E T="03">Notification of borrowers who have been discharged in bankruptcy or who have plans confirmed by bankruptcy courts.</E> If the borrower has been discharged in bankruptcy or the borrower is operating under a confirmed plan, the account will be serviced in accordance with instructions from the Regional OGC and in accordance with § 1962.47 (a) or (c) of subpart A of part 1962 of this chapter.</P> <P>(c) <E T="03">Notification of borrowers 90 days past due on payments.</E> FLP borrowers who are at least 90 days past due (60 days delinquent) will be sent Exhibit A of this subpart with attachments 1 and 2 by certified mail, return receipt requested. If the borrower submits an incomplete application, see paragraph (e) of this section for procedures on requesting additional information. Delinquent borrowers who have also violated their loan agreements with the agency will be handled in accordance with § 1951.907(e). In addition to the requirements set forth above, servicing officials will provide Attachments 1 and 2 of Exhibit A of this subpart to these borrowers, as set forth below:</P> <P>(1) At the time an application is made for participation in an FLP loan service program, unless such application is the result of the notice provided to the borrower in accordance with this section,</P> <P>(2) On written request of any FLP borrower, whether delinquent or not, prior to the sending of a packet under paragraph (c) of this section, and<PRTPAGE P="124"/> </P> <P>(3) If a borrower has not previously received exhibit A and attachments 1 and 2 of this subpart, such exhibit and attachments will be provided before the earliest of:</P> <P>(i) Initiating any liquidation action,</P> <P>(ii) Accepting a voluntary conveyance of security, or the borrower requesting permission to sell security,</P> <P>(iii) Accelerating payments on the loan,</P> <P>(iv) Repossessing the borrower's property,</P> <P>(v) Foreclosing on property, or</P> <P>(vi) Taking any other collection action.</P> <P>(d) <E T="03">Notification of borrowers in non-monetary default; delinquent borrowers also in non monetary default, or when a junior or senior lienholder is foreclosing.</E> FLP borrowers who are in non-monetary default will be sent attachments 1, 3, and 4 of exhibit A of this subpart by certified mail, return receipt requested. If a case is in the hands of the Department of Justice or in litigation, no loan servicing action will be taken without Department of Justice or OGC concurrence (see 1962.49 of this chapter). Any servicing request will be processed as indicated in § 1951.909. The account will not be liquidated until the borrower has the opportunity to appeal any adverse decision. After any final appeal decision that does not result in a resolution of the loan defaults, the account will be accelerated.</P> <P>(e) <E T="03">Request for primary and preservation loan service programs.</E> (1) To request consideration for Primary and Preservation Loan Service programs, borrowers who are sent exhibit A, with attachments 1 and 2 or attachments 1, 3, and 4 must complete and return attachment 2 or attachment 4, as appropriate, to the local county office within 60 days after receiving those documents, with the forms required by this paragraph for a completed application.</P> <P>(2) If borrowers are sent attachments 3 and 4 and do not request servicing within 60 days, the agency will proceed with liquidation in accordance with § 1955.15 of this chapter.</P> <P>(3) If borrowers are sent exhibit A and attachments 1 and 2 of this subpart and do not submit a completed application within the 60-day time period, the servicing official will send attachments 9 and 10, or 9-A and 10-A of exhibit A of this subpart, as applicable. These attachments will not be sent to borrowers who are being serviced in accordance with § 1951.908. For borrowers receiving attachments 9 and 10 or 9-A and 10-A, the agency will proceed with liquidation in accordance with § 1955.15 of this chapter.</P> <P>(4) If a borrower has moved and left a forwarding address, the certified mail will be forwarded. If no forwarding address is given, the mail will be returned to the county office. The servicing official will immediately send the documents from the certified mail package to the borrower's last known address, first class mail. The borrower's response date for a completed application will begin on the date of receipt of the certified mail or 3 days following the date of first class mailing, whichever is earlier.</P> <P>(5) An application for loan service programs must include the following forms (available in any agency office), and data, unless the information is already in the borrower's case file and still current, as determined by the approval official:</P> <P>(i) Attachment 2 or 4 of exhibit A to this subpart, response form to apply for loan servicing.</P> <P>(ii) Form 410-1, “Application for FmHA Services,” including a current (within 90 days) financial statement of all individuals and entities personally liable for the FLP debt.</P> <P>(iii) Form 431-2, “Farm and Home Plan,” or any other form or submission acceptable to the agency that sets forth a plan of operation and the necessary information. Commodity prices supplied by the agency will be used to complete the forms.</P> <P>(iv) Form 440-32, “Request for Statement of Debts and Collateral.”</P> <P>(v) Form RD 1910-5, “Request for Verification of Employment.”</P> <P>(vi) Form AD-1026, “Highly Erodible Land Conservation (HELC) and Wetland Conservation (WC) Certification,” if the one on file with the agency does not reflect all the land owned and leased by the borrower.</P> <P>(vii) Form SCS CPA-26, “Highly Erodible Land and Wetland Determination,” if not previously on file with the agency for the farm operation. This <PRTPAGE P="125"/>form is included as part of the application after being completed by NRCS. (This form is available at NRCS local offices.)</P> <P>(viii) If the applicant wants to be considered for a conservation contract, a map or copy of an aerial photo of the farm, on which the applicant must show that portion of the farm and approximate acres to be considered in a request for debt restructuring provided for in the conservation contract program.</P> <P>(ix) The most recent five years’ income tax returns and supporting documents, unless the borrower has been farming for less than five years. In such case, income tax returns and supporting documents for the tax years that the borrower farmed.</P> <P>(x) If the borrower is applying for debt settlement, Form RD1956-1, “Application for Settlement of Indebtedness.”</P> <P>(6) The borrower will be provided with copies of these forms when Exhibit A is sent, and may request copies of regulations and the forms manual inserts (FMI) in writing within 30 days of receipt of the loan servicing notice. If these latter items are not provided within 10 days of such a request, the borrower's time for submission of a complete application will be increased by the period of delay in excess of 10 days caused by the Agency.</P> <P>(7) Not more than one 60-day period will be provided to a borrower to respond to the notice of loan service programs except in accordance with § 1951.908. Subsequent notices as provided for in this section will not be issued until the first notice is resolved.</P> <CITA>[57 FR 18626, Apr. 30, 1992, as amended at 62 FR 10123, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.908</SECTNO> <SUBJECT>Servicing financially distressed current borrowers.</SUBJECT> <P>A borrower who is financially distressed, but is not yet delinquent on FLP payments, may request servicing at any time.</P> <P>(a) <E T="03">Notification.</E> If a current plan of operation demonstrates that the borrower is or will be financially distressed, as defined in § 1951.906, or if the borrower otherwise requests servicing, the servicing official will provide attachments 1 and 2 of exhibit A of this subpart.</P> <P>(b) <E T="03">Eligibility.</E> To be considered for servicing in accordance with this section, the borrower must submit to the county office within 60 days Attachment 2 of exhibit A of this subpart and a complete application in accordance with the requirements of § 1951.907(e).</P> <P>(1) The eligibility requirements of § 1951.909(c) (1) and (2) apply to servicing under this section.</P> <P>(2) Eligible financially distressed borrowers who are current on their FLP loan payments may be considered for the Primary Loan Service programs described in §§ 1951.909(e) (1), (2) and (3).</P> <P>(3) Financially distressed borrowers who are not delinquent are not eligible for writedown of debt or buyout as described in 1951.909.</P> <P>(c) <E T="03">Processing the application.</E> The servicing official must process a completed application and notify the borrower of the decision.</P> <P>(1) Current borrowers will be considered only for the Primary Loan Servicing programs described in §§ 1951.909 (e) (1), (2), and (3). The servicing official must use the Debt and Loan Restructuring System (DALR$) program, in accordance with exhibit J-1 of this subpart, to determine if a feasible plan can be developed as defined in § 1951.906.</P> <P>(2) If a feasible plan can be developed, the borrower will be sent exhibit B of this subpart with attachment 1 and the printout of the DALR$ calculations as notification of the favorable decision. The borrower must accept the offer within 45 days of its receipt by returning attachment 1 to exhibit B of this subpart or the offer will expire. If the borrower accepts, loan restructuring will be processed in accordance with §§ 1951.909 (e) (1), (2), or (3), as applicable.</P> <P>(3) If a feasible plan cannot be developed, the borrower will be informed of the reasons for the adverse decision. The DALR$ printout will be attached.</P> <P>(4) Current borrowers who have received notices under this section and who do not apply for primary loan servicing, or who refuse an offer to restructure their debt, and later become 90 days past due on the FLP loan payment, will be sent notices as described in § 1951.907.<PRTPAGE P="126"/> </P> <P>(5) Borrowers whose accounts are not delinquent may receive rescheduling, reamortization, consolidation, or deferral under this subpart only after they have paid at least a portion of the interest due on their FLP debt. The portion due will be based on the applicant's ability to pay, as determined by thoroughly analyzing the farm operation, including any off-farm income. The payment must be made on or before the date that restructuring is closed. Borrowers in non-monetary default, but not delinquent on their FLP debt, must cure the non-monetary default before they may be considered for servicing under this paragraph.</P> <CITA>[62 FR 10124, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.909</SECTNO> <SUBJECT>Processing primary loan service programs requests.</SUBJECT> <P>(a) <E T="03">Servicing official responsibilities.</E> (1) After receipt of attachment 2 or 4 and a completed application in accordance with § 1951.907(e), the servicing official will consider all primary service programs options in this subpart. That official must use the Debt and Loan Restructuring System (DALR$) computer program, in accordance with exhibit J-1 of this subpart for borrowers who submit a new application, to attempt to find the combination of loan service programs that will result in a feasible plan. Borrowers who request loan servicing and who have disposed of all the FLP loan security, including Collection-Only borrowers, will be processed in accordance with part 1956, subpart B, of this chapter. If the application includes a request for the Conservation Contract program, as indicated by the submission of the information required in § 1951.907(e)(5)(viii), the servicing official will determine whether the borrower is eligible, based on criteria as set forth in exhibit H of this subpart. If the borrower is eligible, the servicing official will make an estimate of the information needed to permit the DALR$ program to make the calculations of feasibility of the Conservation Contract. The assumptions used to establish the estimates will be based on the servicing official's knowledge of the farmland values, the borrower's repayment ability, and the proposed contract acreage. When the DALR$ calculations for restructuring are completed, the borrower will be notified as set forth in paragraph (h) of this section.</P> <P>(2) When jointly liable individual borrowers have been divorced and one has withdrawn from the operation, the State Executive Director will consider, upon the recommendation of the servicing official, the release of liability for the individual who has withdrawn if the following conditions are met.</P> <P>(i) A divorce decree or property settlement document held the withdrawing party not responsible for the loan payments;</P> <P>(ii) The withdrawing party's interest in the security is conveyed to the borrower with whom the loan will be continued;</P> <P>(iii) The person withdrawing does not have any repayment ability for the loan, and does not own any nonessential assets, as defined in § 1951.906;</P> <P>(iv) The individual withdrawing has never received debt forgiveness on another direct loan; and.</P> <P>(v) The withdrawing party provides a copy of the divorce decree and property settlement, evidence of conveyance, a current financial statement, verification of income and debts, and Form 431-2 or Form RD-1944-3 as applicable.</P> <P>(3) If a completed application includes a request for a waiver from the training required by paragraph (c)(5) of this section, the County Committee will, prior to any offer of Primary Loan Servicing, evaluate the borrower's knowledge and ability in production and financial management and determine the need for additional training as set out in § 1924.74 of this chapter.</P> <P>(b) <E T="03">Adverse determination.</E> (1) If the approval official determines that the borrower is not eligible for any of the Primary Loan Service programs or restructuring is not feasible because of debt held by other lenders, the borrower will be advised of mediation or meeting of creditors as provided in paragraph (h)(3) of this section. If mediation or the meeting of creditors does not result in a feasible plan, the borrower will be sent attachments 5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as applicable.</P> <P>(2) Borrowers who do not buy out their debt at its current market value, <PRTPAGE P="127"/>or who indicate in writing that they do not wish to buy out, will automatically be considered for debt settlement if they submitted an “Application For Debt Settlement.” Any appeal of a primary loan servicing denial will be completed before the servicing official begins any further processing of a Debt Settlement or Homestead Protection request. If the adverse decision on restructuring is upheld on appeal, the borrower will be considered for these options. The servicing official will complete the processing of the borrower's application for Debt Settlement in accordance with part 1956 of this chapter. Homestead Protection will be processed in accordance with § 1951.911. No acceleration or foreclosure will occur until the appeal process has been completed for servicing or debt settlement requests timely submitted under this subpart.</P> <P>(3) Applicants may request a negotiated appraisal in accordance with paragraph (i) of this section if they object to the agency's appraisal. Negotiation of the appraisal, if requested by the borrower, will take place before mediation or a voluntary meeting of creditors.</P> <P>(c) <E T="03">Eligibility.</E> Applicants will be eligible for Primary Loan Service programs if the servicing official has determined that they meet all of the following requirements:</P> <P>(1) The delinquency or financial distress does exist and is due to circumstances beyond the control of the borrower, due to a reduction in income which reduces cash flow to a point where outflows exceed inflows, only as follows:</P> <P>(i) The reduction in essential income from a non-farm job due to unemployment or underemployment of the borrower-operator or spouse is caused by circumstances beyond their control;</P> <P>(ii) Illness, injury, or death of an individual borrower, stockholder, member or partner who operates the farm;</P> <P>(iii) Natural disasters, an outbreak of uncontrollable disease, or uncontrollable insect damage which caused severe loss of agricultural production that reduced repayment ability so that scheduled payments cannot be made; or</P> <P>(iv) Economic factors that are widespread and not limited to an individual case, such as high interest rates or low market prices for agricultural commodities as compared to production costs, that reduce repayment ability so that the scheduled payments cannot be made.</P> <P>(2) The borrower has acted in good faith.</P> <P>(3) Borrowers who do not meet the eligibility requirements of this section will be notified of the adverse decision by sending attachments 5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as appropriate.</P> <P>(4) Borrowers with sufficient nonessential assets to bring the FLP loan account current are not eligible for assistance under this subpart and will be processed in accordance with § 1951.910 of this subpart.</P> <P>(5) The borrower must agree to meet the training requirements of § 1924.74 of this chapter unless a waiver is granted in accordance with that section. The training requirement applies to all primary loan servicing programs.</P> <P>(d) <E T="03">Feasibility determinations.</E> The servicing official must determine:</P> <P>(1) That the borrower will be able to develop a feasible plan.</P> <P>(2) If restructured, the loan will result in a net recovery to the Government that will be equal to or greater than the net recovery value from involuntary liquidation or foreclosure as calculated in accordance with paragraph (f) of this section. A comparison with net recovery to the Government, however, will not be made when establishing conservation contracts under exhibit H of this subpart.</P> <P>(e) <E T="03">Primary loan service programs.</E> Any FLP borrower may request Primary Loan Servicing Programs described in this subpart at any time prior to becoming 90 days past due. However, borrowers must show that they are not able to pay their debt as scheduled before the agency will approve Primary Loan Servicing Programs. The agency will consider the borrower's other assets in accordance with § 1951.910 of this subpart. Rescheduling, reamortization, consolidation, or deferral may be utilized for any eligible borrower. Existing deferrals will be cancelled at the same time additional primary loan servicing is received. The loan will be entered into DALR$ as if the deferral <PRTPAGE P="128"/>were already cancelled. If DALR$ shows that a borrower can develop a feasible plan without a writedown at a lower cash flow margin than with a writedown, that borrower will be provided the opportunity to choose between restructuring with or without a writedown.</P> <P>(1) <E T="03">Consolidation and rescheduling of OL and EO loans, EE operating-type loans and EM loans made for subtitle B purposes including EM loss loans.</E> This subsection explains how to consolidate and/or reschedule <E T="03">existing</E> loans, providing the borrower agrees to such actions. When the servicing official determines that consolidation and/or rescheduling will assist in the orderly collection of the loan, the servicing official should take such action provided all of the following conditions exist:</P> <P>(i) The borrower meets the eligibility requirements in paragraph (c) of this section;</P> <P>(ii) Such action is not taken to circumvent the FLP graduation requirements;</P> <P>(iii) The borrower's account is not being serviced by the OGC or the U.S. Attorney and there are no plans to have the account serviced by either of these offices in the near future;</P> <P>(iv) Loans may be rescheduled or reamortized, as appropriate, to bring the account current or to keep the account from becoming delinquent. A sufficient number of notes including all delinquent notes will be rescheduled to permit the development of a feasible plan of operation;</P> <P>(v) The borrower will comply with the highly Erodible Land and Wetland Conservation provisions of exhibit M of subpart G of part 1940 of this chapter, if applicable;</P> <P>(vi) Loans secured by real estate will not be consolidated and/or rescheduled, until the servicing official reviews the Government's real estate lien priority and value of security and decides that such an action will be in the best interest of the Government and the borrower. If there are any liens which were not in existence at the time the note was signed, the servicing official will ask the OGC for an opinion as to what lien position the Government will have if a new note is taken unless a State supplement authorizing this action has been issued on this subject;</P> <P>(vii) Only loans of the same type will be consolidated;</P> <P>(viii) EM actual loss loans will not be consolidated;</P> <P>(ix) Loans serviced under subpart L of this part will not be consolidated with another loan;</P> <P>(x) Loans that have been deferred under this section will not be consolidated and/or rescheduled during the deferral period;</P> <P>(xi) Terms of consolidated and/or rescheduled loans are as follows:</P> <P>(A) Consolidated and/or rescheduled loans will be repaid according to the borrower's repayment ability, but will not exceed 15 years from the date of the consolidation and/or rescheduling action, except:</P> <P>(B) Repayment of loans solely for recreation and/or nonfarm enterprise purposes may not exceed seven years from the date of the consolidation and/or rescheduling action (the date the new note is signed).</P> <P>(C) Repayment of EE loans may not exceed 15 years from the date of rescheduling.</P> <P>(xii) Interest rates of consolidated and/or rescheduled loans will be as follows:</P> <P>(A) The interest rate for consolidated and/or rescheduled loans will be the lesser of the current interest rate for that type of loan or the lowest <E T="03">original</E> loan note rate on any of the original notes being consolidated and/or rescheduled. In the case of an OL-limited resource loan, it will be the lesser of the current limited resource OL loan rate or the original note rate. The interest rate for loans rescheduled but not consolidated will be the lesser of the current interest rate for that type of loan or the <E T="03">original</E> loan note rate.</P> <P>(B) At the time of the consolidation and/or rescheduling action, OL loans that were not assigned a limited resource rate when the loan was received, may be assigned a limited resource rate if:</P> <P>(<E T="03">1</E>) The borrower meets the requirements for the limited resource interest rate, and</P> <P>(<E T="03">2</E>) A feasible plan cannot be developed at regular interest rates and maximum terms permitted in this section.<PRTPAGE P="129"/> </P> <P>(xiii) The original (old) note(s) will be marked “Rescheduled” and stapled to the new rescheduled promissory note and will be filed in the operation file. Copy(ies) for the borrower's(s’) case file should be marked and stapled the same and filed in position 2 of the case file. If a transfer is involved, assumption agreement(s) will be marked and stapled with the note(s) and copies filed as indicated above. If part of a note is written down, the written down note will be marked “Rescheduled with Debt Write Down,” and will be filed in the operation file.</P> <P>(xiv) For applications received before November 28, 1990, the amount of outstanding accrued interest more than 90 days overdue and any outstanding protective advances, as defined in § 1965.11(b) of subpart A of part 1965 of this chapter, made on the loan will be added to the principal at the time of consolidation and/or rescheduling (the date the new note is signed by the borrower). Protective advances are not authorized for the payment of prior or junior liens except real estate tax liens. See section II E of exhibit J of this subpart for an explanation of how to schedule payment of interest not more than 90 days overdue; and</P> <P>(xv) For new applications, the amount of outstanding accrued interest and any outstanding protective advances, as defined in § 1965.11(b) subpart A of part 1965 of this chapter, made on the loan will be added to the principal at the time of consolidation and/or rescheduling (the date the new note is signed by the borrower) in accordance with the provisions of exhibit J-1 of this subpart. Protective advances are not authorized for the payment of prior or junior liens except real estate tax liens.</P> <P>(2) <E T="03">Reamortization of FO, SW, RL, RHF, EE, or EM loans made for real estate purposes.</E> When the servicing official determines that a reamortization action will assist in the orderly collection of the loan, the servicing official should take such action, provided:</P> <P>(i) The borrower meets the eligibility requirements of § 1951.909(c) of this subpart;</P> <P>(ii) Such action is not taken to circumvent the FLP graduation requirements;</P> <P>(iii) The borrower's account is not being serviced by the OGC or the U.S. Attorney, and there are no plans to have the account serviced by either of these offices in the foreseeable future;</P> <P>(iv) A feasible plan for the borrower cannot be developed with the existing repayment schedule. A sufficient number of notes, including all delinquent notes, will be reamortized to permit the development of a feasible plan of operation;</P> <P>(v) The borrower will comply with the Highly Erodible Land and Wetland Conservation requirements of exhibit M of subpart G of part 1940 of this chapter, if applicable;</P> <P>(vi) Loans that have been deferred in this supbart will not be reamortized during the deferral period unless the deferral is cancelled;</P> <P>(vii) Reamortized installments usually will be scheduled for repayment within the remaining time period of the note or assumption agreement being reamortized. If repayment is extended, the new repayment period plus the period the loan has been in effect may not exceed the maximum number of years for that type of loan as set forth below, or the useful life of the security, whichever is less:</P> <P>(A) FO, SW, RL, EE, and EM loans may not exceed 40 years from the date of the original note or assumption agreement.</P> <P>(B) EE loans for real estate purposes, which are secured by chattels only, may be reamortized over a period not to exceed 20 years from the date of the original note or assumption agreement.</P> <P>(C) RHF loans may not exceed 33 years from the date of the original note or assumption agreement.</P> <P>(D) SA loans may not exceed 25 years from the date of the original amortized note.</P> <P>(viii) The interest rate will be as follows:</P> <P>(A) The interest rate will be the current interest rate in effect on the date of reamortization (the date the new note is signed by the borrower), or the interest rate on the original Promissory Note to be reamortized, whichever is less. In the case of a limited resource loan, it will be the limited resource FO or SW loan rate or the original loan note rate, whichever is less. SA loans <PRTPAGE P="130"/>will be reamortized at the current Homestead Protection program interest rate in effect on the date of approval or the rate on the original amortized note, whichever is less.</P> <P>(B) At the time of the reamortization, an FO or SW loan that was not assigned a limited resource rate when the loan was received, may be changed to a limited resource interest rate if:</P> <P>(<E T="03">1</E>) The borrower meets the requirements for a limited resource interest rate,</P> <P>(<E T="03">2</E>) A feasible plan cannot be developed at regular interest rates and at the maximum terms permitted in this section, and</P> <P>(<E T="03">3</E>) For SW loans, the loans funds were used for soil and water conservation and protection purposes as set forth in § 1943.66 (a)(1) through (a)(5) of subpart B of part 1943 of this chapter.</P> <P>(C) For applications received before November 28, 1990, the amount of accrued interest more than 90 days overdue and any protective advances, as defined in § 1965.11(b) of subpart A of part 1965 of this chapter, charged to the borrower's account, will be added to the principal at the time of the reamortization action (the date the new note is signed by the borrower). <E T="03">Protective advances are not authorized for the payment of prior or junior liens except real estate tax liens.</E> If there are no deferred installments, the first installment payment under the reamortization will be at least equal to the interest amount which will accrue on the new principal between the date the Form 1940-17 is processed and the next installment due date. See section II E of exhibit J of this subpart for an explanation of how to schedule payments of interest not more than 90 days overdue. For new applications, the amount of outstanding accrued interest and any outstanding protective advances made on the loan will be added to the principal at the time of reamortization (the date the new note is signed by the borrower) in accordance with the provisions of exhibit J-1 of this subpart.</P> <P>(ix) The original (old) note(s) will be marked “Reamortized” and will be stapled to the new promissory note and filed in the operational file. Copies for the borrower(s) case file should be marked and stapled the same and filed in position 2 of the case file. If a transfer is involved, assumption agreement(s) will be marked and stapled with the note(s) and copies filed as indicated above. If a part of a note is written down, the written down note will be marked “Reamortized with Debt Writedown” and will be filed as indicated above in this paragraph.</P> <P>(3) <E T="03">Deferral of existing OL, FO, SW, RL, EM, EO, RHF, and EE loans</E>—(i) <E T="03">Loan deferrals.</E> Deferrals will be considered only after it has been determined that consolidation, rescheduling, and reamortization, in accordance with this subpart, will not provide a feasible plan.</P> <P>(ii) <E T="03">Conditions.</E> In order to be considered for a deferral, the borrower must meet both of the following conditions:</P> <P>(A) The need for the deferral must be temporary. To be <E T="03">temporary</E> means that the borrowers will be able to show to the satisfaction of the servicing official that they will be able to resume payment on the debt by the end of the deferral period, or the new payments, as established by using consolidation, rescheduling, or reamortization can be resumed at the end of the deferral period; and</P> <P>(B) Continuation of loan payments as presently scheduled without change, will unduly impair the borrower's standard of living. An unduly impaired standard of living is a condition whereby the borrower, due to circumstances beyond the borrower's control, is unable to pay essential family living expenses (partnerships, joint operators, corporations, and cooperatives do not have family living expenses), pay normal farm operating expenses, including reasonable and customary hired labor and/or salary paid to the operator(s) of a partnership, a joint operation, a corporation, or a cooperative, maintain essential chattels and real estate, and meet the scheduled payments of all debts.</P> <P>(iii) <E T="03">Approval offical determinations.</E> The approval official must:</P> <P>(A) Determine that the borrower meets the eligibility requirements of § 1951.909(c) of this subpart;</P> <P>(B) Determine that a deferral of payments is necessary and appropriately document the conditions causing the need for deferral;<PRTPAGE P="131"/> </P> <P>(C) If a borrower owns 50 acres or more of marginal land as defined in exhibit G of this subpart and a feasible plan cannot be developed after consideration of a deferral, the servicing official will inform the borrower about the Softwood Timber (ST) loan program authorized by exhibit G of this subpart by sending Attachment 1 of exhibit G of this subpart by certified mail, return receipt requested, within 5 days after the adverse deferral determination. If the borrower requests the servicing official to determine that an ST loan may allow the borrower to continue to farm, within 15 days of the borrower's receipt of attachment 1, the servicing official will determine if the borrower is eligible, based on criteria as set forth in exhibit G of this subpart. If the borrower is eligible the servicing official will help the borrower to develop a plan to determine if a feasible operation can be developed utilizing this program. The discussion will be documented in the borrower's case file.</P> <P>(iv) <E T="03">Loan deferral considerations</E>. The servicing official will assist the borrower in completing a typical-year plan. If there is no typical year, the servicing official will assist the borrower with completing a plan of operation for each year of the deferral. The plans must be considered in DALR$.</P> <P>(A) A sufficient number of loans must be considered for deferral to permit the borrower to have a feasible plan.</P> <P>(B) A deferral plan may include a reorganization of the farming operation, including the use of new enterprises, to overcome existing financial, economic or other limitations of the operation. If the proposed restructuring requires capital expenditures, a subordination or additional loan will be considered. Deferral of additional loan installments beyond those needed to allow the borrower to develop a feasible plan will not be used to create additional cash reserve for capital purchases. Such purchases are not considered operating expenses.</P> <P>(C) A typical year during the deferral period is a year which most closely represents the borrower's average operation for the entire deferral period. There may be no typical year for farming or ranching operations undergoing a major reorganization. If there is no typical year, then it will be necessary to develop a plan of operation for each year of the deferral. The plans must be considered in DALR$ to determine if each plan is feasible.</P> <P>(D) The deferral of loan installments is not intended to create a high net cash reserve where revenue substantially exceeds expenses. If the deferral of a complete note would cause a high net cash reserve during the entire deferral period, a full deferral should not be granted. In such a case, a partial deferral should be considered to obtain a feasible plan of operation. The same approach should be used for situations in which there is no typical year and debt payments must vary throughout the deferral period.</P> <P>(E) The borrower must have feasible plans of operation to support any deferral request. Plans of operation in conjunction with loan deferrals must be realistic and supported by the borrower's actual records.</P> <P>(v) <E T="03">Additional and subsequent deferrals.</E> If, during the period of the initial deferral, the borrower is unable to make the scheduled payments, the borrower may again request primary loan service actions. When considering primary servicing actions, existing deferred notes must be entered into DALR$ as if they had not been deferred. If it is necessary to defer additional loans to develop a feasible plan, such action will be taken if the deferral will result in a greater net recovery to the Government than debt writedown. Borrowers may obtain subsequent deferrals after the deferral period provided the conditions of this subsection are met.</P> <P>(vi) <E T="03">Term and interest rate.</E> A deferral period will not exceed five (5) annual installments. Deferral interest rates will be determined as specified in paragraphs (e)(1)(xii) and (e)(2)(viii) of this section.</P> <P>(A) All loans being deferred will be consolidated, rescheduled or reamortized, as applicable. The promissory note rescheduled, reamortized or consolidated for the deferral will show “zero” as the installments due during the period of the deferral if the whole note is deferred and will not be changed during the deferral period unless the conditions of paragraph (e)(3)(v) of this section are met. The <PRTPAGE P="132"/>servicing official will determine the amount of interest that will accrue during the deferred period. This interest will be repaid in equal amortized installments during the term of the loan remaining after the deferral period. The calculated installments will be added to the remaining installments for the remaining principal balance and inserted on the promissory note as a scheduled installment for the remaining period of the loan. The Finance Office will apply the payments made on the note in accordance with subpart A of this part. For applications received before November 28, 1990, the amount of outstanding accrued interest more than 90 days overdue and any outstanding protective advances, as described in § 1965.11(b) of subpart A of part 1965 of this chapter, made on the loan will be added to the principal at the time of the deferral (the date the new note is signed by the borrower). Protective advances are not authorized for the payment of prior or junior liens except real estate taxes. See section II E of exhibit J of this subpart for an explanation of how to schedule payment of interest not over 90 days overdue. For new applications, the amount of outstanding accrued interest and any outstanding protective advances made on the loan will be added to the principal at the time of deferral (the date the new note is signed by the borrower).</P> <P>(B) The field office will process the deferral via the Automated Discrepancy Processing System (ADPS).</P> <P>(C) If a deferral is approved, the borrower's name and the date of approval will be recorded and maintained in accordance with subpart A of part 1905 of this chapter. The Finance Office will provide the county office with a quarterly status report for each borrower who has received a deferral.</P> <P>(D) Six months prior to the end of the deferral period the servicing official will notify the borrower in writing of the expiration of the deferral and the amount and date of the borrower's first upcoming installment of the debt.</P> <P>(E) A deferral will be cancelled if the loan is later restructured in accordance with this subpart. The cancellation will be processed via ADPS.</P> <P>(vii) <E T="03">Increase in repayment ability.</E> At the time the servicing official makes the analysis required by § 1924.60 of subpart B of part 1924 of this chapter, the servicing official will determine whether the borrower has had an increase in income and repayment ability. If an income increase is substantial enough to enable the borrower to graduate, the case will be handled in accordance with subpart F of this part. If an increase would enable the borrower to make some payments during the deferral period, the servicing official will, in writing, ask the borrower to sign a Form 440-9, “Supplementary Payment Agreement,” within 30 days of the date of the written request. The borrower will be provided appeal rights. When doing the analysis to determine whether there is a substantial increase in income and repayment ability, the servicing official will determine whether this increase exists by comparing it to the original plan developed in the deferral application and also to plans developed for the current operating year to determine that the excess income is not needed for essential living and operating expenses or scheduled debt payment. Refusal to sign Form 440-9 will be considered a non-monetary default and will be handled as set forth in § 1951.907(e) of this subpart. If the borrower signs Form 440-9 and later does not honor the terms and conditions of the repayment agreement, the borrower's account will be handled as set forth in § 1951.907 of this subpart.</P> <P>(4) <E T="03">Writedown</E>. The following conditions shall be met in order for a borrower to receive writedown of FLP debts:</P> <P>(i) No other Primary Loan Service programs, including deferral, nor any combination thereof, will produce a feasible plan that will permit the borrower to continue the operation. However, if DALR$ shows that a borrower can develop a feasible plan without a writedown at a lower cash flow margin than with a writedown, then the borrower will be provided the opportunity to choose between restructuring with or without a writedown;</P> <P>(ii) The borrower must never have received debt forgiveness on another direct loan at any time;<PRTPAGE P="133"/> </P> <P>(iii) The amount written off may not exceed $300,000.</P> <P>(iv) A feasible plan must be developed that will result in a present value of loans to be repaid to the Government which is equal to or more than a net recovery from an involuntary liquidation or foreclosure;</P> <P>(v) The borrower must comply with the Highly Erodible Land and Wetland Conservation requirements of exibibit M of subpart G of part 1940 of this chapter, if applicable;</P> <P>(vi) The borrower must agree to a Shared Appreciation Agreement if the loan is secured by real estate;</P> <P>(vii) Loans written down with the Primary Loan Servicing programs will be rescheduled, reamortized, or deferred in accordance with paragraph (e) of this section; and</P> <P>(viii) Borrower must agree to a lien on certain assets as provided in 1951.910 of this subpart, including nonessential assets, where the net recovery value of these assets was not paid to the Agency. (The Agency's lien will be taken only at the time of closing the restructured loans); and</P> <P>(ix) Debt reduction received through conservation easements or contracts will not be counted toward the limitations in paragraphs (e)(4) (ii) and (iii) of this section.</P> <P>(f) <E T="03">Determining value of net recovery from involuntary liquidation.</E> After receipt of a complete application for Primary and Preservation Loan Service programs, the servicing official will make the calculations required in this section and notify the borrower of the result. For New Applications, nonessential assets will be considered in accordance with § 1951.910(a) of this subpart.</P> <P>(1) The servicing official will use the computer program, DALR$, to determine the net recovery to the Government equivalent to involuntary liquidation of the collateral securing the FLP debt in accordance with Exhibit J or J-1 of this subpart, “Debt and Loan Restructuring System,” as applicable, and will follow the guidance provided by State supplements and Exhibit I of this subpart, “Guidelines for Determining Adjustments for Net Recovery Value of Collateral.” The servicing official will determine the current market value of the collateral in the borrower's possession including tangible property in existence and of record in accordance with § 761.7 of this title for real estate property, and on Form 440-21, “Appraisal of Chattel Property.” The servicing official also will determine the current market value of any bank accounts, stocks and bonds, certificates of deposit and the like pledged to and/or in the possession of the Agency. Collateral may include real estate, chattels, tangible property and property such as bank accounts, stocks and bonds, certificates of deposit, and the like. Chattels include machinery, equipment, livestock, growing crops, and crops in storage. Tangible property may include accounts receivable (including Government payments), inventories, supplies, feed, etc. From the current market value of the collateral in the borrower's possession, or pledged to and/or in the possession of the Agency (in the case of bank accounts, stock and bonds, certificates of deposit, and the like), the following adjustments will be made:</P> <P>(i) Subtract the amount which would be required to pay prior liens on the collateral;</P> <P>(ii) Subtract taxes and assessments, depreciation, management costs, and interest cost to the Government based on the 90-day Treasury Bills (published in a National Office issuance). Taxes and assessments, depreciation, management costs, as well as interest costs will be calculated on the current market value of the property for the average inventory holding period. The holding period for suitable inventory farm property will be established by each State as of July 1 each year using Report Code 597. The months that the suitable property is under lease will not be included in determining the average holding period for purposes of this subpart;</P> <P>(iii) Adjust the current market value for estimated increases or decreases in value of the property for the holding period specified in paragraph (f)(1)(ii) of this section;</P> <P>(iv) Subtract resale expenses, such as repairs, commissions, and advertising;</P> <P>(v) Other administrative and attorney's expenses;<PRTPAGE P="134"/> </P> <P>(vi) Add income which will be received after acquisition; and</P> <P>(vii) For a borrower who submits a “new application” as defined in § 1951.906 of this subpart, add the value of any collateral that is not in the borrower's possession and that has not been approved on the Form 1962-1 or released in writing by the Agency, minus the value of any prior lienholder's interest. Collateral not in possession of the borrower is defined as any property specified in any agency security instruments for such borrower's FLP debt that the borrower has disposed of and that the Agency has not approved or released in writing. The value of normal income security not in possession of the borrower will not be added to the NRV if it could be post-approved for release in accordance with § 1962.17 of subpart A of part 1962. The value of any collateral that is not in the possession of the borrower will be determined by the servicing official based upon the best information available about the value of the collateral on or about the time of its disposition. In determining the value of such property, the Agency will use such sources as the publications Hotline (Farm Equipment Guide) and Official Guide (Tractor and Farm Equipment), sale prices at local public auctions, public livestock sale barn prices, comparable real estate sales, etc. Agency appraisal forms will be used to record the value of the missing collateral and the basis for the valuation.</P> <P>(2) The State Executive Director will determine costs of involuntary liquidation of collateral for farm loans by analyzing the costs of involuntary liquidation within the geographic areas of their jurisdiction. The State Executive Director also will issue a State supplement of estimated costs and average holding time to be used as guidelines by servicing officials in making calculations of net recovery value under this subsection. Such cost analyses will be carried out in July of each year. The State Executive Director will consult with State Executive Directors of adjoining States, other lenders, real estate agents, auctioneers, and others in the community to gather and analyze the information specified in this subpart.</P> <P>(g) <E T="03">Determining net recovery value resulting from primary servicing.</E> The value of the restructured debt will be based on the present value of payments the borrower would make to the Agency using any combination of primary loan service programs that will provide a feasible plan. Present value is a calculation concept which assigns a lower current value to dollars received in later years than to dollars received at the present time. Servicing officials will use a discount rate based on 90-day Treasury Bills as of the date the borrower files the application for restructuring. The National Office will publish the 90-day Treasury Bill rate in a National Office issuance.</P> <P>(h) <E T="03">Notification requirements.</E> In those instances where the applicable notice is sent certified mail, and the certified mail is not accepted by the borrower, the servicing official will immediately send the documents from the certified mail package to the borrower's last known address, first class mail. The appropriate response time will commence 3 days following the date of mailing.</P> <P>(1) <E T="03">Offer.</E> If the calculations show that the value of the restructured debt is greater than or equal to the NRV as determined in paragraph (f) of this section, the servicing official will forward to the State Executive Director the borrower's Farm and Home Plan and the original printout of the DALR$ calculations. The servicing official will certify that the borrower meets all requirements for debt restructuring with the writedown amount specified on the printout. The State Executive Director's authorization to the servicing official to proceed with the writedown will be evidenced by the State Executive Director's signature affixed to the original copy of the DALR$ printout returned to the servicing official. Within 60 days after receiving a complete application, the servicing official will notify the borrower of the results of the calculations by sending Exhibit F of this subpart, certified mail, return receipt requested, and offer to restructure the debt. A printout of the DALR$ calculations will be attached to Exhibit F of this subpart.</P> <P>(i) Exhibit F of this subpart will inform the borrower(s) of the Agency's offer to restructure the debt, the right <PRTPAGE P="135"/>to request a copy of the agency's appraisal, and other options which may include payment of nonessential assets and negotiation of the appraisal. If the borrower accepts the offer within 45 days following any appeal, the servicing official will restructure the debt within 45 days after receipt of the written notice of the borrower's acceptance.</P> <P>(ii) If the borrower does not respond to exhibit F within 45 days, or declines the Agency's offer to restructure the debt without requesting an appeal or negotiation, the servicing official will send attachments 9 and 10, or 9-A and 10-A of exhibit A of this subpart, as applicable. If the borrower requests an appeal and the Agency is upheld, attachments 9-A and 10-A will not be sent until the borrower is given the opportunity to accept the original offer within 45 days following the final appeal decision. These borrowers will not have an additional opportunity to appeal the offer in attachments 9-A and 10-A. If attachment 10 or 10-A is not returned within 30 days of the borrower's receipt of the attachments, the account will be accelerated or foreclosed in accordance with § 1955.15 of subpart A of part 1955 of this chapter.</P> <P>(iii) If the borrower submitted a new application and requests a negotiated appraisal within 30 days of receiving exhibit F, the negotiation of the appraisal will be completed in accordance with paragraph (i) of this section.</P> <P>(A) After completing a negotiation of the appraisal, if the debt can be restructured, the servicing official will send exhibit F to the borrower making the new offer in accordance with paragraph (h)(1)(i) of this section.</P> <P>(B) If the negotiated appraisal changes the DALR$ calculations so that the debt cannot be restructured, the borrower will be sent exhibit E, “Notification of Adverse Decision for Primary Loan Servicing, Mediation or Meeting of Creditors and Other Options,” in accordance with paragraph (h)(3) of this section. The appraisal cannot be negotiated again and is not subject to appeal.</P> <P>(2) <E T="03">Conservation contracts.</E> If the borrower returned attachment 2 or 4 to Exhibit A of this subpart within 60 days, requesting a conservation contract by submitting a map or aerial photo showing the portion of the farm and approximate acres to be considered in the request, the servicing official will proceed with processing the request for debt relief as set forth in Exhibit H of this subpart. Borrowers who did not previously ask for this option can make a request for the contract at this time by submitting a map or copy of an aerial photo indicating that portion of the farm and appropriate acres to be considered. Borrowers must submit the photo within 30 days of receiving Exhibit E of this subpart.</P> <P>(3) <E T="03">Mediation/voluntary meeting of creditors.</E> If the DALR$ calculations indicate a feasible plan of operation <E T="03">cannot</E> be developed considering all Primary Loan Service Programs, Softwood Timber, or Conservation Contracts, the servicing official will take the following actions within 15 days from the date of the determination that the borrower's debt cannot be restructured as requested:</P> <P>(i) Exhibit E, “Notification of Adverse Decision for Primary Loan Servicing, Mediation or Meeting of Creditors and Other Options,” of this subpart will be sent to the borrower in all cases by certified mail, return receipt requested. A printout of the DALR$ calculations will be attached to exhibit E of this subpart.</P> <P>(A) When the borrower is in a State <E T="03">with</E> a USDA Certified Mediation Program, paragraph I in exhibit E will be used. Paragraph I tells the borrower that the Agency is requesting mediation with the borrower's creditors in an effort to obtain debt adjustment which would permit the development of a feasible plan of operation. If the borrower submitted a new application, the borrower must respond to exhibit E of this subpart if the borrower wants to negotiate the Agency's appraisal in accordance with paragraph (i) of this section. The borrower may request a copy of the Agency's appraisal. The Agency must participate in USDA Certified Mediation Programs whether or not the borrower responds to exhibit E of this subpart. Any negotiation of the appraisal must be completed prior to any mediation.<PRTPAGE P="136"/> </P> <P>(B) In States <E T="03">without</E> a certified mediation program, exhibit E of this subpart will be sent by certified mail, return receipt requested, to inform the borrower about the applicable options which may include a request for a copy of the Agency's appraisal, a meeting of creditors, payment of nonessential assets, negotiation of the appraisal and a request for an independent appraisal. Paragraph I of exhibit E of this subpart will be deleted. The purpose of the voluntary meeting of creditors is to develop a feasible plan. Paragraph II of exhibit E of this subpart, therefore, will be used to offer a voluntary meeting of creditors when the borrower has undersecured creditors who hold a substantial part of the borrower's total debt. A “substantial part of the borrower's total debt” means that the debt of the undersecured creditors is large enough so that if it were written down to zero, a feasible plan could be developed considering all primary servicing options. The servicing official will document such determination in the case file, and the servicing official will not offer to carry out a voluntary meeting of creditors when the undersecured debt is not a substantial part of the borrower's total debt. Such borrower will be informed later of additional rights, including appeal rights, when the Agency sends attachments 5 and 6, or attachments 5-A and 6-A, of exhibit A of this subpart. Any appeal may challenge the Agency's determination not to offer a voluntary meeting of creditors because the undersecured debt is not a substantial part of the borrower's total debt.</P> <P>(C) Any negotiation of the Agency's appraisal must be completed prior to the meeting of creditors or mediation. If the borrower does not request any of the options offered in exhibit E of this subpart within 45 days, the servicing official will send attachments 5 and 6, or 5-A and 6-A of exhibit A of this subpart, as applicable, certified mail, return receipt requested.</P> <P>(ii) If mediation or the voluntary meeting of creditors is held but is not successful, the borrower will be sent attachments 5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as applicable, certified mail, return receipt requested, within 15 days of the unsuccessful mediation or meeting. The DALR$ computer printout will be attached to attachment 5 or 5-A of exhibit A of this subpart.</P> <P>(4) <E T="03">Buyout of loans.</E> The following notification and processing provisions also apply to buyout as offered in Attachments 5 and 5-A of Exhibit A of this subpart. After July 3, 1996, buyout will be at the Current Market Value (CMV) of the security.</P> <P>(i) Eligible borrowers will have 90 days after the receipt of the notification of ineligibility for Primary Loan Service programs to buy out their loans at Current Market Value, or the balance of their unpaid FLP debt, whichever is lower.</P> <P>(ii) The present value of the restructured loan must be less than the net recovery value to receive buyout.</P> <P>(iii) The Agency will not provide direct or guaranteed credit for a buyout.</P> <P>(iv) The borrower must never have received debt forgiveness on another direct loan. (Applies if any debt will be written off.)</P> <P>(v) The amount written off may not exceed $300,000.</P> <P>(vi) The borrower must have acted in good faith.</P> <P>(vii) Debt reduction received through conservation easements or contracts will not be counted toward the limitations in paragraphs (h)(4) (iv) and (v) of this section.</P> <P>(viii) Upon payment by the borrower of current market value buyout, the security instruments will be released for the Farm Loan Programs loans bought out.</P> <P>(ix) The State Executive Director must approve the buyout prior to offering buyout to the borrower if the Agency will be writing off any debt.</P> <P>(i) <E T="03">Administrative appeals and negotiation of appraisals</E>—(1) <E T="03">Appeals.</E> The time limit to pay the current market value of the security, as set out in paragraph (h)(4) of this section, will start on the day the borrower receives the final appeal or review decision upholding the initial decision. The borrower will have conclusively presumed to have received that decision within 3 days of mailing.</P> <P>(2) <E T="03">Appeal process.</E> (i) If the administrative appeal process results in a determination that the borrower is <E T="03">eligible</E> for Primary Loan Servicing, the <PRTPAGE P="137"/>servicing official will process the request pursuant to § 1951.909 of this subpart. The information used will be that which the appeal officer used in making the decision on the appeal, unless stated otherwise in the final appeal decision letter. In cases of debt restructure resulting from appeals, the interest rate will be the lesser of the current rate or the original note rate on the date of the closing of the transaction. If implementation of the appeal decision would cause writedown or writeoff of more than $300,000 because of interest accrued after the adverse decision, the servicing official will process the action so as to complete the transaction.</P> <P>(ii) If the administrative appeal process results in a determination that the borrower is <E T="03">ineligible</E> for Primary Loan Servicing, the servicing official will send Exhibit K and Attachment 1 of this subpart and continue processing any application for debt settlement that may have been submitted in accordance with subpart B of part 1956 of this chapter. If the borrower does not return Attachment 1 of Exhibit K within 15 days of the date that it is sent, the servicing official will continue to process the application for Preservation Loan Servicing and any debt settlement. The account will not be accelerated or foreclosure will not continue until the borrower has the opportunity to appeal any denial of the Preservation Loan Servicing and any Debt Settlement request. If the borrower returns Attachment 1 of Exhibit K within 15 days of its mailing, the account will be accelerated.</P> <P>(3) <E T="03">Appraisal appeals.</E> (i) Borrowers appealing the current market appraisal completed by the Agency may obtain an appraisal by an independent appraiser selected from a list of at least three names provided by the servicing official. A borrower who submitted a new application may appeal the Agency's appraisal, if it has not previously been negotiated under paragraph (i)(4) of this section, and the denial of other issues of Primary Loan Service programs in which the appraisal, as part of the NRV calculation, is relevant. The cost of the independent appraisal must be paid by the borrower. The borrower will, upon request, have access to the case file and receive a copy of the Agency's appraisal. The independent appraiser must be a State certified general appraiser.</P> <P>(ii) The appraisal report must conform to § 761.7 of this title for real estate and chattels.</P> <P>(iii) If either the servicing official or the borrower discovers any mathematical or property description errors in the appraisal prior to or at the time of the review and comparison, necessary corrections may be made if both parties agree. The party discovering the error must contact the other for a meeting to approve the corrections.</P> <P>(iv) If the Agency's appraisal and the borrower's independent appraisal vary in value by five percent or less, the borrower will select the appraisal to be used for servicing under this subpart.</P> <P>(4) <E T="03">Negotiation of appraisals.</E> A borrower who submits a new application may request to negotiate the appraisal one time only. Negotiation of appraisals is offered in Exhibits E and F of this subpart, as discussed in paragraph (h) of this section. All appraisals used in the negotiations must reflect the value of the property as of the same time frame as the Agency's initial appraisal. Errors will be handled in accordance with paragraph (i)(3)(iii) of this section.</P> <P>(i) The borrower can request the list of independent appraisers from the servicing official on Attachment 2 of Exhibits E and F of this subpart. The borrower must provide the servicing official with a copy of his or her independent appraisal within 30 days of requesting negotiation. The borrower must pay for this independent appraisal. The borrower's independent appraiser and appraisal report must meet the qualifications described in paragraph (i)(3)(ii) of this section, but the independent appraiser need not be on the Agency's list of qualified appraisers. If the Agency's appraisal and the borrower's independent appraisal vary in value by five percent or less, the borrower will select the appraisal to be used for servicing under this subpart. No further negotiation will occur.</P> <P>(ii) If the two appraisals differ by more than five percent, the servicing official will give the borrower a list of qualified, independent appraisers. The <PRTPAGE P="138"/>borrower will select one appraiser from the Agency's list to conduct a third appraisal. The appraiser cannot have conducted either the Agency's or the borrower's independent appraisal, and must meet the qualifications set out in paragraph (i)(3) of this section. The borrower, the appraiser and the servicing official will complete and sign the Appraisal Agreement (Attachment 3 of Exhibit F of this subpart). The appraiser will be sent a copy of the appraisal standards, subpart E of part 1922 of this chapter, for real estate and Form 440-21 for chattels. The borrower will submit to the servicing official the original or a copy of the third appraisal and its attachments and the appraiser's bill. The Agency will pay 50 percent of the cost. The borrower is responsible for paying the appraiser directly theremaining 50 percent of the cost.</P> <P>(iii) Following the completion of the third appraisal, the three appraisals will be compared by the servicing official, who will average the two that are the closest in value. The average of the two closest in value will become the final appraised value. Errors will be handled in accordance with paragraph (i)(3)(iii) of this section.</P> <P>(j) <E T="03">Processing of writedown.</E> The DALR$ computer program will be used to determine the notes and amount to be written down. The borrower's account will be credited for the amount written down and the loans remaining after writedown will be rescheduled or reamortized.</P> <P>(1) A separate note will be signed for each loan being reamortized.</P> <P>(2) If any loan written down was secured by real estate, the borrower must enter into a “Shared Appreciation Agreement.” This agreement provides for FSA to collect back all or part of the amount written down by taking a share in any positive appreciation in the value of the real property securing the SAA and the remaining debt after the writedown. The maximum amount of shared appreciation collected will not exceed the amount written down. If a borrower's FLP loan was not secured by real estate, the borrower will not be required to enter into a shared appreciation agreement.</P> <P>(3) A lien will be taken on assets in accordance with § 1951.910. The Agency's real estate liens will be maintained even if the writedown of the borrower's debt results in all real estate debts to the Agency being written down. The Agency's real estate lien will not be surbordinated to increase the amount of the prior liens during the shared appreciation period.</P> <CITA>[62 FR 10124, Mar. 5, 1997, as amended at 63 FR 6628, Feb. 10, 1998; 63 FR 56290, Oct. 21, 1998; 64 FR 62568, Nov. 17, 1999; 65 FR 50404, Aug. 18, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.910</SECTNO> <SUBJECT>Consideration of borrower's other assets for new applications.</SUBJECT> <P>If a delinquent borrower has other assets that are not serving as collateral for the FLP debt, the servicing official will determine whether these assets are nonessential, as defined in § 1951.906 of this subpart.</P> <P>(a) <E T="03">Nonessential assets.</E> The net recovery value (NRV) of nonessential assets must be considered when the borrower's application is processed for loan servicing in accordance with this subpart. The Agency will not write down or write off any debt or portion of a debt that could be paid by liquidation of nonessential assets, or by payment of the loan value of the assets that could be received from non-Agency sources. The loan value of the assets will be considered as the same as the NRV of the assets.</P> <P>(1) <E T="03">Determining the value of nonessential assets.</E> The NRV of the nonessential assets is the market value less any prior liens and any selling costs which may include such items as taxes due, commissions and advertising costs. The determination of NRV of nonessential assets does not include a deduction for carrying the property in inventory. The market value of the nonessential assets must be estimated by a current appraisal in accordance with § 761.7 of this title for real estate property, and on Form 440-21, “Appraisal of Chattel Property,” for chattels. Borrowers who disagree with the Agency's appraisal may request a negotiated appraisal or appeal in accordance with § 1951.909(i) of this subpart.</P> <P>(2) <E T="03">Eligibility.</E> If the NRV of the nonessential assets is sufficient to bring the delinquent FLP account current, <PRTPAGE P="139"/>the borrower is not eligible for primary loan servicing including buyout in accordance with this subpart. The borrower, instead, will be sent attachments 5-A and 6-A of exhibit A of this subpart. The servicing official will indicate the values of both the NRV of nonessential assets and the FLP security on attachment 5-A. The borrower's nonessential assets and their NRVs also will be listed on attachment 5-A. The borrower will have 90 days to bring the FLP account current from the date of the receipt of attachments 5-A and 6-A. If the borrower does not pay current within this time period, the account will be accelerated after all appeal rights have been exhausted. If the NRV of the nonessential assets is not sufficient to bring the FLP account current, then the nonessential assets will be considered as set out in paragraph (a)(3) of this section.</P> <P>(3) <E T="03">Inclusion in NRV.</E> If the NRV of the nonessential assets is not sufficient to bring the FLP account current, then the servicing official will add the NRV of these assets to the NRV of the FLP collateral according to § 1951.909(f) of this subpart. The servicing official will encourage, but not require the borrower to liquidate those nonessential assets and apply the proceeds to his/her outstanding debts. If the borrower liquidates the nonessential assets, or obtains a loan against the equity in such assets, and pays the Agency the NRV of the nonessential assets within 45 days of receiving exhibit E or F of this subpart, as appropriate, the payment will be subtracted from the FLP debt and then the servicing official will recalculate the debt restructuring without considering the NRV of the nonessential assets. If the borrower does not sell these assets, the servicing official will include their NRV in calculating the debt restructuring and take a lien on the assets at the time of closing the restructured loan.</P> <P>(b) <E T="03">Lien on certain assets.</E> Delinquent borrowers must pledge certain assets, essential and nonessential, unencumbered to the Agency as security at the time FLP loans are restructured, as follows:</P> <P>(1) The best lien obtainable will be taken on all assets owned by the borrower. When the borrower is an entity, the best lien obtainable will be taken on all assets owned by the entity, and all assets owned by all members of the entity. Different lien positions on real estate are considered separate and identifiable collateral.</P> <P>(2) Security will include, but is not limited to, the following: land, buildings, structures, fixtures, machinery, equipment, livestock, livestock products, growing crops, stored crops, inventory, supplies, accounts receivable, certain cash or special cash collateral accounts, marketable securities, certificates of ownership of precious metals, and cash surrender value of life insurance.</P> <P>(3) Security will also include assignments of leases or leasehold interests having mortgageable value, revenues, royalties from mineral rights, patents and copyrights, and pledges of security by third parties.</P> <P>(4) The exceptions set forth in § 1941.19(c) of subpart A of part 1941 of this chapter apply.</P> <P>(5) These assets will be considered as additional security for the loans as well as any shared appreciation agreement. The value of the essential assets will not be included in the NRV calculation to determine restructuring. The Agency's lien will be taken only at the time of closing the restructured FLP loans.</P> <CITA>[62 FR 10132, Mar. 5, 1997, as amended at 64 FR 62568, Nov. 17, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.911</SECTNO> <SUBJECT>Homestead protection.</SUBJECT> <P>(a) <E T="03">General.</E> If the Agency has only chattel property as security, preservation servicing will not be offered. Borrowers who submitted a complete application prior to April 4, 1996 will be considered for leaseback/buyback in accordance with the previous CFR volume containing revisions as of January 1, 1996 and Agency procedures, (available in any county office.) Inventory property which is located within the boundaries of an Indian reservation of a Federally recognized Indian Tribe and the previous owner is a member of the Indian Tribe that has jurisdiction over that reservation should be handled in accordance with § 1955.66(d) of subpart A of part 1955 of this chapter.</P> <P>(b) <E T="03">Homestead protection.</E> Borrowers and former borrowers who had or have <PRTPAGE P="140"/>an FLP loan secured by the real property containing the dwelling owned by them and used as their principal residence may apply for homestead protection before or after the Agency acquires the property. Real property that is in inventory as of the effective date of the statute or is acquired in the future will be considered for homestead protection as set forth in this subpart.</P> <P>(1) <E T="03">Purpose.</E> The purpose of the Homestead Protection Program is to permit borrowers or former borrowers to retain their dwellings through a lease or purchase. Such lease or purchase could permit these individuals to have a home and providing an opportunity to continue to farm.</P> <P>(2) <E T="03">Notification and processing.</E> If a feasible plan for restructuring debt cannot be developed using Primary Loan Service programs, the borrower will be advised by the use of Exhibit K with Attachment 1 of this subpart that the Agency will continue with the processing of Preservation Service programs, if applicable. A borrower who desires homstead protection must request it in accordance with § 1951.907. A borrower who meets the eligibility requirements of paragraph (b)(3) of this section will be permitted to retain possession of the homestead, in accordance with paragraph (b)(2)(ii) of this section, before title is acquired or under a lease with an option to purchase after title is acquired.</P> <P>(i) <E T="03">Determining homestead protection property.</E> (A) The homestead protection property will include the borrower's principal residence and not more than 10 acres of adjoining land that is used to maintain the borrower's family and a reasonable number of farm service buildings located on land adjoining the residence which are useful to the occupants of the dwelling.</P> <P>(B) The servicing official will review the proposed homestead protection property. If the servicing official does not agree with the proposed shape or size of the property, an alternate configuration will be negotiated with the borrower.</P> <P>(C) If the borrower and the servicing official cannot agree on the proposed shape and size of the property, the servicing official will make the determination.</P> <P>(D) When the size and shape of the property is agreed upon and the borrower has been found eligible, the servicing official will request a licensed surveyor to survey the property, have a legal description prepared, and mark the property lines with permanent type markers.</P> <P>(E) Appraisals will be completed in accordance with paragraphs (b)(6) and (b)(7)(ii)(B) of this section.</P> <P>(ii) <E T="03">Processing homestead protection before the Agency acquires title.</E> (A) A borrower will be considered for homestead protection when it is determined that the Primary Loan Service programs cannot resolve the delinquency. To process an application, the borrower must indicate the buildings and land to be included in the request for homestead protection. If determined eligible for homestead protection, the borrower and the servicing official will enter into a Homestead Protection Program Agreement (Exhibit L of this subpart) to lease the property if and when the Agency acquires title. A copy of Form 1955-20, “Lease of Real Property,” will be attached to the agreement as an exhibit.</P> <P>(B) Concurrently with the execution of the preacquisition Homestead Protection Program Agreement, the borrower will deliver a completed Form RD 1955-1 to the Agency. The Agreement is subject to the provisions of subpart A of part 1955 of this chapter. If the Agency acquires title during the processing of a preacquisition Homestead Protection Agreement, processing of the agreement will be terminated and the owner will be given homestead protection rights pursuant to paragraph (b)(2)(iii) of this section.</P> <P>(C) The Agency's obligation to lease the dwelling to the borrower will be contingent on the Agency's prior compliance with all State and local laws, ordinances and regulations governing the subdivision of land. If the Agency cannot satisfy the conditions within 2 years from the date of the agreement, the agreement (and the Agency's obligation to lease with option to purchase) will terminate. If an agreement has been entered into, but title to the property has not been conveyed to the <PRTPAGE P="141"/>Agency (or acquisition has been determined not to be in its financial interest), the Agency will continue with acceleration and foreclosure of the property. It is not the intent of the 2-year term of the agreement to limit the Agency's ability to foreclose on the property, provided that all the terms have been met except that title has not been conveyed.</P> <P>(iii) <E T="03">Application for homestead protection when the Agency acquires title.</E> When the Agency acquires title to the farm property, the borrower will be sent Exhibit M of this subpart, by certified mail, return receipt requested, no later than the date of acquisition. The borrower must request homestead protection by notifying the servicing official in writing not later than 30 days after the date of acquisition and must provide the information set forth in § 1951.907(e) of this subpart and indicate the buildings and land to be included in the request.</P> <P>(iv) <E T="03">Lease with option.</E> A lease with an option to purchase will be entered into with an eligible borrower on Form 1955-20 after the Agency acquires title to the property. Form 1955-20 will be completed in accordance with § 1951.911 (b)(8) of this subpart.</P> <P>(3) <E T="03">Eligibility.</E> The servicing official will make the determination on eligibility. To qualify for homestead protection, the borrower must meet the following requirements:</P> <P>(i) An applicant must be an individual who is or was personally liable for the Farm Loan Programs (FLP) loan that was secured in part by the Homestead Protection property, or, if a non-borrower pledged the property to secure the FLP loan, the owner of the property. In either case, the applicant must be or have been the owner of the Homestead Protection property. A member of an entity who is or was personally liable for a loan that is or was secured by the Homestead protection property is considered an owner for homestead protection purposes, so long as either the member of the entity or the entity itself held fee title to the property.</P> <P>(ii) When more than one member of an entity was personally liable for an FLP loan, each such member who possessed and occupied a separate dwelling as his or her principal residence, on property that is or was security for the loan may apply separately for homestead protection of their individual dwellings;</P> <P>(iii) The applicant and any spouse must have received, from the farming or ranching operations, gross farm income reasonably commensurate with the size and location of the farm and reasonably commensurate with local agricultural conditions (including natural and economic conditions) in at least 2 calendar years during the 6-year period preceding the calendar year in which the application is made. Farms used for comparison purposes must be of similar size, type of operation and locality. For the purposes of §§ 1951.911(b)(3) (iii) and (iv) of this subpart, income from farming or ranching operations will include rent paid by a lessee of agricultural land during any period in which the borrower, due to circumstances beyond his or her control, such as economic, natural disaster or health problems, was unable to actively farm that property. The borrower's records will be used in determining whether the gross farm income was reasonably commensurate with the farm size and location and local agricultural conditions. When applying for homestead protection, the borrower will give the servicing official at least 2 calendar years of records of planned and actual gross farm income for the 6-year period preceding the calendar year in which the application is made. If such records do not exist, they may be developed by the applicant and servicing official from information relating to yields, expenses and prices found in the borrower's county office case file, agency records, or other reliable sources;</P> <P>(iv) The applicant and any spouse must have received, from the farming or ranching operations, at least 60 percent of their gross annual income in at least 2 of the 6 calendar years preceding the calendar year in which the application is made;</P> <P>(v) The applicant must have continuously occupied the homestead protection property during the 6-year period preceding the calendar year in which the application is made, unless it was necessary to leave for a period of time <PRTPAGE P="142"/>not to exceed 12 months during the 6-year period due to circumstances beyond the borrower's control, such as illness, employment, or conditions that made the dwelling uninhabitable; and</P> <P>(vi) The applicant must have sufficient income to make rental payments for the term of the lease and the ability to maintain the property in good condition, and must agree to all the terms and conditions set forth in paragraph (b)(7) of this section and in Form 1955-20.</P> <P>(4) <E T="03">Transfer of homestead protection.</E> An applicant's right to request homestead protection and rights under the Agreement or lease entered into pursuant to this section are not transferable or assignable by the applicant or by operation of law, except that, in the case of death or incompetency of the applicant, such rights and agreements shall be transferable to the spouse upon agreement to comply with the terms and conditions of the lease.</P> <P>(5) <E T="03">Property requirements.</E> (i) The proposed homestead protection property tract must meet all requirements for the division into a separate legal lot as required by State and local laws. All environmental considerations required under subpart G of part 1940 of this chapter will be complied with.</P> <P>(ii) Costs for a survey, legal description or other service needed to establish, appraise, define or describe the homestead protection property as a separate tract, will be paid for by the Agency. No repairs or improvements will be paid for by the Agency except as provided for in § 1955.64 (a) of subpart A of part 1955 of this chapter.</P> <P>(iii) If necessary, the Agency will grant or retain for the benefit of adjoining property reasonable easements for ingress, egress, utilities, water rights, etc.</P> <P>(6) <E T="03">Appraisal.</E> The current market value of the homestead protection property shall be determined by an independent appraisal made within 6 months from the date of the borrower's application for homestead protection. The applicant will select an independent real estate appraiser from a list of appraisers approved by the servicing official. The cost of such an appraisal will be handled in accordance with paragraph (b)(5)(ii) of this section.</P> <P>(7) <E T="03">Terms of the lease and exercising the option.</E> (i) All leases will have an option to purchase. Any reference to a lease for homestead protection purposes will mean a lease with an option to purchase. The lease will be offered with an option to purchase on Form 1955-20 and will be for a period of not more than 5 years as requested by the applicant. A lease of less than 5 years may be extended, but not beyond 5 years from the date of the beginning of the term of the original lease.</P> <P>(A) The amount of the rent will be based upon equivalent rents charged for similar residential properties in the area in which the dwelling is located.</P> <P>(B) Lease payments will be retained by the Government.</P> <P>(C) Failure to make lease payments as scheduled or to maintain the property in good condition shall constitute cause for the termination of all rights of the lessee to possession and occupancy of the dwelling and property under this section. If a lease default is not cured within 30 days of notice, the servicing official will notify the lessee in writing of the termination of the lease and option.</P> <P>(D) Any interference by the lessee with the Government's efforts to lease or sell the remainder of farm inventory property shall constitute cause for the termination of all rights of the lessee to possession and occupancy of the dwelling and property including the right to exercise the option to purchase.</P> <P>(ii) Exercising the option to purchase.</P> <P>(A) The lessee may exercise the option in writing at any time prior to the expiration of the lease by delivering to the servicing official a signed, written statement notifying the Agency that the lessee is exercising the option to purchase the property. Failure to exercise the option within the lease period will end the lessee's rights under the option to purchase.</P> <P>(B) When the lessee exercises the option to purchase the property, the purchase price will be the current market value of the property. That value will be determined by an appraisal in accordance with paragraph (b)(6) of this section providing the appraisal is not more than 1 year old. If the appraisal is <PRTPAGE P="143"/>more than 1 year old, the current market value will be determined by a new appraisal requested in accordance with paragraph (b)(6) of this section.</P> <P>(C) At the time the lessee exercises the option, the lessee must notify the servicing official if he or she wants to purchase the property for cash or finance it through a credit sale from the Agency.</P> <P>(D) If a credit sale is involved, the applicant must furnish the servicing official the information required by § 1951.907 (e) to assist in determining whether or not the applicant has adequate repayment ability.</P> <P>(8) <E T="03">Rates and terms for a credit sale.</E> Terms for a credit sale of homestead protection property when the lessee is exercising the option to purchase will be in accordance with subpart J of this part.</P> <P>(9) <E T="03">Closing.</E> A credit sale will be closed in accordance with subpart J of this part.</P> <P>(10) <E T="03">Conflict with State law.</E> In the event of a conflict between a borrower's homestead protection rights and any provisions of the law of any State relating to the right of a borrower to designate for separate sale or redeem part or all of the property securing a loan foreclosed on by a lender, such provision of State law shall prevail. A State supplement will be prepared as necessary to supplement paragraph (b) of this section.</P> <P>(11) <E T="03">Servicing homestead protection loans.</E> Homestead protection loans will be serviced as set forth in subpart J of this part.</P> <CITA>[62 FR 10132, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.912</SECTNO> <SUBJECT>Mediation.</SUBJECT> <P>(a) <E T="03">States with a USDA certified mediation program.</E> The FmHA or its successor agency under Public Law 103-354 is required to participate in USDA Certified State Mediation Programs. The purpose of mediation is to participate with farm borrowers, and their creditors, in an effort to resolve issues necessary to overcome the borrower's financial difficulties. Any negotiation of an FmHA or its successor agency under Public Law 103-354 appraisal pursuant to § 1951.909(i) of this subpart will be completed prior to mediation.</P> <P>(1) FmHA or its successor agency under Public Law 103-354 shall participate in a USDA Certified Mediation Program under the same terms and conditions as other creditors. Decisions will not be binding on FmHA or its successor agency under Public Law 103-354 unless approved by the representative assigned by FmHA or its successor agency under Public Law 103-354 in accordance with paragraph (a)(4) of this section.</P> <P>(2) FmHA or its successor agency under Public Law 103-354 will pay the same mediation fees to the USDA Certified State Mediation Board that are charged to all creditors that participate in mediation. The Contracting Officer (CO) will complete Form AD-838, “Purchase Order,” to establish a mediation contract and submit Form FmHA or its successor agency under Public Law 103-354 838-B, “Invoice-Receipt Certification,” for payment upon receipt of an invoice from the Mediator or the Contracting Officer's Representative (COR) recommending payment.</P> <P>(3) Failure of creditors and/or borrowers to participate in mediation will not preclude FmHA or its successor agency under Public Law 103-354 from granting Primary Loan Service Programs to assist borrowers.</P> <P>(4) The FmHA or its successor agency under Public Law 103-354 State Director will designate a representative to represent FmHA or its successor agency under Public Law 103-354 in the mediation process. Authorities of the representatives can vary from complete authority to act for FmHA or its successor agency under Public Law 103-354, to a requirement for review and concurrence by the State Director or designee prior to approving a mediation agreement. The State Director will set forth in writing the specific authority delegated to the designated representative.</P> <P>(5) The FmHA or its successor agency under Public Law 103-354 State Director will arrange for adequate training for representatives designated to represent FmHA or its successor agency under Public Law 103-354 in mediation.</P> <P>(6) When mediation is not successful in resolving the borrower's financial difficulty, the County Supervisor will send the borrower attachments 5 and 6, <PRTPAGE P="144"/>or 5-A and 6-A, of exhibit A of this subpart, as applicable.</P> <P>(7) The FmHA or its successor agency under Public Law 103-354 State Director will develop a State supplement that describes how FmHA or its successor agency under Public Law 103-354 will participate in the State Mediation Program. In developing the State supplement the State Director should confer with the State Attorney General's Office, farm organizations that are interested in the development of the State's Certified Agricultural Loan Meditation Program, and Departments of State Governments to ensure that all interested parties have input on the content of the State supplement. The State Director will consult with the Regional OGC as necessary to develop the State supplement. State supplements will be submitted to the National Office for post approval in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2006-B (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(b) <E T="03">States without a Certified Mediation Program.</E> To service those borrowers in States where there is no USDA Certified Mediation Program established, the State Director will provide the means of conducting a voluntary meeting of creditors, either with a mediator or a designated FmHA or its successor agency under Public Law 103-354 representative. “Creditors,” for purposes of this paragraph, means all the borrower's undersecured creditors holding a substantial part of the borrower's debt in accordance with § 1951.909(h)(3)(i) of this subpart. State Directors are encouraged to contract for qualified mediators within their jurisdictional areas to conduct the voluntary meeting of creditors in an effort to help farmers resolve their financial difficulty. The National Office will provide the State a list of qualified mediators for contracting purposes. Any negotiation of an FmHA or its successor agency under Public Law 103-354 appraisal pursuant to § 1951.909(i) of this subpart will be completed prior to meeting with other creditors.</P> <P>(1) When a mediator is available, the County Supervisor will assist the meditator in scheduling a meeting with the borrower and all of the borrower's creditors and will encourage them to participate in such a meeting. The mediator will be responsible for conducting the meeting in accordance with accepted mediation practices and to develop an Agreement to assist the farmer in resolving their financial difficulties.</P> <P>(2) When a mediator is not available, the State Director will designate an FmHA or its successor agency under Public Law 103-354 representative to conduct a meeting of creditors and attempt to develop a plan with borrowers and their creditors that will assist the borrowers to resolve their financial difficulty. The State Director will designate a representative not previously involved in servicing the borrower's account. State Directors will designate a representative, or FmHA or its successor agency under Public Law 103-354 employees who have demonstrated good human relations skills and ability to resolve problems and settle disputes.</P> <P>(3) The designated FmHA or its successor agency under Public Law 103-354 representative for conducting a meeting of creditors will do the following:</P> <P>(i) Schedule a meeting between the borrower and the borrower's creditors and encourage them to participate in such a meeting;</P> <P>(ii) State that the parties understand that the representative is neutral and does not represent any of the parties;</P> <P>(iii) Inform the borrower and creditors concerning FmHA or its successor agency under Public Law 103-354 programs available to assist the borrowers;</P> <P>(iv) Encourage the parties to utilize all available means to assist the borrower to overcome the financial difficulty;</P> <P>(v) Advise, counsel, and facilitate the development of a debt restructure agreement between the borrower and creditors which will permit the borrower to remain in farming;</P> <P>(vi) Review with the parties any proposed solution to determine if it can be effectively implemented and to help the parties understand the consequences of the proposed solution;</P> <P>(vii) Review the obligations of the participants, including but not limited to the maintenance of confidentiality <PRTPAGE P="145"/>and the promotion of good faith discussions in an effort to reach agreement; and</P> <P>(viii) Develop a written document that specifies the agreements reached in the meeting. The agreement will be signed by all parties with authority to approve the agreement for the participating creditors. When signed, copies will be distributed to the borrower and participating creditors. A copy will be filed in the borrower's County Office case file.</P> <P>(4) If agreements are reached which will permit the development of a feasible plan of operation, the County Supervisor will proceed with processing and approval of the borrower's request for primary loan servicing.</P> <P>(5) When the FmHA or its successor agency under Public Law 103-354 representative has exhausted all efforts to develop an agreement between the borrower and creditors and an agreement cannot be reached, the FmHA or its successor agency under Public Law 103-354 representative will report the results of this meeting to the State Director by memorandum. Copies of the memorandum will be sent to the borrower and all creditors participating in the meeting. When the County Supervisor receives a copy of this memorandum indicating that an agreement cannot be reached, attachments 5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as applicable, will be sent to the borrower.</P> <P>(6) State Directors will provide the necessary training to ensure that the FmHA or its successor agency under Public Law 103-354 representative has the necessary skills to effectively conduct a voluntary meeting between a borrower and creditors which may result in reaching an agreement.</P> <P>(7) Failure of creditors to participate in a voluntary meeting of creditors will not preclude FmHA or its successor agency under Public Law 103-354 from using debt writedown if it would result in a greater net recovery to FmHA or its successor agency under Public Law 103-354 than liquidation. Whenever the net recovery to FmHA or its successor agency under Public Law 103-354 will be greater using the writedown than to go through foreclosure, FmHA or its successor agency under Public Law 103-354 will use the writedown, regardless of the actions of the other creditors. Voluntary meetings of creditors cannot delay consideration of a borrower for Primary Loan Service Programs, except with the consent of the borrower.</P> <P>(8) If the borrower does not participate in the voluntary meeting of creditors without good cause and a feasible plan of operation cannot be developed, the County Supervisor will send the borrower attachments 5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as applicable.</P> </SECTION> <SECTION> <SECTNO>§ 1951.913</SECTNO> <SUBJECT>Servicing Net Recovery Buyout Recapture Agreements.</SUBJECT> <P>(a) <E T="03">Death or retirement.</E> If upon the death or retirement of a borrower who submitted a “new application,” as defined in § 1951.906 of this subpart, the borrower executed exhibit C-1 of this subpart and transferred title of the borrower's real estate security to a spouse or child who is actively engaged in farming on the property, then the transaction will not be treated as a “sale” or “conveyance” under the recapture agreement. The borrower's spouse or child, however, must assume the full liability of the borrower under the provisions of the borrower's Net Recovery Buyout Recapture Agreement and real estate lien instrument in accordance with instructions from OGC.</P> <P>(b) <E T="03">Record of net recovery buyout.</E> The Finance Office will credit the borrower's account with the net recovery value (NRV) amount paid by the borrower. An equity record will be established in accordance with the provisions of the ADPS manual.</P> <P>(1) For borrowers who applied for Loan Servicing and Preservation Service Programs before November 28, 1990, and executed exhibit C of this subpart, a recapture equity record will be established in an amount equal to the difference between the NRV and the market value of the real estate security as of the date the net recovery buyout agreement was signed by the borrower.</P> <P>(2) For borrowers who submit “new applications,” as defined in § 1951.906 of this subpart, and execute exhibit C-1 of this subpart, an equity record will be established in an amount equal to the amount of debt secured by real estate <PRTPAGE P="146"/>that was written off as of the date the net recovery buyout agreement was signed by the borrower. This is the maximum amount that can be recaptured.</P> <P>(c) <E T="03">Review by County Supervisor.</E> The County Supervisor will establish a follow-up to review the County real estate records every 24 months starting from the date of the Net Recovery Buyout Recapture Agreement to determine if the borrower has sold or conveyed the real estate property covered by the agreement. Scheduled reviews to be conducted must be posted on the borrower's Form FmHA or its successor agency under Public Law 103-354 1905-1, “Management System Card—Individual,” for follow-up purposes. The results of the review will be recorded in the borrower's County Office case file. These reviews will end at the expiration of the agreement. If there is no recapture due, then the County Supervisor will proceed in accordance with paragraph (g) of this section.</P> <P>(d) <E T="03">Notification of recapture due.</E> If the County Supervisor determines that the borrower has sold the real estate, the borrower will be notified in writing, certified mail, return receipt requested, of the following:</P> <P>(1) The amount of recapture due in accordance with exhibits C or C-1 of this subpart, as applicable. The County Supervisor will establish an equity receivable account in accordance with the provisions of the ADPS manual;</P> <P>(2) The date the recapture is due (not to exceed 30 days from the date the Notice of Recapture Letter is received by the borrower);</P> <P>(3) Appeal rights as set forth in subpart B of part 1900 of this chapter; and</P> <P>(4) If the borrower fails to pay any amount due to FmHA or its successor agency under Public Law 103-354 as the result of a sale of the property, the account will be accelerated as set forth in § 1955.15 of subpart A of part 1955 of this chapter after all appeal rights have been exhausted.</P> <P>(e) <E T="03">Processing payments.</E> The County Supervisor will issue Form FmHA or its successor agency under Public Law 103-354 451-2, “Schedule of Remittance,” for all the payments received under the Recapture Agreement. The following should be recorded in the body of the form: “Equity Receivable Payment.”</P> <P>(f) <E T="03">Release of liability.</E> When the total amount due under the agreement has been paid and credited to the borrower's account, the borrower will be released from personal liability. The recapture agreement will be marked “Recapture Agreement Satisfied” and returned to the debtor or to the debtor's legal representative. In such cases, the security instrument(s) will be released of record in accordance with subpart A of part 1965 of this chapter.</P> <P>(g) <E T="03">No recapture due.</E> If the County Supervisor determines there is no recapture due, the County Supervisor will close the borrower's equity record in accordance with the provisions of the ADPS manual. Exhibit C or C-1 of this subpart, as applicable, will be terminated and security instruments will be processed as set forth in paragraph (f) of this section.</P> </SECTION> <SECTION> <SECTNO>§ 1951.914</SECTNO> <SUBJECT>Servicing shared appreciation agreements.</SUBJECT> <P>(a) [Reserved]</P> <P>(b) <E T="03">When shared appreciation is due.</E> For agreements entered into on or after August 18, 2000, the term of the agreement is five years. Shared appreciation is due at the end of either a five or ten year term, as specified in the Shared Appreciation Agreement, or sooner, if one of the following events occur:</P> <P>(1) The sale or conveyance of any or all the real estate security, including gift, contract for sale, purchase agreement, or foreclosure. Transfer to the spouse of the borrower in case of the death of the borrower will not be treated as a conveyance; until the spouse further conveys the property;</P> <P>(2) Repayment of the loans; or the loans are otherwise satisfied;</P> <P>(3) The borrower or surviving spouse ceases farming operations or no longer receives farm income, including lease income; or</P> <P>(4) The notes are accelerated.</P> <P>(c) <E T="03">Determining the amount of shared appreciation due.</E> (1) The value of the real estate security at the time of maturity of the Shared Appreciation agreement (current market value) shall be the appraised value of the security at the highest and best use less <PRTPAGE P="147"/>the increase in the value of the security resulting from capital improvements added during the term of the Shared Appreciation Agreement (contributory value) as set out herein. The current market value of the real estate security property will be determined based on a current appraisal in accordance with 7 CFR § 761.7 and subject to the following:</P> <P>(i) Upon request, the borrower will identify any capital improvements that have been added to the property since the execution of the Shared Appreciation Agreement.</P> <P>(ii) The appraisal must specifically identify the contributory value of capital improvements made to the Agency real estate security during the term of the Shared Appreciation Agreement in order to make deductions for that value under this subsection.</P> <P>(iii) For calculation of Shared Appreciation recapture, the remaining contributory value of capital improvements added during the term of the Shared Appreciation Agreement will be deducted from the current market value of the property. Such capital improvements must also meet at least one of the following criteria:</P> <P>(A) It is the borrower's primary residence. If the new residence is affixed to the real estate security as a replacement for a home which existed on the security property when the Shared Appreciation Agreement was originally executed, or the living area square footage of the original dwelling was expanded, only the value added to the real property by the new or expanded portion of the original dwelling (if it added value) will be deducted from the current market value. Living area square footage will not include square footage of patios, porches, garages, and similar additions.</P> <P>(B) The item is an improvement to the real estate with a useful life of over 1 year and is affixed to the property. The item must have been capitalized and not taken as an annual operating expense on the borrower's Federal income tax records. The borrower must provide copies of appropriate tax documentation to verify that capital improvements claimed for shared appreciation recapture reduction are capitalized on borrower income taxes.</P> <P>(2) In the event of a partial sale, an appraisal of the property being sold may be required to determine the market value at the time the Shared Appreciation Agreement was signed if such value cannot be obtained through another method.</P> <P>(3) Shared appreciation will be due if there is a positive difference between the market value of the security property at the time of calculation and the market value of the security property as of the date of the SAA. The maximum appreciation requested will not be more than the total amount written down. The amount of shared appreciation will be:</P> <P>(i) 75% of any positive appreciation if any one of the events listed in paragraphs (b)(1) through (4) of this section occur within 4 years or less from the date of the SAA; or</P> <P>(ii) 50% of any positive appreciation if any one of the events listed in paragraphs (b)(1) through (4) of this section occurs more than 4 years from the date of the SAA, or if the term of the SAA expires.</P> <P>(4) [Reserved]</P> <P>(5) When the full amount of the appreciation due under this section and any remaining FSA debt is paid in full and credited to the account, the borrower will be released from liability.</P> <P>(6) Shared appreciation that will become due will be included in the amount owed to FSA, such as with any debt settlement. Nonamortized shared appreciation may be assumed and amortized on program or nonprogram terms based on the transferee's eligibility as contained in subpart A of part 1965 of this chapter.</P> <P>(d) [Reserved]</P> <P>(e) <E T="03">Shared appreciation amortization.</E> Shared appreciation may be amortized to a nonprogram loan for borrowers who will continue with FSA on program loans. Shared appreciation will not be amortized if the amount is due because of acceleration, payment in full or satisfaction of the debt, or the borrower ceases farming. The amount due may be amortized as an SA loan under the following conditions:</P> <P>(1) The borrower must have a feasible plan as defined in § 1951.906 including the SA loan payment.<PRTPAGE P="148"/> </P> <P>(2) The borrower must be unable to pay the shared appreciation, or obtain the funds elsewhere to pay the shared appreciation.</P> <P>(3)-(4) [Reserved]</P> <P>(5) The loan term will be based on the borrower's repayment ability and the life of the security, not to exceed 25 years.</P> <P>(6) The interest rate will be the Farm Loan Program Homestead Protection rate contained in RD Instruction 440.1 (available in any FSA office).</P> <P>(7) A lien will be obtained on any remaining FSA security, or if there is no security remaining, the best lien obtainable on any other real estate or chattel property sufficient to secure the SA note, if available.</P> <P>(8) The borrower will sign a promissory note for each SA loan established.</P> <P>(9)-(10) [Reserved]</P> <P>(11) If the borrower has no outstanding Farm Loan Program loans and becomes delinquent on the Shared Appreciation loan, the Shared Appreciation loan will be serviced in accordance with subpart J of this part. If the borrower has outstanding Farm Loan Programs loans, and becomes delinquent or financially distressed in accordance with § 1951.906, the Shared Appreciation loan will be considered for reamortization in accordance with § 1951.909(e).</P> <P>(f) <E T="03">Priority of collection application.</E> Proceeds from the sale of security property will first be applied to any prior lienholder's debt, then to any shared appreciation due, and to the balance of outstanding FLP loans in accordance with subpart A of this part.</P> <P>(g) <E T="03">Subordination.</E> Subordination of FSA's lien on property securing the Shared Appreciation Agreement may be approved and processed in accordance with subpart A of part 1965 of this chapter provided the prior lien debt is not increased.</P> <P>(h) <E T="03">Suspension of Recapture Payment Obligation under a Shared Appreciation Agreement.</E> (1) A borrower may request from a Farm Loan Program (FLP) servicing official, a suspension of the obligation to pay the recapture amount under a shared appreciation agreement, if:</P> <P>(i) The shared appreciation agreement recapture payment is now due but there has been no agreement to pay the recapture payment;</P> <P>(ii) The 10 year term of the agreement ends on or before December 31, 2000;</P> <P>(iii) The secured real estate has not yet been conveyed so that the entire amount of the shared appreciation agreement recapture payment is due;</P> <P>(iv) The borrower has complied with the other terms of the agreement;</P> <P>(v) The borrower certifies in writing that the borrower is not able to pay the recapture amount;</P> <P>(vi) The agreement or the obligations thereunder have not been accelerated and there are pending servicing rights under this subpart still available to the borrower; and</P> <P>(vii) The Agency's mortgage which secures the agreement remains in effect for a period not less than the suspension period under this paragraph plus 3 additional years or the Agency determines that the mortgage can be extended for an additional 3 years beyond the suspension period.</P> <P>(2) A request for suspension of the obligation to pay the recapture amount must be submitted in writing to the FLP servicing official after the borrower has received notification of the recapture amount due by the later of:</P> <P>(i) 30 days after the borrower has received notification of the recapture amount due; or</P> <P>(ii) May 24, 1999.</P> <P>(3) The term of the suspension of the obligation to pay the recapture amount is 1 year.</P> <P>(4) A suspension may be renewed by the Agency at the request of a borrower in writing not more than twice. Prior to renewal of a suspension, the Agency will determine, based on a Farm and Home Plan, the portion of the recapture amount the borrower is still unable to pay, or obtain credit to pay, from any other source (including nonprogram loans from the Agency, in accordance with this part), the suspension will be limited to such an amount. The Agency must also determine that the conditions prescribed in paragraphs (h)(1)(i) through (h)(1)(vi) are still met.</P> <P>(5) The amount of the recapture payment suspended will accrue interest at a rate equal to the applicable rate of <PRTPAGE P="149"/>interest of Federal borrowing, as determined by the Agency.</P> <P>(6) Thirty days before the end of the suspension period, the FLP Servicing Official shall inform the borrower by letter of the suspended amount, including accrued interest that is owed and the date such payment is due.</P> <P>(7) At the end of the suspension period, the borrower will be obligated to pay the amount suspended, plus any accrued interest and the borrower will be so notified.</P> <P>(8) If the real estate that is the subject of the Shared Appreciation Agreement during the suspension period is conveyed, the suspended amount, plus any accrued interest shall be come immediately due and payable by the borrower in accordance with paragraph (c) of this section.</P> <P>(9)-(10) [Reserved]</P> <P>(11) Capital improvement deductions are available to a borrower on any unpaid recapture amount under an existing Suspension Agreement in accordance with 1951.914(c).</P> <CITA>[63 FR 6629, Feb. 10, 1998, as amended at 64 FR 19865, Apr. 23, 1999; 65 FR 50404, Aug. 18, 2000; 65 FR 81326, Dec. 26, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.915</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.916</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <P>(a) <E T="03">Administrator.</E> The Administrator or delegate may, in individual cases, make an exception to any requirement or provision of this subpart or address any omission of this subpart which is not inconsistent with the authorizing statute or other applicable law if the Administrator determines that the Government's interest would be adversely affected. The Administrator will exercise this authority upon request of the State Director with recommendation of the appropriate Program Assistant Administrator, or upon request initiated by the appropriate Program Assistant Administrator. In certain situations such as a natural disaster, the Administrator may delegate this authority to specific State Director positions in certain states. In such cases, the State Director will exercise the delegation of authority upon the request of the County Supervisor with the recommendation of the District Director, rather than the appropriate Program Assistant Administrator. Requests for exceptions must be made in writing and supported with documentation to explain the adverse effect, propose alternative courses of action, and show how the adverse effect will be eliminated or minimized if the exception is granted.</P> <P>(b) <E T="03">State Director</E>. The State Director may, in individual cases of extraordinary circumstances, make an exception to the requirement that attachments 2 or 4 of exhibit A of this subpart, as appropriate, must be completed and returned to the FmHA or its successor agency under Public Law 103-354 County Office with the appropriate forms and documents for a complete application within 60 days after receiving attachments 1 and 2 or 3 and 4 of exhibit A of this subpart. If the borrower requests additional time to submit a complete application or submits a complete application after the deadline, the County Supervisor must ask the borrower why the additional time is or was needed. The County Supervisor must ask the borrower whether there are extraordinary circumstances like serious medical illness, severe adverse weather, or a family emergency, and explain that only the State Director can authorize an extension of time for extraordinary circumstances. In such cases, the County Supervisor must document the situation in the case file and immediately submit the request with his or her recommendation on whether the State Director should grant an exception for an extension of time. The request should describe the circumstances in accordance with the examples of extraordinary circumstances mentioned above and recommend an estimate of the additional time needed. Normally, such an extension of time should not exceed 30 days.</P> <CITA>[58 FR 4066, Jan. 13, 1993, as amended at 58 FR 15418, Mar. 23, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1951.917-1951.949</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.950</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The reporting and recordkeeping requirements contained in this regulation have been approved by the Office of Management and Budget and have been assigned OMB control number 0560-0161. Public reporting burden for <PRTPAGE P="150"/>this collection of information is estimated to average five minutes per response including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Agriculture, Clearance Officer, OIRM, room 404-W, Washington, DC 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB# 0560-0161), Washington, DC 20503.</P> <CITA>[57 FR 18626, Apr. 30, 1992, as amended at 63 FR 6629, Feb. 10, 1998]</CITA> </SECTION> <SUBJGRP> <HD SOURCE="HED">Exhibits to Subpart S</HD> </SUBJGRP> <EXHIBIT> <EAR>Pt. 1951, Subpt. S, Exh. A</EAR> <HD SOURCE="HED">Exhibit A—Notice of the Availability of Loan Servicing and Debt Settlement Programs for Delinquent Farm Borrowers</HD> <P>Dear (Borrower's Name):</P> <P>This notice is to inform you that you are behind with your loan payments and to inform you of your options.</P> <HD SOURCE="HD2">I. Loan Servicing Programs Available</HD> <P>Primary loan servicing programs are intended to adjust the debt so that you can continue farming and the Agency will receive a better recovery on the money it loaned you.</P> <P>The Preservation loan servicing program (Homestead Protection) is intended to help farmers who may lose their land to the Agency get their home back through a lease with an option to buy.</P> <HD SOURCE="HD2">II. Application Information</HD> <HD SOURCE="HD3">Time Limits</HD> <P>You must notify the county office within 60 days of getting this notice if you want to be considered for these programs.</P> <HD SOURCE="HD3">How to Apply</HD> <P>To apply, you must complete and return the required forms enclosed with this notice, including your signed Acknowledgment Of Notice Of Program Availability within the 60-day time limit. The county office will process your completed forms and let you know if you qualify.</P> <P> <E T="03">Included With This Notice You Will Find:</E> </P> <P>(1) A summary of primary loan servicing programs options;</P> <P>(2) A summary of the preservation loan servicing program;</P> <P>(3) A summary of debt settlement programs;</P> <P>(4) The forms you need to apply for services;</P> <P>(5) Information on how to get copies of the Agency's regulations;</P> <P>(6) A description of the National Appeals Division appeal process.</P> <HD SOURCE="HD2">III. Foreclosure and Liquidation</HD> <HD SOURCE="HD3">What Happens if You Do Not Apply Within 60 Days?</HD> <P>The Agency will accelerate your loan if you continue to be delinquent or in nonmonetary default. Acceleration of your loan is very severe. This means the Agency will take legal action to collect all the money you owe them.</P> <P>After acceleration, the Agency will start foreclosure proceedings. They will repossess or take legal action to take any real estate, personal property, crops, livestock, equipment, or any other assets in which the Agency has a security interest. The Agency will also stop allowing you to use your crop, livestock, and milk checks to pay living and operating expenses. The Agency will also take by administrative offset money which other federal agencies owe you.</P> <P>Sincerely,</P> <HD SOURCE="HD1">Attachment <E T="01">1</E> <E T="04">—Primary and Preservation Loan Servicing and Debt Settlement Programs Purpose</E> </HD> <HD SOURCE="HD2">Purpose</HD> <P>These programs are to help you repay the loan and keep your farm property and settle your Farm Loan Programs loan debt. This notice tells you: </P> <FP SOURCE="FP-1">(1) How To get more information</FP> <FP SOURCE="FP-1">(2) How to apply</FP> <FP SOURCE="FP-1">(3) Your appeal rights if you apply and are turned down</FP> <HD SOURCE="HD2">How To Get More Information</HD> <P>Ask at any county office for copies of the rules describing these programs. These rules must be given to you within 10 days of when we receive your request.</P> <HD SOURCE="HD2">Who Can Apply?</HD> <P>All “farm loan programs borrowers” who have one of the following loans: </P> <FP SOURCE="FP-1">Operating (OL)</FP> <FP SOURCE="FP-1">Farm Ownership (FO)</FP> <FP SOURCE="FP-1">Emergency (EM)</FP> <FP SOURCE="FP-1">Economic Emergency (EE)</FP> <FP SOURCE="FP-1">Soil and Water (SW)</FP> <FP SOURCE="FP-1">Recreation (RL)</FP> <FP SOURCE="FP-1">Rural Housing Loans made for farm service buildings (RHF)</FP> <FP SOURCE="FP-1">Economic Opportunity (EO)</FP> <PRTPAGE P="151"/> <P>Borrowers that are current on their scheduled payments but are financially distressed through no fault of their own may be eligible for some assistance to restructure their debt.</P> <HD SOURCE="HD2">You May Need Help in Applying</HD> <P>The legal requirements for these programs are very complicated. You may need help to understand them. You may want to ask an attorney to help you. If you cannot get an attorney, there are organizations that give free or low-cost advice to farmers. Ask your State Department of Agriculture or the USDA Extension Service what services are available to your state. </P> <NOTE> <HD SOURCE="HED">Note:</HD> <P>Agency employees cannot recommend a particular attorney or organization.</P> </NOTE> <HD SOURCE="HD2">I. Primary Loan Service Programs</HD> <HD SOURCE="HD3">(1) Loan Consolidation</HD> <P>Two or more of the same type of loans can be combined into one larger loan. For example, operating loans can only be joined with operating loans.</P> <HD SOURCE="HD3">(2) Loan Rescheduling</HD> <P>The payment schedule can be altered to give you longer to repay loans secured by equipment, livestock, or crops. For example, the time for repayment of an operating-type loan can be extended up to 15 years from the date the loan is rescheduled. When a loan is rescheduled, the interest rate may be reduced.</P> <HD SOURCE="HD3">(3) Loan Reamortization</HD> <P>The payment schedule can be changed to give you longer to repay loans secured by real estate. For example, a Farm Ownership loan payback period may be extended to 40 years from the date the original loan was signed. When a loan is reamortized, the interest rate may be reduced.</P> <HD SOURCE="HD3">(4) Interest Rate Reduction</HD> <HD SOURCE="HD2">Regular Interest Rate</HD> <P>FSA has specific interest rates for each type of loan. These interest rates change quite often. They depend on what it costs the Government to borrow money. Each type of loan will have a regular rate.</P> <HD SOURCE="HD2">Limited Resource Interest Rate</HD> <P>If you have an Operating Loan (OL), Soil and Water (SW) loan or a Farm Ownership (FO) loan, it may be possible for you to get a “limited resource interest rate.” The limited resource interest rate can be as low as 5 percent. It changes quite often and depends on what it cost the Government to borrow money.</P> <HD SOURCE="HD2">Interest Rate for Loan Servicing</HD> <P>When loans are consolidated, rescheduled, or reamortized, the interest rate on the new loan will be either the interest rate on the original loan or the current regular rate of interest for that type of loan, whichever is less. The borrower may be able to get the limited resource interest rate on OL, SW, or FO loans.</P> <P>For information about current interest rates, contact the FSA county office.</P> <HD SOURCE="HD3">(5) Loan Deferral</HD> <P>Payments of principal and interest can be temporarily delayed for up to 5 years. You must show that you cannot pay essential living expenses or maintain your property and pay your debts. You must also show you will be able to pay at the end of the deferral period.</P> <P>The interest rate on a deferred loan will be either the current rate of interest for loans of the same type or the original rate on the loan, whichever one is lower.</P> <P>The interest that builds up during the deferral period will be added to the principal of the loan. You must pay this interest in yearly payments for the rest of the loan term. </P> <NOTE> <HD SOURCE="HED">Note:</HD> <P>You can only get a loan deferral if the FSA determines options 1-4 will not work for you.</P> </NOTE> <HD SOURCE="HD3">(6) Softwood Timber Program</HD> <P>Marginal land including highly erodible land and pasture can be planted in softwood timber. If you qualify, a debt of up to $1000 an acre can be deferred up to 45 years. Interest will be charged during the deferral period. The debt must be paid when the timber is sold.</P> <HD SOURCE="HD3">(7) Conservation Contract Program</HD> <P>You may enter into a contract with the Secretary of Agriculture to protect highly erodible land, wetlands, or wildlife habitat located on your property that serves as security for your farm loan debt. In exchange for the contract, FSA will reduce your FSA debt. The amount of land left after the contract must be enough to continue your farming operation.</P> <HD SOURCE="HD3">(8) Debt Writedown</HD> <P>This is not available to borrowers who are current in their loan payments or to borrowers who have had previous debt forgiveness on another direct loan.</P> <P>Debt writedown means the FSA debt you owe is reduced. FSA can reduce both the principal and interest of your debt. Your debt can be reduced to the recovery value.</P> <P> <E T="03">Recovery value.</E> The recovery value is the fair market value of the collateral pledged as <PRTPAGE P="152"/>security for FSA loans minus all of the expenses such as sale costs, attorneys fees, management costs, taxes and payment of prior liens on the collateral that FSA would have to pay if it foreclosed on and sold the collateral. The fair market value of any collateral that is not in your possession and has not been released for sale by FSA in writing will also be used in determining recovery value.</P> <P>Also considered, will be the fair market value of any other assets that you may own that are not essential for family living or for farm operation, and are not exempt from your judgment creditors or in a bankruptcy action, minus the value of any creditors’ prior security interests and your selling costs. The value of the collateral and any other assets must be decided by a qualified appraiser.</P> <P>In order to get debt writedown, you must show that after the writedown, you will have up to 110 percent, but not less than 100 percent, of income available to pay all of your family living and farming operating expenses and scheduled debt payments. This means you must have a feasible plan of operation. FSA will not write down more of the debt than is necessary for you to show a feasible plan. You have the choice to select a smaller cash flow margin without a writedown. If you choose to do this, you will avoid taking your one time debt forgiveness as explained below.</P> <P>The writedown is used only when the loan servicing programs listed in 1-7 above alone will not be enough for you to have a feasible plan. If you get writedown, some of the principal and interest on your loans will be written down in addition to changing the payback period, and possibly the interest rate, using 1-7 above.</P> <P>You can receive a writedown if you have not previously received any form of debt forgiveness from FSA on any other direct farm loan. The maximum debt that can be written down on all loans is $300,000.</P> <HD SOURCE="HD3">II. <E T="03">Who Can Qualify for Primary Loan Service Programs</E> </HD> <P>To qualify you must prove that:</P> <P>(1) You cannot repay your FSA debt due to circumstances beyond your control. If you have certain nonessential assets with a value high enough to bring your account current, then you are not eligible for Primary Loan Service Programs. These assets are only those that are not essential for necessary family living or for your farm operation. FSA cannot reduce or write off any of your debt that you could pay by selling any of these assets or borrowing against your equity in the assets.</P> <P>You must have had less income than expected due to such things as: </P> <FP SOURCE="FP-1">(a) A natural disaster, weather, or insect problems;</FP> <FP SOURCE="FP-1">(b) Family illness or injury;</FP> <FP SOURCE="FP-1">(c) Loss or reduction of off-farm income;</FP> <FP SOURCE="FP-1">(d) Disease in your livestock;</FP> <FP SOURCE="FP-1">(e) Low commodity prices and high operating expenses in your local area; or</FP> <FP SOURCE="FP-1">(f) Other circumstances beyond your control.</FP> <P>(2) You have acted in “good faith” to keep your agreements with FSA in that you have kept all written agreements with FSA including those for the use of proceeds and release of property used to secure the loan, and your file shows no fraud, waste, or conversion.</P> <P>You must agree to give FSA a lien on certain other assets for additional security for the FSA debt. If you are offered restructuring and accept the offer, you must provide this lien at closing.</P> <P>You must agree to meet, at your own cost, FSA's training requirements in production and financial management. The cost will be included in your farm plan as an operating expense. The training must be completed within 2 years from the date of restructuring. This requirement may be waived if you are able to demonstrate that you have adequate training in this area. To request a waiver of this training requirement, complete Form FmHA 1924-27, “Request for Waiver of Borrower Training Requirements,” and submit with your request for FSA servicing. This training requirement is not applicable if you have previously received a waiver or you have successfully completed the required FSA Borrower Training program.</P> <HD SOURCE="HD2">Who Will Decide if You Qualify?</HD> <P>The FSA servicing official will decide if you qualify. The servicing official will decide whether you can pay as much or more on the loan as FSA would get if they foreclosed and sold the collateral for the loan plus the value of any nonessential assets. To do this, the servicing official must decide whether the total payments of principal and interest on your adjusted debt will be at least as much as the “recovery value” defined in part I above.</P> <HD SOURCE="HD2">Can You Get Your Debts Written Down?</HD> <P>Only if FSA will get as much or more by writing down part of your debt than through foreclosure or sale of the collateral for the loan and any nonessential assets. You also must be delinquent on your FSA debt payments.</P> <HD SOURCE="HD2">Conditions of the New Agreement if You Qualify</HD> <P>You must sign a shared appreciation agreement for 10 years. Under the terms of the agreement:</P> <P>• You must repay a part of the sum written down.<PRTPAGE P="153"/> </P> <P>• The amount you must repay depends on how much your real estate collateral increases in value.</P> <P>During this 10 years, FSA will ask you to repay part of the debt written down if you do one of the following: </P> <FP SOURCE="FP-1">(1) Sell or convey the real estate</FP> <FP SOURCE="FP-1">(2) Stop farming</FP> <FP SOURCE="FP-1">(3) Pay off the entire debt</FP> <P>If you do not do one of these things during the 10 years, FSA will ask you to repay part of the debt written down at the end of the 10 year period.</P> <P>FSA can only ask you to repay if the value of your real estate collateral goes up.</P> <P>If either 1, 2, or 3 above occurs in the first four years of the agreement, FSA will ask you to pay 75 percent of the increase in value of the real estate. In the last 6 years, you will be asked to pay only 50 percent of the increase in value. FSA will not ask you to pay more than the amount of the debt written down.</P> <HD SOURCE="HD2">Date To Begin Restructured Agreement</HD> <P>If you are found eligible, you will be informed of the date for an appointment so your debt can be restructured. You must notify FSA that you accept its offer to restructure your debt within 45 days of when you receive the offer.</P> <HD SOURCE="HD2">III. Preservation Loan Servicing Program</HD> <HD SOURCE="HD2">Purpose</HD> <P>This program applies when the primary loan service programs cannot help you.</P> <P> <E T="03">Homestead Protection.</E> (Keeping your farm home.) You may lease your farm home, certain outbuildings and up to 10 acres of land. The lease time will be for up to 5 years. The lease will include an option for you to purchase the property you lease.</P> <HD SOURCE="HD2">IV. Who Can Qualify for Homestead Protection?</HD> <P>(1) Your gross annual income from your farm or ranch must have been similar to other comparable operations in your area. This must be true for at least 2 years of the last 6 years.</P> <P>(2) Sixty percent (60%) of your gross annual income in at least 2 of the last 6 years must have come from the farming operation.</P> <P>(3) You must have lived in your homestead property for 6 years immediately before your application. If you had to leave for less than 12 months during the 6-year period and you had no control over the circumstances, you still may qualify.</P> <P>(4) You must be the owner or former owner of the property.</P> <P>(5) If FSA has already taken your property, you must apply within 30 days of the date FSA took your property.</P> <HD SOURCE="HD2">How To Lease Your Dwelling</HD> <P>(1) You may lease your home and up to 10 acres if you pay FSA reasonable rent. The rent prices FSA charges you will be similar to comparable property in your area.</P> <P>(2) You must maintain the property in good condition during the term of the lease.</P> <P>(3) You may lease for up to 5 years.</P> <P>(4) You cannot sublease your property.</P> <P>(5) If you do not keep up your rental payments to FSA, FSA will force you to leave.</P> <P>You can buy back your homestead property at current market value at any time during the lease. FSA may place an easement on your property to protect and restore any wetlands or converted wetlands. Current market value will be decided by an independent appraiser. The appraisal will be made within 6 months of your application for homestead protection. The appraised value of your property will reflect the value of the land after any placement of a wetland conservation easement.</P> <P>You should be aware that any real property, located in special areas or having special characteristics, which comes into FSA's inventory, may have restrictions or easements placed on the property which prevent your use of all or a portion of the property, should you choose to lease or buy your former dwelling. These restrictions and encumbrances will be placed in leases and in deeds on properties containing wetlands, floodplains, endangered species, wild and scenic rivers, historic and cultural properties, coastal barriers, and highly erodible soils.</P> <HD SOURCE="HD2">V. Debt Settlement Programs.</HD> <HD SOURCE="HD2">Purpose</HD> <P>These programs apply after it has been determined that primary loan service programs cannot help you. You may be eligible for both debt settlement and homestead protection. If you do not have FSA collateral you will need to apply for debt settlement only. Under these programs, the debt you owe FSA may be settled for less than the amount you owe. Please apply for debt settlement from FSA by submitting an application for debt settlement on Form RD 1956-1 within 30 days of receiving an additional debt settlement notice. See section IX. These programs are subject to the discretion of the agency and are not a matter of entitlement or right.</P> <HD SOURCE="HD2">Programs Available</HD> <P>(1) Compromise offer: A lump-sum payment of less than the total FSA debt owed.</P> <P>(2) Adjustment offer: One or more payments of less than the total amount owed to FSA. Your payments can be spread out over a maximum of five years if FSA decides you will be able to make the payments as they become due.<PRTPAGE P="154"/> </P> <P>(3) Cancellation: The final settlement of a debt without any payment. FSA must decide there is no FSA security or other asset from which FSA can collect. You must be unable to pay any part of the debt now or in the future.</P> <HD SOURCE="HD2">Approval Requirements</HD> <P>If you sell your collateral, you must apply the proceeds from the sale to your FSA account before you can be considered for debt settlement. In the case of compromise and adjustment, however, you may keep your collateral if you are unable to pay your total FSA debt and pay FSA the present fair market value of your collateral along with any additional amount you are able to pay as determined by FSA. You will be allowed to retain a reasonable equity in essential nonsecurity property to continue your normal operations and meet minimum family living expenses. FSA will not finance a compromise or adjustment offer.</P> <P>All debt settlements of FLP loans must be recommended by the County Committee with a finding that the statements on your application are true. The committee must certify that you do not have assets or income in addition to what you stated in your application. You must also have not previously received any form of debt forgiveness from FSA on any other direct farm loan. If you qualify, your application must also be approved by the FSA State Executive Director or the FSA Administrator depending on the amount of the debt to be settled.</P> <HD SOURCE="HD2">VI. How to Apply for Primary and Preservation Loan Servicing Programs.</HD> <HD SOURCE="HD2">Application Forms and Information Needed</HD> <P>The forms set out below should be included with this notice. If they are not, you can obtain them from the FSA county office or as directed below.</P> <P>(1) Attachment 2 or 4 of Exhibit A Response form to apply for loan services.</P> <P>(2) FmHA 410-1 Application for FSA Services (The financial statement on this form must include information no more than 90 days old. The financial statement must be for all individuals and entities personally liable for the FSA debt.</P> <P>(3) FmHA 431-2 Farm and Home Plan, or other acceptable plan of operation. The commodity prices to use for this plan of operation or Farm and Home Plan are included with the form. You may request the servicing official to assist you in completing your plans.</P> <P>(4) FmHA 440-32 Request for Statement of Debts and Collateral. Complete the name and address of the creditor, account number, if applicable, and your name. All parties liable to the creditor must sign and date the forms. FSA will obtain the creditor information.</P> <P>(5) FmHA 1910-5 Request for Verification of Employment. Complete employer's name and address, employee's name and address, social security number, sign and date. FSA will send the form to your employer to obtain the needed information.</P> <P>(6) SCS-CPA-026 Highly Erodible Land and Wetland Conservation Determination (This form must be obtained from and completed by the Natural Resources Conservation Service office, if not already on file with FSA.)</P> <P>(7) AD-1026 Highly Erodible Land Conservation (HELC) and Wetland Conservation (WC) Certification (You will be required to complete this form in the FSA office if the one you have on file does not reflect all the land you own and lease.)</P> <P>(8) FmHA 1960-12 Financial and Production Farm Analysis Summary (Complete the backside of the form or other similar type worksheets to provide production and expense history for crops, livestock, livestock products, etc. for each of the five years immediately preceding the year of application or the years you have been farming, whichever is less and if not already in the FSA case file. You must be able to support this information with farm or income tax records.)</P> <P>(9) Copies of income tax records and any supporting documents for the last five years immediately preceding the year of application if not already on file with the FSA county office. (If you have been farming for less than 5 years, submit the tax records for the tax years immediately preceding the year of application during which you farmed. If copies of tax records are not readily available, you can obtain copies from the Internal Revenue Service (IRS).)</P> <P>(10) Map or aerial photo of your farm from FSA or Natural Resources Conservation Service if you are applying for the conservation contract program. (Identify on the map or photo the portion of the land and approximate number of acres to be considered in the contract.)</P> <P>(11) RD 1956-1 Application for Settlement of Indebtedness (Complete this form only if you wish to apply for debt settlement.)</P> <HD SOURCE="HD2">Time to Apply for Primary and Preservation Loan Servicing Programs</HD> <P>To apply, you must complete the appropriate forms and return them and the required information to the FSA county office within 60 days from the date you received this notice.</P> <HD SOURCE="HD2">VII. What Happens When You Are Not Eligible for Primary Loan Service Programs?</HD> <P>If the servicing official decides you are not eligible, you may request a meeting with that official so the official can explain the decision.<PRTPAGE P="155"/> </P> <P>If you do not agree with the FSA servicing official's decision, you can tell the official why. If you can make the necessary realistic changes to your Farm and Home Plan to show a feasible plan, you should show these changes to the servicing official.</P> <HD SOURCE="HD2">Negotiation of the Appraisal</HD> <P>A negotiation of the appraisal is a process whereby the borrower objects to the FSA appraisal, obtains an independent appraisal at the borrower's own costs, pays one-half of the cost for a third appraisal, and the average of the two appraisals closest in value is taken as the final appraised value to be used in considering restructuring. In all cases of primary and preservation loan servicing where the borrower presents an independent appraisal which is conducted by a qualified appraiser and is within 5 percent of the value of the FSA appraisal, the borrower must choose one of these two appraisals for the servicing official to use to continue processing the request. Negotiation of appraisal may affect your right to appeal the appraisal.</P> <HD SOURCE="HD2">You May Request Mediation of Other Loans</HD> <P>If you cannot show a feasible farm plan because you owe too much to other creditors and suppliers, FSA will help you try to get your other creditors to adjust your debts. This will be done by FSA asking for mediation if your State has a mediation program approved by the United States Department of Agriculture. If there is no State mediation program, FSA will try to set up a meeting with your other creditors and suppliers if it can be shown that a reduction in these debts can provide a feasible farm plan.</P> <HD SOURCE="HD2">You Have the Right to Appeal</HD> <P> <E T="03">Appeal.</E> Appeal rights will be provided to you after FSA has made a decision on your request for primary loan servicing. If you first request a meeting with the servicing official instead of an appeal, the time for requesting an appeal will be extended until you are advised of the results of your meeting. You will be provided with the address of USDA's National Appeals Division. Your request for an appeal must be postmarked no later than 30 days from the date you received the agency's adverse decision. If you disagree with FSA's determination that any determination is not appealable, you may request a determination of appealability from the National Appeals Division.</P> <HD SOURCE="HD2">You May Buyout (Pay Off) Your Loan at the “Current Market Value”</HD> <P>(1) <E T="03">Current market Value.</E> If the analysis of your debt shows that you cannot “cash flow” even if your debt to FSA is reduced to the value of the collateral, the servicing official will advise you in writing that you can buyout the loan by paying the “current market value” minus any prior liens. The current market value is determined by a current appraisal completed by a qualified appraiser.</P> <P>(2) <E T="03">Limits.</E> You may receive a buyout if you have not previously received any form of debt forgiveness from FSA on any other direct farm loan. The maximum debt that can be written off with buyout is $300,000.</P> <P>(3) <E T="03">Eligibility.</E> To qualify you must prove that:</P> <P>You cannot repay your FSA delinquent debt and the reason you cannot repay was due to circumstances beyond your control,</P> <P>You have acted in good faith, and</P> <P>The value of your restructured loan is less than the recovery value.</P> <P>(4) <E T="03">Time Limit.</E> If you want to buy out your farm loan debt at the current market value, you must pay FSA within 90 days of the date you receive the offer. If you appeal the servicing official's decision not to give you primary loan servicing, this 90 days will not start until the administrative appeal process ends.</P> <P>(5) <E T="03">Cash.</E> If you pay off the loan at the current market value, you must pay in cash. FSA will not make or guarantee a loan for this purpose.</P> <HD SOURCE="HD2">Consideration for Preservation Loan Service Program</HD> <HD SOURCE="HD2">(Homestead Protection)</HD> <P>You will be considered for homestead protection if:</P> <P>(1) You applied for primary loan servicing as required and did not qualify.</P> <P>(2) You do not appeal your primary loan servicing denial, or do not win your appeal.</P> <P>(3) You do not pay off the loan through buyout.</P> <P>(4) You agree to give FSA title to your land at the time FSA signs the written homestead protection agreement with you. FSA will not accept title and will deny your preservation request if it is not in FSA's best financial interest to accept title. FSA will compute the costs of taking title including the cost of paying other creditors who have outstanding liens on the property. FSA will take title only if it can obtain a recovery on its cost. Any written agreement for preservation loan servicing will include the amount you must pay for rent, the number of years you can rent, and an option to purchase the property at the fair market value at the time you exercise the option to purchase.</P> <P>(5) You must request Homestead Protection within 30 days of FSA obtaining title to the property.</P> <HD SOURCE="HD2">Consideration for Debt Settlement Programs</HD> <P>If you wish to be considered for debt settlement, you will need to request and return a completed Form RD 1956-1. You may request <PRTPAGE P="156"/>debt settlement from FSA within 30 days of receiving an additional debt settlement notice. See section IX. Usually, the most appropriate time for making this request is when FSA has determined that Primary Loan Servicing options will not provide the best net recovery to the Government and you are requesting preservation loan servicing. If you no longer have any security remaining for the outstanding FSA loans, you may want to request debt settlement instead of primary and preservation loan servicing.</P> <HD SOURCE="HD2">VIII. What Happens When You Are Turned Down for Homestead Protection or Debt Settlement Programs?</HD> <P>If FSA decides that you cannot get homestead protection or debt settlement you can ask for</P> <P>(1) A meeting with FSA to discuss the decision, or</P> <P>(2) Appeal the determination.</P> <HD SOURCE="HD2">The Right to a Meeting</HD> <P>The servicing official will send you a letter telling you why FSA decided not to give you homestead protection or debt settlement. That letter will give you 15 days to ask for a meeting with FSA.</P> <HD SOURCE="HD2">The Right to an Appeal</HD> <P>Appeal rights will be provided to you after FSA has made a decision on your request for homestead protection. If you first request a meeting with the servicing official instead of an appeal, the time for requesting an appeal will be extended until you are advised of the results of your meeting. You will be provided with the address of USDA's National Appeals Division. Your request for an appeal must be postmarked no later than 30 days from the date you received the final determination.</P> <P>On appeal, you can contest FSA's rental amount and its decision not to give you homestead protection. You can also contest FSA's decision to reject your debt settlement application.</P> <HD SOURCE="HD2">IX. Acceleration and Foreclosure</HD> <P>If you do not appeal an adverse determination or if you are denied relief on appeal, FSA will accelerate your loan account and make demand for payment of the whole debt. FSA will stop allowing you to use any of your crop, livestock, and milk checks, on which they have a claim, to pay for living and operating expenses. FSA will repossess the collateral or start legal foreclosure or liquidation proceedings to take and sell the collateral, including your equipment, livestock, crops, and land. FSA will continue to take by administrative offset, money which FSA and other Federal Government agencies owe you.</P> <P>FSA may refrain from taking these actions if you agree to do one, or a combination of the following actions, within an agreed upon time, with FSA's approval:</P> <P>(1) Sell all the collateral for the loan at market value.</P> <P>(2) Convey (legally transfer) the collateral to FSA. You may apply or reapply for homestead protection jointly with this action, even if you applied before and were not accepted.</P> <P>(3) Apply to transfer the collateral to someone else and have that person assume all or part of the FSA debt. (This is called transfer and assumption.)</P> <P>If any of these options, or foreclosure, result in payment of less than you legally owe, the servicing official will send you a notice providing you with 30 days to submit a debt settlement application. If you do not respond in a timely manner, your account will be sent to the U.S. Department of the Treasury (Treasury) for collection through cross-servicing. If you submit a debt settlement application within the required time frame, and the application is rejected, your debt will be referred to Treasury for cross-servicing after all appeal rights on the debt settlement application are exhausted. Referral of debt to Treasury for cross-servicing is not an appealable action. If your debt is referred for cross-servicing, Treasury may:</P> <P>(1) Take action to collect the debt by offset or garnishment, including offset of tax refunds and garnishment of salary,</P> <P>(2) Refer the debt to a private collection agency for collection, or</P> <P>(3) Refer the debt for collection by the U.S. Department of Justice (DOJ).</P> <P>Collection fees may be charged to you when collections are made. In addition, FSA will report the debt to a credit bureau. After your account is referred to Treasury, any debt settlement offer must be submitted to Treasury, or its private collection agency contractor. If your account is referred to DOJ for collection, your offer must be made to DOJ.</P> </EXHIBIT> <CITA>[62 FR 10134, Mar. 5, 1997, as amended at 64 FR 62972, 62973, Nov. 18, 1999; 65 FR 50405, Aug. 18, 2000]</CITA> <EXHIBIT> <RESERVED>Exhibits B—F [Reserved]</RESERVED> </EXHIBIT> <EXHIBIT> <EAR>Pt. 1951, Subpt. S, Exh. G</EAR> <HD SOURCE="HED">Exhibit G—Deferral, Reamortization and Reclassification of Distressed Farmer Program (FP) Loans for Softwood Timber Production (ST) Loans</HD> <HD SOURCE="HD1">I. General.</HD> <P>Borrowers with distressed FP loans, as defined in this exhibit, with 50 or more acres of marginal land may request FmHA or its successor agency under Public Law 103-354 assistance under the provisions of this section. Such distressed FP loans may be reamortized with the use of future revenue produced <PRTPAGE P="157"/>from the planting of softwood timber on marginal land as set out in this section. The basic objectives of the FmHA or its successor agency under Public Law 103-354 in reamortizing and deferring payments of distressed FP loans (ST loans) to financially distressed farmers are to develop a feasible plan to assist eligible FmHA or its successor agency under Public Law 103-354 borrowers to improve their financial condition, to repay their outstanding FmHA or its successor agency under Public Law 103-354 debts in an orderly manner, to carry on a feasible farming operation, and to take marginal land, including highly erodible land, out of the production of agricultural commodities other than for the production of softwood timber. County Supervisors are authorized to approve softwood timber (ST) loans subject to the limitations in paragraph VI of this exhibit.</P> <P>(A) <E T="03">Management assistance.</E> FmHA or its successor agency under Public Law 103-354 management assistance will be provided to borrowers to assist them to achieve loan objectives and protect the Government's financial interests, in accordance with subpart B of part 1924 of this chapter.</P> <P>(B) <E T="03">Definitions</E>.</P> <P>(1) <E T="03">Distressed FmHA or its successor agency under Public Law 103-354 loan.</E> An FP loan which is delinquent or in financial distress because a borrower cannot project a feasible plan by using the other loan modification actions including rescheduling, reamortizing or deferral for the maximum term.</P> <P>(2) <E T="03">Marginal land.</E> Land determined suitable for softwood timber production by the Soil Conservation Service (SCS) that was previously pasture land or within the last five years used for the production of agricultural commodities, as defined in § 12.2 of subpart A of part 12 of this chapter and which is Attachment 1 of Exhibit M of subpart 1940 of this chapter. This could include:</P> <P>(a) Highly erodible land as defined or classified by the SCS under § 12.2 of subpart A of part 12 of this chapter, or</P> <P>(b) Marginal lands that predominantly include soils that are in Class IV, V, VI, VII, or VIII in the SCS's Land Capability Classification System. However, marginal land shall not include wetlands as defined in § 12.2 (a)(26) of subpart A of part 12 of this chapter and which is attachment 1 of exhibit M of subpart G of part 1940 of this chapter.</P> <P>(3) <E T="03">Softwood timber.</E> The wood of a coniferous tree having soft wood that is easy to work or finish and is commonly grown and commercially sold for pulpwood, chip, and sawtimber.</P> <P>(c) <E T="03">ST loan eligibility.</E> A borrower must:</P> <P>(1) Have the debt repayment ability and reliability, managerial ability and industry to carry out the proposed timber production operation.</P> <P>(2) Be willing to place not less than 50 acres of marginal land in softwood timber production; such land (including timber) may not have any lien against it other than a lien for ST loans.</P> <P>(3) Have properly maintained chattel (i.e. movable property) and real estate security and accurately accounted for the sale of security, including crops, and livestock production.</P> <P>(4) Be an FmHA or its successor agency under Public Law 103-354 FP loan borrower who owns 50 acres or more of marginal land which SCS determines to be suitable for softwood timber.</P> <P>(5) Have sufficient training or farming experience to assure reasonable prospects of success in the proposed timber operation.</P> <P>(6) Have one or more distressed FmHA or its successor agency under Public Law 103-354 loans as defined by this exhibit.</P> <P>(7) Not have a total indebtedness of ST loan(s) that will exceed $1,000 per acre for the marginal land at closing. Example: If 50 acres of marginal land is put in softwood timber production, the total ST loan indebtedness may not exceed $50,000 at closing.</P> <P>(8) Be able to obtain sufficient money through FmHA or its successor agency under Public Law 103-354 or other sources including cost-sharing programs for forestry purposes for the planting, caring, and harvesting of the softwood timber trees.</P> <HD SOURCE="HD1">II. Reamortization requirements.</HD> <P>(A) A Timber Management Plan must be developed with the assistance of the Federal Forest Service (FS), State Forest Service or such other State or Federal agencies or qualified private forestry service. The plan will outline the necessary site preparation, planting practices, environmental protection practices, tree varieties, the harvesting projection, the planned use of the timber, etc.</P> <P>(B) The following requirements must also be met:</P> <P>(1) If the borrower is otherwise eligible, the County Supervisor must determine that a feasible farm plan as defined by subpart B of part 1924 of this chapter on the present farm operation is not possible without using the provisions of this section. The County Supervisor must calculate the borrower's plan of operation, using the maximum terms for the rescheduling, reamortization and deferral authorities set out in this subpart. If a feasible projection can be achieved by using any of these authorities, the borrower's account will be rescheduled, reamortized or deferred, as applicable. Limited Resource rates must be considered, if the borrower is eligible, in determining whether a feasible plan can be achieved. The County Supervisor must document the steps taken to develop these cash flow projections and must place this documentation in the borrower's case file. A copy of this documentation must also be given to <PRTPAGE P="158"/>the borrower. If a feasible plan is shown, the borrower is not eligible for a reamortization of a distressed loan(s) as set out in this section. The borrower will be given an opportunity to appeal the FmHA or its successor agency under Public Law 103-354 denial, as provided in § 1951.909(i) of this subpart after the County Supervisor determines the borrower's eligibility for the other servicing programs in this subpart.</P> <P>(2) If a feasible plan cannot be developed on the present farm operation, the County Supervisor will determine if a feasible plan would be possible by deferring and reamortizing a portion of one or more distressed FP loans as ST loans. The ST loan is limited to the loan amount (rounded up to the nearest $1,000) sufficient to produce a feasible plan. However, the amount of the loan cannot exceed the $1,000 per acre specified in paragraph I (C)(7) of this exhibit. The borrower, with assistance from the County Supervisor, must be able to develop a feasible farm plan for the first full crop year of the deferral.</P> <P>(3) For applications received before November 28, 1990, when a loan is reamortized the accrued interest less than 90 days overdue will not be capitalized. For new applications, as defined in § 1951.906 of this subpart, the total amount of outstanding accrued interest will be added to the principal at the time of reamortization. Payments may be deferred for up to 45 years or until the timber crop produces revenue, whichever comes first, except as required in paragraph VIII(B) of this section. If income is available, payments will be required as determined in paragraph II(B)(4) of this exhibit. Repayment of such a reamortized loan shall be made not later than 46 years after the date of the reamortization unless the borrower qualifies for a further reamortization as authorized in section IX(H) of this exhibit.</P> <P>(4) If assistance is granted, an annual plan will be developed each year to determine if there is any balance available to pay interest and/or principal on ST loans before the deferral period ends. If a balance is available, the borrower will sign Form FmHA or its successor agency under Public Law 103-354 440-9, “Supplementary Payment Agreement.”</P> <P>(5) Applicable requirements of subpart G of part 1940 of this chapter must be met.</P> <P>(C) If a borrower has requested an ST loan that has a portion of the debt set-aside under this subpart, the set-aside will be cancelled at the time the reamortization is granted. The borrower may retain the set-aside on other loans. A borrower who requests a reamortization of a distressed set-aside loan must agree in writing to the cancellation of the set-aside. The written agreement must be placed in the borrower's case file.</P> <P>(D) If the total amount of the distressed FP loan(s) exceeds $1,000 per acre of the marginal land designated for softwood timber production, the FP loan must be split. The split portion of the loan may not exceed $1,000 per acre for the marginal land. A new mortgage will be required to secure this portion of the loan unless the FmHA or its successor agency under Public Law 103-354 State supplement allows otherwise. The mortgage must ensure that FmHA or its successor agency under Public Law 103-354 has a security interest in the timber. The remaining balance of such a split loan will be secured by the remaining portion of the farm and such other security previously held as security prior to the split. Separate promissory notes will be executed for each portion of the split loan. The remaining portion of the note will be rescheduled, deferred, or reamortized, as applicable, in accordance with this subpart. The ST loan will be deferred and reamortized in accordance with this section. The ST loan(s) will be secured by the marginal land including timber.</P> <P>(E) The County Supervisor will release all other liens securing FmHA or its successor agency under Public Law 103-354 loans including NP loans on such marginal land when the ST loan is closed. Only ST loans will be secured by such marginal land including timber. Releases will be processed in accordance with subpart A of part 1965 of this chapter. Such releases are authorized by this paragraph. If other lenders have liens on this marginal land, the lenders must release their liens before or simultaneously with FmHA or its successor agency under Public Law 103-354's release of liens. No additional liens can be placed on the marginal land and timber after the closing of a ST loan.</P> <HD SOURCE="HD1">III. Interest rate of ST loans.</HD> <P>See Exhibit B of FmHA or its successor agency under Public Law 103-354 Instruction 440.1 for the applicable interest rate (available in any FmHA or its successor agency under Public Law 103-354 office). The interest rate will be the lower of (1) the rate of interest on the original loan which has been deferred and reamortized as the ST loan or (2) the Exhibit B rate.</P> <HD SOURCE="HD1">IV. Special requirements.</HD> <P>(A) <E T="03">Size of the timber tract.</E> The minimum parcels of marginal land selected as a tract for softwood timber production must be contiguous parcels of land containing at least 50 acres. Small scattered parcels will be excluded.</P> <P>(B) <E T="03">Farm or residence situated in different counties.</E> If a farm is situated in more than one State, county, or parish, the loan will be processed and serviced in the State, county, or parish in which the borrower's residence on the farm is located. However, if the residence is not situated on the farm, the loan will be serviced by the county office serving <PRTPAGE P="159"/>the county in which the farm or a major portion of the farm is located unless otherwise approved by the State Director.</P> <P>(C) <E T="03">Graduation of ST borrowers.</E> If, at any time, it appears that the borrower may be able to obtain a refinancing loan from cooperative or private credit source at reasonable rates and terms, the borrower will, upon FmHA or its successor agency under Public Law 103-354 request, apply for and accept such financing.</P> <HD SOURCE="HD1">V. Planning.</HD> <P>A farm plan will be completed as provided in subpart B of part 1924 of this chapter. The State Director will supplement this subpart with a State supplement to guide the County Supervisor regarding the sources available to obtain a Timber Management Plan. The required Timber Management Plan developed with the assistance of the FS, State Forest Service or such other State or Federal agencies or qualified private forestry service should provide management recommendations to assist the borrower in establishing, managing and harvesting softwood timber. Borrowers are responsible for implementing the Timber Management Plan.</P> <HD SOURCE="HD1">VI. Distressed reamortized loan approval or disapproval.</HD> <P>County Supervisors are authorized to approve or disapprove the reamortization of distressed FmHA or its successor agency under Public Law 103-354 loans as described in this section. No more than 50,000 acres nationwide can be placed in the program. Acres for the program will be allocated to borrowers on a first-come, first-serve basis. “Administrative Notices” containing reporting requirements will be issued to field offices so that the National Office can keep a tally of the acres placed in the program. The County Supervisor will obtain a verification from the State Director that the acres can be allocated to the program prior to approval of the reamortization of the distressed FP loan(s). Normally, the verification of allocated acres will be obtained when the loan docket is complete and ready for approval. Loans for the program will not be approved until a confirmation is received for the allocation of acres for the loan(s). When a reamortization is approved, the County Supervisor will notify the borrower by letter of the approval of the ST loan(s). The FmHA or its successor agency under Public Law 103-354 field office will process the reamortization via the FmHA or its successor agency under Public Law 103-354 field office terminal system in accordance with Form FmHA or its successor agency under Public Law 103-354 1940-18.</P> <HD SOURCE="HD1">VII. Reamortizing disapproval.</HD> <P>When a reamortization is disapproved, the County Supervisor will notify the borrower in writing of the action taken and the reasons for the action, and include any suggestions that could result in favorable action. The borrower will be given written notice of the opportunity to appeal as provided in § 1951.909 (i) of this subpart after the County Supervisor has determined whether the borrower is eligible for the remaining servicing programs authorized by this subpart.</P> <HD SOURCE="HD1">VIII. Processing of ST loans.</HD> <P>(A) If the reclassified ST loan is approved, all other FmHA or its successor agency under Public Law 103-354 loans must be current on or before the date the reclassified ST notes are signed except for FmHA or its successor agency under Public Law 103-354-authorized recoverable cost items that cannot be rescheduled or reamortized. All other delinquent loans including NP loans will be rescheduled, reamortized, consolidated, deferred or paid current as applicable to bring the borrower's account current.</P> <P>(B) ST loans on the dwelling. If the only liens on the borrower's dwelling are the reclassified ST loans, the borrower must make payments on the loan(s):</P> <P>(1) The total of which will be at least equal to the market value rent for the dwelling as determined by the County Supervisor, or</P> <P>(2) The minimum equally amortized installment for the term of the loan, whichever is less. Such payments cannot be deferred and will be shown in the promissory note as a regular scheduled payment for the reclassified ST loan.</P> <P>(C) Form FmHA or its successor agency under Public Law 103-354 1940-18, “Promissory Note for ST Loans,” will be used for ST loans. Form FmHA or its successor agency under Public Law 103-354 1940-17, “Promissory Note,” will be used for any remaining portion of a split distressed loan. The forms will be completed, signed and distributed as provided in the Forms Manual Inset.</P> <P>(D) For applications for Primary and Preservation Loan Service Programs received before November 28, 1990, interest payments which are 90 days or more past due will be added to the principal balance to form a new principal balance upon which interest will accrue over the Softwood Timber deferral period; interest less than 90 days past due will not be capitalized and will be payable at the end of the Softwood Timber deferral period. For new applications, as defined in § 1951.906 of this subpart, the total amount of outstanding accrued interest will be added to the principal balance to form a new principal balance upon which interest will accrue over the Softwood Timber deferral period. The FMI for Form FmHA or its successor agency <PRTPAGE P="160"/>under Public Law 103-354 1940-17 has examples (IV, V) which explain this procedure. The Finance Office will apply the payments made on the note in accordance with subpart A of part 1951 of this chapter.</P> <P>(E) The following addendum will be typed and signed by the borrower and attached to the promissory note:</P> <P>Addendum For Deferred Interest For Softwood Timber Loans</P> <P>Addendum to promissory note dated <E T="72">____</E> in the original amount of $<E T="72">____</E> at an annual interest rate of <E T="72">____</E> percent. This agreement amends and attaches to the above note. $<E T="72">____</E> of each regular payment on the note will be applied to the interest which will accrue during the deferral period. The remainder of the regular payment will be applied in accordance with 7 CFR part 1951, subpart A. I (we) agree to sign a supplementary payment agreement and make additional payments if during the deferral period we have a substantial increase in income and repayment ability.</P> <FP SOURCE="FP-DASH"/> <P>Borrower</P> <P>(F) New mortgages on farm property or related assets must be filed unless otherwise excused from being filed by the State supplement. If a new mortgage or separate security agreement is taken, the new mortgage and/or security agreement should be filed and perfected in the manner described by the State supplement. In many cases a survey of the land securing the ST loan will be required.</P> <P>(G) The borrower will obtain any required releases for previous mortgages from other lienholders and the County Supervisor will release any other FmHA or its successor agency under Public Law 103-354 liens in accordance with paragraph II (E) of this exhibit.</P> <HD SOURCE="HD1">IX. Servicing.</HD> <P>ST loans will be serviced in accordance with Subpart A of Part 1965 of this chapter with the following exceptions:</P> <P>(A) ST loans will not be subordinated for any purpose.</P> <P>(B) Security property for ST loans will not be leased except for softwood timber production as authorized by the ST loan.</P> <P>(C) During the life of the ST loan, land designated for softwood timber production cannot be used for grazing or the production of other agricultural commodities, as defined in § 12.2(a)(1) of Subpart A of Part 12 of this chapter and which is in Attachment 1 of Exihibit M of subpart G of part 1940 of this chapter.</P> <P>(D) ST loans will only be transferred as NP loans in accordance with subpart A of part 1965 of this chapter except in the case of the death of the borrower. Deceased borrower cases involving transfers will be handled by FmHA or its successor agency under Public Law 103-354 in accordance with Subpart A of Part 1962 of this chapter.</P> <P>(E) Land designated for softwood timber production under this subpart must remain in the production of softwood timber for the life of the loan. If the trees die or are destroyed or the production of timber ceases, as recognized by acceptable timber management practices, and the borrower is unable to develop feasible plans for the reestablishing of the timber production, the account will be liquidated in accordance with the provisions of Subpart A of Part 1965 of this chapter. <E T="03">Any appeal to FmHA or its successor agency under Public Law 103-354 must be concluded before any adverse action can be taken on the loan.</E> </P> <P>(F) The Timber Management Plan will be updated and revised, as needed, every five years or more often if necessary.</P> <P>(G) Harvesting softwood timber for Christmas trees is prohibited.</P> <P>(H) An ST loan will only be reamortized if:</P> <P>(1) The timber is not harvested in the year stated in the initial promissory note, and</P> <P>(2) The borrower is unable to pay the note as agreed.</P> <P>Interest charges more than 90 days overdue will be capitalized at the time of the reamortization. The term of the reamortized note will not exceed 50 years from the date of the initial ST note. The total years of deferred payments will not exceed 45 years, including the payments deferred in the initial note. The note should be scheduled for payment when the timber is expected to be harvested, or when income will be available to pay on the note, whichever comes first. However, partial payments must be scheduled for those years that exceed the deferral period.</P> <P>(3) For applications received before November 28, 1990, the interest less than 90 days past due will not be capitalized. For new applications, the total amount of outstanding accrued interest will be capitalized. The term of the reamortized note will not exceed 50 years from the date of the initial ST note. The total years of deferred payments will not exceed 45 years, including the payments deferred in the initial note. The note should be scheduled for payment when the timber is expected to be harvested, or when income will be available to pay on the note, whichever comes first. However, partial payments must be scheduled for those years that exceed the deferral period. </P> <P>S. <E T="03">State supplements.</E> </P> <P>State supplements will be issued immediately and updated as necessary to implement this section.<PRTPAGE P="161"/> </P> <HD SOURCE="HD1">Attachment <E T="01">1—</E> <E T="04">Notice of Availability of Option To Reamortize Certain Loans Secured by Future Revenue Produced by Planting Softwood Timber</E> </HD> <HD SOURCE="HD3">(Used by the County Supervisor to inform borrowers of the availability of Softwood Timber Loans)</HD> <FP>CERTIFIED MAIL</FP> <FP>RETURN RECEIPT REQUESTED</FP> <FP>(Name and Address)</FP> <P>Dear <E T="72">___________:</E> </P> <P>To implement a provision in the 1985 Farm Bill, the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) is offering the additional loan servicing option of reamortizing Farmer Program loans with repayment secured by and postponed until the harvesting of a Softwood timber crop. Eligible applicants may request or receive an operating loan to cover the actual cost of the required planting. If you are using marginal land for farming or pasture, and desire to use at least 50 acres of this marginal land to plant and produce softwood timber, contact this office within 15 days of the receipt of this letter to apply for this option so that your request can be processed in a timely manner. Please note the following limitations to this program: FmHA or its successor agency under Public Law 103-354 must be the sole lienholder of both the land growing the softwood timber and the revenues from the timber; the total amount of loans secured by the land and softwood timber cannot exceed $1,000 per acre; and the program is limited to 50,000 acres of softwood timber nationwide. </P> <P>Sincerely,</P> <FP>County Supervisor</FP> </EXHIBIT> <CITA>[53 FR 35718, Sept. 14, 1988, as amended at 56 FR 3396, Jan. 30, 1991; 57 FR 18661, Apr. 30, 1992]</CITA> <EXHIBIT> <EAR>Pt. 1951, Subpt. S, Exh. H</EAR> <HD SOURCE="HED">Exhibit H—Conservation Contract Program</HD> <HD SOURCE="HD2">I. General</HD> <P>A Conservation Contract (CC) may be exchanged, when requested by a borrower (current or delinquent), for a cancellation of a portion of the borrower's FSA indebtedness. The CC may be considered alone, or with other Primary Loan Servicing Programs as set forth in 7 CFR 1951.909. These contracts can be established for conservation, recreational, and wildlife purposes on farm property that is wetland, wildlife habitat, upland or highly erodible land. Such land must be suitable for the purposes involved. All Farm Loan Programs loans which are secured by real estate may be considered for a CC. Non-program loan debtors are not eligible to receive any benefits under this section.</P> <HD SOURCE="HD2">Definitions</HD> <P>(1) <E T="03">Conservation purposes.</E> These include protecting or conserving any of the following environmental resources or land uses:</P> <P>(a) <E T="03">Wetland,</E> except when such term is part of the term <E T="03">Converted wetland,</E> is land that the Natural Resources Conservation Service (NRCS) has determined has a predominance of hydric soils and that is inundated or saturated by surface or ground water at a frequency and duration sufficient to support, and that under normal circumstances does support, a prevalence of hydrophytic vegetation typically adapted for life in saturated soil conditions, except that this term does not include lands in Alaska identified as having a high potential for agricultural development and a predominance of permafrost soils.</P> <P>(i) <E T="03">Hydric soils</E> means soils that, in an undrained condition, are saturated, flooded, or ponded long enough during a growing season to develop an anaerobic condition that supports the growth and regeneration of hydrophytic vegetation;</P> <P>(ii) <E T="03">Hydrophytic vegetation</E> means a plant growing in—</P> <P>(<E T="03">A</E>) Water; or</P> <P>(<E T="03">B</E>) A substrate that is at least periodically deficient in oxygen during a growing season as a result of excessive water content;</P> <P>(b) <E T="03">Highly erodible land</E> is land that NRCS has determined has an erodibility index of 8 or more.</P> <P>(c) <E T="03">Upland</E> is a term used in the law to refer to land other than highly erodible land and wetland. Although upland in its normal use implies many types of land, it has been more narrowly defined for this purpose to include land or water areas that meet any one of the following criteria:</P> <P>(i) One-hundred year floodplain,</P> <P>(ii) Aquatic life, or wildlife habitat or endangered plant habitat of local, regional, State or Federal importance,</P> <P>(iii) Aquifer recharge area of local, regional or State importance, including lands in the wellhead protection program for public water supplies authorized by the Safe Drinking Water Act Amendments of 1986,</P> <P>(iv) Area of high water quality or scenic value,</P> <P>(v) Area containing historic or cultural property, which is listed in or eligible for the National Register of Historic Places, as provided by the National Historic Preservation Act (NHPA),</P> <P>(vi) Area that provides a buffer zone necessary for the adequate protection of proposed conservation contract areas,</P> <P>(vii) Area within or adjacent to a National Park, U.S. Fish and Wildlife Service administered area, State Fish and Wildlife agency <PRTPAGE P="162"/>administered area, a National Forest, a Bureau of Land Management administered area, a Wilderness Area, a National Trail, a unit of the Coastal Barrier Resource System, abandoned railroad corridors contained in local, State or Federal open space, recreation or trail plans, Federal or State Wild or Scenic River, U.S. Army Corps of Engineers land designated for flood control or recreation purposes, State and local recreation, natural or wildlife areas or State Conservation Agency administered areas.</P> <P>(viii) Area that NRCS determines contains soils that are generally not suited for cultivation such as soils in land capability classes IV, V, VI, VII or VIII in the NRCS's Land Capability Classification System.</P> <P>(d) <E T="03">Wildlife habitat</E> is a term used to include the area that provides direct support for given wildlife species, species life stages, populations, or communities determined appropriate by the Conservation Agency within the State as being of State, regional or local importance or as determined by the Fish and Wildlife Service to be of national importance. This wildlife habitat area includes all acceptable environmental features such as air quality, water quality, vegetation, and soil characteristics.</P> <P>(2) <E T="03">Management authority.</E> Any agency of the United States, a State, or a unit of local Government of a State, a person, or an individual that is designated in writing by FSA to carry out all or a portion of the activities necessary to manage and implement the terms and conditions of a contract or its management plan. The borrower whose land is subject to the contract may be eligible to be designated as a management authority.</P> <P>(3) <E T="03">Person.</E> Any agency of the United States, a State, a unit of local Government within a State, or a private or public nonprofit organization.</P> <P>(4) <E T="03">Recreational purposes.</E> These activities include providing public use for both consumption (e.g. hunting, fishing) and nonconsumption (e.g. camping, hiking) recreational activities, in a manner that conserves wildlife and their habitats, ensures public safety, complies with applicable laws, regulations, and ordinances and permits the operation of the remaining farm enterprise.</P> <P>(5) <E T="03">Wildlife.</E> Means any wild animal, whether alive or dead, including any wild mammal, bird, reptile, amphibian, fish, mollusk, crustacean, arthropod, coelenterate, or other invertebrate, whether or not bred, hatched, or born in captivity, and includes any part, product, egg, or offspring.</P> <P>(6) <E T="03">Wildlife purposes.</E> These program objectives include establishing and managing areas that contain fish and wildlife habitats of local, regional, State or Federal importance.</P> <HD SOURCE="HD2">II. Eligibility</HD> <P>The following steps must be taken to determine if the borrower is eligible for a conservation contract. If the borrower is found to be ineligible, the FSA servicing official will notify the borrower of the opportunity to appeal the adverse decision on the eligibility for the contract after a final decision is made on whether the borrower qualifies for any other servicing options. The servicing official must find that:</P> <P>(1) All Farm Loan Programs loans which are secured by real estate may be considered for a CC. A real estate mortgage or deed of trust taken on a borrower's real estate as additional security for a Farm Loan Programs loan qualifies as real estate security.</P> <P>(2) The proposed contract helps a qualified borrower to repay the loan in a timely manner.</P> <P>(3) If the land being proposed for the contract is within the FSA Conservation Reserve Program, both the requirements of that program and this section can be met.</P> <HD SOURCE="HD2">III. Establishing the Contract Review Team</HD> <P>The servicing official will establish a contract review team by notifying the appropriate field offices of the Natural Resources Conservation Service (NRCS), U.S. Fish and Wildlife Service (FWS), State Fish and Wildlife Agencies, Conservation Districts, National Park Service, Forest Service (FS), State Historic Preservation Officer, State Conservation Agencies, State Environmental Protection Agency, State Natural Resource Agencies, adjacent public landowner, and any other entity that may have an interest and qualifies to be a management authority for a contract. The notified parties may in turn notify other eligible entities. NRCS, for example, may want to notify the appropriate Conservation District. As part of the notification, the servicing official will provide an approximate location and a general description of the potentially affected land. All notified parties will be invited to serve on the contract review team.</P> <HD SOURCE="HD2">IV. Responsibilities of the Contract Review Team</HD> <P>NRCS will lead the contract review team which in every case will be composed of an NRCS, FSA and FWS representative, plus all other parties that accepted the invitation to participate. To the extent practicable, a site visit will be conducted within fifteen days from the date the review team members are invited to participate. Any lien holder and the borrower will be informed of the site visit time and invited to attend. Within thirty days after the site visit, a report will be developed by the review team and provided to the servicing official. The report will cover the items listed in paragraphs (A) through (F) of this paragraph and will be <PRTPAGE P="163"/>prepared by the review team. The items to be addressed in the review team report are:</P> <P>(A) The amount of land, if any, which is wetland, wildlife habitat, upland or highly erodible land and the approximate boundaries of each type of land. If applicable, contract boundaries may be recommended which go beyond the wetland, upland, or highly erodible land but are necessary for either the establishment of identifiable contract boundaries or are required for the efficient management of the contract's terms and conditions.</P> <P>(B) A finding of whether the land is suitable for conservation, recreation or wildlife habitat purposes and a priority ranking of purposes included, if the land can be so classified and ranked.</P> <P>First, priority will be given to land contract opportunities to benefit wildlife species of Federal Trust responsibility (e.g., migratory birds and endangered species) and their habitats (e.g., wetlands). Special consideration will be given to opportunities to benefit a combination of conservation, recreation and wildlife habitat purposes. When there are other land contracts already established or under review within the local area and the intent of these contracts has been established, the review team will consider these actions as purpose rankings are developed.</P> <P>(C) If appropriate, any special terms or conditions that would need to be placed on the contract plus unique or important features of the property which would not be adequately addressed by the standard contract terms and conditions.</P> <P>(D) A proposed management plan consistent with the purpose or purposes for which the contract would be established. The management plan will outline the various management alternatives for the proposed contract. The selection of the alternatives to be followed will be based upon future needs, fund availability, and identification within the management plan. The management plan will provide guidance as to the conservation practices to be followed and the costs which may occur in the establishment and maintenance of the contract. This management plan will specifically recommend whether or not public recreational use and public hunting should be allowed on the contract and provide supporting reasons for the recommendation made. Whenever changes are required in the management plan, FSA, may update the management plan to reflect the changes.</P> <HD SOURCE="HD2">V. FSA's Review of Contract Team's Report</HD> <P>Upon receipt, the Servicing Official will review the contract team's report. If the report indicates that a contract is not feasible given the nature of the land, or other factors, the servicing official will inform the borrower of the reasons that the contract has been denied and that the borrower may appeal the denial of the contract or meet with the servicing official.</P> <HD SOURCE="HD2">VI. Terms of Contracts</HD> <P>Borrowers participating in the debt cancellation conservation contract program will be given the option of selecting a 50, 30 or 10 year contract term. The amount of debt to be canceled will be directly proportional to the length of the contract. The area placed under the conservation contract cannot be used for the production of agricultural commodities during the term of the contract.</P> <HD SOURCE="HD2">VII. Determining the Amount of Farm Loan Programs (FLP) Debt That Can Be Canceled</HD> <P>(A) <E T="03">Calculate the amount of debt to be canceled for a delinquent borrower as follows:</E> </P> <P>(1) <E T="03">Step 1.</E> Determine what percent the number of contract acres is of the total acres of land that secures the borrower's FLP loans by dividing the contract acres that secure the borrower's FLP loans by the total acres that secure the borrower's FLP loans.</P> <P> <E T="03">Contract acres</E> divided by <E T="03">Total Farm and Ranch Acres</E> = <E T="03">Percent of Contract Acres to Total Acres.</E> </P> <P>(2) <E T="03">Step 2.</E> Determine the amount of FLP debt that is secured by the contract acreage by multiplying the borrower's total unpaid FLP loan balance (principal, interest and recoverable costs already paid by FSA) by the percentage calculated in step 1. <E T="03">Total FLP Debt</E> × <E T="03">Percent Calculated in step 1</E> = <E T="72">XXXX</E> </P> <P>(3) <E T="03">Step 3.</E> Determine the current value of the land in the contract by multiplying the present market value of the farm that secures the borrower's FLP loans by the percent calculated in step 1. <E T="03">PMV of Total Farm</E> × <E T="03">Percent Calculated in step 1</E> = <E T="72">XXXX</E> </P> <P>(4) <E T="03">Step 4.</E> Subtract the current value of the contract acres in step 3 from the FLP debt that is secured by the contract acres in step 2. <E T="03">Result from step 2</E>−<E T="03">Result from step 3</E> = <E T="72">XXXX</E> </P> <P>(5) <E T="03">Step 5.</E> Select the greater of the amounts calculated in step 3 and step 4.</P> <P>(6) <E T="03">Step 6.</E> Select the lessor of the amounts calculated in steps 2 and 5. This will be the maximum amount of debt that can be canceled for a 50-year contract term.</P> <P>(7) <E T="03">Step 7.</E> For a 30-year contract term, the borrower will receive 60 percent of the amount calculated in step 6. <E T="03">Result from Step 6</E> × <E T="03">60%</E> = <E T="72">XXXX</E> </P> <P>(8) <E T="03">Step 8.</E> For a 10-year contract term, the borrower will receive 20 percent of the amount calculated in step 6. <E T="03">Result from Step 6</E> × <E T="03">20%</E> = <E T="72">XXXX</E> </P> <P>(B) Calculate the amount of debt to be canceled for a current borrower as follows:</P> <P>(1) <E T="03">Step 1.</E> Determine what percent the number of contract acres is of the total acres of land that secures the borrower's FLP <PRTPAGE P="164"/>loans by dividing the contract acres that secure the borrower's FLP loans by the total acres that secure the borrower's FLP loans. <E T="03">Contract Acres</E> divided by <E T="03">Total Farm and Ranch Acres</E> = <E T="72">XXXX</E>%</P> <P>(2) <E T="03">Step 2.</E> Determine the amount of FLP debt that is secured by the contract acreage by multiplying the borrower's total unpaid FLP loan balance (principal, interest and recoverable costs already paid by FSA) by the percentage calculated in step 1. <E T="03">Total FLP Debt</E> × <E T="03">Percent Calculated in step 1</E> = <E T="72">XXXX</E> </P> <P>(3) <E T="03">Step 3.</E> Multiply the borrower's total unpaid FLP loan balance (principal, interest and recoverable costs already paid by thirty-three (33) percent. <E T="03">Total FLP Debt</E> × <E T="03">33%</E> = <E T="72">XXXX</E> </P> <P>(4) <E T="03">Step 4.</E> Select the lessor of the amounts calculated in steps 2 and 3. This is the maximum amount of debt that can be canceled for a current borrower receiving a 50-year contract.</P> <P>(5) <E T="03">Step 5.</E> For a 30-year contact term, the borrower will receive 60 percent of the amount calculated in step 4. <E T="03">Amount calculated in step 4</E> × <E T="03">60%</E> = <E T="72">XXXX</E> </P> <P>(6) <E T="03">Step 6.</E> For a 10-year contract term, the borrower will receive 20 percent of the amount calculated in step 4. <E T="03">Amount calculated in Step 4</E> X <E T="03">20%</E> = <E T="72">XXXX</E> </P> <P>(C) <E T="03">Feasibility of debt cancellation.</E> The servicing official will determine whether or not the borrower, if provided the amount of debt cancellation allowed by paragraph (VII) coupled with other servicing options will be able to develop a feasible plan for farm operations for the current and coming year. In no instance will the total debt cancellation exceed the maximum amount calculated in paragraphs (A) or (B) above. If the borrower would not be able to develop a feasible plan, the servicing official will notify the borrower of the reason that the contract has been denied and that the borrower may appeal this adverse decision after the servicing official has decided whether the borrower qualifies for the additional servicing programs in this subpart.</P> <P>(D) <E T="03">The boundaries of the contract area will be determined by the most appropriate method including rectangular surveys, and aerial photographs.</E> A professional survey of the contract area will not be required but can be used where needed.</P> <P>(E) <E T="03">Reaching an agreement with the borrower.</E> The borrower will be informed of the contract's value, the impact on the remaining financial obligation, and the terms and conditions of the contract. The borrower also will be provided a copy of the contract review team's report. If the borrower decides to enter into the contract, approval will be made by the servicing official, and the borrower by signing Form FSA 1951-39.</P> <P>(F) <E T="03">Recording of noncash credit.</E> The total credit to the borrower's account will not exceed the greater of the value of the land on which the contract is acquired; or the difference between the amount of the outstanding indebtedness secured by the real estate, and the value of the real estate taking into consideration the term of the contract. In the case of a non-delinquent borrower, the amount to be credited will not exceed 33 percent of the amount of the loan secured by the real estate on which the contract is obtained taking into consideration the term of the contract. In all cases, the amount credited will be applied on the FSA loan as an extra payment in order of lien priority on the security. The loan may be reamortized if needed for both current and delinquent borrowers.</P> <P>(G) [Reserved]</P> <P>(H) <E T="03">Contract Records.</E> If State law allows, the CC will be recorded in the real estate records.</P> <HD SOURCE="HD2">VIII. Violation of Terms and Conditions</HD> <P>If the borrower violates any of the terms or conditions of the contract, the violations will be handled in accordance with the provisions outlined in the contract.</P> <HD SOURCE="HD2">IX. Authorization Requests</HD> <P>When under the circumstances stated in the contract's terms and conditions (Form FSA 1951-39), the grantor needs the Government's written authorization to proceed with an action, a written request for such authorization must be provided by the grantor to the servicing official. In order to provide the requested written authorization, the servicing official must determine that the request does not violate the contract's terms and conditions and must receive the written concurrence of the enforcement authority.</P> </EXHIBIT> <CITA>[62 FR 10147, Mar. 5, 1997 as amended at 65 FR 50405, Aug. 18, 2000]</CITA> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart T—Disaster Set-Aside Program</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>60 FR 46756, Sept. 8, 1995, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1951.951</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>This subpart sets forth the policies and procedures for the Disaster Set-Aside (DSA) Program. The DSA program is available to Farm Loan Program (FLP) borrowers, as defined in subpart S of this part, who suffered losses as a result of a natural disaster or low commodity prices in 1999. FLP loans that may be serviced under this subpart include Farm Ownership (FO), Operating (OL), Soil and Water (SW), Emergency (EM), Economic Emergency (EE), Special Livestock (SL), Economic <PRTPAGE P="165"/>Opportunity (EO), Softwood Timber (ST), Recreation (RL), and Rural Housing loans for farm service buildings (RHF). Nonprogram (NP) farm type loans may be serviced under this subpart for borrowers who also have FLP loans.</P> <CITA>[60 FR 46756, Sept. 8, 1995, as amended at 64 FR 393, Jan. 5, 1999; 65 FR 31249, 31250, May 17, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.952</SECTNO> <SUBJECT>General.</SUBJECT> <P>DSA is a program whereby borrowers who are current or not more than one installment behind on any and all FLP loans may be permitted to move the scheduled annual installment for each eligible FLP loan to the end of the loan term. The intent of this program is to relieve some of the borrower's immediate financial stress caused by a disaster or low commodity prices and avoid foreclosure by the Government. DSA is not intended to circumvent the servicing available under subpart S of this part.</P> <CITA>[60 FR 46756, Sept. 8, 1995, as amended at 64 FR 394, Jan. 5, 1999; 65 FR 31249, May 17, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.953</SECTNO> <SUBJECT>Notification and request for DSA.</SUBJECT> <P>(a) [Reserved]</P> <P>(b) <E T="03">Deadline to apply.</E> All FLP borrowers liable for the debt must request DSA within 8 months from the date the disaster was designated, in accordance with 7 CFR part 1945, subpart A. Applications due to low commodity prices in 1999 must be received on or before August 31, 2000.</P> <P>(c) <E T="03">Information needed to apply.</E> (1) A written request for DSA signed by all parties liable for the debt; and</P> <P>(2) Actual production, income, and expense records for the production and marketing period in which the disaster occurred. Other information may be requested by the servicing official when needed to make an eligibility determination.</P> <CITA>[60 FR 46756, Sept. 8, 1995, as amended at 62 FR 41252, Aug. 1, 1997; 64 FR 394, Jan. 5, 1999; 65 FR 31249, May 17, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.954</SECTNO> <SUBJECT>Eligibility and loan limitation requirements.</SUBJECT> <P>(a) <E T="03">Eligibility requirements.</E> The following requirements must be met to be eligible for DSA:</P> <P>(1)(i) The borrower must have operated a farm or ranch in a county designated a disaster area as contained in 7 CFR part 1945, subpart A, or a county contiguous to such an area, and must have been a borrower and operated the farm or ranch at the time of the low commodity prices or disaster period.</P> <P>(ii) If the borrower is applying for a second installment to be set aside based on a declared disaster, the borrower must have operated in a county declared a major disaster by the President or the Secretary, or in a county contiguous to such a county, and the Agency must have determined that second set-asides can be processed and approved for declared disasters in the specified year. The first set aside must have been provided for a previous crop year.</P> <P>(iii) All FLP borrowers may apply for an installment to be set aside based on low commodity prices during 1999. If the borrower is applying for a second installment to be set aside based on low commodity prices, the first set-aside must have been provided for a previous crop year. County location, or proximity to a disaster declared county is not a consideration when the DSA is justified by low commodity prices.</P> <P>(iv) A borrower cannot have more than two installments set aside on any loan.</P> <P>(2) The borrower must have acted in good faith as defined in § 1951.906 of subpart S of this part.</P> <P>(3) All nonmonetary defaults must have been resolved. This means that even though the borrower has acted in good faith, the borrower may still be in default for reasons, such as, but not limited to: no longer farming, prior lienholder foreclosure, bankruptcy or under court jurisdiction, not properly maintaining chattel and real estate security, not properly accounting for the sale of security, or not carrying out any other agreement made with the Agency.<PRTPAGE P="166"/> </P> <P>(4) The borrower must be current or not more than one installment behind on any and all FLP loans at the time the scheduled installment will be set-aside. Borrowers paying under a debt settlement adjustment agreement in accordance with subpart B of part 1956 are not eligible.</P> <P>(5) As a direct result of the declared disaster or the 1999 low commodity prices, both pursuant to paragraph (a)(1) of this section, the borrower does not have sufficient income available to pay all family living and operating expenses, other creditors, and FSA. This determination will be based on the borrower's actual production, income and expense records for the disaster or affected year and any other records required by the servicing official. Compensation received for losses shall be considered as well as increased expenses incurred because of a disaster. Consideration will also be given to insufficient income for the next production and marketing period following the affected year if the borrower establishes that production will be reduced or expenses increased as a result of the disaster or the 1999 low commodity prices.</P> <P>(6) For the next business accounting year, the borrower must develop a positive cash flow projection showing that the borrower will at least be able to pay all operating expenses and taxes due during the year, essential family living expenses and meet scheduled payments on all debts. The cash flow projection must be prepared in accordance with 7 CFR 1924.56. The borrower will provide any documentation required to support the cash flow projection.</P> <P>(7) After the scheduled installments are set-aside, all FLP and NP farm type loans must be current.</P> <P>(8) The borrower's FLP loan has not been accelerated nor has the borrower's debt been restructured under subpart S of this part since the disaster or the low commodity prices occurred.</P> <P>(b) <E T="03">Loan limitation requirements.</E> (1) The loan must have been outstanding at the time of the disaster.</P> <P>(2)(i) Except as provided in paragraph (a) of this section, only one unpaid installment for each FLP loan may be set-aside.</P> <P>(ii) For disaster declarations during 1998, or low commodity prices in 1998, borrowers who already have one installment set aside from a previous disaster may set aside a second installment.</P> <P>(iii) If all set-asides are paid in full, or cancelled through restructuring under subpart S of this part, the set-aside will no longer exist and the loan may be considered for DSA.</P> <P>(3) The term remaining on the loan receiving DSA equals or exceeds 2 years from the due date of the installment being set-aside.</P> <P>(4) The amount of set-aside shall be limited to the amount the borrower was unable to pay FSA from the production and marketing period in which the disaster or low commodity prices occurred. However, if the installment due immediately after the disaster was paid, but other creditors and expenses were not, the amount set-aside will be the lessor of the amount the borrower is unable to pay other creditors and expenses, rounded up to the nearest whole installment, or the next FLP installment due.</P> <P>(5) The installment that may be set-aside is limited to the first scheduled annual installment due immediately after the disaster or low commodity prices occurred, unless that installment is paid, then the next scheduled annual installment may be set-aside.</P> <P>(6) The amount set-aside will be the unpaid balance remaining on the installment at the time the borrower signs exhibit A of FmHA Instruction 1951-T (available in any FSA office.) This amount will include the unpaid interest and any principal that would be credited to the account as if the installment were paid on the due date taking into consideration any payments applied to principal and interest since the due date. Recoverable cost items charged to FO, SW, and RHF loans may be set-aside with the annual installment. Cost items identified with a loan number different from the parent loan cannot be set-aside.</P> <CITA>[60 FR 46756, Sept. 8, 1995, as amended at 62 FR 41252, Aug. 1, 1997; 64 FR 394, Jan. 5, 1999; 65 FR 31249, 31250, May 17, 2000]</CITA> </SECTION> <SECTION> <PRTPAGE P="167"/> <SECTNO>§§ 1951.955-1951.956</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.957</SECTNO> <SUBJECT>Eligibility determination and processing.</SUBJECT> <P>(a) <E T="03">Eligibility determination.</E> Upon receipt of a DSA request, the County Supervisor will determine whether the borrower meets the requirements set forth in 1951.954. Approval shall be contingent upon the borrower's continuing eligibility through the signing of Exhibit A.</P> <P>(1) The borrower has up to 30 days to sign exhibit A of FmHA Instruction 1951-T (available in any FSA office), for each loan installment set-aside. The County Supervisor may provide for a longer period of time not to exceed 90 days under extenuating circumstances, including but not limited to situations where the Agency's approval is contingent upon the borrower doing something to be eligible, such as paying a portion of the FLP payments from proceeds that may not be available until after the 30 day period.</P> <P>(2) Pending requests for primary loan servicing will continue to be considered in accordance with subpart S of this part. However, borrowers are not eligible for servicing under both programs. The application for the program not received will automatically be withdrawn at the time the installment is set-aside or the loan restructured, whichever is applicable. The automatic withdrawal is not appealable because the borrower is no longer delinquent. If the borrower again becomes delinquent or in financial distress, or requests primary loan servicing, the borrower will be notified or the request processed in accordance with subpart S of this part.</P> <P>(b) <E T="03">Processing.</E> </P> <P>(1) [Reserved]</P> <P>(2) Interest will accrue on any principal amount set-aside at the same rate charged the non-set-aside portion. Interest will not accrue on the interest portion set-aside. Limited resource interest rate changes will affect the principal set-aside.</P> <P>(3) The amount set-aside, including interest accrual on any principal set-aside, will be due on or before the final due date of the loan.</P> <P>(4) There are no additional security requirements attached to the DSA program. All existing security instruments will remain in effect.</P> <P>(5)-(6) [Reserved]</P> <P>(7) Payments applied to the amount set-aside will be applied first to interest and then to principal. If more than one installment is set-aside on the loan, payments will be applied to the oldest installment set-aside until paid in full, before applying payments to the second installment set-aside.</P> <P>(c) <E T="03">Adverse determination.</E> If the borrower becomes more than one installment behind on any FLP loan while processing the DSA request, or while an appeal is being considered, and the second installment cannot be paid current prior to exhibit A of FmHA Instruction 1951-T (available in any FSA office) being signed, the DSA request will be denied.</P> <CITA>[60 FR 46756, Sept.8, 1995, as amended at 62 FR 41253, Aug. 1, 1997; 65 FR 31250, May 17, 2000]</CITA> </SECTION> <SECTION> <SECTNO>§ 1951.958</SECTNO> <SUBJECT>Cancellation and reversal of DSA.</SUBJECT> <P>(a) <E T="03">Reasons for cancellation.</E> The set-aside may be reversed and exhibit A of FmHA Instruction 1951-T cancelled under the following described situations:</P> <P>(1) The loan is later restructured with primary loan servicing, (the total unpaid balance must be restructured);</P> <P>(2) If prior to the first scheduled installment due date after set-aside, the servicing official determines that the current borrower, if delinquent, would qualify for a writedown or buyout in accordance with subpart S of this part; or</P> <P>(3) When it has been determined that the borrower was provided unauthorized DSA assistance. (The set-aside will be cancelled after all appeal rights are exhausted. The set-aside will be removed from the account and the payment terms of the original promissory note will be retained as if DSA was never granted. Borrowers financially distressed or delinquent after reversal of the set-aside will be serviced in accordance with subpart S of this part).</P> <P>(b) [Reserved]</P> <CITA>[60 FR 46756, Sept. 8, 1995, as amended at 62 FR 10157, Mar. 5, 1997]</CITA> </SECTION> <SECTION> <PRTPAGE P="168"/> <SECTNO>§ 1951.959</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <P>The Administrator may, in individual cases, make an exception to any requirement or provision of this subpart which is not inconsistent with the authorizing statute or other applicable law if it is determined that application of the requirement or provision would adversely affect the Government's interest. The Administrator will exercise this authority upon the request of the State Director with the recommendation of the Deputy Administrator for Farm Credit Programs, or upon request initiated by the Deputy Administrator for Farm Credit Programs.</P> </SECTION> <SECTION> <SECTNO>§§ 1951.960-1951.999</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1951.1000</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0163. Public reporting burden for this collection of information is estimated to be 15 minutes per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Agriculture, Clearance Office OIRM, Room 404-W, Washington DC 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB<E T="61">#</E> 0575-0163), Washington, DC 20503. </P> </SECTION> </SUBPART> </PART> <PART> <EAR>Pt. 1955</EAR> <HD SOURCE="HED">PART 1955—PROPERTY MANAGEMENT</HD> <CONTENTS> <SUBPART> <HD SOURCE="HED">Subpart A—Liquidation of Loans Secured by Real Estate and Acquisition of Real and Chattel Property</HD> <SECHD>Sec.</SECHD> <SECTNO>1955.1</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1955.2</SECTNO> <SUBJECT>Policy.</SUBJECT> <SECTNO>1955.3</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>1955.4</SECTNO> <SUBJECT>Redelegation of authority.</SUBJECT> <SECTNO>1955.5</SECTNO> <SUBJECT>General actions.</SUBJECT> <SECTNO>1955.6-1955.8</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.9</SECTNO> <SUBJECT>Requirements for voluntary conveyance of real property located within a federally recognized Indian reservation owned by a Native American borrower-owner.</SUBJECT> <SECTNO>1955.10</SECTNO> <SUBJECT>Voluntary conveyance of real property by the borrower to the Government.</SUBJECT> <SECTNO>1955.11</SECTNO> <SUBJECT>Conveyance of property to FmHA or its successor agency under Public Law 103-354 by trustee in bankruptcy.</SUBJECT> <SECTNO>1955.12</SECTNO> <SUBJECT>Acquisition of property which served as security for a loan guaranteed by FmHA or its successor agency under Public Law 103-354 or at sale by another lienholder, bankruptcy trustee, or taxing authority.</SUBJECT> <SECTNO>1955.13</SECTNO> <SUBJECT>Acquisition of property by exercise of Government redemption rights.</SUBJECT> <SECTNO>1955.14</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.15</SECTNO> <SUBJECT>Foreclosure by the Government of loans secured by real estate.</SUBJECT> <SECTNO>1955.16-1955.17</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.18</SECTNO> <SUBJECT>Actions required after acquisition of property.</SUBJECT> <SECTNO>1955.19</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.20</SECTNO> <SUBJECT>Acquisition of chattel property.</SUBJECT> <SECTNO>1955.21</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <SECTNO>1955.22</SECTNO> <SUBJECT>State supplements.</SUBJECT> <SECTNO>1955.23-1955.49</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.50</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <EX>Exhibits to Subpart A</EX> <EX>Exhibits A-F [Reserved]</EX> <EX>Exhibit G—Worksheet for Accepting a Voluntary Conveyance of Farm Credit Program Security Property Into Inventory</EX> <EX>Exhibit G-1—Worksheet for Determining Farm Credit Programs, Maximum Bid on Real Estate Property</EX> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Management of Property</HD> <SECTNO>1955.51</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1955.52</SECTNO> <SUBJECT>Policy.</SUBJECT> <SECTNO>1955.53</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>1955.54</SECTNO> <SUBJECT>Redelegation of authority.</SUBJECT> <SECTNO>1955.55</SECTNO> <SUBJECT>Taking abandoned real or chattel property into custody and related actions.</SUBJECT> <SECTNO>1955.56</SECTNO> <SUBJECT>Real property located in Coastal Barrier Resources System (CBRS).</SUBJECT> <SECTNO>1955.57</SECTNO> <SUBJECT>Real property containing underground storage tanks.</SUBJECT> <SECTNO>1955.58-1955.59</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.60</SECTNO> <SUBJECT>Inventory property subject to redemption by the borrower.</SUBJECT> <SECTNO>1955.61</SECTNO> <SUBJECT>Eviction of persons occupying inventory real property or dispossession of persons in possession of chattel property.</SUBJECT> <SECTNO>1955.62</SECTNO> <SUBJECT>Removal and disposition of nonsecurity personal property from inventory real property.</SUBJECT> <SECTNO>1955.63</SECTNO> <SUBJECT>Suitability determination.</SUBJECT> <SECTNO>1955.64</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.65</SECTNO> <SUBJECT>Management of inventory and/or custodial real property.</SUBJECT> <SECTNO>1955.66</SECTNO> <SUBJECT>Lease of real property.</SUBJECT> <SECTNO>1955.67-1955.71</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.72</SECTNO> <SUBJECT>Utilization of inventory housing by Federal Emergency Management Agency <PRTPAGE P="169"/>(FEMA) or under a Memorandum of Understanding between the Agency and the Department of Health and Human Services (HHS) for transitional housing for the homeless.</SUBJECT> <SECTNO>1955.73-1955.80</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.81</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <SECTNO>1955.82</SECTNO> <SUBJECT>State supplements.</SUBJECT> <SECTNO>1955.83-1955.99</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.100</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <EX>Exhibits to Subpart B</EX> <EX>Exhibit A—Memorandum of Understanding Between the Federal Emergency Management Agency and the Farmers Home Administration or its successor agency under Public Law 103-354</EX> <EX>Exhibit B—Notification of Tribe of Availablity of Farm Property for Purchase</EX> <EX>Exhibit C—Cooperative Agreement (Example)</EX> <EX>Exhibit D—Fact Sheet—The Federal Interagency Task Force on Food and Shelter for the Homeless</EX> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Disposal of Inventory Property</HD> <SUBJGRP> <HD SOURCE="HED">Introduction</HD> <SECTNO>1955.101</SECTNO> <SUBJECT>Purpose.</SUBJECT> <SECTNO>1955.102</SECTNO> <SUBJECT>Policy.</SUBJECT> <SECTNO>1955.103</SECTNO> <SUBJECT>Definitions.</SUBJECT> <SECTNO>1955.104</SECTNO> <SUBJECT>Authorities and responsibilities.</SUBJECT> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Consolidated Farm and Rural Development Act (CONACT) Real Property</HD> <SECTNO>1955.105</SECTNO> <SUBJECT>Real property affected (CONACT).</SUBJECT> <SECTNO>1955.106</SECTNO> <SUBJECT>Disposition of farm property.</SUBJECT> <SECTNO>1955.107</SECTNO> <SUBJECT>Sale of FSA property (CONACT).</SUBJECT> <SECTNO>1955.108</SECTNO> <SUBJECT>Sale of (CONACT) property other than FSA property.</SUBJECT> <SECTNO>1955.109</SECTNO> <SUBJECT>Processing and closing (CONACT).</SUBJECT> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Rural Housing (RH) Real Property</HD> <SECTNO>1955.110</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.111</SECTNO> <SUBJECT>Sale of real estate for RH purposes (housing).</SUBJECT> <SECTNO>1955.112</SECTNO> <SUBJECT>Method of sale (housing).</SUBJECT> <SECTNO>1955.113</SECTNO> <SUBJECT>Price (housing).</SUBJECT> <SECTNO>1955.114</SECTNO> <SUBJECT>Sales steps for program property (housing).</SUBJECT> <SECTNO>1955.115</SECTNO> <SUBJECT>Sales steps for nonprogram (NP) property (housing).</SUBJECT> <SECTNO>1955.116</SECTNO> <SUBJECT>Requirements for sale of property not meeting decent, safe and sanitary (DSS) standards (housing).</SUBJECT> <SECTNO>1955.117</SECTNO> <SUBJECT>Processing credit sales on program terms (housing).</SUBJECT> <SECTNO>1955.118</SECTNO> <SUBJECT>Processing cash sales or MFH credit sales on NP terms.</SUBJECT> <SECTNO>1955.119</SECTNO> <SUBJECT>Sale of SFH inventory property to a public body or nonprofit organization.</SUBJECT> <SECTNO>1955.120</SECTNO> <SUBJECT>Payment of points (housing).</SUBJECT> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Chattel Property</HD> <SECTNO>1955.121</SECTNO> <SUBJECT>Sale of acquired chattels (chattel).</SUBJECT> <SECTNO>1955.122</SECTNO> <SUBJECT>Method of sale (chattel).</SUBJECT> <SECTNO>1955.123</SECTNO> <SUBJECT>Sale procedures (chattel).</SUBJECT> <SECTNO>1955.124</SECTNO> <SUBJECT>Sale with inventory real estate (chattel).</SUBJECT> <SECTNO>1955.125-1955.126</SECTNO> <SUBJECT>[Reserved]</SUBJECT> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">Use of Contractors To Dispose of Inventory Property</HD> <SECTNO>1955.127</SECTNO> <SUBJECT>Selection and use of contractors to dispose of inventory property.</SUBJECT> <SECTNO>1955.128</SECTNO> <SUBJECT>Appraisers.</SUBJECT> <SECTNO>1955.129</SECTNO> <SUBJECT>Business brokers.</SUBJECT> <SECTNO>1955.130</SECTNO> <SUBJECT>Real estate brokers.</SUBJECT> <SECTNO>1955.131</SECTNO> <SUBJECT>Auctioneers.</SUBJECT> </SUBJGRP> <SUBJGRP> <HD SOURCE="HED">General</HD> <SECTNO>1955.132</SECTNO> <SUBJECT>Pilot projects.</SUBJECT> <SECTNO>1955.133</SECTNO> <SUBJECT>Nondiscrimination.</SUBJECT> <SECTNO>1955.134</SECTNO> <SUBJECT>Loss, damage, or existing defects in inventory real property.</SUBJECT> <SECTNO>1955.135</SECTNO> <SUBJECT>Taxes on inventory real property.</SUBJECT> <SECTNO>1955.136</SECTNO> <SUBJECT>Environmental Assessment (EA) and Environmental Impact Statement (EIS).</SUBJECT> <SECTNO>1955.137</SECTNO> <SUBJECT>Real property located in special areas or having special characteristics.</SUBJECT> <SECTNO>1955.138</SECTNO> <SUBJECT>Property subject to redemption rights.</SUBJECT> <SECTNO>1955.139</SECTNO> <SUBJECT>Disposition of real property rights and title to real property.</SUBJECT> <SECTNO>1955.140</SECTNO> <SUBJECT>Sale in parcels.</SUBJECT> <SECTNO>1955.141</SECTNO> <SUBJECT>Transferring title.</SUBJECT> <SECTNO>1955.142-1955.143</SECTNO> <SUBJECT>[Reserved]</SUBJECT> <SECTNO>1955.144</SECTNO> <SUBJECT>Disposal of NP or surplus property to, through, or acquisition from other agencies.</SUBJECT> <SECTNO>1955.145</SECTNO> <SUBJECT>Land acquisition to effect sale.</SUBJECT> <SECTNO>1955.146</SECTNO> <SUBJECT>Advertising.</SUBJECT> <SECTNO>1955.147</SECTNO> <SUBJECT>Sealed bid sales.</SUBJECT> <SECTNO>1955.148</SECTNO> <SUBJECT>Auction sales.</SUBJECT> <SECTNO>1955.149</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <SECTNO>1955.150</SECTNO> <SUBJECT>State supplements.</SUBJECT> </SUBJGRP> <EX>Exhibit A to Subpart C—Notice of Flood, Mudslide Hazard, or Wetland Area</EX> </SUBPART> </CONTENTS> <AUTH> <HD SOURCE="HED">Authority:</HD> <P>5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.</P> </AUTH> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>50 FR 23904, June 7, 1985, unless otherwise noted.</P> </SOURCE> <EDNOTE> <HD SOURCE="HED">Editorial Note:</HD> <P>Exhibits A, C, D, and E referenced in this part are not published in the Code of Federal Regulations.</P> </EDNOTE> <SUBPART> <HD SOURCE="HED">Subpart A—Liquidation of Loans Secured by Real Estate and Acquisition of Real and Chattel Property</HD> <SECTION> <SECTNO>§ 1955.1</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>This subpart delegates authority and prescribes procedures for the liquidation of loans to individuals and to organizations as identified in § 1955.3. It pertains to the Farm Credit programs of the Farm Service Agency (FSA), <PRTPAGE P="170"/>Water and Waste programs of the Rural Utilities Service (RUS), Multi-Family Housing (MFH) and Community Facility (CF) programs of the Rural Housing Service (RHS), and direct programs of the Rural Business-Cooperative Service (RBS). Guaranteed RBS loans are liquidated upon direction from the Deputy Administrator, Business Program, RBS. This subpart does not apply to RHS single family housing loans, or to CF loans sold without insurance in the private sector. These CF loans will be serviced in the private sector and future revisions to this subpart no longer apply to such loans.</P> <CITA>[61 FR 59778, Nov. 22, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.2</SECTNO> <SUBJECT>Policy.</SUBJECT> <P>When it has been determined in accordance with applicable loan servicing regulations that further servicing will not achieve loan objectives and that voluntary sale of the property by the borrower (except for Multiple Family Housing (MFH) loans subject to prepayment restrictions) cannot be accomplished, the loan(s) will be liquidated through voluntary conveyance of the property to FmHA or its successor agency under Public Law 103-354 or by foreclosure as outlined in this subpart. For MFH loans subject to the prepayment restrictions, voluntary liquidation may be accomplished only through voluntary conveyance to FmHA or its successor agency under Public Law 103-354 in accordance with applicable portions of § 1955.10 of this subpart. Nonprogram (NP) loans, except for Community and Business Programs, will be liquidated as provided in subpart J of part 1951 of this chapter, unless specifically referenced in this subpart.</P> <CITA>[51 FR 4138, Feb. 3, 1986, as amended at 53 FR 27826, July 25, 1988; 58 FR 52652, Oct. 12, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.3</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this subpart, the following definitions apply:</P> <P> <E T="03">Closing agent.</E> An attorney or title insurance company which is approved as a loan closing agent in accordance with subpart B of part 1927 of this chapter.</P> <P> <E T="03">CONACT or CONACT property</E>. Property acquired or sold pursuant to the Consolidated Farm and Rural Development Act. Within this subpart, it shall also be construed to cover property which secured loans made pursuant to the Agriculture Credit Act of 1978; the Emergency Agricultural Credit Adjustment Act of 1978; the Emergency Agricultural Credit Act of 1984; the Food Security Act of 1985; and other statutes giving agricultural lending authority to FmHA or its successor agency under Public Law 103-354.</P> <P> <E T="03">Farmer Programs loans.</E> The term “Farmer Program loans” (FP) refers to the following types of loans: Farm Ownership (FO), Soil and Water (SW), Recreation (RL), Economic Opportunity (EO), Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood Timber (ST), and Rural Housing Loans for farm service buildings (RHF).</P> <P> <E T="03">Government</E>. The United States of America acting through the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354), U.S. Department of Agriculture; used interchangeably herein with “FmHA or its successor agency under Public Law 103-354.”</P> <P> <E T="03">Homestead protection.</E> The Farmer Programs borrower-owner's right to lease with an option to purchase the principal residence located on or off the farm and up to 10 acres of adjoining land possessed and occupied by the borrower-owner, including a reasonable number of farm outbuildings located on the adjoining land that are useful to the occupants of the homestead.</P> <P> <E T="03">Interest credit.</E> The terms “interest credit” and “interest credit assistance,” as they relate to Single Family Housing (SFH) loans, are interchangeable with the term “payment assistance.” Payment assistance is the generic term for the subsidy provided to eligible SFH borrowers to reduce mortgage payments.</P> <P> <E T="03">Loans to individuals.</E> Farm Ownership (FO), Soil and Water (SW), Recreation (RL), Special Livestock (SL), Economic Opportunity (EO), Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood Timber (ST), and Rural Housing loans for farm service buildings (RHF), whether to individuals or entities, referred to in this subpart as Farmer Programs (FP) <PRTPAGE P="171"/>loans; and Land Conservation and Development (LCD); and Single-Family Housing (SFH), including both Section 502 and 504 loans.</P> <P> <E T="03">Loans to Native Americans.</E> Farmer Program loans secured by real estate located within the boundaries of a federally recognized Indian reservation. The Native American borrower-owner is defined as the party who pledged real estate as collateral for an FP loan and is the tribe or a member of the tribe with control over the reservation.</P> <P> <E T="03">Loans to organizations</E>. Community Facility (CF); Water and Waste Disposal (WWD); Association Recreation; Watershed (WS); Resource Conservation and Development (RC&D); insured Business and Industrial (B&I) both to individuals and groups; Rural Development Loan Fund (RDLF); Intermediary Relending Program (IRP); Nonprofit National Corporations (NNC); loans to associations for Irrigation and Drainage (I&D) and other Soil and Water conservation measures; loans to Indian Tribes and Tribal Corporations; Shift-In-Land Use (Grazing Association); Economic Opportunity Cooperative (EOC); Rural Housing Site (RHS); Rural Cooperative Housing (RCH); Rural Rental Housing (RRH) and Labor Housing (LH) to both individuals and groups. The housing-type organization loans identified here are referred to in this subpart collectively as Multiple-family Housing (MFH) loans.</P> <P> <E T="03">Market value</E>. The most probable price which property should bring, as of a specific date, in a competitive and open market, assuming the buyer and seller are prudent and knowledgeable, and the price is not affected by undue stimulus such as forced sale or loan interest subsidy.</P> <P> <E T="03">Nonrecoverable cost</E> is a contractual or noncontractual program loan cost expense not chargeable to a borrower, property account, or part of the loan subsidy.</P> <P> <E T="03">OGC</E>. The Office of the General Counsel, U.S. Department of Agriculture; refers to the Regional Attorney or Attorney-in-Charge in an OGC field office unless otherwise indicated.</P> <P> <E T="03">Prior lien</E>. A security instrument (such as a mortgage or deed of trust) or a judgment which was of public record before the FmHA or its successor agency under Public Law 103-354 security instrument(s) as well as real estate taxes or assessments which are or will become a lien against the property which is superior to FmHA or its successor agency under Public Law 103-354's security instrument(s).</P> <P> <E T="03">Recoverable cost</E> is a contractual or noncontractual program loan cost expense chargeable to a borrower, property account, or part of the loan subsidy.</P> <P> <E T="03">Servicing official.</E> For loans to individuals as defined in paragraph (d) of this section, the servicing official is the County Supervisor. For insured B&I loans, the servicing official is the State Director. For RDLF and IRP, the servicing official is the Director, Business and Industry Division. For NNC, the servicing official is the Director, Community Facility Division. For all other types of loans, the servicing official is the District Director.</P> <CITA>[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 52 FR 26138, July 13, 1987; 53 FR 27826, July 25, 1988; 53 FR 30664, Aug. 15, 1988; 53 FR 35762, Sept. 14, 1988; 56 FR 15821, Apr. 18, 1991; 56 FR 29402, June 27, 1991; 56 FR 67484, Dec. 31, 1991; 58 FR 68723, Dec. 29, 1993; 60 FR 55147, Oct. 27, 1995; 62 FR 44395, Aug. 21, 1997; 63 FR 41716, Aug. 5, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.4</SECTNO> <SUBJECT>Redelegation of authority.</SUBJECT> <P>Authorities will be redelegated to the extent possible, consistent with program requirements and available resources.</P> <P>(a) Except as provided in § 1900.6(c) of this chapter, any authority in this subpart which is specifically delegated to the Administrator or to an Deputy Administrator may only be delegated to a State Director. The State Director cannot redelegate such authority.</P> <P>(b) Except as provided in paragraph (a) of this section, the State Director is authorized to redelegate, in writing, any authority delegated to the State Director in this subpart to a Program Chief, Program Specialist or Property Management Specialist on the State Office staff; except the authority to approve or disapprove foreclosure as outlined in § 1955.115(a)(2) of this subpart may not be redelegated. However, a duly-designated Acting State Director may approve or disapprove foreclosure.<PRTPAGE P="172"/> </P> <P>(c) The District Director is authorized to redelegate, in writing, any authority delegated to the District Director in this subpart to an Assistant District Director or District Loan Specialist determined by the District Director to be qualified; except the authority to approve or disapprove foreclosure as outlined in § 1955.15(a)(1) of this subpart may not be redelegated. However, a duly designated Acting District Director may approve or disapprove foreclosure. Authority of District Directors in this subpart applies to Area Loan Specialists in Alaska and the Director for the Western Pacific Territories.</P> <P>(d) The County Supervisor is authorized to redelegate, in writing, any authority delegated to the County Supervisor in this subpart to an Assistant County Supervisor, GS-7, or above, determined by the County Supervisor to be qualified. Authority of County Supervisors in this subpart applies to Area Loan Specialists in Alaska and Area Supervisors in the Western Pacific Territories and American Samoa.</P> <P>(e) The monetary limitations on acceptance of voluntary conveyance as provided in § 1955.10(a) of this subpart may <E T="03">not</E> be redelegated from a higher-level official to a lower level official.</P> <CITA>[53 FR 27826, July 25, 1988, as amended at 54 FR 6875, Feb. 15, 1989; 59 FR 43441, Aug. 24, 1994; 62 FR 44395, Aug. 21, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.5</SECTNO> <SUBJECT>General actions.</SUBJECT> <P>(a) <E T="03">Assignment of notes to FmHA or its successor agency under Public Law 103-354</E>. When liquidation action is approved and the insured note is not held in the County or District Office, the approval official will request the Finance Office to purchase the note and forward it to the appropriate office. Voluntary conveyance may be closed pending receipt of the note(s), and foreclosure may also be processed pending receipt of the note(s), unless the original note is required in connection with the foreclosure action.</P> <P>(b) <E T="03">Execution of documents</E>. (1) After liquidation of loans to individuals has been approved by the appropriate official, the County Supervisor is authorized to execute all necessary forms and documents except notices of acceleration required to complete transactions covered by this subpart.</P> <P>(2) After liquidation of loans to organizations has been approved by the appropriate official, the District Director is authorized to execute all forms and documents for completion of the liquidation except:</P> <P>(i) Notice of acceleration; or</P> <P>(ii) Other form or document which specifically required State or National Office approval because of monetary limits or policy statement established elsewhere in this subpart.</P> <P>(c) <E T="03">Unused loan funds.</E> (1) Funds remaining in a supervised bank account will be handed in accordance with § 1902.15 of subpart A of part 1902 of this chapter before a voluntary conveyance or foreclosure is processed.</P> <P>(2) Funds remaining in a construction or other account will be applied to the borrower's FmHA or its successor agency under Public Law 103-354 accounts.</P> <P>(d) <E T="03">Payment of costs.</E> Costs related to liquidation of a loan or acquisition of property will be paid according to FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office) as either a recoverable or nonrecoverable cost as defined in § 1955.3 of this subpart.</P> <P>(e) <E T="03">Escrow funds.</E> Any funds remaining in the borrower's escrow account at the time of liquidation by voluntary conveyance or foreclosure are nonrefundable and will be credited to the borrower's loan account.</P> <CITA>[50 FR 23904, June 7, 1985, as amended at 56 FR 6953, Feb. 21, 1991, 57 FR 36590, Aug. 14, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1955.6-1955.8</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1955.9</SECTNO> <SUBJECT>Requirements for voluntary conveyance of real property located within a federally recognized Indian reservation owned by a Native American borrower-owner.</SUBJECT> <P>(a) The borrower-owner is a member of the tribe that has jurisdiction over the reservation in which the real property is located. An Indian tribe may also meet the borrower-owner criterion if it is indebted for Farm Credit Programs loans.<PRTPAGE P="173"/> </P> <P>(b) A voluntary conveyance will be accepted only after all preacquisition primary and preservation servicing actions have been considered in accordance with subpart S of part 1951 of this chapter.</P> <P>(c) When all servicing actions have been considered under subpart S of part 1951 of this chapter and a positive outcome cannot be achieved, the following additional actions are to be taken:</P> <P>(1) The county official will notify the Native American borrower-owner and the tribe by certified mail, return receipt requested, and by regular mail if the certified mail is not received, that:</P> <P>(i) The borrower-owner may convey the real estate security to FSA and FSA will consider acceptance of the property into inventory in accordance with paragraph (d) of this section.</P> <P>(ii) The borrower-owner must inform FSA within 60 days from receipt of this notice of the borrower and owner's decision to deed the property to FSA;</P> <P>(iii) The borrower-owner has the opportunity to consult with the Indian tribe that has jurisdiction over the reservation in which the real property is located, or counsel, to determine if State or tribal law provides rights and protections that are more beneficial than those provided the borrower-owner under Agency regulations;</P> <P>(2) If the borrower-owner does not voluntarily deed the property to FSA, not later than 30 days before the foreclosure sale, FSA will provide the Native American borrower-owner with the following options:</P> <P>(i) The Native American borrower-owner may require FSA to assign the loan and security instruments to the Secretary of the Interior. If the Secretary of the Interior agrees to such an assignment, FSA will be released from all further responsibility for collection of any amounts with regard to the loans secured by the real property.</P> <P>(ii) The Native American borrower-owner may require FSA to complete a transfer and assumption of the loan to the tribe having jurisdiction over the reservation in which the real property is located if the tribe agrees to the assumption. If the tribe assumes the loans, the following actions shall occur:</P> <P>(A) FSA shall not foreclose the loan because of any default that occurred before the date of the assumption.</P> <P>(B) The assumed loan shall be for the lesser of the outstanding principal and interest of the loan or the fair market value of the property as determined by an appraisal.</P> <P>(C) The assumed loan shall be treated as though it is a regular Indian Land Acquisition Loan made in accordance with subpart N of part 1823 of this chapter.</P> <P>(3) If a Native American borrower-owner does not voluntarily convey the real property to FSA, not less than 30 days before a foreclosure sale of the property, FSA will provide written notice to the Indian tribe that has jurisdiction over the reservation in which the real property is located of the following:</P> <P>(i) The sale;</P> <P>(ii) The fair market value of the property; and</P> <P>(iii) The ability of the Native American borrower-owner to require the assignment of the loan and security instruments either to the Secretary of the Interior or the tribe (and the consequences of either action) as provided in § 1955.9(c)(2).</P> <P>(4) FSA will accept the offer of voluntary conveyance of the property unless a hazardous substance, as defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, is located on the property which will require FSA to take remedial action to protect human health or the environment if the property is taken into inventory. In this case, a voluntary conveyance will be accepted only if FSA determines that it is in the best interests of the Government to acquire title to the property.</P> <P>(d) When determining whether to accept a voluntary conveyance of a Native American borrower-owner's real property, the county official must consider:</P> <P>(1) The cost of cleaning or mitigating the effects if a hazardous substance is found on the property. A deduction equal to the amount of the cost of a hazardous waste clean-up will be made to the fair market value of the property to determine if it is in the best interest of the Government to accept <PRTPAGE P="174"/>title to the property. FSA will accept the property if clear title can be obtained and if the value of the property after removal of hazardous substances exceeds the cost of hazardous waste clean-up.</P> <P>(2) If the property is located within the boundaries of a federally recognized Indian reservation, and is owned by a member of the tribe with jurisdiction over the reservation, FSA will credit the Native American borrower-owner's account based on the fair market value of the property or the FSA debt against the property, whichever is greater.</P> <CITA>[62 FR 44395, Aug. 21, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.10</SECTNO> <SUBJECT>Voluntary conveyance of real property by the borrower to the Government.</SUBJECT> <P>Voluntary conveyance is a method of liquidation by which title to security is transferred to the Government. FmHA or its successor agency under Public Law 103-354 will not make a demand on a borrower to voluntarily convey. If there is equity in the property. FmHA or its successor agency underPublic Law 103-354 should advise the borrower, in writing, that there is equity in the property before accepting an offer to voluntarily convey. If FmHA or its successor agency under Public Law 103-354 receives an offer of voluntary conveyance, acceptance should only be considered when the Government will likely receive a recovery on its investment. In cases where there are outstanding liens, a full assessment should be made of the debts against the property compared to the current market value. FmHA or its successor agency under Public Law 103-354 should refuse the voluntary conveyance, if the FmHA or its successor agency under Public Law 103-354 lien has neither present nor prospective value or recovery of the value would be unlikely or uneconomical. Instead, for loans to individuals, FmHA or its successor agency under Public Law 103-354 should release its lien as valueless in accordance with § 1965.25(d) of subpart A of part 1965 of this chapter or § 1965.118(c) of subpart C of this chapter, as appropriate. For non-FP borrowers, a voluntary conveyance should only beconsidered after all available servicing actions outlined in the respective servicing regulations have been used or considered and it is determined that the borrower will not be successful. For FP borrowers, if the borrower has not received exhibit A with attachments 1 and 2 of subpart S of part 1951 of this chapter, a voluntary conveyance should be accepted only after the borrower has been sent exhibit A with attachments 1 and 2 of subpart S of 1951 of this chapter; all available servicing actions outlined in the respective program servicing regulations have been used or considered; and it will be in the Government's best financial interest to accept the FP voluntary conveyance. Exhibit G of this subpart will be used to determine whether or not to accept an FP voluntary conveyance. In determining if the acceptance of the FP voluntary conveyance is in the best financial interest of the Government, the County Supervisor will determine if the borrower has exhausted all possibilities of restructuring the loan to where a feasible plan of operation may be developed, the borrower has acted in good faith in trying to servicethe debt and FmHA or its successor agency under Public Law 103-354 may recover its investment in return for the acceptance of the voluntary conveyance. In addition, prior to acceptance of a voluntary conveyance of farm real property that collateralizes an FP loan, the County Supervisor will remind the borrower-owner of possible deed restrictions and easement that may be placed on the property in the event the property contains wetlands, floodplains, historical sites and/or other federally protected environmental resources as set forth in exhibit M of subpart G of part 1940 of this chapter and § 1955.137 of subpart C of part 1955 of this chapter. When it is determined that all conditions of § 1951.558(b) of subpart L of part 1951 of this chapter have been met, loans for unauthorized assistance will be treated as authorized loans and exhibit A with attachments 1 and 2 of subpart S of part 1951 of this chapter will be sent prior to accepting a voluntary conveyance. Those borrowers who are indebted for nonprogram (NP) loans who wish to voluntarily convey property will not be sent exhibit A with attachments 1 and 2 of subpart S of part 1951 <PRTPAGE P="175"/>of this chapter. For Farmer Program borrowers who have received exhibit A with attachments 1 and 2 ofsubpart S of part 1951 of this chapter, a voluntary conveyance should only be accepted when it is determined to be in the Government's best financial interest. Rejection of an offer of voluntary conveyance made before or after acceleration from an FP borrower is appealable. For borrowers having both FP and non-FP loans secured by a farm tract, a voluntary conveyance should be handled as outlined above for non-FP loans secured by farm tracts, except that the applicable servicing option for the FP and non-FP loans should be considered separately. This separation of servicing options may permit a borrower to retain the nonfarm tract. For newly constructed SFH properties with major construction defects, see subpart F of part 1924 of this chapter.</P> <P>(a) <E T="03">Authority—</E>(1) <E T="03">Loans to individuals.</E> (i) <E T="03">SFH loans.</E> The County Supervisor is authorized to accept voluntary conveyances regardless of amount of indebtedness.</P> <P>(ii) <E T="03">FP loans.</E> The County Supervisor is authorized to accept voluntary conveyance of property secured by Farmer Program loans if the total indebtedness against the property including prior and junior liens, does not exceed his/her approval authority for the type of loan (or combination of types) involved. Loan approval authorities are outlined in exhibits A through E of FmHA or its successor agency under Public Law 103-354 Instruction 1901-A (available in any FmHA or its successor agency under Public Law 103-354 office). The State Director is authorized to approve voluntary conveyances regardless of amount of indebtedness.</P> <P>(2) <E T="03">Loans to organizations.</E> (i) The State Director is authorized to approve voluntary conveyance of property securing Farmer Programs and EOC loans regardless of amount of indebtedness.</P> <P>(ii) The State Director is authorized to approve voluntary conveyance of property securing MFH loans if the total indebtedness against the property, including prior and junior liens, does not exceed his/her approval authority for the type loan involved. Loan approval authorities are outlined in exhibits A through E of FmHA or its successor agency under Public Law 103-354 Instruction 1901-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(iii) Offers to convey property securing loans other than those outlined in paragraphs (a)(2)(i) and (ii) of this section will be submitted to the Administrator for approval prior to acceptance of the conveyance offer. Submissions will include the case file; OGC's opinion on settling any other liens involved; a statement of essential facts; and recommendations of the State Director and Program Chief. Submissions are to be addressed to the Administrator, ATTN: (appropriate program division.)</P> <P>(b) <E T="03">Forms and documents.</E> All forms and documents in connection with voluntary conveyance will be prepared and distributed in accordance with the respective FMI or applicable OGC instructions. For loans to individuals when the County Supervisor has approval authority, the facts will be documented in the running record of the borrower's case file. For all other loans, the servicing official will submit the voluntary conveyance offer, the case file and a narrative report to the appropriate approval official.</P> <P>(c) <E T="03">Liens against the property other than FmHA or its successor agency under Public Law 103-354 liens</E>—(1) <E T="03">Prior liens.</E> (i) The approval official will determine whether or not prior liens will be paid. Normally, the Government will pay prior liens in full prior to acquisition if:</P> <P>(A) A substantial recovery on the Government's investment plus the amount of the prior lien(s) can be obtained; and</P> <P>(B) The holder of the prior lien(s) objects to the Government accepting voluntary conveyance subject to the prior lien(s), if consent of the prior lienholder(s) is required.</P> <P>(ii) If property is acquired subject to prior lien(s), payment of installments on the lien(s) may be made while title to the property is held by the Government in accordance with § 1955.67 of subpart B of part 1955 of this chapter.</P> <P>(2) <E T="03">Junior liens.</E> The borrower must satisfy junior liens on the property (except FmHA or its successor agency <PRTPAGE P="176"/>under Public Law 103-354 liens) and pay real estate taxes or assessments which are or will become a lien on the property. However, if the borrower is unable or unwilling to do so, settlement of the liens may be made by FmHA or its successor agency under Public Law 103-354 if settlement would be in the best interest of the Government, considering all factors such as length of time required to foreclose, vandalism or other deterioration of the property which might occur, and effect on management of a MFH project and its tenants. An FmHA or its successor agency under Public Law 103-354 official will contact junior lienholders, negotiate the most favorable settlement possible, and determine whether it is in the Government's best interest to settle the junior liens and accept the voluntary coveyance.</P> <P>(i) For loans to individuals, the approval official is authorized to settle junior liens in the smallest amount possible, but not to exceed an aggregate amount of $1,000 in each SFH case or $5,000 for other type loans. For junior liens in greater amounts when the approval official is the County Supervisor or District Director, prior authorization must be obtained from the State Director.</P> <P>(ii) For loans to organizations, the State Director will determine whether or not junior liens will be settled and voluntary conveyance accepted.</P> <P>(3) <E T="03">Payment of liens.</E> A lien to be settled in accordance with paragraph (c)(1)(i) or (c)(2) of this section will be paid as outlined in § 1955.5(d) of this subpart and charged to the borrower's account as a recoverable cost.</P> <P>(d) <E T="03">Offer of voluntary conveyance.</E> An offer of voluntary conveyance will consist of the following:</P> <P>(1) Form FmHA or its successor agency under Public Law 103-354 1955-1, “Offer to Convey Security.”</P> <P>(2) Warranty deed, or other deed approved by OGC to comply with State Laws. The deed will not be recorded until it is determined the voluntary conveyance will be accepted. At the time of the offer, the borrowers will be informed that the conveyance will not be accepted until the property has been appraised and a lien search has been obtained. If the voluntary conveyance is not accepted, the deed and Form FmHA or its successor agency under Public Law 103-354 1955-1, properly executed, will be returned to the borrower along with a memorandum stating the reason(s) for nonacceptance.</P> <P>(3) A current financial statement containing information similar to that required to complete Forms FmHA or its successor agency under Public Law 103-354 410-1, “Application for FmHA or its successor agency under Public Law 103-354 Services” or FmHA or its successor agency under Public Law 103-354 442-3, “Balance Sheet,” and information on present income and potential earning ability. Exception for SFH loans: FmHA or its successor agency under Public Law 103-354 requires a budget and/or financial statement and, if necessary to discover suspected undisclosed assets, a search of public records, only when the value of the security property may be less than the debt.</P> <P>(4) For organization borrowers, a duly-adopted Resolution by the governing body authorizing the conveyance and certified by the attesting official with the corporate seal affixed. The Resolution will indicate which officials are authorized to execute the offer to convey and the deed on behalf of the borrower. If shareholder approval is necessary, the Resolution will specifically recite that shareholder approval has been obtained.</P> <P>(5) If water rights, mineral rights, development rights, or other use rights are not fully covered in the deed, the advice of OGC will be obtained and appropriate documents to transfer rights to the Government will be obtained before the voluntary conveyance is accepted. The documents will be recorded, if necessary, in connection with closing the conveyance.</P> <P>(6) If property is under lease, an assignment of the lease to the Government will be obtained with the effective date being the date the voluntary conveyance is closed. If an oral lease is in force, it will be reduced to writing and assigned to the Government.</P> <P>(7) The borrower may be required to provide a title insurance policy or a final title opinion from a designated attorney when the State Director determines it is necessary to protect the <PRTPAGE P="177"/>Government's interest. Such title insurance policy or final title opinion will show title vested to the Government subject only to exceptions and liens approved by the County Supervisor.</P> <P>(8) Farmer program loan borrowers who voluntarily convey after receiving the appropriate loan servicing notice(s) contained in the attachments of exhibit A of subpart S of part 1951 of this chapter, must properly complete and return the acknowledgement form sent with the notice.</P> <P>(9) For MFH loans, assignment of Housing Assistance Payment (HAP) Contracts will be obtained. Rental Assistance will be retained until the State Director is advised by OGC that FmHA or its successor agency under Public Law 103-354 has title to the property, but may be suspended while the conveyance is pending according to exhibit E of subpart C of part 1930 of this chapter.</P> <P>(e) <E T="03">Appraisal of property.</E> After an offer of voluntary conveyance, but before acceptance by FmHA or its successor agency under Public Law 103-354, an appraisal of the property will be made to establish the current market value of the property. If a qualified FmHA or its successor agency under Public Law 103-354 appraiser is not available to appraise property securing a loan other than MFH, the State Director may obtain an appraisal from a qualified appraiser outside FmHA or its successor agency under Public Law 103-354 in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office). For property securing MFH, prior authorization must be obtained by the Assistant Administrator, Housing, to secure an appraisal from a source outside FmHA or its successor agency under Public Law 103-354. For property securing FP loan(s), the contract appraiser must complete the appraisal in accordance with § 761.7 of this title for FP property, or subpart C of part 1922 for Single Family Housing property. Also, the appraiser must meet at least one of the following qualifications:</P> <P>(1) Certification by a National or State Appraisal Society.</P> <P>(2) If a certified appraiser is not available, the appraiser may be one who meets the criteria for certification in a National or State Appraisal Society.</P> <P>(3) The appraiser has recent, relevant documented appraisal experience or training, or other factors clearly establishing the appraiser's qualifications.</P> <P>(f) <E T="03">Processing offer to convey security and acceptance by FmHA or its successor agency under Public Law 103-354.</E> If a borrower has both SFH and other type loans, the portion of this paragraph dealing with the loan(s) other than SFH will be followed.</P> <P>(1) <E T="03">SFH loans.</E> FmHA or its successor agency under Public Law 103-354 does not solicit or encourage conveyance of SFH security property to the Government and will consider a borrower's offer to convey by deed in lieu of foreclosure only after the debt is accelerated and when it is in the Government's interest. Upon receipt of an offer to convey, the servicing official will remind the borrower of provisions for voluntary liquidation under § 1965.125(a) of subpart C of part 1965 of this chapter, and the consequences of a conveyance by deed in lieu of foreclosure as follows: All costs related to the conveyance which FmHA or its successor agency under Public Law 103-354 pays will be added to the debt; a credit equal to the market value of the property, as determined by FmHA or its successor agency under Public Law 103-354, less prior liens, will be applied to the debt; and if the credit does not satisfy the debt, the borrower will not automatically be released of liability. The unsatisfied debt, after acceleration under § 1955.10(h)(5) of this subpart, may be settled according to subpart B of part 1956 of this chapter; however, a deficiency judgment will not be pursued when the borrower was granted a moratorium if the borrower faithfully tried to meet loan obligations. The conveyance is processed as follows:</P> <P>(i) Before accepting the offer, the County Supervisor will transmit the deed to a closing agent requesting a title search covering the period of time since the latest title opinion in the case file. The same agent who closed the loan should be used, if possible; otherwise one will be selected from the <PRTPAGE P="178"/>approved list of closing agents, taking care that cases are distributed fairly among approved agents. The closing agent may be instructed that the County Supervisor considers the voluntary conveyance offer conditionally approved, and the closing agent may record the deed after the title search if there are no liens against the property other than:</P> <P>(A) The FmHA or its successor agency under Public Law 103-354 lien(s);</P> <P>(B) Prior liens when FmHA or its successor agency under Public Law 103-354 has advised the closing agent that title will be taken subject to the prior lien(s) or has told the closing agent that the prior lien(s) will be handled in accordance with § 1955.10(c)(1) of this subpart; and/or</P> <P>(C) Real estate taxes and/or assessments which must be paid when title to the property is transferred.</P> <P>(ii) If junior liens are discovered, the closing agent will be requested to provide FmHA or its successor agency under Public Law 103-354 with the lienholder's name, amount of lien, date recorded, and the recording information (recording office, book and page), return the unrecorded deed to FmHA or its successor agency under Public Law 103-354, and await further instructions from FmHA or its successor agency under Public Law 103-354. In such cases, the County Supervisor will proceed in accordance with § 1955.10(c)(2) of this subpart. If agreement has been reached with the lienholder(s) for settling the junior lien(s) in order to accept the conveyance, the deed will be returned to the closing agent for a title update and recording.</P> <P>(iii) The closing agent will be requested to provide a certification of title to FmHA or its successor agency under Public Law 103-354 after recordation of the deed. A certification of title in a statement that fee title is vested in the Government subject only to the FmHA or its successor agency under Public Law 103-354 lien(s) and prior liens previously approved by FmHA or its successor agency under Public Law 103-354. After receipt of the certification of title, the County Supervisor will notify the borrower that the conveyance has been accepted in accordance with § 1955.10(g) of this subpart.</P> <P>(2) <E T="03">Consolidated Farm and Rural Development Act (CONACT) loans to individuals.</E> For CONACT loans to individuals, as defined in § 1955.3 of this subpart, where the FmHA or its successor agency under Public Law 103-354 indebtedness plus any prior liens exceeds the market value of the property, the County Committee must take certain action if it is to recommend that the borrower and any cosigner be released from liability.</P> <P>(i) <E T="03">Release from liability.</E> The County Committee must determine that the borrower(s) and any cosigner do not have reasonable ability to pay all or a substantial part of the balance of the debt owed after the voluntary conveyance, taking into consideration their assets and income at the time of the conveyance; and that the borrower and any cosigner have cooperated in good faith, used due diligence to maintain the security against loss, and have otherwise fulfilled the covenants incident to the loan to the best of their ability; and they must recommend that the borrower and any cosigner be released from personal liability for any balance due on the secured indebtedness upon conveyance of the property to the Government. This action will be documented by checking the appropriate block on Form FmHA or its successor agency under Public Law 103-354 440-2, “County Committee Certification or Recommendation,” as specified in the Forms Manual Insert (FMI).</P> <P>(ii) <E T="03">Unsatisfied indebtedness.</E> If the County Committee does not recommend release from liability, the borrower must be informed that the indebtedness cannot be satisfied but a credit can be given equal to the market value less prior lien(s) (if any) and the borrower will determine if the borrower wishes to make a new offer on that basis. If a new offer is made and accepted, the account will be handled as an unsatisfied account as outlined in § 1955.18(f) of this subpart. When the Agency debt less the market value and prior liens is $1 million or more (including principal, interest and other charges), release of liability must be approved by the Administrator or designee; otherwise, the State Director must approve the release of liability. All cases requiring a release of liability <PRTPAGE P="179"/>will be submitted for review in accordance with exhibit A of subpart B of part 1956 of this chapter (available in any FSA office).</P> <P>(iii) <E T="03">Crediting accounts.</E> FmHA or its successor agency under Public Law 103-354 will credit the account of a Native American borrower-owner whose real property secured an FP loan with the fair market value or the FmHA or its successor agency under Public Law 103-354 debt against the property, whichever is greater. To receive such credit, the real property must be located within the boundaries of a federally recognized Indian reservation and the County Committee must certify that:</P> <P>(A) The borrower-owner is a member of a tribe or the tribe.</P> <P>(B) The property is located within the confines of a federally recognized Indian reservation.</P> <P>(iv) <E T="03">Loans which are within the County Supervisor's approval authority.</E> The same procedure outlined in paragraph (f)(1)(i) through (f)(1)(iii) of this section will be followed. The conveyance will be accepted in full satisfaction of the indebtedness unless:</P> <P>(A) The market value of the property to be conveyed is less than the total of FmHA or its successor agency under Public Law 103-354 indebtedness and prior lien(s), if any, and the County Committee has <E T="03">not</E> recommended the borrower be released from liability; or</P> <P>(B) The borrower has made a new offer agreeing to accept a credit in the amount of the market value of the security property less prior lien(s), if any, in which case the conveyance will be accepted for the market value of the property conveyed to FmHA or its successor agency under Public Law 103-354 less prior lien(s), if any.</P> <P>(v) <E T="03">Loans which are NOT within the County Supervisor's approval authority</E> </P> <P>(A) When an offer to convey is received from the borrower, the County Supervisor will request a closing agent, selected in accordance with paragraph (f)(l)(i) of this section, to make a title search covering the period of time since the latest title opinion in the case file. The case file containing the following will be forwarded to the appropriate approval official:</P> <P>(<E T="03">1</E>) Form FmHA or its successor agency under Public Law 103-354 1955-2, “Report on Real Estate Problem Case;”</P> <P>(<E T="03">2</E>) Report of title search;</P> <P>(<E T="03">3</E>) Borrower's offer of voluntary conveyance (consisting of applicable items outlined in paragraphs (d)(1) through (d))(8) of this section);</P> <P>(<E T="03">4</E>) Current appraisal of property;</P> <P>(<E T="03">5</E>) Unpaid balance on FmHA or its successor agency under Public Law 103-354 indebtedness and other liens, both prior and junior, if any:</P> <P>(<E T="03">6</E>) Form FmHA or its successor agency under Public Law 103-354 440-2 executed in accordance with the FMI concerning release from liability if property value is less than the debt plus prior liens, if any;</P> <P>(B) If the approval official determines the conveyance should be accepted, the file will be returned to the County Supervisor with a memorandum of conditional approval. The same conditions for release of liability apply an in paragraph (f)(2)(i) of this section. If the approval official does not concur in acceptance of the conveyance, the file will be returned with a memorandum stating the reasons for rejecting the offer and giving instructions to the County Supervisor for further servicing of the account.</P> <P>(C) After the approval official has conditionally approved the conveyance, the County Supervisor will forward the deed to a closing agent with instructions to record it provided no liens have been recorded since the recent title search. The closing agent will be requested to provide a certification of title to FmHA or its successor agency under Public Law 103-354 after recordation of the deed. After receipt of the certification of title, the County Supervisor will notify the borrower that the conveyance has been accepted in accordance with paragraph (h) of this section.</P> <P>(3) <E T="03">Loans to organizations.</E> When an offer of voluntary conveyance is received from an organization borrower, the servicing official will submit the offer and the case file containing the items outlined in paragraph (f)(3)(ii) or (f)(3)(iii) of this section, as applicable, to the State Director. The State Director will obtain the advice of OGC on all <PRTPAGE P="180"/>offers of voluntary conveyance from organization borrowers. OGC will be requested to issue instructions for processing and closing the conveyance. When the market value of the property being conveyed (less prior liens, if any) is less than the FmHA or its successor agency under Public Law 103-354 debt, full consideration must be given to the borrower's present situation and future prospects for paying all or a part of the FmHA or its successor agency under Public Law 103-354 debt. In such a case, the County Committee must make a favorable recommendation if the borrower is to be released from liability; and if the FmHA or its successor agency under Public Law 103-354 debt less the market value and prior liens exceeds $25,000, release of liability must be approved by the Administrator.</P> <P>(i) <E T="03">Items to be included in the borrower's case file for MFH loans:</E> </P> <P>(A) Report on Multiple-Family Housing Problem Case, (exhibit A to this subpart available in any FmHA or its successor agency under Public Law 103-354 office);</P> <P>(B) Liquidation and management plan with specific recommendations of the District Director;</P> <P>(C) Form FmHA or its successor agency under Public Law 103-354 1955-1;</P> <P>(D) Resolution authorizing the conveyance, if applicable;</P> <P>(E) Report of title search from an approved closing agent covering the period of time since the latest title opinion is the case file;</P> <P>(F) Form FmHA or its successor agency under Public Law 103-354 1930-7, “Statement of Budget and Cash Flow,” (operating budget for first year and typical year);</P> <P>(G) Form FmHA or its successor agency under Public Law 103-354 1930-8, “Year End Report and Analysis for Fiscal Year Ending <E T="72">___</E>,” (Balance Sheet Portion);</P> <P>(H) Current appraisal prepared by a MFH designated appraiser;</P> <P>(I) Balance on FmHA or its successor agency under Public Law 103-354 account(s) and other liens, if any;</P> <P>(J) Assignment of Housing Assistance Payment (HAP) contracts, if applicable, along with evidence of contract with HUD;</P> <P>(K) Current statement of account from the Finance Office;</P> <P>(L) Development plan with breakdown of costs, if applicable; and</P> <P>(M) Form FmHA or its successor agency under Public Law 103-354 440-2, executed in accordance with the FMI, when applicable.</P> <P>(ii) <E T="03">Items to be included in the borrower's case file for loans other than MFH:</E> </P> <P>(A) Report on Servicing Action (exhibit A to subpart E of part 1951 of this Chapter, available in any FmHA or its successor agency under Public Law 103-354 office);</P> <P>(B) Liquidation and management plan;</P> <P>(C) Form FmHA or its successor agency under Public Law 103-354 1955-1;</P> <P>(D) Organization's Resolution authorizing the conveyance;</P> <P>(E) Report of title search from an approved closing agent covering the period of time since the latest title opinion in the case file;</P> <P>(F) Form FmHA or its successor agency under Public Law 103-354 442-3;</P> <P>(G) Current appraisal;</P> <P>(H) Statement showing income and expenses due but unpaid;</P> <P>(I) Balance on FmHA or its successor agency under Public Law 103-354 account(s) and other liens, if any; and</P> <P>(J) Form FmHA or its successor agency under Public Law 103-354 440-2, executed in accordance with the FMI concerning release from liability if property value is less than the FmHA or its successor agency under Public Law 103-354 indebtedness plus prior liens, if any.</P> <P>(g) <E T="03">Closing of conveyance.</E> (1) The conveyance to the Government will be considered closed when the recorded deed has been returned to FmHA or its successor agency under Public Law 103-354, a certification of title is received from the closing agent that title is vested in the Government with no outstanding encumbrances other than the FmHA or its successor agency under Public Law 103-354 lien(s) or previously approved prior liens, and the borrower is notified of the acceptance of the conveyance. For loans to organizations, OGC will be requested to review the case to verify that it was closed properly. The property will be assigned an <PRTPAGE P="181"/>ID number and entered into the Acquired Property Tracking System through the Automated Discrepancy Processing System (ADPS) terminal in the County Office.</P> <P>(2) When costs incident to the completion of the transaction are to be paid by the Government, the servicing official will prepare and process the necessary documents as outlined in § 1955.5(d) of this subpart and the costs will be charged to the borrower's account as recoverable costs. This includes taxes and assessments, water charges which protect the right to receive water, other liens, closing agent's fee, and any other costs related to the conveyance.</P> <P>(h) <E T="03">Actions to be taken after closing conveyance.</E> (1) When the FmHA or its successor agency under Public Law 103-354 account is satisfied, the note(s) will be stamped “Satisfied by Surrender of Security and Borrower Released from Liability,” and the statement must be signed by the servicing official.</P> <P>(2) When the FmHA or its successor agency under Public Law 103-354 account is not satisfied and the borrower is not released from liability, the note(s) will be retained by FmHA or its successor agency under Public Law 103-354.</P> <P>(3) The servicing official will release the lien(s) of record, indicating that the debt was satisfied by surrender of security or that the lien is released but the debt not satisfied, whichever is applicable. If the lien is to be released but the debt not satisfied, OGC will provide the type of instrument required to comply with applicable State laws.</P> <P>(4) After release of the lien(s), the servicing official will return the following to the borrower:</P> <P>(i) If borrower is released from liability, the satisfied note(s) and a copy of Form FmHA or its successor agency under Public Law 103-354 1955-1 showing acceptance by the Government; or</P> <P>(ii) If borrower is not released from liability, a copy of Form FmHA or its successor agency under Public Law 103-354 1955-1 showing acceptance by the Government.</P> <P>(5) When the FmHA or its successor agency under Public Law 103-354 account is not satisfied and the borrower not released from liability, the account balance, after deducting the “as is” market value and prior liens, if any, will be accelerated utilizing exhibit F of this subpart (available in any <E T="01">FmHA or its successor agency under Public Law 103-354 office).</E> </P> <P>(6) For MFH loans, the State Director will cancel any interest credit and suspend any rental assistance. These actions will be accomplished by notifying the Finance Office unit which handles MFH accounts. In the interm the tenants will continue rental payments in accordance with their lease. Tenants will be informed of the pending liquidation action and the possible consequences of the action. FmHA or its successor agency under Public Law 103-354 Guide Letters 1965-E-2, 1965-E-3, and 1965-E-5 (available in any FmHA or its successor agency under Public Law 103-354 office) may be used to inform tenants, but should be modified to reflect the specific action and circumstances. If the project is to be removed from the FmHA or its successor agency under Public Law 103-354 program, a minimum of 180 days’ notice to the tenants is required. Letters of Priority Entitlement must be made available to any tenants that will be displaced as required by § 1965.215(e)(4) of subpart E of part 1965 of this chapter.</P> <P>(7) Actions outlined in § 1955.18 of this subpart will be taken, as applicable.</P> <CITA>[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 51 FR 45433, Dec. 18, 1986; 52 FR 48519, Dec. 23, 1987; 53 FR 27826, July 25, 1988; 53 FR 35762, Sept. 14, 1988; 56 FR 12645, Mar. 27, 1991; 56 FR 15821, Apr. 18, 1991; 56 FR 40245, Aug. 14, 1991; 57 FR 1372, Jan. 14, 1992; 58 FR 38926, July 21, 1993; 58 FR 44752, Aug. 25, 1993; 58 FR 68725, Dec. 29, 1993; 60 FR 28320, May 31, 1995; 64 FR 62568, Nov. 17, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.11</SECTNO> <SUBJECT>Conveyance of property to FmHA or its successor agency under Public Law 103-354 by trustee in bankruptcy.</SUBJECT> <P>(a) <E T="03">Authority.</E> With the advice of OGC (and prior approval of the National Office for MFH, Community Programs, and insured B&I loans), the State Director within his/her authority is authorized to accept a conveyance of property to the Government by the Trustee in Bankruptcy, provided:</P> <P>(1) The Bankruptcy Court has approved the conveyance;<PRTPAGE P="182"/> </P> <P>(2) The conveyance will permit a substantial recovery on the FmHA or its successor agency under Public Law 103-354 debt; and</P> <P>(3) FmHA or its successor agency under Public Law 103-354 will acquire title free of all liens and encumbrances except FmHA or its successor agency under Public Law 103-354iens.</P> <P>(b) <E T="03">Fees and deed.</E> (1) FmHA or its successor agency under Public Law 103-354 may pay any necessary and proper fees approved by the bankruptcy court in connection with the conveyance. Before paying a fee to a trustee for a Trustee's Deed in excess of $300 for any loan type(s) other than Farmer Programs or $1,000 for Farmer Program loans, prior approval of the Administrator must be obtained. The State Director will process the necessary documents as outlined in § 1955.5(d) of this subpart for payment of fees as recoverable costs.</P> <P>(2) Conveyance may be by Trustee's Deed instead of a warranty deed. If upon advice of OGC it is determined a deed from any other person or entity (including the borrower) is necessary to obtain clear title, a deed from such person or entity will be obtained.</P> <P>(c) <E T="03">Acceptance.</E> The conveyance will be accepted for an amount of credit to the borrower's FmHA or its successor agency under Public Law 103-354 account(s) as set forth in § 1955.18(e)(4) of this subpart.</P> <P>(d) <E T="03">Reporting.</E> Acquisition of property under this section will be reported in accordance with § 1955.18(a) of this subpart.</P> <CITA>[50 FR 23904, June 7, 1985, as amended at 53 FR 27827, July 25, 1988]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.12</SECTNO> <SUBJECT>Acquisition of property which served as security for a loan guarantee by FmHA or its successor agency under Public Law 103-354 or at sale by another lienholder, bankruptcy trustee, or taxing authority.</SUBJECT> <P>When the servicing regulations for the type of loan(s) involved permit FmHA or its successor agency under Public Law 103-354 to acquire property by one of these methods, the acquisition will be reported in accordance with § 1955.18(a) of this subpart.</P> </SECTION> <SECTION> <SECTNO>§ 1955.13</SECTNO> <SUBJECT>Acquisition of property by exercise of Government redemption rights.</SUBJECT> <P>When the Government did not protect its interest in security property in a foreclosure by another lienholder, and if the Government has redemption rights, the State Director will determine whether to redeem the property. This determination will be based on all pertinent factors including the value of the property after the sale, and costs which may be incurred in acquiring and reselling the property. For Farmer Program loans, the County Supervisor will document the determination on exhibit G of this subpart. The decision must be made far enough in advance of expiration of the redemption period to permit exercise of the Government's rights. If the property is to be redeemed, complete information documenting the basis for not acquiring the property at the sale and factors which justify redemption of the property will be included in the case file. The assistance of OGC will be obtained in effecting the redemption. If the State Director decides not to redeem the property, the Government's right of redemption under Federal law (28 U.S.C. 2410) may be waived without consideration. If a State law right of redemption exists and may be sold, it will not be disposed of for less than its value.</P> <CITA>[53 FR 35762, Sept. 14, 1988]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.14</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1955.15</SECTNO> <SUBJECT>Foreclosure by the Government of loans secured by real estate.</SUBJECT> <P>Foreclosure will be initiated when all reasonable efforts have failed to have the borrower voluntarily liquidate the loan through sale of the property, voluntary conveyance, or by entering into an accelerated repayment agreement when applicable servicing regulations permit; when either a net recovery can be made or when failure to foreclose would adversely affect FmHA or its successor agency under Public Law 103-354 programs in the area. Also, in Farmer Program cases (except graduation cases under subpart F of part 1951 of this chapter), the borrower must have received exhibit A with attachments 1 and 2 of subpart S of part 1951 <PRTPAGE P="183"/>of this chapter, and any appeal must have been concluded. For real property located within the confines of a federally recognized Indian reservation and owned by a Native American borrower, proper notice of voluntary conveyance must be given as outlined in § 1955.9 (c)(1) of this subpart.</P> <P>(a) <E T="03">Authority—</E>(1) <E T="03">Loans to individuals.</E> The District Director is authorized to approve or disapprove foreclosure and accelerate the account.</P> <P>(2) <E T="03">Loans to organizations.</E> (i) The State Director or District Director is authorized to approve or disapprove foreclosure of MFH loans when the amount of the FmHA or its successor agency under Public Law 103-354 secured debt does not exceed their respective loan approval authority. The State Director is authorized to approve or disapprove foreclosure of I&D, Shift-In-Land-Use (Grazing Association), loans to Indian Tribes and Tribal Corporations, and EOC loans, regardless of the amount of debt.</P> <P>(ii) For all other organization loans, foreclosure will not be initiated without prior approval of the Administrator. The State Director will obtain OGC's opinion on the steps necessary to foreclose the loan, and forward the appropriate problem case report, a statement of essential facts, his/her recommendation, a copy of the OGC opinion, and the borrower's case file to the Administrator, Attn: Assistant Administrator (appropriate loan division) with a request for authorization to initiate foreclosure.</P> <P>(b) <E T="03">Problem case report.</E> When foreclosure is recommended, the servicing official will prepare Form FmHA or its successor agency under Public Law 103-354 1955-2 for Farmer Program or SFH loans, exhibit A to this subpart for MFH loans, or exhibit A of FmHA or its successor agency under Public Law 103-354 Instruction 1951-E (available in any FmHA or its successor agency under Public Law 103-354 office) for other organization loans. If chattel security is also involved, Forms FmHA or its successor agency under Public Law 103-354 455-1, “Request for Legal Action”; 455-2, “Evidence of Conversion”; and 455-22, “Information for Litigation”; as applicable to the case, will be prepared in accordance with the respective FMIs and made a part of the problem case submission. A statement must be included by the servicing official in the narrative that all servicing actions required by FmHA or its successor agency under Public Law 103-354 loan servicing regulations have been taken and all required notices given to the borrower.</P> <P>(1) <E T="03">Appraisal.</E> The market value of the property may be estimated in completing the problem case report unless there are one or more prior liens other than current-year real estate taxes. Where such prior liens are involved, an appraisal report reflecting market value in existing condition will be included in the case file as a basis for determining the Government's prospects for financial recovery through foreclosure.</P> <P>(2) <E T="03">Recommendation for deficiency judgment.</E> <E T="11">If the debt will not be satisfied by the foreclosure, the borrower's financial situation will be assessed to determine if there is a possibility of further recovery on the account through a deficiency judgment. A summary of these determinations will be fully documented and appropriate recommendations made concerning deficiency judgment in the applicable problem case report. For SFH loans subject to recapture of subsidy, the debt includes total interest credit granted and principal reduction attributed to subsidy in addition to unpaid principal and interest. However, a deficiency judgment will not be recommended in a SFH case to recapture subsidy or where the borrower was granted a moratorium provided the borrower faithfully tried to meet loan obligations. In crediting security value against indebtedness, credit will be given first to interest, principal and recoverable costs and then to recapture of subsidy.</E> </P> <P>(3) <E T="03">Historic preservation.</E> If it is likely that FmHA or its successor agency under Public Law 103-354 will acquire title to the property as a result of the foreclosure, and the structure(s) on the property will be in excess of 50 years old at the time of acquisition or meet any of the other criteria contained in § 1955.137(c) of subpart C of part 1955 of this chapter, steps should be initiated to meet the requirements of the National Historic Preservation Act as <PRTPAGE P="184"/>outlined in § 1955.137(c). Formal steps should not be initiated until the conclusion of all appeals. However, any such documentation required may be completed when the problem case report is prepared. This action should eliminate delays in selling the property after acquisition.</P> <P>(c) <E T="03">Submission of problem case.</E> <E T="11">The servicing official will submit the completed problem case docket to the official authorized to approve the foreclosure (approval official). Before approval of foreclosure and acceleration of the account, the approval official is responsible for review of the problem case report to see that all items are complete and that all required servicing actions have been taken and all required notices given the borrower. The narrative portion of the report should provide complete information on the borrower's financial condition, deficiency judgment in case the debt is not satisfied by the foreclosure, and other pertinent background items. The approval official will approve or disapprove the foreclosure, or make a recommendation and refer the case to the National Office, if not within his/her approval authority. If foreclosure is not approved, the case will be returned to the originating office with instructions for further servicing. Problem case submission is as follows:</E> </P> <P>(1) <E T="03">For loans to individuals.</E> <E T="11">The County Supervisors will submit the case to the District Director.</E> </P> <P>(2) <E T="03">For loans to organizations.</E> <E T="11">The District Director will submit the case to the State Director along with a proposed liquidation and management plan covering the time the foreclosure is in process. The State Director will</E> obtain the advice of OGC if required in connection with the type of loan being liquidated.</P> <P>(d) <E T="03">Approval of foreclosure.</E> <E T="11">When foreclosure is approved, it will be handled as follows:</E> </P> <P>(1) <E T="03">Prior lien(s).</E> If there is a prior lien, all foreclosure alternatives should be explored including whether FmHA or its successor agency under Public Law 103-354 will give the prior lienholder the opportunity to foreclose; join in the action if the prior lienholder wishes to foreclose; or foreclose the FmHA or its successor agency under Public Law 103-354 loan(s), either settling the prior lien or foreclosing subject to it. The provisions of § 1965.11(c) of subpart A of part 1965 of this chapter must be followed for loans serviced under subpart A of part 1965. The assistance of OGC should be obtained in weighing the alternatives, with the objective being to pursue the course which will result in the greatest net recovery by the Government. After it is decided which option will be most advantageous to the Government, the approval official, either directly or through a designee, will contact the prior lienholder to outline FmHA or its successor agency under Public Law 103-354's position. If State laws affect this action, a State Supplement will be issued with the advice of OGC to establish the procedure to be followed. For real property located within the confines of a federally recognized Indian reservation owned by a Native American borrower-owner, an analysis of whether FmHA or its successor agency under Public Law 103-354 should acquire title must include facts which demonstrate the fair market value after considering the cost of clean-up of hazardous substances on the property.</P> <P>(2) <E T="03">Acceleration of account.</E> Subject to paragraphs (d)(2)(i), (d)(2)(ii), and (d)(2)(iii) of this section, the account will be accelerated using a notice substantially similar to exhibits B, C, D, or E of this subpart, or for multi-family housing, FmHA or its successor agency under Public Law 103-354 Guide Letters 1955-A-1 or 1955-A-2 (available in any FmHA or its successor agency under Public Law 103-354 Office), as appropriate, to be signed by the official who approved the foreclosure. The accounts of borrowers with pending Chapter 12 and 13 cases which have not been discharged will be accelerated in accordance with instructions from OGC. Upon OGC approval, accounts of these borrowers may be accelerated using a notice substantially similar to exhibit D of this subpart. Loans secured by chattels must be accelerated at the same time as loans secured by real estate in accordance with § 1965.26 (c) of subpart A of part 1965 of this chapter. The notice will be sent by certified mail, return receipt requested, to each <PRTPAGE P="185"/>obligor individually, addressed to the last known address. If different from the property address and/or the address the Finance Office uses, a copy of the notice will also be mailed to the property address and the address currently used by the Finance Office. (In chattel liquidation cases which have been referred for civil action under subpart A of part 1962 of this chapter, the Finance Office will be sent a copy of exhibits D, E, or E-1 (available in any FmHA or its successor agency under Public Law 103-354 office) as applicable. County Office and Finance Office loan records will be adjusted to mature the entire debt in such cases). If a signed receipt for at least one of these acceleration notices sent by certified mail is received, no further notice is required. If no receipt is received, a copy of the acceleration notice will be sent by regular mail to each address to which the certified notices were sent. This type mailing will be documented in the file. A State Supplement may be issued if OGC advises different or additional language or format is required to comply with State laws or if notice and mailing instructions are different from that outlined in this paragraph. A conformed copy of the acceleration notice will be forwarded to the servicing official. Farmer Program appeals will be concluded before acceleration. For MFH loans, a copy of the acceleration letter will also be forwarded to the National Office, ATTN: MFH Servicing and Property Management Division, for monitoring purposes. Accounts may be accelerated as follows:</P> <P>(i) Where monetary default is involved, the account may be accelerated immediately after approval of foreclosure.</P> <P>(ii) Where monetary default is <E T="03">not</E> involved, the account will not be accelerated until the concurrence of OGC is obtained.</P> <P>(iii) If borrower obtained the loan while a civilian, entered military service after the loan was closed, the FmHA or its successor agency under Public Law 103-354 has not obtained a waiver of rights under the Soldiers and Sailors Relief Act, the account will not be accelerated until OGC has reviewed the case and given instructions.</P> <P>(iv) If the decision is made to liquidate the farm loan(s) of a borrower who also has a SFH loan(s), and the dwelling was used as security for the farm loan(s) it will not be necessary to meet the requirements of subpart G of part 1951 of this chapter prior to accelerating the account. Except that, if the borrower is in default on his/her farm loan(s), the SFH account must have been considered for interest credit and/or moratorium at the time servicing options are being considered for the FP loan(s) prior to acceleration. If it is later determined the FP loan(s) are to receive additional servicing in lieu of liquidation, the RH loan will be reinstated simultaneously with the FP servicing actions and may be reamortized in accordance with §1951.315 of subpart G of part 1951 of this chapter. Accounts of a borrower who has both Farmer Program and SFH loan(s) may be accelerated as follows:</P> <P>(A) When the borrower's dwelling is financed with an SFH loan(s) is secured by and located on the same farm real estate as the Farmer Program loan(s) (dwelling located on the farm), the SFH loan(s) will be serviced in accordance with § 1965.26(c)(1) of subpart A of part 1965 of this chapter.</P> <P>(B) When the borrower's dwelling is financed with an SFH loan(s) and is located on a nonfarm tract which also serves as additional security for the Farmer Program loan(s), the loans(s) will be serviced in accordance with § 1965.26 (c)(2) of subpart A of part 1965 of this chapter.</P> <P>(C) When the borrower's dwelling is financed with an SFH loan(s) and is on a non-farm tract which does not serve as additional security for the Farmer Program loan(s), it will NOT be accelerated simultaneously with sending out attachments 5 and 6, or 5-A and 6-A, or attachment 9 and 10, or 9-A and 10-A, of exhibit A of subpart S of part 1951 of this chapter, as applicable, unless it is subject to liquidation based on provisions of § 1965.125 of subpart C of part 1965 of this chapter, taking into consideration the prospects for success that may evolve when the borrower's livelihood is from a source other than the farming operation. If the SFH loan is in default and subject to liquidation <PRTPAGE P="186"/>based on provisions of § 1965.125 of subpart C of part 1965 of this chapter, the SFH loan(s) must be accelerated at the same time the borrower is sent attachment 5 and 6, or 5-A and 6-A, or attachments 9 and 10, or 9-A and 10-A, to exhibit A of subpart S of part 1951 of this chapter, as applicable. For those borrowers who are in non-monetary default on their Farmer Programs loans and fail to return attachment 4 of exhibit A of subpart S of part 1951 of this chapter, the Farmer Programs loans and SFH loans will be accelerated at the same time. If the borrower appeals, one appeal hearing and one review will be held for both adverse actions.</P> <P>(D) If a borrower's FP loan(s) were accelerated prior to May 7, 1987, and the SFH loan(s) is not accelerated, the SFH loan will be accelerated at the same time the borrower is sent attachments 5 and 6, or 5-A and 6-A, or attachments 7 and 8 to exhibit A of subpart S of 1951 of this chapter, as applicable, unless the requirements of § 1965.26 of subpart A of part 1965 of this chapter are met or the liquidation of the SFH loan is based on provisions of § 1965.125 of subpart C of part 1965 of this chapter. If the borrower is sent attachments 5 and 6, or 5-A and 6-A to exhibit A of subpart S of 1951 of this chapter, as applicable, and requests an appeal, one hearing and one review will be held for both the adverse action on the FP loan restructuring request and SFH acceleration notices. If the borrower is sent attachments 7 and 8 to exhibit A of subpart S of 1951 of this chapter, there are no further appeals on the FP loans; but, the borrower is entitled to a hearing and a review on the SFH acceleration notice.</P> <P>(v) For MFH loans, the acceleration notice will advise the borrower of all applicable prepayment requirements, in accordance with subpart E of part 1965 of this chapter. The requirements include the application of restrictive-use provisions to loans made on or after December 21, 1979, prepaid in response to acceleration notices and all tenant and agency notifications. The acceleration notice will also remind borrowers that rent levels cannot be raised during the acceleration without FmHA or its successor agency under Public Law 103-354 approval, even after subsidies are canceled or suspended. Tenants are to be notified of the status of the project and of possible consequences of these actions. FmHA or its successor agency under Public Law 103-354 Form Letters 1965-E-2, 1965-E-3 and 1965-E-5 may be used as guides, but modified appropriately. If the borrower wishes to prepay the project in response to the acceleration and FmHA or its successor agency under Public Law 103-354 makes a determination that the housing is no longer needed, a minimum of 180 days’ notice to tenants is required before the project can be removed from the FmHA or its successor agency under Public Law 103-354 program. Letters of Priority Entitlement must be made available in accordance with § 1965.215(e)(4) or subpart E of part 1965 of this chapter.</P> <P>(3) <E T="03">Offers by borrowers after acceleration of account</E>—(i) <E T="03">Farmers Programs (FP) accelerations.</E> This category also includes non-FP loans to the same borrower which have been accelerated as part of the same action. After the account is accelerated, the borrower will have 30 days from the date of the acceleration notice to make payment in full to stop the acceleration, unless State or tribal law requires that the foreclosure be withdrawn if the account is brought current and a State supplement is issued to specify the requirement.</P> <P>(A) Payment in full [see exhibit D of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office)] may consist of the following means of fully satisfying the debt.</P> <P>(<E T="03">1</E>) Cash.</P> <P>(<E T="03">2</E>) Transfer and assumption.</P> <P>(<E T="03">3</E>) Sale of property.</P> <P>(<E T="03">4</E>) Voluntary conveyance.</P> <P>(B) Payments which do not pay the account in full can be accepted subject to the following requirements:</P> <P>(<E T="03">1</E>) Payments will be accepted if there is no remaining security for the debt (real estate and chattel).</P> <P>(<E T="03">2</E>) If the borrower is in the process of selling security or nonsecurity, payments may be accepted unless State law would require the acceleration to be reversed. In States where payments cannot be accepted unless the acceleration is reversed, the payments will not <PRTPAGE P="187"/>be accepted. A State supplement will be issued to address State law on accepting payments after acceleration.</P> <P>(<E T="03">3</E>) If payments are mistakenly credited to the borrower's account, no waiver or prejudice to any rights which the United States may have for breach of any promissory note or convenant in the real estate instruments will result. Disposition of such payments will be made after consulting OGC.</P> <P>(<E T="03">4</E>) The servicing official will notify the approval official of any other offer. This includes a request by the borrower for an extension of time to accomplish voluntary liquidation or a proposal to cure the default(s). In all other cases, the approval official will decide whether an offer from a borrower will be accepted and servicing of the loan reinstated or whether foreclosure will be delayed to give the borrower additional time to voluntarily liquidate as authorized in servicing regulations for the type loan(s) involved. If an offer is received after the case has been referred to OGC, the approval official will consult OGC before accepting or rejecting the offer. The denial of an offer to stop foreclosure is not appealable. In all cases, the approval official will notify the servicing official of the decision made.</P> <P>(ii) <E T="03">All other accelerations.</E> After the account is accelerated, loan servicing ceases. For example, for SFH loans, the renewal or granting of interest credit or a moratorium is not authorized. The servicing official will accept no payment for less than the unpaid loan balance, unless State law requires that foreclosure be withdrawn if the account is brought current and a State supplement is issued to specify this requirement. If payments are mistakenly accepted and credited to the borrower's account, no waiver or prejudice to any rights which the United States may have for breach of any promissory note or covenants in the real estate instruments will result. Disposition of such payments will be made after consultation with OGC. The servicing official will notify the approval official of any offer received from the borrower. This includes a request by the borrower for an extension of time to accomplish voluntary liquidation or a written proposal to cure the default(s). The receipt of a payment with no proposal to cure the defaults is not considered a viable offer, and such payments will be returned to the borrower. The approval official will decide whether an offer from a borrower will be accepted and servicing of the loan reinstated or whether foreclosure will be delayed to give the borrower additional time to voluntarily liquidate as authorized in servicing regulations for the type loan involved. If an offer is received after the case has been referred to OGC, the approval official will consult OGC before accepting or rejecting the offer. The denial of an offer to stop foreclosure is not appealable. In all cases, the approval official will notify the servicing official of the decision made. For MFH loans, the National Office will be notified when foreclosure is withdrawn. When an account is reinstated under this section, the servicing official will grant or reinstate assistance for which the borrower qualifies, such as interest credit on an SFH loan. When granting interest credit in such a case:</P> <P>(A) If an interest credit agreement expired after the account was accelerated, the effective date will be the date the previous agreement expired.</P> <P>(B) If an interest credit agreement was not in effect when the account was accelerated, the effective date will be the date foreclosure action was withdrawn.</P> <P>(C) For MFH loans with rental assistance, after acceleration and after any appeal or review has been concluded, rental assistance will be suspended if foreclosure is to continue. If the account is reinstated, the rental assistance will be reinstated retroactively to the date of suspension. In the interim, the tenants will continue rental payments in accordance with their leases, and all rental rates and lease renewals and provisions will be continued as if acceleration had not taken place.</P> <P>(4) <E T="03">Statement of account.</E> If a statement of account is required for foreclosure proceedings, Form FmHA or its successor agency under Public Law 103-354 451-10, “Request for Statement of Account,” will be processed in accordance with the FMI. When an official statement of account is not required, <PRTPAGE P="188"/>account balances and recapture information may be obtained from the field office terminal.</P> <P>(5) <E T="03">Appeals.</E> All appeals will be handled pursuant to subpart B of part 1900 of this chapter. Foreclosure actions will be held in abeyance while an appeal is pending. No case will be referred to OGC for processing of foreclosure until a borrower's appeal and appeal review have been concluded, or until the time has elapsed during which an appeal or a request for review may be made. In Farmer Programs cases, (except graduation cases under subpart F of part 1951 of this chapter), the borrower must have received the appropriate notices and consideration for primary loan servicing per subpart S of part 1951 of this chapter. Any Farmer Programs cases may be accelerated after all primary loan servicing options have been considered and all related appeals concluded, but will not be submitted to OGC for foreclosure action until all appeals related to any preservation rights have been concluded.</P> <P>(6) <E T="03">Petition in bankruptcy filed by borrower after acceleration of account.</E> </P> <P>(i) When bankruptcy is filed after an account has been accelerated, any foreclosure action initiated by FmHA or its successor agency under Public Law 103-354 must be suspended until:</P> <P>(A) The bankruptcy case is <E T="03">dismissed</E> or <E T="03">closed</E> (a discharge of debtor does not close the case);</P> <P>(B) An Order lifting the automatic stay is obtained from the Bankruptcy Court; or</P> <P>(C) The property is no longer property of the bankruptcy estate <E T="03">and</E> the borrower has received a discharge.</P> <P>(ii) The State Director will request the assistance of OGC in obtaining the Order(s) described in paragraph (c)(6)(i)(B) of this section.</P> <P>(e) <E T="03">Referral of case.</E> If the borrower fails to satisfy the account during the period of time specified in the acceleration notice, and no appeal is pending, the foreclosure process will continue:</P> <P>(1) If the District Director is the approval official, he/she will forward the case file with all pertinent documents and information concerning the foreclosure action and appeal, if any, to the State Director for completion of the foreclosure.</P> <P>(2) If the State Director is the approval official, or in cases referred by the District Director under paragraph (e)(1) of this section, the State Director will forward to OGC the case file and all documents needed by OGC to process the foreclosure. A State Supplement will be issued, with the advice and assistanced of OGC, to reflect the make-up of the foreclosure docket. Since foreclosure processing varies widely from State to State, each State Supplement will be explicit in outlining step-by-step procedures. At the time indicated by OGC in the foreclosure instructions, Form FmHA or its successor agency under Public Law 103-354 1951-6, “Borrower Account Description Flag,” will be processed in accordance with the FMI. After referral to OGC, further actions will be in accordance with OGC's instructions for completion of the foreclosure. If prior approval of the Administrator is obtained, nonjudicial foreclosure for monetary default may be handled as outlined in a State Supplement approved by OGC without referral to OGC before foreclosure.</P> <P>(f) <E T="03">Completion of foreclosure</E>—(1) <E T="03">Foreclosure advertisement for organization loans subject to title VI of the Civil Rights Act of 1964</E>—(i) The advertisement for foreclosure sale of property subject to title VI of the Civil Rights Act of 1964 will contain a statement substantially similar to the following: “The property described herein was purchased or improved with Federal financial assistance and is subject to the nondiscrimination provisions of title VI of the Civil Rights Act of 1964, section 504 of the Rehabilitation Act of 1973 and other similarly worded Federal statutes and regulations issued pursuant thereto that prohibit discrimination on the basis of race, color, national origin, handicap, religion, age or sex in programs or activities receiving Federal financial assistance, for as long as the property continues to be used for the same or similar purposes for which the Federal assistance was extended or for so long as the purchaser owns it, whichever is later.” At least 30 days before the foreclosure sale, the County Supervisor will notify, in writing, the Indian tribe which has jurisdiction over the reservation, and in which the <PRTPAGE P="189"/>real property is owned by a Native American member of said tribe that a foreclosure sale will be conducted to resolve this account, and will provide:</P> <P>(A) Projected sale date and location;</P> <P>(B) Fair market value of property;</P> <P>(C) Amount FmHA or its successor agency under Public Law 103-354 will bid on the property; and</P> <P>(D) Amount of FmHA or its successor agency under Public Law 103-354 debt against the property.</P> <P>(ii) The purchaser will be required to sign Form FmHA or its successor agency under Public Law 103-354 400-4, “Assurance Agreement,” if the property will be used for its original or similar purposes.</P> <P>(2) <E T="03">Restrictive-use provisions for MFH loans.</E> For MFH loans, the advertisement will state the restrictive-use provisions which will be included in any deed used to transfer title.</P> <P>(3) <E T="03">Expenses</E>. Expenses which are incurred in connection with foreclosure, including legal fees, will be paid at the time recommended by OGC by processing the necessary documents as outlined in § 1955.5 (d) of this subpart. Costs will be charged as outlined in FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(4) <E T="03">Notice of judgment.</E> In states with judicial foreclosure, as soon as the foreclosure judgment is obtained, Form FmHA or its successor agency under Public Law 103-354 1962-20, “Notice of Judgment,” will be processed in accordance with the FMI. This will establish a judgment account to accrue interest at the rate stated in the judgment order so that an accurate account balance can be obtained for calculating the Government's foreclosure bid.</P> <P>(5) <E T="03">Gross investment.</E> The gross investment is the sum of the following:</P> <P>(i) The unpaid balance of one of the following, as applicable:</P> <P>(A) In States with nonjudicial foreclosure, the borrower's FmHA or its successor agency under Public Law 103-354 account balance reflecting secured loan(s) and advances; and where State law permits, unsecured debts; or</P> <P>(B) In States with judicial foreclosure, the judgment account established as a result of the foreclosure judgment in favor of FmHA or its successor agency under Public Law 103-354.</P> <P>(ii) All recoverable costs charged (or to be charged) to the borrower's account in connection with the foreclosure action and other costs which OGC advises must be paid from proceeds of the sale before paying the FmHA or its successor agency under Public Law 103-354 secured debt, including but not limited to payment of real estate taxes and assessments, prior liens, legal fees including U.S. Attorney's and U.S. Marshal's, and management fees; and</P> <P>(iii) If a SFH loan subject to recapture of interest credit is involved, the total amount of subsidy granted and principal reduction attributed to subsidy.</P> <P>(6) <E T="03">Amount of Government's bid.</E> Except for FP loans and as modified by paragraph (f)(7)(ii) of this section, the Government's bid will be the amount of FmHA or its successor agency under Public Law 103-354's gross investment or the market value of the security, whichever is less. For real property located within the confines of a federally recognized Indian reservation and which is owned by an FmHA or its successor agency under Public Law 103-354 borrower who is a member of the tribe with jurisdiction over the reservation, the Government's bid will be the greater of the fair market value or the FmHA or its successor agency under Public Law 103-354 debt against the property, unless FmHA or its successor agency under Public Law 103-354 determines that, because of the presence of hazardous substances on the property, it is not in the best interest of the Government to bid such amount, in which case there may be a deduction from the bid for the costs for hazardous material assessment and/or mitigation. For FP loans, except as modified by paragraph (f)(7)(ii) of this section, the Government's bid will be the amount of FmHA or its successor agency under Public Law 103-354's gross investment or the amount determined by use of exhibit G-1 of this subpart, whichever is less. When the foreclosure sale is imminent, the State Director must request the servicing official to submit a current <PRTPAGE P="190"/>appraisal (in existing condition) as a basis for determining the Government's bid. Except for MFH properties, if an FmHA or its successor agency under Public Law 103-354 appraiser is not available, the State Director may authorize an appraisal to be obtained by contract from a source outside FmHA or its successor agency under Public Law 103-354 in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office). For MFH properties, prior approval of the Assistant Administrator, Housing, is necessary to procure an outside appraisal.</P> <P>(7) <E T="03">Bidding.</E> The State Director will designate an individual to bid on behalf of the Government unless judicial proceedings or State nonjudicial foreclosure law provides for someone other than an FmHA or its successor agency under Public Law 103-354 employee to enter the Government's bid. When the State Director determines attendance of an FmHA or its successor agency under Public Law 103-354 employee at the sale might pose physical danger, a written bid may be submitted to the Marshal, Sheriff, or other party in charge of holding the sale. The Government's bid will be entered when no other party makes a bid or when the last bid will result in the property being sold for less than the bid authorized in paragraph (f)(6) of this section.</P> <P>(i) When FmHA or its successor agency under Public Law 103-354 is the senior lienholder, only one bid will be entered, and that will be for the amount authorized by the State Director.</P> <P>(ii) When FmHA or its successor agency under Public Law 103-354 is not the senior lienholder <E T="03">and</E> OGC advises that the borrower has no redemption rights or if a deficiency judgment will be obtained, the State Director may authorize the person who will bid for the Government to make incremental bids in competition with other bidders. If incremental bidding is desired, the State Director's instructions to the bidder will state the initial bid, bidding increments, and the maximum bid.</P> <P>(g) <E T="03">Reports on sale and finalizing foreclosure.</E> Immediately after a foreclosure sale at which the State Director has designated a person to bid on behalf of the Government, the servicing official will furnish the State Director a report on the sale. The State Director will forward a copy of this report to OGC and, for MFH loans, to the National Office. Based on OGC's instructions, a State supplement will provide a detailed outline of actions necessary to complete the foreclosure.</P> <CITA>[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 51 FR 4138, Feb. 3, 1986; 51 FR 45433, Dec. 18, 1986; 53 FR 27827, July 25, 1988; 53 FR 35763, Sept. 14, 1988; 56 FR 6953, Feb. 21, 1991; 56 FR 15822, Apr. 18, 1991; 57 FR 18671, Apr. 30, 1992; 57 FR 31642, July 17, 1992; 57 FR 60085, Dec. 18, 1992; 58 FR 38927, July 21, 1993; 58 FR 58648, Nov. 3, 1993; 58 FR 68725, Dec. 29, 1993; 60 FR 55147, Oct. 27, 1995; 62 FR 44396, Aug. 21, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1955.16-1955.17</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1955.18</SECTNO> <SUBJECT>Actions required after acquisition of property.</SUBJECT> <P>The approval official may employ the services of local designated attorneys, of a case by case basis, to process all legal procedures necessary to clear the title of foreclosure properties. Such attorneys shall be compensated at not more than their usual and customary charges for such work. Contracting for such attorneys shall be accomplished pursuant to the Federal acquisition regulations and related procurement regulations and guidance.</P> <P>(a)-(d) [Reserved]</P> <P>(e) <E T="03">Credit to the borrower's account or foreclosure judgment account.</E> </P> <P>(1) <E T="03">For SFH accounts.</E> When FmHA or its successor agency under Public Law 103-354 acquired the property, the account will be satisfied unless:</P> <P>(i) In a voluntary conveyance case where the debt exceeds the market value of the property and the borrower is <E T="03">not</E> released from liability, in which case the account credit will be the market value (less outstanding liens if any); or</P> <P>(ii) In a foreclosure where the bid is less than the account balance and a deficiency judgment will be sought for the difference, in which case the account credit will be the amount of FmHA or its successor agency under Public Law 103-354's bid.</P> <P>(2) <E T="03">For all types of accounts other than SFH.</E> When FmHA or its successor <PRTPAGE P="191"/>agency under Public Law 103-354 acquired the property, the account credit will be as follows:</P> <P>(i) In a voluntary conveyance case:</P> <P>(A) Where the market value of the property equals or exceeds the debt or where the borrower is released from liability for any difference, the account will be satisfied.</P> <P>(B) Where the debt exceeds the market value of the property and the borrower is <E T="03">not</E> released from liability, the account credit will be the market value (less outstanding liens, if any).</P> <P>(ii) In a foreclosure, the account credit will be the amount of FmHA or its successor agency under Public Law 103-354's bid <E T="03">except</E> when incremental bidding as provided for in § 1955.15(f)(7)(ii) of this subpart was used, in which case the account credit will be the maximum bid that was authorized by the State Director.</P> <P>(3) <E T="03">For all types of accounts when FmHA or its successor agency under Public Law 103-354 did not acquire the property.</E> The sale proceeds will be handled in accordance with applicable State laws with the advice and assistance of OGC, including remittance of funds, application of the borrower's account credit, and disbursement of any funds in excess of the amount due FmHA or its successor agency under Public Law 103-354.</P> <P>(4) <E T="03">In cases where FmHA or its successor agency under Public Law 103-354 acquired security property by means other than voluntary conveyance or foreclosure.</E> In these cases, such as conveyance by a bankruptcy trustee or by Court Order, the account credit will be as follows:</P> <P>(i) If the market value of the acquired property equals or exceeds the debt, the account will be satisfied.</P> <P>(ii) If the debt exceeds the market value of the acquired property, the account credit will be the market value.</P> <P>(f)-(l)</P> <CITA>[50 FR 23904, June 7, 1985, as amended at 52 FR 41957, Nov. 2, 1987; 53 FR 27827, July 25, 1988; 53 FR 35764 Sept. 14, 1988; 55 FR 35295, Aug. 29, 1990; 56 FR 10147, Mar. 11, 1991; 56 FR 29402, June 27, 1991; 58 FR 38927, July 21, 1993; 58 FR 68725, Dec. 29, 1993; 60 FR 34455, July 3, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.19</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1955.20</SECTNO> <SUBJECT>Acquisition of chattel property.</SUBJECT> <P>Every effort will be made to avoid acquiring chattel property by having the borrower or FmHA or its successor agency under Public Law 103-354 liquidate the property according to Subpart A of Part 1962 of this chapter and apply the proceeds to the borrower's account(s). Methods of acquisition authorized are:</P> <P>(a) <E T="03">Purchase at the following types of sale:</E> (1) Execution sale conducted by the U.S. Marshal, sheriff or other party acting under Court order to satisfy judgment liens.</P> <P>(2) FmHA or its successor agency under Public Law 103-354 foreclosure sale conducted by the U.S. Marshal or sheriff in States where a State Supplement provides for sales to be conducted by them.</P> <P>(3) Sale by trustee in bankruptcy.</P> <P>(4) Public sale by prior lienholder.</P> <P>(5) Public sale conducted under the terms of Form FmHA or its successor agency under Public Law 103-354 455-4, “Agreement for Voluntary Liquidation of Chattel Security,” the power of sale in security agreements or crop and chattel mortgage, or similar instrument, if authorized by State Supplement.</P> <P>(b) <E T="03">Voluntary conveyance.</E> Voluntary conveyance of chattels will be accepted only when the borrower can convey ownership free of other liens <E T="03">and</E> the borrower can be released from liability under the conditions set forth in § 1955.10(f)(2) of this subpart. Payment of other lienholders’ debts by FmHA or its successor agency under Public Law 103-354 in order to accept voluntary conveyance of chattels is not authorized. Before a voluntary conveyance from a Farmer Program loan borrower can be accepted, the borrower must be sent Exhibit A with Attachments 1 and 2 of Subpart S of Part 1951 of this chapter.</P> <P>(1) <E T="03">Offer</E>. The borrower's offer of voluntary conveyance will be made on Form FmHA or its successor agency under Public Law 103-354 1955-1. If it is determined the conveyance offer can be accepted, the borrower will execute a <PRTPAGE P="192"/>bill of sale itemizing each item of chattel property being conveyed and will provide titles to vehicles or other equipment, where applicable.</P> <P>(2) <E T="03">Acceptance of offer release from liability.</E> Before accepting an offer to convey chattels to FmHA or its successor agency under Public Law 103-354, the concurrence of the State Director must be obtained. When chattel security is voluntarily conveyed to the Government and the borrower and cosigner(s), if any, are to be released from liability, the servicing official will stamp the note(s) “Satisfied by Surrender of Security and Borrower Released from Liability.” When the Agency debt less the market value and prior liens is $1 million or more (including principal, interest and other charges), release of liability must be approved by the Administrator or designee; otherwise, the State Director must approve the release of liability. All cases requiring a release of liability will be submitted in accordance with Exhibit A of Subpart B of Part 1956 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office). Form FmHA or its successor agency under Public Law 103-354 1955-1 will be executed by the servicing official showing acceptance by the Government, and the satisfied note(s) and a copy of Form FmHA or its successor agency under Public Law 103-354 1955-1 will be furnished to the borrower.</P> <P>(3) <E T="03">Release of lien(s)</E>. When an offer has been accepted as outlined in paragraph (b)(2) of this section, the servicing official will release any liens of record which secured the satisfied indebtedness.</P> <P>(4) <E T="03">Rejection of offer</E>. If it is determined an offer of voluntary conveyance will not be accepted, the servicing official will indicate on Form FmHA or its successor agency under Public Law 103-354 1955-1 that the offer is rejected, execute the form, and furnish a copy to the borrower.</P> <P>(c) <E T="03">Attending sales</E>. The servicing official will:</P> <P>(1) Attend all sales described in paragraph (a)(5) of this section unless an exception is authorized by the State Director because of physical danger to the FmHA or its successor agency under Public Law 103-354 employee or adverse publicity would be likely.</P> <P>(2) Attend public sales by prior lienholders when the market value of the chattel property is significantly more than the amount of the prior lien(s).</P> <P>(3) Obtain the advice of the State Director on attending sales described in paragraphs (a) (1), (2), and (3) of this section.</P> <P>(d) <E T="03">Appraising chattel property.</E> Prior to the sale, the servicing official will appraise chattel property using Form FmHA or its successor agency under Public Law 103-354 440-21, “Appraisal of Chattel Property.” If a qualified appraiser is not available to appraise chattel property, the State Director may obtain an appraisal from a qualified source outside FmHA or its successor agency under Public Law 103-354 by contract in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(e) <E T="03">Abandonment of security interest</E>. The State Director may authorize abandonment of the Government's security interest when chattel property, considering costs of moving or rehabilitation, has no market value and obtaining title would not be in the best interest of the Government.</P> <P>(f) <E T="03">Bidding at sale.</E> (1) The servicing official is authorized to bid at sales described in paragraph (a) of this section. Ordinarily, only one bid will be made on items of chattel security unless the State Director authorizes incremental bidding. Bids will be made only when no other party bids or when it appears bidding will stop and the property will be sold for less than the amount of the Government's authorized bid. When the State Director determines attendance of an FmHA or its successor agency under Public Law 103-354 employee might pose physical danger, a written bid may be submitted to the party holding the sale. The bid(s) will be the lesser of:</P> <P>(i) The market value of the item(s) less the estimated costs involved in the acquisition, care, and sale of the item(s) of security; or<PRTPAGE P="193"/> </P> <P>(ii) The unpaid balance of the borrower's secured FmHA or its successor agency under Public Law 103-354 debt plus prior liens, if any.</P> <P>(2) Bids will not be made in the following situations unless authorized by the State Director:</P> <P>(i) When chattel property under prior lien has a market value which is not significantly more than the amount owed the prior lienholder. If FmHA or its successor agency under Public Law 103-354 holds a junior lien on several items of chattel property, advice should be obtained from the State Director on bidding.</P> <P>(ii) After sufficient chattel property has been bid in by FmHA or its successor agency under Public Law 103-354 to satisfy the FmHA or its successor agency under Public Law 103-354 debt; prior liens, and cost of the sale.</P> <P>(iii) When the sale is being conducted by a lienholder junior to FmHA or its successor agency under Public Law 103-354.</P> <P>(iv) At a private sale.</P> <P>(v) When the sale is being conducted under the terms of Form FmHA or its successor agency under Public Law 103-354 455-3, “Agreement for Sale by Borrower (Chattels and/or Real Estate)”.</P> <P>(g) <E T="03">Payment of costs.</E> Costs to be paid by FmHA or its successor agency under Public Law 103-354 in connection with acquisition of chattel property will be paid as outlined in § 1955.5(d) of this subpart as recoverable costs. </P> <NOTE> <HD SOURCE="HED">Note:</HD> <P>Payment of other lienholders’ debts in connection with voluntary conveyance of chattels is not authorized.</P> </NOTE> <P>(h) <E T="03">Reporting acquisition of chattel property.</E> Acquisition of chattel property will be reported by use of Form FmHA or its successor agency under Public Law 103-354 1955-3 prepared and distributed in accordance with the FMI.</P> <CITA>[50 FR 23904, June 7, 1985, as amended at 50 FR 45783, Nov. 1, 1985; 51 FR 45433, Dec. 18, 1986; 53 FR 27828 July 25, 1988; 53 FR 35764, Sept. 14, 1988; 60 FR 28320, May 31, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.21</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <P>The Administrator may, in individual cases, make an exception to any requirement or provision of this subpart or address any omission of this subpart which is not inconsistent with the authorizing statute or other applicable law if the Administrator determines that the Government's interest would be adversely affected or the immediate health and/or safety of tenants or the community are endangered if there is no adverse effect on the Government's interest. The Administrator will exercise this authority upon the request of the State Director with recommendation of the appropriate program Assistant Administrator; or upon request initiated by the appropriate program Assistant Administrator. Requests for exceptions must be made in writing and supported with documentation to explain the adverse effect, propose alternative courses of action, and show how the adverse effect will be eliminated or minimized if the exception is granted.</P> </SECTION> <SECTION> <SECTNO>§ 1955.22</SECTNO> <SUBJECT>State supplements.</SUBJECT> <P>State Supplements will be prepared with the assistance of OGC as necessary to comply with State laws or only as specifically authorized in this regulation to provide guidance to FmHA or its successor agency under Public Law 103-354 officials. State supplements will be submitted to the National Office for post approval in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2006-B (available in any FmHA or its successor agency under Public Law 103-354 office).</P> </SECTION> <SECTION> <SECTNO>§§ 1955.23-1955.49</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1955.50</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The collection of information requirements contained in this regulation have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0109. Public reporting burden for this collection of information is estimated to vary from 5 minutes to 5 hours per response, with an average of .56 hours per response including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, <PRTPAGE P="194"/>including suggestions for reducing this burden, to Department of Agriculture, Clearance Officer, OIRM, room 404-W, Washington, DC 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB #0575-0109), Washington, DC 20503.</P> <CITA>[57 FR 1372, Jan. 14, 1992]</CITA> <EXHIBIT> <RESERVED>Exhibits A-F [Reserved]</RESERVED> </EXHIBIT> <EXHIBIT> <EAR>Pt. 1955, Subpt. A, Exh. G</EAR> <HD SOURCE="HED">Exhibit G of Subpart A—Worksheet for Accepting a Voluntary Conveyance of Farm Credit Program Security Property Into Inventory</HD> <FP SOURCE="FP-DASH"/> <FP>(present owner/borrower)</FP> <P>Refer to Exhibit I in FmHA Instruction 1951-S for guidance in estimating the incomes and expenses to be used in this exhibit. The holding period to be used is 105 days (3.5 months). </P> <FP SOURCE="FP-2">1. Market Value of Property (Part 7, Form FmHA or its successor agency under Public Law 103-354 1922-1) $<E T="72">_____</E> </FP> <FP SOURCE="FP1-2">Estimated Holding Period in Years <E T="72">_____</E> </FP> <FP SOURCE="FP-2">2. Income</FP> <FP SOURCE="FP1-2">a. Annual Rent <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">b. Annual Royalties <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">c. Other Annual Income <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">d. Annual Land Appreciation <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">e. Value gained due to restrictions that are placed on the farm such as Conservation Easements, Conservation Reserve Program (CRP), etc. = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">f. Other (describe) <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">Total Additions = $<E T="72">_____</E> </FP> <FP SOURCE="FP-2">3. Expenses</FP> <FP SOURCE="FP1-2">a. Total Prior Lienholder Indebtedness (P and I) = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">b. Other Acquisitions Costs (taxes presently owed, closing costs, survey costs, administrative costs, junior liens, etc.) List:</FP> <FP SOURCE="FP1-2"> <E T="72">_____</E> <E T="72">_____</E> </FP> <FP SOURCE="FP1-2"> <E T="72">_____</E> <E T="72">_____</E> = <E T="72">_____</E> </FP> <FP SOURCE="FP1-2">c. Annual Taxes & Assessment <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">d. Annual Building Depreciation <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">e. Annual Management Costs <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">f. Total Essential Repairs to Secure & Resell = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">g. Annual Decrease In Land Value (if applicable) <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">h. Total Anticipated Resale Expenses (Commissions, Advertising, etc.) = <E T="72">_____</E> </FP> <FP SOURCE="FP1-2">i. Total Interest Cost</FP> <FP SOURCE="FP1-2">MKT Value $<E T="72">___</E> × Regular <SU>1</SU> OL Rate <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">j. Value loss due to restrictions that are placed on the farm such as Conservation Easements, and Conservation Reserve Program (CRP), etc. = $<E T="72">_____</E> </FP> <FP SOURCE="FP1-2">k. Hazardous Waste Clean-up Costs = <E T="72">_____</E> </FP> <FP SOURCE="FP1-2">Total Deductions (Items a through k) = <E T="72">_____</E> </FP> <FP SOURCE="FP-2">4. Recovery Value End of Holding Period</FP> <GPOTABLE CDEF="xl50,2,xl50,2,xl50,2,xl50" COLS="7" OPTS="L0,7/8,i1"> <ROW> <ENT I="01" O="oi0">1.<E T="72">________</E> </ENT> <ENT O="oi0">+ </ENT> <ENT O="oi0">2. <E T="72">________</E> </ENT> <ENT O="oi0">− </ENT> <ENT O="oi0">3. <E T="72">________</E> </ENT> <ENT O="oi0">= </ENT> <ENT O="oi0"> <E T="72">________</E> </ENT> </ROW> <ROW> <ENT I="01" O="oi0">Market Value </ENT> <ENT/> <ENT O="oi0">Total Additions </ENT> <ENT/> <ENT O="oi0">Total Deductions </ENT> <ENT/> <ENT O="oi0">Recovery Value</ENT> </ROW> </GPOTABLE> <FP SOURCE="FP-DASH"/> <FP>County Official</FP> <FP SOURCE="FP-DASH"/> <FP>Date</FP> <FP>Concurrence by:</FP> <FP SOURCE="FP-DASH"/> <FP>State Executive Director</FP> <FP SOURCE="FP-DASH"/> <FP>Date</FP> </EXHIBIT> <CITA>[56 FR 15823, Apr. 18, 1991, as amended at 58 FR 44752, Aug. 25, 1993; 62 FR 44396, Aug. 21, 1997]</CITA> <EXHIBIT> <EAR>Pt. 1955, Subpt. A, Exh. G-1</EAR> <HD SOURCE="HED">Exhibit G-1 of Subpart A—Worksheet for Determining Farm Credit Programs, Maximum Bid on Real Estate Property</HD> <FP SOURCE="FP-DASH"/> <FP>(present owner/borrower)</FP> <P>Refer to Exhibit I in FmHA Instruction<FTREF/> 1951-S for guidance in estimating the incomes and expenses to be used in this exhibit. The holding period to be used is 105 days (3.5 months).</P> <FTNT> <P> <SU>1</SU> The regular operating loan rate more nearly reflects the Government's cost of money.</P> </FTNT> <FP SOURCE="FP-2">1. Market Value of Property (Part 7, Form FmHA or its successor agency under Public Law 103-354 1922-1) $<E T="72">_____</E> </FP> <FP SOURCE="FP1-2">Estimated Holding Period in Years <E T="72">_____</E> </FP> <FP SOURCE="FP-2">2. Income</FP> <FP SOURCE="FP1-2">a. Annual Rent <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2"> <E T="72">___</E> <E T="72">___</E> = <E T="72">___</E> <PRTPAGE P="195"/> </FP> <FP SOURCE="FP1-2">b. Annual Royalties <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">c. Other Annual Income <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">d. Annual Land Appreciation <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">e. Value gained due to restrictions that are placed on the farm such as Conservation Easements, Conservation Reserve Program (CRP), etc. = $<E T="72">___</E> </FP> <FP SOURCE="FP1-2">f. Other (describe) <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">Total Additions = $<E T="72">___</E> </FP> <FP SOURCE="FP-2">3. Expenses</FP> <FP SOURCE="FP1-2">a. Total Prior Lienholder Indebtedness (P and I) = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">b. Other Acquisitions Costs (taxes presently owed, closing costs, survey costs, administrative costs, etc.) List:</FP> <FP SOURCE="FP1-2"> <E T="72">_____</E> <E T="72">_____</E> </FP> <FP SOURCE="FP1-2"> <E T="72">___</E> <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">c. Annual Taxes & Assessment <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">d. Annual Building Depreciation <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">e. Annual Management Costs <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">f. Total Essential Repairs to Secure & Resell = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">g. Annual % Decrease In Land Value (if applicable) <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">h. Total Anticipated Resale Expenses (Commissions, Advertising, etc.) = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">i. Total Interest Cost</FP> <FP SOURCE="FP1-2">MKT Value $<E T="72">___</E> × Regular <SU>2</SU> <FTREF/> OL Rate <E T="72">___</E> × Holding Period <E T="72">___</E> = <E T="72">___</E> </FP> <FTNT> <P> <SU>2</SU> The regular operating loan rate more nearly reflects the Government's cost of money.</P> </FTNT> <FP SOURCE="FP1-2">j. Value loss due to restrictions that are placed on the farm such as Conservation Easements, and Conservation Reserve Program (CRP), etc. = $<E T="72">___</E> </FP> <FP SOURCE="FP1-2">k. Hazardous Waste Clean-up Costs = <E T="72">___</E> </FP> <FP SOURCE="FP1-2">Total Deductions (Items a through k) = <E T="72">___</E> </FP> <FP SOURCE="FP-2">4. Bid will be the lesser of:</FP> <GPOTABLE CDEF="xl40,2,xl40,2,xl40,2,xl40" COLS="7" OPTS="L0,7/8,i1"> <ROW> <ENT I="01" O="oi0">a. 1. <E T="72">______</E> </ENT> <ENT O="oi0">+ </ENT> <ENT O="oi0">2.<E T="72">________</E> </ENT> <ENT O="oi0">− </ENT> <ENT O="oi0">3. <E T="72">________</E> </ENT> <ENT O="oi0">= </ENT> <ENT O="oi0"> <E T="72">________</E> </ENT> </ROW> <ROW> <ENT I="01" O="oi0">Market Value </ENT> <ENT/> <ENT O="oi0">Total Additions </ENT> <ENT/> <ENT O="oi0">Total Deductions </ENT> <ENT/> <ENT O="oi0">Total</ENT> </ROW> </GPOTABLE> <FP SOURCE="FP1-2">or,</FP> <GPOTABLE CDEF="xl50,2,xl50,2,xl50,2,xl50" COLS="7" OPTS="L0,7/8,i1"> <ROW> <ENT I="01" O="oi0">b. <E T="72">________</E> </ENT> <ENT O="oi0">+ </ENT> <ENT O="oi0"> <E T="72">________</E> </ENT> <ENT O="oi0">= </ENT> <ENT O="oi0"> <E T="72">________</E> </ENT> </ROW> <ROW> <ENT I="01" O="oi0">Unpaid FmHA or its successor agency under Public Law 103-354 Balance on Secured Debt </ENT> <ENT/> <ENT O="oi0">Prior Liens</ENT> <ENT/> <ENT O="oi0">Total</ENT> </ROW> </GPOTABLE> <FP SOURCE="FP-DASH"/> <FP>County Official</FP> <FP SOURCE="FP-DASH"/> <FP>Date</FP> <FP>Concurrence by:</FP> <FP SOURCE="FP-DASH"/> <FP>State Executive Director</FP> <FP SOURCE="FP-DASH"/> <FP>Date</FP> </EXHIBIT> <CITA>[56 FR 15823, Apr. 18, 1991, as amended at 58 FR 44752, Aug. 25, 1993; 62 FR 44396, Aug. 21, 1997]</CITA> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart B—Management of Property</HD> <SOURCE> <HD SOURCE="HED">Source:</HD> <P>53 FR 35765, Sept. 14, 1988, unless otherwise noted.</P> </SOURCE> <SECTION> <SECTNO>§ 1955.51</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>This subpart delegates authority and prescribes policies and procedures for the Rural Housing Service (RHS), Rural Business-Cooperative Service (RBS), the Water and Waste programs of the Rural Utilities Service (RUS), and Farm Service Agency (FSA), herein referred to as “Agency,” and references contained in this subpart to the Farmers Home Administration (FmHA) are synonymous with “Agency.” This subpart does not apply to RHS single family housing loans or community program loans sold without insurance to the private sector. These community program loans will be serviced by the private sector and future revisions to this subpart no longer apply to such loans. This subpart covers:</P> <P>(a) Management of real property which has been taken into custody by <PRTPAGE P="196"/>the respective Agency after abandonment by the borrower;</P> <P>(b) Management of real and chattel property which is in Agency inventory; and</P> <P>(c) Management of real and chattel property which is security for a guaranteed loan liquidated by an Agency (or which the Agency is in the process of liquidating).</P> <CITA>[61 FR 59778, Nov. 22, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.52</SECTNO> <SUBJECT>Policy.</SUBJECT> <P>Inventory and custodial real property will be effectively managed to preserve its value and protect the Government's financial interests. Properties owned or controlled by FmHA or its successor agency under Public Law 103-354 will be maintained so that they are not a detriment to the surrounding area and they comply with State and local codes. Generally, FmHA or its successor agency under Public Law 103-354 will continue operation of Multiple Family Housing (MFH) projects which are acquired or taken into custody. Servicing of repossessed or abandoned chattel property is covered in subpart A of part 1962 of this chapter, and management of inventory chattel property is covered in § 1955.80 of this subpart.</P> </SECTION> <SECTION> <SECTNO>§ 1955.53</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this subpart, the following definitions apply:</P> <P> <E T="03">CONACT or CONACT property.</E> Property acquired or sold pursuant to the Consolidated Farm and Rural Development Act (CONACT). Within this subpart, it shall also be construed to cover property which secured loans made pursuant to the Agriculture Credit Act of 1978; the Emergency Agricultural Credit Adjustment Act of 1978; the Emergency Agricultural Credit Act of 1984; the Food Security Act of 1985; and other statutes giving agricultural lending authority to FmHA or its successor agency under Public Law 103-354.</P> <P> <E T="03">Contracting Officer (CO).</E> CO means a person with the authority to enter into, administer, and/or terminate contracts and make related determinations and findings. The term includes authorized representatives of the CO acting within the limits of their authority as delegated by the CO.</P> <P> <E T="03">Custodial property.</E> Borrower-owned real property and improvements which serve as security for an FmHA or its successor agency under Public Law 103-354 loan, have been abandoned by the borrower, and of which FmHA or its successor agency under Public Law 103-354 has taken possession.</P> <P> <E T="03">Farmer program loans.</E> This includes Farm Ownership (FO), Soil and Water (SW), Recreation (RL), Economic Opportunity (EO), Operating (OL), Emergency (EM), Economic Emergency (EE), Special Livestock (SL), Softwood Timber (ST) loans, and Rural Housing loans for farm service buildings (RHF).</P> <P> <E T="03">Government.</E> The United States of America, acting through the FmHA or its successor agency under Public Law 103-354, U.S. Department of Agriculture.</P> <P> <E T="03">Indian reservation.</E> All land located within the limits of any Indian reservation under the jurisdiction of the United States notwithstanding the issuance of any patent, and including rights-of-way running through the reservation; trust or restricted land located within the boundaries of a former reservation of a federally recognized Indian tribe in the State of Oklahoma; or all Indian allotments the Indian titles to which have not been extinguished if such allotments are subject to the jurisdiction of a federally recognized Indian tribe.</P> <P> <E T="03">Inventory property.</E> Real and chattel property and related rights to which the Government has acquired title.</P> <P> <E T="03">Loans to individuals.</E> Farmer Program loans, as defined above, whether to individuals or entities; Land Conservation and Development (LCD); and Single-Family Housing (SFH), including both Sections 502 and 504 loans.</P> <P> <E T="03">Loans to organizations.</E> Community Facility (CF), Water and Waste Disposal (WWD), Association Recreation, Watershed (WS), Resource Conservation and Development (RC&D), loans to associations for Irrigation and Drainage and other Soil and Water Conservation measures, loans to Indian Tribes and Tribal Corporations, Shift-in-Land-Use (Grazing Associations) Business and Industrial (B&I) to both individuals and groups, Rural Development <PRTPAGE P="197"/>Loan Fund (RDLF), Intermediary Relending Program (IRP), Nonprofit National Corporation (NNC), Economic Opportunity Cooperative (EOC), Rural Housing Site (RHS), Rural Cooperative Housing (RCH), and Rural Rental Housing (RRH) and Labor Housing (LH) to both individuals and groups. The housing-type loans identified here are referred to in this subpart collectively as MFH loans.</P> <P> <E T="03">Nonprogram (NP) property.</E> SFH and MFH property acquired pursuant to the Housing Act of 1949, as amended, that cannot be used by a borrower to effectively carry out the objectives of the respective loan program; for example, a dwelling that cannot be feasibly repaired to meet the FmHA or its successor agency under Public Law 103-354 requirements for existing housing as described in subpart A of part 1944 of this chapter. It may contain a structure which would meet program standards; however, is so remotely located it would not serve as an adequate residential unit or an older house which is excessively expensive to heat and/or maintain for a very-low or low-income homeowner.</P> <P> <E T="03">Nonrecoverable cost</E> is a contractual or noncontractual program loan cost expense not chargeable to a borrower, property account, or part of the loan subsidy.</P> <P> <E T="03">Office of the General Counsel (OGC).</E> The OGC, U.S. Department of Agriculture, refers to the Regional Attorney or Attorney-in-Charge in an OGC field office unless otherwise indicated.</P> <P> <E T="03">Program property.</E> SFH and MFH inventory property that can be used to effectively carry out the objectives of their respective loan programs with financing through that program. Inventory property located in an area where the designation has been changed from rural to nonrural will be considered as if it were still in a rural area.</P> <P> <E T="03">Recoverable cost</E> is a contractual or noncontractual program loan expense chargeable to a borrower, property account, or part of the loan subsidy.</P> <P> <E T="03">Servicing official.</E> For loans to individuals as defined in this section, the servicing official is the County Supervisor. For insured B&I loans, the servicing official is the State Director. For Rural Development Loan Fund and Intermediary Relending Program loans, the servicing official is the Director, Business and Industry Division. For Nonprofit National Corporations loans, the servicing official is Director, Community Facility Division. For all other types of loans, the servicing official is the District Director.</P> <P> <E T="03">Suitable property.</E> For FSA inventory property, real property that can be used for agricultural purposes, including those farm properties that may be used as a start up or add-on parcel of farmland. It also includes a residence or other off-farm site that could be used as a basis for a farming operation. For agencies other than FSA, real property that could be used to carry out the objectives of the Agency's loan program with financing provided through that program.</P> <P> <E T="03">Surplus property.</E> For FSA inventory property, real property that cannot be used for agricultural purposes including nonfarm properties. For other agencies, property that cannot be used to carry out the objectives of financing available through the applicable loan program.</P> <CITA>[53 FR 35765, Sept. 14, 1988, as amended at 56 FR 29402, June 27, 1991; 57 FR 19525, 19528, May 7, 1992; 58 FR 58648, Nov. 3, 1993; 62 FR 44396, Aug. 21, 1997; 63 FR 41716, Aug. 5, 1998]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.54</SECTNO> <SUBJECT>Redelegation of authority.</SUBJECT> <P>Authorities will be redelegated to the extent possible, consistent with program objectives and available resources.</P> <P>(a) Any authority in this subpart which is specifically provided to the Administrator or to an Assistant Administrator may only be delegated to a State Director. The State Director cannot redelegate such authority.</P> <P>(b) Except as provided in paragraph (a) of this section, the State Director may redelegate, in writing, any authority delegated to the State Director in this subpart, unless specifically excluded, to a Program Chief, Program Specialist, or Property Management Specialist on the State Office staff.</P> <P>(c) The District Director may redelegate, in writing, any authority delegated to the District Director in this subpart to an Assistant District Director or District Loan Specialist. Authority of District Directors in this <PRTPAGE P="198"/>subpart applies to Area Loan Specialists in Alaska and the Director for the Western Pacific Territories.</P> <P>(d) The County Supervisor may redelegate, in writing, any authority delegated to the County Supervisor in this subpart to an Assistant County Supervisor, GS-7 or above, who is determined by the County Supervisor to be qualified. Authority of County Supervisors in this subpart applies to Area Loan Specialists in Alaska, Island Directors in Hawaii, the Director for the Western Pacific Territories, and Area Supervisors in the Western Pacific Territories and American Samoa.</P> </SECTION> <SECTION> <SECTNO>§ 1955.55</SECTNO> <SUBJECT>Taking abandoned real or chattel property into custody and related actions.</SUBJECT> <P>(a) <E T="03">Determination of abandonment.</E> (Multiple housing type loans will be handled in accordance with § 1965.75 of Subpart B of Part 1965 of this chapter.) When it appears a borrower has abandoned security property, the servicing official shall make a diligent attempt to locate the borrower to determine what the borrower's intentions are concerning the property. This includes making inquiries of neighbors, checking with the Postal Service, utility companies, employer(s), if known, and schools, if the borrower has children, to see if the borrower's whereabouts can be determined and an address obtained. A State supplement may be issued if necessary to further define “abandonment” based on State law. If the borrower is not occupying or is not in possession of the property but has it listed for sale with a real estate broker or has made other arrangements for its care or sale, it will not be considered abandoned so long as it is adequately secured and maintained. Except for borrowers with Farmers Program loans, if the borrower has made no effort to sell the property and can be located, an opportunity to voluntarily convey the property to the Government will be offered the borrower in accordance with § 1955.10 of Subpart A of this part. In farmer program cases, borrowers must receive Attachments 1 and 2 of Exhibit A of Subpart S of Part 1951 of this chapter and any appeal must be concluded before any adverse action can be taken. The County Supervisor will send these forms to the borrower's last known address as soon as it is determined that the borrower has abandoned security property.</P> <P>(b) <E T="03">Taking security property into FmHA or its successor agency under Public Law 103-354 custody.</E> When security property is determined to be abandoned, the running record in the borrower's file will be fully documented with the facts substantiating the determination of abandonment, and the servicing official shall proceed as follows without delay:</P> <P>(1) For loans to individuals (except those with Farmer Program loans), if there are no prior liens, or if a prior lienholder will not take the measures necessary to protect the property, the County Supervisor shall take custody of the property, and a problem case report will be prepared recommending foreclosure in accordance with § 1955.15 of Subpart A of this part, unless the borrower can be located and voluntary liquidation accomplished. Farmer Program loan borrowers will be sent the forms listed in paragraph (a) of this section and the provisions of § 1965.26 of Subpart A of Part 1965 of this chapter will be followed.</P> <P>(2) For MFH loans, if there are no prior liens, the District Director will immediately notify the State Director, who will request guidance from OGC and may also request advice from the National Office. The State Director, with the advice of OGC, will advise the borrower by writing a letter, certified mail, return receipt requested, at the address currently used by Finance Office, outlining proposed actions by FmHA or its successor agency under Public Law 103-354 to secure, maintain, and operate the project.</P> <P>(i) If the unpaid loan balance plus recoverable costs do not exceed the State Director's loan approval authority, the State Director will authorize the District Director to take custody of the property, make emergency repairs if necessary to protect the Government's interest, and will advise how the property is to be managed in accordance with Subpart C of Part 1930 of this chapter.</P> <P>(ii) If the unpaid loan balance plus recoverable costs exceeds the State Director's loan approval authority, the <PRTPAGE P="199"/>State Director will refer the case to the National Office for advice on emergency actions to be taken. The docket will be forwarded to the National Office with detailed recommendations for immediate review and authorization for further action, if requested by the MFH staff.</P> <P>(iii) Costs incurred in connection with procurement of such things as management services will be handled in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(iv) The District Director will prepare a problem case report to initiate foreclosure in accordance with § 1955.15 of Subpart A of this part and submit the report to the State Director along with a proposed plan for managing the project while liquidation is pending.</P> <P>(3) For organization loans other than MFH, if there are no prior liens, the District Director will immediately notify the State Director that the property has been abandoned and recommend action which should be taken to protect the Government's interest. After obtaining the advice of OGC and the appropriate staff in the National Office, the State Director may authorize the District Director to take custody of the property and give instructions for immediate actions to be taken as necessary. The District Director will prepare a Report on Servicing Action (Exhibit A of Subpart E of Part 1951 of this chapter) recommending that foreclosure be initiated in accordance with § 1955.15 of Subpart A of this part and submit the report to the State Director, along with a proposed plan for management and/or operation of the project while liquidation is pending.</P> <P>(c) <E T="03">Protecting custodial property.</E> The FmHA or its successor agency under Public Law 103-354 official who takes custody of abandoned property shall take the actions necessary to secure, maintain, preserve, lease, manage, or operate the property.</P> <P>(1) <E T="03">Nonsecurity personal property on premises.</E> If a property has been abandoned by a borrower who left nonsecurity personal property on the premises, the personal property will not be removed and disposed of <E T="03">before</E> the real property is acquired by the Government. If the premises are in a condition which presents a fire, health or safety hazard, but also contains items of value, only the trash and debris presenting the hazard will be removed. The servicing official may request advice from the State Director as necessary. The servicing official shall check for liens on nonsecurity personal property left on abandoned premises. If there is a known lienholder(s), the lienholder(s) will be notified by certified mail, return receipt requested, that the borrower has abandoned the property and that FmHA or its successor agency under Public Law 103-354 has taken the real property into custody.</P> <P>Actions by FmHA or its successor agency under Public Law 103-354 must not damage or jeopardize livestock, growing crops, stored agricultural products, or any other personal property which is not FmHA or its successor agency under Public Law 103-354 security.</P> <P>(2) <E T="03">Repairs to custodial property.</E> Repairs to custodial property will be limited to those which are essential to prevent further deterioration of the property. Expenditures in excess of an aggregate of $1,000 per property must have prior approval of the state Director.</P> <P>(d) <E T="03">Emergency advances where liquidation is pending.</E> Although security property may not be defined as abandoned in accordance with paragraph (a) of this section, if the borrower is not occupying the property and refuses or is unable to protect the security property, the servicing official is authorized to make expenditures necessary to protect the Government's interest. This would include, but is not limited to, securing or winterizing the property or making emergency repairs to prevent deterioration. Expenditures will be handled in accordance with paragraph (e) of this section. Situations where this authority may be used include, but are not limited to, where a borrower has a sale pending or when a voluntary conveyance is in process.</P> <P>(e) <E T="03">Income and costs.</E> Income received from the property will be handled in accordance with FmHA or its successor <PRTPAGE P="200"/>agency under Public Law 103-354 Instruction 1951-B (available in any FmHA or its successor agency under Public Law 103-354 office) and applied to the borrower's account as an extra payment. Expenditures will be charged to the borrower's account as a recoverable cost. Costs will be paid in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(f) <E T="03">Off-site procurements.</E> Circumstances may require off-site procurement action(s) to be taken by FmHA or its successor agency under Public Law 103-354 to protect custodial, security or inventory property from damage or destruction and/or protect the Government's investment in the property. Such procurements may include, but are not limited to construction or reconstruction of roads, sewers, drainage work or utility lines. This type work may be accomplished either through FmHA or its successor agency under Public Law 103-354 procurement or cooperative agreement. However, if FmHA or its successor agency under Public Law 103-354 is obtaining a service or product for itself only, it must be a procurement and any such actions will be in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office). Funding will come from the appropriate insurance fund.</P> <P>(1) <E T="03">Conditions for procurement.</E> Such expenditures may be made only when all of the following conditions are met:</P> <P>(i) A determination is made that failure to procure work would likely result in a property loss greater than the expenditure;</P> <P>(ii) There are no other feasible means (including cooperative agreements) to accomplish the same result;</P> <P>(iii) The recovery of such advance(s) is not authorized by security instruments in the case of security or custodial property (no such limitation exists for inventory property);</P> <P>(iv) Written documentation supporting subparagraphs (i), (ii) and (iii) has been obtained from the authorized program official;</P> <P>(v) Approval has been obtained from the appropriate Assistant Administrator.</P> <P>(2) <E T="03">Direct procurement action.</E> Where direct procurement action is contemplated, an opinion must be obtained from the Regional Attorney that:</P> <P>(i) FmHA or its successor agency under Public Law 103-354 has the authority to enter the off-site property to accomplish the contemplated work, or</P> <P>(ii) A specific legal entity has authority to grant an easement (right-of-way) to FmHA or its successor agency under Public Law 103-354 for the contemplated work and such an easement, in a form approved by the Regional Attorney, has been obtained.</P> <P>(3) <E T="03">Cooperative agreements.</E> Cooperative agreements between FmHA or its successor agency under Public Law 103-354 and other entities may be made to accomplish the requirement where the principal purpose is to provide money, property, services or items of value to state or local governments or other recipients to accomplish a public purpose. Exhibit C of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) is an example of a typical cooperative agreement. A USDA handbook providing detailed guidance for all parties is available from the USDA—Office of Operations and Finance. Although cooperative agreements are not a contracting action, the authority, responsibility and administration of these agreements will be handled consistent with contracting actions.</P> <P>(4) <E T="03">Consideration of maintenance agreements.</E> Maintenance requirements must be considered in evaluating the economic benefits of off-site procurements. Where feasible, arrangements or agreements should be made with state, local governments or other entities to ensure continued maintenance by dedication or acceptance, letter agreements, or other applicable statutes.</P> <CITA>[53 FR 35765, Sept. 14, 1988, as amended at 54 FR 20521, May 12, 1989; 57 FR 36591, Aug. 14, 1992]</CITA> </SECTION> <SECTION> <PRTPAGE P="201"/> <SECTNO>§ 1955.56</SECTNO> <SUBJECT>Real property located in Coastal Barrier Resources System (CBRS).</SUBJECT> <P>(a) <E T="03">Approval official's scope of authority.</E> Any action that is not in conflict with the limitations in paragraphs (a)(1), (a)(2) or (a)(3) of this section shall not be undertaken until the approval official has consulted with the appropriate Regional Director of the U.S. Fish and Wildlife Service. The Regional Director may or may not concur that the proposed action does or does not violate the provisions of the Coastal Barrier Resources Act (CBRA). Pursuant to the requirements of the CBRA, and except as specified in paragraphs (b) and (c) of this section, no maintenance or repair action may be taken for property located within a CBRS where:</P> <P>(1) The action goes beyond maintenance, replacement-in-kind, reconstruction, or repair and would result in the expansion of any roads, structures or facilities. Water and waste disposal facilities as well as community facilities may be improved to the extent required to meet health and safety requirements but may not be improved or expanded to serve additional users, patients, or residents;</P> <P>(2) The action is inconsistent with the purposes of the CBRA; or</P> <P>(3) The property to be repaired or maintained was initially the subject of a financial transaction that violated the CBRA.</P> <P>(b) <E T="03">Administrator's review.</E> Any proposed maintenance or repair action that does not conform to the requirements of paragraph (a) of this section must be forwarded to the Administrator for review and approval. Approval will not be granted unless the Administrator determines, through consultation with the Department of the Interior, that the proposed action does not violate the provisions of the CBRA.</P> <P>(c) <E T="03">Emergency provisions.</E> In emergency situations to prevent imminent loss of life, imminent substantial damage to the inventory property or the disruption of utility service, the approval official may take whatever minimum steps are necessary to prevent such loss or damage without first consulting with the appropriate Regional Director of the U.S. Fish and Wildlife Service. However, the Regional Director must be immediately notified of any such emergency action.</P> </SECTION> <SECTION> <SECTNO>§ 1955.57</SECTNO> <SUBJECT>Real property containing underground storage tanks.</SUBJECT> <P>Within 30 days of acquisition of real property into inventory, FmHA or its successor agency under Public Law 103-354 must report certain underground storage tanks to the State agency identified by the Environmental Protection Agency (EPA) to receive such reports. Notification will be accomplished by completing an appropriate EPA or alternate State form, if approved by EPA. A State supplement will be issued providing the appropriate forms required by EPA and instructions on processing same.</P> <P>(a) Underground storage tanks which meet the following criteria must be reported:</P> <P>(1) It is a tank, or combination of tanks (including pipes which are connected thereto) the volume of which is ten percent or more beneath the surface of the ground, including the volume of the underground pipes; and</P> <P>(2) It is not exempt from the reporting requirements as outlined in paragraph (b) of this section; and</P> <P>(3) The tank contains petroleum or substances defined as hazardous under section 101(14) of the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. 9601. The State Environmental Coordinator should be consulted whenever there is a question regarding the presence of a regulated substance; or</P> <P>(4) The tank contained a regulated substance, was taken out of operation by FmHA or its successor agency under Public Law 103-354 since January 1, 1974, and remains in the ground. Extensive research of records of inventory property sold before the effective date of this section is not required.</P> <P>(b) The following underground storage tanks are <E T="03">exempt</E> from the EPA reporting requirements:</P> <P>(1) Farm or residential tanks of 1,100 gallons or less capacity used for storing motor fuel for noncommercial purposes;<PRTPAGE P="202"/> </P> <P>(2) Tanks used for storing heating oil for consumptive use on the premises where stored;</P> <P>(3) Septic tanks;</P> <P>(4) Pipeline facilities (including gathering lines) regulated under; (i) The Natural Gas Pipeline Safety Act of 1968; (ii) the Hazardous Liquid Pipeline Safety Act of 1979; or (iii) for an intrastate pipeline facility, regulated under State laws comparable to the provisions of law referred to in (b)(4) (i) or (ii) of this section;</P> <P>(5) Surface impoundments, pits, ponds, or lagoons;</P> <P>(6) Storm water or wastewater collection systems;</P> <P>(7) Flow-through process tanks;</P> <P>(8) Liquid traps or associated gathering lines directly related to oil or gas production and gathering operations; or</P> <P>(9) Storage tanks situated in an underground area (such as a basement, cellar, mineworking, drift, shaft, or tunnel) if the tank is situated upon or above the surface of the floor.</P> <P>(c) A copy of each report filed with the designated State agency will be forwarded to and maintained in the State Office by program area.</P> <P>(d) Prospective purchasers of FmHA or its successor agency under Public Law 103-354 inventory property with a reportable underground storage tank will be informed of the reporting requirement, and provided a copy of the form filed by FmHA or its successor agency under Public Law 103-354.</P> <P>(e) In a State which has promulgated additional underground storage tank reporting requirements, FmHA or its successor agency under Public Law 103-354 will comply with such requirements and a State supplement will be issued to provide necessary guidance.</P> <P>(f) Regardless of whether an underground storage tank must be reported under the requirements of this section, if FmHA or its successor agency under Public Law 103-354 personnel detect or believe there has been a release of petroleum or other regulated substance from an underground storage tank on an inventory property, the incident will be reported to the appropriate State Agency, the State Environmental Coordinator and appropriate program chief. These parties will collectively inform the servicing official of the appropriate response action.</P> </SECTION> <SECTION> <SECTNO>§§ 1955.58-1955.59</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1955.60</SECTNO> <SUBJECT>Inventory property subject to redemption by the borrower.</SUBJECT> <P>If inventory property is subject to redemption rights, the State Director, with prior approval of OGC, will issue a State Supplement giving guidance concerning the former borrower's rights, whether or not the property may be leased or sold by the Government, payment of taxes, maintenance, and any other items OGC deems necessary to comply with State laws. Routine care and maintenance will be provided according to § 1955.64 of this subpart to preserve and protect the property. Repairs are limited to those essential to prevent further deterioration of the property or to remove a health or safety hazard to the community in accordance with § 1955.64(a) of this subpart unless State law permits full recovery of cost of repairs in which case usual policy on repairs is applicable. If the former borrower with redemption rights has possession of the property or has a right to lease proceeds, FmHA or its successor agency under Public Law 103-354 will not rent the property until the redemption period has expired unless the State Director obtains prior authorization from OGC. Further guidance on sale subject to redemption rights is set forth in § 1955.138 of Subpart C of this part.</P> <CITA>[54 FR 20522, May 12, 1989]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.61</SECTNO> <SUBJECT>Eviction of persons occupying inventory real property or dispossession of persons in possession of chattel property.</SUBJECT> <P>Advice and assistance will be obtained from OGC where eviction from realty or dispossession of chattel property is necessary. Where OGC has given written authorization, eviction may be effected through State courts rather than Federal courts when the former borrower is involved, or through local courts instead of Federal/State courts when the party occupying/possessing the FmHA or its successor agency under Public Law 103-354 property is not the former borrower. In those cases, a State Supplement will be <PRTPAGE P="203"/>issued to provide explicit instructions. For MFH, eviction of tenants will be handled in accordance with Subpart L of Part 1944 of this chapter and with the terms of the tenant's lease. If no written lease exists, the State Director will obtain advice from OGC.</P> <CITA>[54 FR 20522, May 12, 1989]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.62</SECTNO> <SUBJECT>Removal and disposition of nonsecurity personal property from inventory real property.</SUBJECT> <P>If the former borrower has vacated the inventory property but left items of value which do not customarily pass with title to the real estate, such as furniture, personal effects, and chattels not covered by an FmHA or its successor agency under Public Law 103-354 lien, the personal property will be handled as outlined below unless otherwise directed by a State supplement approved by OGC which is necessary to comply with State law. For MFH, the removal and disposition of nonsecurity personal property will be handled in accordance with the tenant's lease or advice from OGC. When property is deemed to have no value, it is recommended that it be photographed for documentation before it is disposed of. The FmHA or its successor agency under Public Law 103-354 official having custody of the property may request advice from the State Office staff as necessary. Actions to effect removal of items of value from inventory property shall be as follows:</P> <P>(a) <E T="03">Notification to owner or lienholder.</E> The servicing official will check the public records to see if there is a lien on any of the personal property.</P> <P>(1) If there is a lien(s) of record, the servicing official will notify the lienholder(s) by certified mail, return receipt requested, that the personal property will be disposed of by FmHA or its successor agency under Public Law 103-354 unless it is removed from the premises within 7 days from the date of the letter.</P> <P>(2) If there are no liens of record, or if a lienholder notified in accordance with paragraph (a)(1) of this section fails to remove the property within the time specified, the servicing official will notify the former borrower at the last known address by certified mail, return receipt requested, that the personal property remaining on the premises will be disposed of by FmHA or its successor agency under Public Law 103-354 unless it is removed within 7 days from the date of the letter. If no address can be determined, a copy of the letter should be posted on the front door of the property and documentation entered in the running record of the FmHA or its successor agency under Public Law 103-354 file.</P> <P>(b) <E T="03">Disposal of unclaimed personal property.</E> If the property is not removed by the former borrower or a lienholder after notification as outlined in paragraphs (a)(1) and (a)(2) of this section, the servicing official shall list the items with clear description, estimated value, and indication of which are covered by a lien, if any, and submit the list to the State Director with a request for authorization to have the items removed and disposed of. Based on advice from OGC, the State Director will give authorization and provide instructions for removal and disposal of the personal property. If approved by OGC, the property may be disposed of as follows:</P> <P>(1) If a reasonable amount can likely be realized by FmHA or its successor agency under Public Law 103-354 from sale of the personal property, it may be sold at public sale. Items under lien will be sold first and the proceeds up to the amount of the lien paid to the lienholder(s) less a pro rata share of the sale expenses. Proceeds from sale of items not under lien and proceeds in excess of the amount due a lienholder will be remitted according to FmHA or its successor agency under Public Law 103-354 Instruction 1951-B (available in any FmHA or its successor agency under Public Law 103-354 office) and applied in the following order:</P> <P>(i) To the inventory account up to the amount of expenses incurred by the Government in connection with sale of the personal property (such as advertising and auctioneer, if used).</P> <P>(ii) To an unsatisfied balance on the FmHA or its successor agency under Public Law 103-354 loan account, if any.</P> <P>(iii) To the borrower, if whereabouts are known.</P> <P>(2) If personal property is not sold, a mover or hauler may be authorized to <PRTPAGE P="204"/>take the items for moving costs. Refer to FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office) for guidance.</P> <P>(c) <E T="03">Payment of costs.</E> Upon payment of all expenses incurred by the Government in connection with the personal property, FmHA or its successor agency under Public Law 103-354 will allow the former borrower or a lienholder access to the property to reclaim the personal property at any time prior to its disposal.</P> <P>(d) <E T="03">Removal of abandoned motor vehicles from inventory property.</E> Since State laws vary concerning disposal of abandoned motor vehicles, the State Director shall, with the advice of OGC, issue a State supplement outlining the method to be followed which will comply with applicable State laws.</P> </SECTION> <SECTION> <SECTNO>§ 1955.63</SECTNO> <SUBJECT>Suitability determination.</SUBJECT> <P>As soon as real property is acquired, a determination must be made as to whether or not the property can be used for program purposes. The suitability determination will be recorded in the running record of the case file.</P> <P>(a) <E T="03">Determination.</E> Property which secured loans or was acquired under the CONACT will be classified as suitable or surplus in accordance with the definitions for“suitable” and “surplus” found in § 1955.53 of this subpart. For FSA property, the county committee will make this determination. For other agencies, this determination will be made by the State Director, or designee.</P> <P>(b) <E T="03">Grouping and subdividing farm properties larger than family-size.</E> The county official will subdivide farm properties larger than family-size whenever possible into parcels for the purpose of creating one or more suitable farm properties. Properties may also be subdivided to facilitate the granting or selling of a conservation easement or the fee title transfer of portions of a property for conservation purposes. Such land shall be subdivided into parcels of land the shape and size of which are suitable for farming, the value of which shall not exceed the direct farm ownership loan limit of $200,000 or the guaranteed farm ownership loan limit of $300,000. The county official may also group two or more individual properties into one or more suitable farm properties. The environmental effects will also be considered pursuant to subpart G of part 1940 of this chapter. Also refer to § 1955.140 of subpart C of this part.</P> <P>(c) <E T="03">Housing property.</E> Property which secured housing loans will be classified as “program” or “nonprogram (NP).” After a determination of whether the property is suited for retention in the respective program, the repair policy outlined in § 1955.64(a) of this subpart will be followed. In determining whether a property is suited for retention in the program, items such as size, design, possible health and/or safety hazards and obsolescence due to functional, economic, or locational conditions must carefully be considered. Generally, program property will meet, or can be realistically repaired to meet, the standards for existing housing outlined in Subpart A of Part 1944 of this chapter provided the property is typical of modest homes in the area. The cost of repairs will generally not be considered in determining suitability. Since houses, sites and locations vary widely throughout the country, discretion and sound judgment must be used in determining suitability. The majority of houses RHS acquires will be suited for retention and classified as program property. In some instances, property will not be suited for retention in the program and will be classified as “nonprogram (NP)” property. Situations of this type include, but are not limited to:</P> <P>(1) A dwelling which has been enlarged or improved to the point where it is clearly above modest.</P> <P>(2) When a determination is made that the property should not have been financed originally.</P> <P>(3) A dwelling brought into the program as an existing dwelling which met program standards at the time it was originally financed by the Agency but which does not conform to current policies. This includes older and/or larger houses of a type which have proven to create excessive energy and/or maintenance costs to very-low and low-income borrowers.<PRTPAGE P="205"/> </P> <P>(4) A dwelling which is obsolete due to location, design, construction or age.</P> <P>(5) A dwelling which requires major redesign/renovation to be brought to program standards.</P> <P>(d) [Reserved]</P> <CITA>[53 FR 35765, Sept. 14, 1988, as amended at 54 FR 20522, May 12, 1989; 58 FR 58648, Nov. 3, 1993; 60 FR 34455, July 3, 1995; 60 FR 55147, Oct. 27, 1995; 62 FR 44396, Aug. 21, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.64</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1955.65</SECTNO> <SUBJECT>Management of inventory and/or custodial real property.</SUBJECT> <P>(a) <E T="03">Authority—</E>(1) <E T="03">County Supervisor.</E> The County Supervisor, with the assistance of the District Director and State Office program staff as necessary, will select the management method(s) used for property which secures (or secured) loans to individuals as defined in this subpart.</P> <P>(2) <E T="03">State Director.</E> The State Director will select the management method to be used for property which secures (or secured) loans to organizations as defined in this subpart. The State Director shall also provide guidance and assistance to County Supervisors and District Directors as necessary to insure that property under their jurisdiction is effectively managed.</P> <P>(b) <E T="03">Management methods.</E> Management methods and requirements will vary depending on such things as the number of properties involved, their density of location, and market conditions. Management tools which may be used effectively range from contracts to secure individual property, have the grass cut, or winterize a dwelling; a simple management contract to provide maintenance and other services on a group of properties (including but not limited to specification writing, inspection of repairs, and yard and directional signs and their installation), or manage an MFH project; blanket-purchase arrangement contracts to obtain services for more than one property; to a broad-scope management contract with a real estate broker or management agent which may include inspection and specification-writing services, making simple repairs, obtaining lessees, collecting rents, coordination with listing brokers in marketing the properties and effecting eviction of tenants when necessary. A contractor may handle evictions only where State laws permit the contractor to do so in his/her own name; a contractor may not pursue eviction in the name of the Government (FmHA or its successor agency under Public Law 103-354). Custodial property may be managed in the same manner as inventory property except that it may be leased only if it is habitable without repairs in excess of those authorized in § 1955.55(c) of this subpart. Farm or organization property, such as rental housing and community facilities, may be operated under a management contract if the State Director has determined it is approporiate to have the property in operation. In any case, the primary consideration in selecting the method of management to be used is to protect the Government's interest. If property to be operated or leased under a management contract is located in an area identified by the Federal Insurance Administration as a special flood or mudslide hazard area, lessees or tenants must be notified to that effect in accordance with § 1955.66(e) of this subpart. A management contract which covers property in such a hazard area may provide for the contractor to issue the required notices.</P> <P>(c) <E T="03">Obtaining services for management and/or operation of properties.</E> Services for management, repair, and/or operation of properties will be obtained by contract in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(1) <E T="03">Management contracts.</E> Management contracts are flexible instruments which may be tailored to meet the specific needs of almost any situation involving custodial or inventory property. This type of contract may be used to manage and maintain SFH properties, farms, and any other type of facility for which FmHA or its successor agency under Public Law 103-354 is responsible. Organization-type properties will be secured, maintained, repaired, and operated if authorized, in accordance with a management plan prepared by the District Director and approved by the State Director if the <PRTPAGE P="206"/>amount of total debt does not exceed the State Director's loan approval authority, or by the Administrator. For MFH, this plan should follow the guidance provided by Subpart C of Part 1930 of this chapter. An audit of the borrower's records may be required if recent financial information is not available. For MFH projects, tenant occupancy and selection will be in accordance with the occupancy standards set forth in Subpart C of Part 1930 of this chapter. Tenants will be required to sign a written lease if one does not exist when the property is acquired or taken into custody. If a contract involves management of an MFH project with 5 or more units, or 5 or more single-family dwellings located in the same subdivision, the contractor must furnish Form HUD 935.2, “Affirmative Fair Housing Marketing Plan,” subject to FmHA or its successor agency under Public Law 103-354's approval. Contracts for management of farm inventory property will be offered on a competitive bid basis, giving preference to persons who live in, and own and operate qualified small businesses in the area where the property is located in accordance with the provisions in FmHA or its successor agency under Public Law 103-354 Instruction 2024-Q (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(2) <E T="03">Authority to enter into management contracts.</E> (i) The County Supervisor may enter into a management contract for basic services involving farms or not more than 25 single-family dwellings; however, the aggregate amount paid under a contract may not exceed the contracting authority limitation for County Supervisors outlined in FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(ii) A District Director may enter into a management contract for basic maintenance and management services for an MFH project within the contracting authority outlined in FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office). The aggregate amount of any contract may not exceed that contracting authority.</P> <P>(iii) A CO in the State Office may enter into a management contract for basic services involving more than 25 single-family dwellings, a more complex management contract for SFH property, or an appropriate contract for management or operation of farm or organization-type property. The aggregate amount paid under a contract may not exceed the contracting authority limitation for State Office staff outlined in FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(iv) If a proposed management contract will exceed the contracting authority for State Office staff within a short time, a request for contract action will be forwarded to the Administrator, to the attention of the appropriate program division.</P> <P>(3) <E T="03">Specification of services.</E> All management contracts will provide for termination by either the contractor or the Government upon 30 days written notice. Contracts providing for management of multiple properties will also provide for properties to be added or removed from the contractor's assignment whenever necessary, such as when a property is acquired or taken into custody during the period of a contract or when a property is sold from inventory. If a contractor prepares repair specifications, that contractor will be excluded from the solicitation for making the repairs to avoid a conflict of interest. If a management contract calls for specification writing services, a clause must be inserted in the contract prohibiting the preparer of his/her associates from doing the repair work. Examples of both basic and more complex management contracts are included in Exhibit A to FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).</P> <P>(4) <E T="03">Costs.</E> Costs incurred with the management of property will be paid according to FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any <PRTPAGE P="207"/>FmHA or its successor agency under Public Law 103-354 office). For management of custodial property, costs will be charged to the borrower's account as recoverable; and for management of inventory property as nonrecoverable. Except for management fees, costs of managing MFH inventory property when tenants are still in residence will be paid to the extent possible with rental income. Management fees will be paid to the manager in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 Office).</P> <P>(d) <E T="03">Additional management services.</E> Additional types of management services and supplies for which the State Director may authorize acquisition include: Appraisal services (except for MFH), security services, newspaper copy preparation services, market data and comparable list acquisition, and tax data acquisition. If the State Director believes there is a need to acquire other services not listed in this paragraph or authorized elsewhere in this subpart, the State Director should make a written request to the Assistant Administrator (appropriate program) for consideration and/or authorization.</P> <CITA>[53 FR 35765, Sept. 14, 1988, as amended at 57 FR 36591, Aug. 14, 1992]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.66</SECTNO> <SUBJECT>Lease of real property.</SUBJECT> <P>When inventory real property, except for FSA and MFH properties, cannot be sold promptly, or when custodial property is subject to lengthy liquidation proceedings, leasing may be used as a management tool when it is clearly in the best interest of the Government. Leasing will not be used as a means of deferring other actions which should be taken, such as liquidation of loans in abandonment cases or repair and sale of inventory property. Leases will provide for cancellation by the lessee or the Agency on 30-day written notice unless Special Stipulations in an individual lease for good reason provide otherwise. If extensive repairs are needed to render a custodial property suitable for occupancy, this will preclude its being leased since repairs must be limited to those essential to prevent further deterioration of the security in accordance with § 1955.55(c) of this subpart. The requirements of subpart G of part 1940 of this chapter will be met for all leases.</P> <P>(a) <E T="03">Authority to approve lease of property.</E> (1) <E T="03">Custodial property.</E> Custodial property may be leased pending foreclosure with the servicing official approving the lease on behalf of the Agency.</P> <P>(2) <E T="03">Inventory property.</E> Inventory property may be leased under the following conditions. Except for farm property proposed for a lease under the Homestead Protection Program, any property that is listed or eligible for listing on the National Register of Historic Places may be leased only after the servicing official and the State Historic Preservation Officer determine that the lease will adequately ensure the property's condition and historic character.</P> <P>(i) <E T="03">SFH.</E> SFH inventory will generally not be leased; however, if unusual circumstances indicate leasing may be prudent, the county official is authorized to approve the lease.</P> <P>(ii) <E T="03">MFH.</E> MFH projects will generally not be leased, although individual living units may be leased under a management agreement. After the property is placed under a management contract, the contractor will be responsible for leasing the individual units in accordance with subpart C of part 1930 of this chapter. In cases where an acceptable management contract cannot be obtained, the District Director may execute individual leases.</P> <P>(iii) <E T="03">Farm property.</E> (A) Any property which secures an insured loan made under the CONACT and which contains a dwelling (whether located on or off the farm) that is possessed and occupied as a principal residence by a prior owner who was personally liable for a Farm Credit Programs loan must first be considered for Homestead Protection in accordance with subpart S of part 1951 of this chapter.</P> <P>(B) Other than for Homestead Protection and except as provided in paragraph (c), the county official may only approve the lease of farm property to a beginning farmer or rancher who was selected through the random selection process to purchase the property but is <PRTPAGE P="208"/>not able to complete the purchase due to the lack of Agency funding.</P> <P>(C) When the servicing official determines it is impossible to sell farm property after advertising the property for sale and negotiating with interested parties in accordance with §1955.107 of subpart C of this part, farm property may be leased, upon the approval of the Administrator, on a case-by-case basis. This authority cannot be delegated. Any lease under this paragraph shall be for 1 year only, and not subject to renewal or extension. If the servicing official determines that the prospective lessee may be interested in purchasing the property, the lease may contain an option to purchase.</P> <P>(D) When a lease with an option to purchase is signed, the lessee should be advised that FSA cannot make a commitment to finance the purchase of the property.</P> <P>(E) Chattel property will not normally be leased unless it is attached to the real estate as a fixture or would normally pass with the land.</P> <P>(F) The property may not be used for any purpose that will contribute to excessive erosion of highly erodible land or to conversion of wetlands to produce an agricultural commodity. See Exhibit M of subpart G of part 1940 of this chapter. All prospective lessees of inventory property will be notified in writing of the presence of highly erodible land, converted wetlands and wetland and other important resources such as threatened or endangered species. This notification will include a copy of the completed and signed Form SCS-CPA-26, “Highly Erodible Land and Wetland Conservation Determination,” which identifies whether the property contains wetland or converted wetlands or highly erodible land. The notification will also state that the lease will contain a restriction on the use of such property and that the Agency's compliance requirements for wetlands, converted wetlands, and highly erodible lands are contained in Exhibit M of subpart G of part 1940 of this chapter. Additionally, a copy of the completed and signed Form SCS-CPA-26 will be attached to the lease and the lease will contain a special stipulation as provided on the FMI to Form RD 1955-20, “Lease of Real Property,” prohibiting the use of the property as specified above.</P> <P>(iv) <E T="03">Organization property other than MFH.</E> Only the State Director, with the advice of appropriate National Office staff, may approve the lease of organization property other than MFH, such as community facilities, recreation projects, and businesses. A lease of utilities may require approval by State regulatory agencies.</P> <P>(b) <E T="03">Selection of lessees for other than farm property.</E> When the property to be leased is residential, a special effort will be made to reach prospective lessees who might not otherwise apply because of existing community patterns. A lessee will be selected considering the potential as a program applicant for purchase of the property (if property is suited for program purposes) and ability to preserve the property. The leasing official may require verification of income or a credit report (to be paid for by the prospective lessee) as he or she deems necessary to assure payment ability and creditworthiness of the prospective lessee.</P> <P>(c) <E T="03">Selection of lessees for FSA property.</E> FSA inventory property may only be leased to an eligible beginning farmer or rancher who was selected to purchase the property through the random selection process in accordance with §1955.107(a)(2)(ii) of subpart C of this part. The applicant must have been able to demonstrate a feasible farm plan and Agency funds must have been unavailable at the time of the sale. Any applicant determined not to be a beginning farmer or rancher may request that the State Executive Director conduct an expedited review in accordance with §1955.107(a)(2)(ii) of subpart C of this part.</P> <P>(d) <E T="03">Property securing Farm Credit Programs loans located within an Indian Reservation.</E> (1) State Executive Directors will contact the Bureau of Indian Affairs Agency supervisor to determine the boundaries of Indian Reservations and Indian allotments.</P> <P>(2) Not later than 90 days after acquiring a property, FSA will afford the Indian tribe having jurisdiction over the Indian reservation within which the inventory property is located an opportunity to purchase the property. <PRTPAGE P="209"/>The purchase shall be in accordance with the priority rights as follows:</P> <P>(i) To a member of the Indian tribe that has jurisdiction over the reservation within which the real property is located;</P> <P>(ii) To an Indian corporate entity;</P> <P>(iii) To the Indian tribe.</P> <P>(3) The Indian tribe having jurisdiction over the Indian reservation may revise the order of priority and may restrict the eligibility for purchase to:</P> <P>(i) Persons who are members of such Indian tribe;</P> <P>(ii) Indian corporate entities that are authorized by such Indian tribe to purchase lands within the boundaries of the reservation; or</P> <P>(iii) The Indian tribe itself.</P> <P>(4) If any individual, Indian corporate entity, or Indian tribe covered in paragraphs (d)(1) and (d)(2) of this section wishes to purchase the property, the county official must determine the prospective purchaser has the financial resources and management skills and experience that is sufficient to assure a reasonable prospect that the terms of the purchase agreement can be fulfilled.</P> <P>(5) If the real property is not purchased by any individual, Indian corporate entity or Indian tribe pursuant to paragraphs (d)(1) and (d)(2) of this section and all appeals have concluded, the State Executive Director shall transfer the property to the Secretary of the Interior if they are agreeable. If present on the property being transferred, important resources will be protected as outlined in §§1955.137 and 1955.139 of subpart C of this part.</P> <P>(6) Properties within a reservation formerly owned by entities and non-tribal members will be treated as regular inventory that is not located on an Indian Reservation and disposed of pursuant to this part.</P> <P>(e) <E T="03">Lease amount.</E> Inventory property will be leased for an amount equal to that for which similar properties in the area are being leased or rented (market rent). Inventory property will not be leased for a token amount.</P> <P>(1) <E T="03">Farm property.</E> To arrive at a market rent amount, the county official will make a survey of lease amounts of farms in the immediate area with similar soils, capabilities, and income potential. The income-producing capability of the property during the term of the lease must also be considered. This rental data will be maintained in an operational file as well as in the running records of case files for leased inventory properties. While cash rent is preferred, the lease of a farm on a crop-share basis may be approved if this is the customary method in the area. The lessee will market the crops, provide FSA with documented evidence of crop income, and pay the pro rata share of the income to FSA.</P> <P>(2) <E T="03">SFH property.</E> The lease amount will be the market rent unless the lessee is a potential program applicant, in which case the lease amount may be set at an amount approximating the monthly payment if a loan were made (reflecting payment assistance, if any) calculated on the basis of the price of the house and income of the lessee, plus <FR>1/12</FR> of the estimated real estate taxes, property insurance, and maintenance which would be payable by a homeowner.</P> <P>(3) <E T="03">Property other than farm or SFH.</E> Any inventory property other than a farm or single-family dwelling will generally be leased for market rent for that type property in the area. However, such property may be leased for less than market rent with prior approval of the Administrator.</P> <P>(f) <E T="03">Property containing wetlands or located in a floodplain or mudslide hazard area.</E> Inventory property located in areas identified by the Federal Insurance Administration as special flood or mudslide hazard areas will not be leased or operated under a management contract without prior written notice of the hazard to the prospective lessee or tenant. If property is leased by FSA, the servicing official will provide the notice, and if property is leased under a management contract, the contractor must provide the notice in compliance with a provision to that effect included in the contract. The notice must be in writing, signed by the servicing official or the contractor, and delivered to the prospective lessee or tenant at least one day before the lease is signed. A copy of the notice will be attached to the original and each copy of the lease. Property containing floodplains and wetlands will be leased <PRTPAGE P="210"/>subject to the same use restrictions as contained in § 1955.137(a)(1) of subpart C of this part.</P> <P>(g) <E T="03">Highly erodible land.</E> If farm inventory property contains “highly erodible land,” as determined by the NRCS, the lease must include conservation practices specified by the NRCS and approved by FSA as a condition for leasing.</P> <P>(h) <E T="03">Lease of FSA property with option to purchase.</E> A beginning farmer or rancher lessee will be given an option to purchase farm property. Terms of the option will be set forth as part of the lease as a special stipulation.</P> <P>(1) The lease payments will not be applied toward the purchase price.</P> <P>(2) The purchase price (option price) will be the advertised sales price as determined by an appraisal prepared in accordance with § 761.7 of this title.</P> <P>(3) For inventory properties leased to a beginning farmer or rancher applicant, the term of the lease shall be the earlier of:</P> <P>(i) A period not to exceed 18 months from the date that the applicant was selected to purchase the inventory farm, or</P> <P>(ii) The date that direct, guaranteed, credit sale or other Agency funds become available for the beginning farmer or rancher to close the sale.</P> <P>(4) Indian tribes or tribal corporations which utilize the Indian Land Acquisition program will be allowed to purchase the property for its market value less the contributory value of the buildings, in accordance with subpart N of part 1823 of this chapter.</P> <P>(i) <E T="03">Costs.</E> The costs of repairs to leased property will be paid by the Government. However, the Government will not pay costs of utilities or any other costs of operation of the property by the lessee. Repairs will be obtained pursuant to subpart B of part 1924 of this chapter. Expenditures on custodial property as limited in § 1955.55 (c) (2) of this subpart will be charged to the borrower's account as recoverable costs.</P> <P>(j) <E T="03">Security deposit.</E> A security deposit in at least the amount of one month's rent will be required from all lessees of SFH properties. The security deposit for farm property should be determined by considering only the improvements or facilities which might be subject to misuse or abuse during the term of the lease. For all other types of property, the leasing official may determine whether or not a security deposit will be required and the amount of the deposit.</P> <P>(k) <E T="03">Lease form.</E> Form RD 1955-20 approved by OGC will be used by the agency to lease property.</P> <P>(l) <E T="03">Lease income.</E> Lease proceeds will be remitted according to subpart B of part 1951 of this chapter.</P> <P>(1) <E T="03">Custodial property.</E> The proceeds from a lease of custodial property will be applied to the borrower's account as an extra payment unless foreclosure proceedings require that such payments be held in suspense.</P> <P>(2) <E T="03">Inventory property.</E> The proceeds from a lease of inventory property will be applied to the lease account.</P> <CITA>[62 FR 44397, Aug. 21, 1997, as amended at 64 FR 62568, Nov. 17, 1999]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1955.67-1955.71</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1955.72</SECTNO> <SUBJECT>Utilization of inventory housing by Federal Emergency Management Agency (FEMA) or under a Memorandum of Understanding between the Agency and the Department of Health and Human Services (HHS) for transitional housing for the homeless.</SUBJECT> <P>(a) <E T="03">FEMA.</E> By a Memorandum of Understanding between the Agency and FEMA, inventory housing property not under lease or sales agreement may be made available to shelter victims in an area designated as a major disaster area by the President. See Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office). Authority is hereby delegated to the State Director to implement this Memorandum of Understanding; and the State Director may redelegate this authority to County Supervisors or District Directors.</P> <P>(b) <E T="03">HHS.</E> By a Memorandum of Understanding between the Agency and HHS, inventory housing property not under lease or sales agreement may be made available by lease to public bodies and nonprofit organizations to provide transitional housing for the homeless. See Exhibit D of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office). Authority is hereby delegated to the <PRTPAGE P="211"/>State Director to implement this Memorandum of Understanding; and the State Director may redelegate this authority to County Supervisors or District Directors. Copies of all executed leases and/or questions regarding this program should be referred by State Offices to the Single Family Housing Servicing and Property Management (SFH/SPM) Division in the National Office.</P> <CITA>[54 FR 20523, May 12, 1989, as amended at 60 FR 34455, July 3, 1995]</CITA> </SECTION> <SECTION> <SECTNO>§§ 1955.73-1955.80</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1955.81</SECTNO> <SUBJECT>Exception authority.</SUBJECT> <P>The Administrator may, in individual cases, make an exception to any requirement or provision of this subpart, or address any omission of this subpart which is not inconsistent with the authorizing statute or other applicable law, if the Administrator determines that the Government's interest would be adversely affected or the immediate health and/or safety of tenants or the community are endangered if there is no adverse effect on the Government's interest. The Administrator will exercise this authority upon request of the State Director with the recommendation of the appropriate program Assistant Administrator or upon a request initiated by the appropriate program Assistant Administrator. Requests for exceptions must be made in writing and supported with documentation to explain the adverse effect, propose alternative courses of action, and show how the adverse effect will be eliminated or minimized if the exception is granted.</P> <CITA>[53 FR 35765, Sept. 14, 1988, as amended at 58 FR 58649, Nov. 3, 1993]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.82</SECTNO> <SUBJECT>State supplements.</SUBJECT> <P>State supplements will be prepared with the assistance of OGC as necessary to comply with State laws or only as specifically authorized in this regulation to provide guidance to FmHA or its successor agency under Public Law 103-354 officials. State supplements applicable to MFH must have prior approval of the National Office; others may receive post approval. Requests for approval for those affecting MFH must include complete justification, citations of State law, and an opinion from OGC.</P> </SECTION> <SECTION> <SECTNO>§§ 1955.83-1955.99</SECTNO> <RESERVED>[Reserved]</RESERVED> </SECTION> <SECTION> <SECTNO>§ 1955.100</SECTNO> <SUBJECT>OMB control number.</SUBJECT> <P>The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0110.</P> <EXHIBIT> <HD SOURCE="HED">Exhibits to Subpart B</HD> <P>All exhibits are available in any FmHA or its successor agency under Public Law 103-354 County Office. Exhibit B is also published in the Code of Federal Regulations.</P> </EXHIBIT> <EXHIBIT> <RESERVED>Exhibit A—Memorandum of Understanding Between the Federal Emergency Management Agency and the Farmers Home Administration or its successor agency under Public Law <E T="01">103-354</E> </RESERVED> </EXHIBIT> <EXHIBIT> <HD SOURCE="HED">Exhibit B—Notification of Tribe of Availability of Farm Property for Purchase</HD> <HD SOURCE="HD3">(To Be Used By Farm Service Agency to Notify Tribe)</HD> <FP SOURCE="FP-2">From: County official</FP> <FP SOURCE="FP-2">To: (Name of Tribe and address)</FP> <FP SOURCE="FP-2">Subject: Availability of Farm Property for Purchase</FP> <FP SOURCE="FP1-2">[To be Used within 90 days of acquisition]</FP> <P>Recently the Farm Service Agency (FSA) acquired title to <E T="72">XXXX</E> acres of farm real property located within the boundaries of your Reservation. The previous owner of this property was <E T="72">XXXX</E>. The property is available for purchase by persons who are members of your tribe, an Indian Corporate entity, or the tribe itself. Our regulations provide for those three distinct priority categories which may be eligible; however, you may revise the order of the priority categories and may restrict the eligibility to one or any combination of categories. Following is a more detailed description of these categories:</P> <P>1. Persons who are members of your Tribe. Individuals so selected must be able to meet the eligibility criteria for the purchase of Government inventory property and be able to carry on a family farming operation. Those persons not eligible for FSA's regular programs may also purchase this property as a Non-Program loan on ineligible rates and terms.</P> <P>2. Indian corporate entities. You may restrict eligible Indian corporate entities to those authorized by your Tribe to purchase <PRTPAGE P="212"/>lands within the boundaries of your Reservation. These entities also must meet the basic eligibility criteria established for the type of assistance granted.</P> <P>3. The Tribe itself is also considered eligible to exercise their right to purchase the property. If available, Indian Land Acquisition funds may be used or the property financed as a Non-Program loan on ineligible rates and terms.</P> <P>We are requesting that you notify the local FSA county office of your selection or intentions within 45 days of receipt of this letter, regarding the purchase of this real estate. If you have questions regarding eligibility for any of the groups mentioned above, please contact our office. If the Tribe wishes to purchase the property, but is unable to do so at this time, contact with the FSA county office should be made.</P> <HD SOURCE="HD3">Sincerely,</HD> <HD SOURCE="HD3">County official </HD> </EXHIBIT> <CITA>[62 FR 44399, Aug. 21, 1997]</CITA> <EXHIBIT> <RESERVED>Exhibit C—Cooperative Agreement (Example)</RESERVED> </EXHIBIT> <EXHIBIT> <RESERVED>Exhibit D—Fact Sheet—The Federal Interagency Task Force on Food and Shelter for the Homeless</RESERVED> </EXHIBIT> </SECTION> </SUBPART> <SUBPART> <HD SOURCE="HED">Subpart C—Disposal of Inventory Property</HD> <HD SOURCE="HD1">Introduction</HD> <SECTION> <SECTNO>§ 1955.101</SECTNO> <SUBJECT>Purpose.</SUBJECT> <P>This subpart delegates program authority and prescribes policies and procedures for the sale of inventory property including real estate, related real estate rights and chattels. It also covers the granting of easements and rights-of-way on inventory property. Credit sales of inventory property to ineligible (nonprogram (NP)) purchasers will be handled in accordance with subpart J of part 1951 of this chapter, except Community and Business Programs (C&BP) and Multi-Family Housing (MFH) which will be handled in accordance with this subpart. In addition, credit sales of Single Family Housing (SFH) properties converted to MFH will be handled in accordance with this subpart. This subpart does not apply to Single Family Housing (SFH) inventory property.</P> <CITA>[50 FR 23904, June 7, 1985, as amended at 58 FR 52652, Oct. 12, 1993; 61 FR 59778, Nov. 22, 1996]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.102</SECTNO> <SUBJECT>Policy.</SUBJECT> <P>The terms “nonprogram (NP)” and “ineligible” may be used interchangeably throughout this subpart, but are identical in their meaning. Sales efforts will be initiated as soon as property is acquired in order to effect sale at the earliest practicable time. When a property is of a nature that will enable a qualified applicant for one of Farmers Home Administration or its successor agency under Public Law 103-354s (FmHA or its successor agency under Public Law 103-354's) loan programs to meet the objectives of that loan program, preference will be given to the program applicants. Sales are authorized for program purposes which differ from the purposes of the loan the property formerly secured, and property which secured more than one type loan may be sold under the program most appropriate for the specific property and community needs as long as the price is not diminished. Examples are: (RH) property; detached Labor Housing or Rural Rental Housing units may be sold as SFH units; or SFH units may be sold as a Rural Rental Housing project. All such properties and applicants must meet the requirements for the loan program under which the sale is proposed.</P> <CITA>[53 FR 35776, Sept. 14, 1988, as amended at 58 FR 52652, Oct. 12, 1993; 62 FR 44399, Aug. 21, 1997]</CITA> </SECTION> <SECTION> <SECTNO>§ 1955.103</SECTNO> <SUBJECT>Definitions.</SUBJECT> <P>As used in this subpart, the following apply:</P> <P> <E T="03">Approval official.</E> The FmHA or its successor agency under Public Law 103-354 official having loan and grant approval authority auhorized under Subpart A of Part 1901 of this chapter.</P> <P> <E T="03">Auction sale.</E> A public sale in which property is sold to the highest bidder in open verbal competition.</P> <P> <E T="03">Beginning farmer or rancher.</E> A beginning farmer or rancher is an individual or entity who:</P> <P>(1) Is an eligible applicant for FO loan assistance in accordance with <PRTPAGE P="213"/>§ 1943.12 of subpart A of part 1943 of this chapter or § 1980.180 of subpart B of part 1980 of this chapter.</P> <P>(2) Has not operated a farm or ranch, or who has operated a farm or ranch for not more than 10 years. This requirement applies to all members of an entity.</P> <P>(3) Will materially and substantially participate in the operation of the farm or ranch.</P> <P>(i) In the case of a loan made to an individual, individually or with the immediate family, material and substantial participation requires that the individual provide substantial day-to-day labor and management of the farm or ranch, consistent with the practices in the county or State where the farm is located.</P> <P>(ii) In the case of a loan made to an entity, all members must materially and substantially participate in the operation of the farm or ranch. Material and substantial participation requires that the individual provides some amount of the management, or labor and management necessary for day-to-day activities, such that if the individual did not provide these inputs, operation of the farm or ranch would be seriously impaired.</P> <P>(4) Agrees to participate in any loan assessment, borrower training, and financial management programs required by FmHA or its successor agency under Public Law 103-354 regulations.</P> <P>(5) Does not own real farm or ranch property or who, directly or through interests in family farm entities, owns real farm or ranch property, the aggregate acreage of which does not exceed 25 percent of the average farm or ranch acreage of the farms or ranches in the county where the property is located. If the farm is located in more than one county, the average farm acreage of the county where the applicant's residence is located will be used in the calculation. If the applicant's residence is not located on the farm or if the applicant is an entity, the average farm acreage of the county where the major portion of the farm is located will be used. The average county farm or ranch acreage will be determined from the most recent Census of Agriculture developed by the U.S. Department of Commerce, Bureau of the Census. State Directors will publish State supplements containing the average farm or ranch acreage by county.</P> <P>(6) Demonstrates that the available resources of the applicant and spouse (if any) are not sufficient to enable the applicant to enter or continue farming or ranching on a viable scale.</P> <P>(7) In the case of an entity:</P> <P>(i) All the members are related by blood or marriage.</P> <P>(ii) All the stockholders in a corporation are qualified beginning farmers or ranchers.</P> <P> <E T="03">Borrower.</E> An individual or entity which has outstanding obligations to the FmHA or its successor agency under Public Law 103-354 under any Farmer Programs loan(s), without regard to whether the loan has been accelerated. A borrower includes all parties liable for the FmHA or its successor agency under Public Law 103-354 debt, including collection-only borrowers, except for debtors whose total loans and accounts have been voluntarily or involuntarily foreclosed or liquidated, or who have been discharged of all FmHA or its successor agency under Public Law 103-354 debt.</P> <P> <E T="03">Capitalization value.</E> The value determined in accordance with subpart E of part 1922 of this chapter.</P> <P> <E T="03">Closing agent.</E> An attorney or title insurance company which is approved as a loan closing agent in accordance with subpart B of part 1927 of this chapter.</P> <P> <E T="03">CONACT or CONACT property,</E> Property acquired or sold pursuant to the Consolidated Farm and Rural Development Act (CONACT). Within this subpart, it shall also be construed to cover property which secured loans made pursuant to the Emergency Agricultural Credit Act of 1984; the Food Security Act of 1985; and other statutes giving agricultural lending authority to FmHA or its successor agency under Public Law 103-354.</P> <P> <E T="03">Credit sale.</E> A sale in which financing is provided to an applicant for the purchase of inventory property.</P> <P> <E T="03">Decent, safe and sanitary (DSS) housing.</E> Standards required for the sale of Government acquired SFH, MFH and LH structures acquired pursuant to the Housing Act of 1949, as amended. “DSS” housing unit(s) are structures <PRTPAGE P="214"/>which meet the requirements of FmHA or its successor agency under Public Law 103-354 as described in Subpart A of Part 1924 of this chapter for existing construction or if not meeting the requirements:</P> <P>(1) Are structurally sound and habitable,</P> <P>(2) Have a potable water supply,</P> <P>(3) Have functionally adequate, safe and operable heating, plumbing, electrical and sewage disposal systems,</P> <P>(4) Meet the Thermal Performance Standards as outlined in exhibit D of subpart A of part 1924 of this chapter, and</P> <P>(5) Are safe; that is, a hazard does not exist that would endanger the safety of dwelling occupants.</P> <P> <E T="03">Eligible terms.</E> Credit terms, for other than SFH or MFH property sales, prescribed in FmHA or its successor agency under Public Law 103-354 program regulations for its various loan programs; available only to persons/entities meeting eligibility requirements set forth for the respective loan program. For SFH and MFH properties, see the definition of “Program terms.”</P> <P> <E T="03">Farmer program loans.</E> This includes Farm Ownership (FO), Soil and Water (SW), Recreation (RL), Economic Opportunity (EO), Operating (OL), Emergency (EM), Economic Emergency (EE), Special Livestock (SL), Softwood Timber (ST) and Rural Housing loans for farm service buildings (RHF).</P> <P> <E T="03">Homestead protection (FP only).</E> The program which permits former Farmer Program borrowers to lease their former principal residence with an option to buy. See subpart S of part 1951 of this chapter.</P> <P> <E T="03">Indian Reservation.</E> All land located within the limits of any Indian reservation under the jurisdiction of the United States notwithstanding the issuance of any patent and including rights-of-way running through the reservation; trust or restricted land located within the boundaries of a former reservation of a federally recognized Indian Tribe in the State of Oklahoma; or all Indian allotments the Indian titles to which have not been extinguished if such allotments are subject to the jurisdiction of a federally recognized Indian Tribe.</P> <P> <E T="03">Ineligible terms.</E> Credit terms, for other than SFH or MFH property sales, offered for the convenience of the Government to facilitate sales; more stringent than terms offered under FmHA or its successor agency under Public Law 103-354's loan programs. Applicable when the purchaser does not meet program eligibility requirements or when the property is classified as surplus. Loans made on ineligible terms are classified as Nonprogram (NP) loans and are serviced accordingly. For SFH and MFH properties, see the definition of “Nonprogram (NP) terms.”</P> <P> <E T="03">Inventory property.</E> Property for which title is vested in the Government and which secured an FmHA or its successor agency under Public Law 103-354 loan or which was acquired from another Agency for program purposes.</P> <P> <E T="03">Market value.</E> The most probable price which property should bring, as of a specific date, in a competitive and open market, assuming the buyer and seller are prudent and knowledgeable, and the price is not affected by undue stimulus such as forced sale or loan interest subsidy.</P> <P> <E T="03">Negotiated sale.</E> A sale in which there is a bargaining of price and/or terms.</P> <P> <E T="03">Nonprogram (NP) property.</E> SFH and MFH property acquired pursuant to the Housing Act of 1949, as amended, that cannot be used by a borrower to effectively carry out the objectives of the respective loan program; for example, a dwelling that cannot be feasibly repaired to meet the FmHA or its successor agency under Public Law 103-354 requirements for existing housing as described in subpart A of part 1944 of this chapter. It may contain a structure which would meet program standards, however is so remotely located it would not serve as an adequate residential unit or be an older house which is excessively expensive to heat and/or maintain for a very-low or low-income homeowner.</P> <P> <E T="03">Nonprogram (NP) terms.</E> Credit terms for SFH or MFH property sales, offered for the convenience of the Government to facilitate sales; more stringent than terms offered under FmHA or its successor agency under Public Law 103-354's loan programs. Applicable when the purchaser does not meet program <PRTPAGE P="215"/>eligibility requirements or when the property is classified as nonprogram (NP). Loans made on NP terms are classified as NP loans and are serviced accordingly. For property other than SFH and MFH, see the definition of “Ineligible terms.”</P> <P> <E T="03">Organization property</E>. Property for which the following loans were made is considered organization property. Community Facility (CF); Water and Waste Disposal (WWD); Association Recreation; Watershed (WS); Resource Conservation and Development (RC&D); loans to associations for Shift-In-Land Use (Grazing Association); loans to associations for Irrigation and Drainage and other soil and water conservation measures; loans to Indian Tribes and Tribal corporations; Rural Rental Housing (RRH) to both groups and individuals; Rural Cooperative Housing (RCH); Rural Housing Site (RHS); Labor Housing (LH) to both groups and individuals; Business and Industry (B&I) to both individuals and groups or corporations; Rural Development Loan Fund (RDLF); Intermediary Relending Program (IRP); Nonprofit National Corporations (NNC); and Economic Opportunity Cooperative (EOC). Housing-type (RHS, RCH, RRH and LH) organization property is referred to collectively in this subpart as Multiple Family Housing (MFH) property.</P> <P> <E T="03">Owner.</E> An individual or an entity which owned the farm but who may or may not have been operating the farm at the time the farm was taken into inventory.</P> <P> <E T="03">Participating broker.</E> A duly licensed real estate broker who has executed a listing agreement with FmHA or its successor agency under Public Law 103-354.</P> <P> <E T="03">Program property.</E> SFH and MFH inventory property that can be used to effectively carry out the objectives of their respective loan programs with financing through that program. Inventory property located in an area where the designation has been changed from rural to nonrural will be considered as if it were still in a rural area.</P> <P> <E T="03">Program terms.</E> Credit terms for SFH or MFH property sales, prescribed in FmHA or its successor agency under Public Law 103-354 program regulations for its various loan programs; available only to persons/entities meeting eligibility requirements set forth for the respective loan program. For property sales other than SFH and MFH, see the definition of “Eligible terms.”</P> <P> <E T="03">Regular FmHA or its successor agency under Public Law 103-354 sale.</E> Sale made by other than sealed bid, auction, or negotiation by FmHA or its successor agency under Public Law 103-354 employees or real estate brokers.</P> <P> <E T="03">Regular sale.</E> Sale by FmHA or its successor agency under Public Law 103-354 employees or real estate brokers other than by sealed bid, auction or negotiation.</P> <P> <E T="03">Safe.</E> No hazard exists on property which would likely endanger the health or safety of occupants or users.</P> <P> <E T="03">Sealed bid sale.</E> A public sale in which property is offered to the highest bidder by prior written bid submitted in a sealed envelope.</P> <P> <E T="03">Servicing official.</E> For loans to individuals, as defined in § 1955.53 of subpart B of part 1955 of this chapter, the servicing official is the County Supervisor. For all other loans, excluding insured B&I, the servicing official is the District Director. For insured B&I loans, the servicing official is the State Director.</P> <P> <E T="03">Socially disadvantaged applicant</E>. An applicant/borrower who has been subjected to racial, ethnic, or gender prejudice because of his/her identity as a member of a group, without regard to his/her individual qualities. For entity applicants, the majority interest has to be held by socially disadvantaged individuals. FmHA or its successor agency under Public Law 103-354 has identified socially disadvantaged groups to consist only of Women, Blacks, American Indians, Alaskan Natives, Hispanic, Asians, and Pacific Islanders.</P> <P> <E T="03">Suitable property.</E> For FSA inventory property, real property that can be used for agricultural purposes, including those farm properties that may be used as a start-up or add-on parcel of farmland. It would also include a residence or other off-farm site that could be used as a basis for a farming operation. For Agencies other than FSA, real property that could be used to carry out the objectives of the Agency's loan programs with financing provided through that program.<PRTPAGE P="216"/> </P> <P> <E T="03">Surplus property</E>. For FSA inventory property, real property that cannot be used for agricultural purposes including nonfarm properties. For other agencies, property that cannot be used to carry out t