[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2003 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          
          
                    7


          Parts 1950 to 1999

                         Revised as of January 1, 2003

Agriculture





          Containing a codification of documents of general 
          applicability and future effect
          As of January 1, 2003
          With Ancillaries
          Published by:
          Office of the Federal Register
          National Archives and Records
          Administration

As a Special Edition of the Federal Register



[[Page ii]]






                     U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003



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[[Page iii]]




                            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........................     567
      Alphabetical List of Agencies Appearing in the CFR......     585
      List of CFR Sections Affected...........................     595



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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 7 CFR 1950.101 
                       refers to title 7, part 
                       1950, section 101.

                     ----------------------------

[[Page v]]



                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
permanent rules published in the Federal Register by the Executive 
departments and agencies of the Federal Government. The Code is divided 
into 50 titles which represent broad areas subject to Federal 
regulation. Each title is divided into chapters which usually bear the 
name of the issuing agency. Each chapter is further subdivided into 
parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1

    The appropriate revision date is printed on the cover of each 
volume.

LEGAL STATUS

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HOW TO USE THE CODE OF FEDERAL REGULATIONS

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OMB CONTROL NUMBERS

    The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires 
Federal agencies to display an OMB control number with their information 
collection request.

[[Page vi]]

Many agencies have begun publishing numerous OMB control numbers as 
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OBSOLETE PROVISIONS

    Provisions that become obsolete before the revision date stated on 
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of provisions in effect on a given date in the past by using the 
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January 1, 2001, consult either the List of CFR Sections Affected, 1949-
1963, 1964-1972, 1973-1985, or 1986-2000, published in 11 separate 
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the revision dates of the 50 CFR titles.

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[[Page vii]]

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                              Raymond A. Mosley,
                                    Director,
                          Office of the Federal Register.

January 1, 2003.



[[Page ix]]



                               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, 2003.

    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.

[[Page x]]





[[Page 1]]



                          TITLE 7--AGRICULTURE




                 (This book contains parts 1950 to 1999)

  --------------------------------------------------------------------
                                                                    Part

  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).....        1950

[[Page 3]]

  Subtitle B--Regulations of the Department of Agriculture (Continued)

[[Page 5]]



   CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS--COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF 
                         AGRICULTURE (CONTINUED)




  --------------------------------------------------------------------


  Editorial Note: 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.

              SUBCHAPTER H--PROGRAM REGULATIONS (CONTINUED)
Part                                                                Page
1950            General.....................................           7
1951            Servicing and collections...................          11
1955            Property management.........................         169
1956            Debt settlement.............................         255
1957            Asset sales.................................         279
1962            Personal property...........................         280
1965            Real property...............................         318
1980            General.....................................         424

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              SUBCHAPTER H--PROGRAM REGULATIONS (CONTINUED)





PART 1950--GENERAL--Table of Contents




Subparts A-B [Reserved]

  Subpart C--Servicing Accounts of Borrowers Entering the Armed Forces

Sec.
1950.101 Purpose.
1950.102 General.
1950.103 Borrower owing FmHA or its successor agency under Public Law 
          103-354 loans which are secured by chattels.
1950.104 Borrower owing FmHA or its successor agency under Public Law 
          103-354 loans which are secured by real estate.
1950.105 Interest rate.

Subparts A-B [Reserved]



  Subpart C--Servicing Accounts of Borrowers Entering the Armed Forces

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.



Sec.  1950.101  Purpose.

    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.

[45 FR 43152, June 26, 1980]



Sec.  1950.102  General.

    (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.
    (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.

[50 FR 45763, Nov. 1, 1985]



Sec.  1950.103  Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by chattels.

    (a) Policy. (1) Borrowers who owe loans other than 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

[[Page 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.
    (2) Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, and/or RHF 
loans. 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.
    (b) Methods of handling. 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:
    (1) Voluntary sale of security. This will be accomplished in 
accordance with Sec.  1962.41 of subpart A of part 1962 of this chapter. 
Any necessary forms will be signed:
    (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
    (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.
    (2) Assumption of indebtedness. This will be accomplished in 
accordance with Sec.  1962.34 of subpart A of part 1962 of this chapter.
    (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.
    (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.
    (c) Statements of accounts and transfers. 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.

[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]

[[Page 9]]



Sec.  1950.104  Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by real estate.

    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.
    (a) Power of attorney. 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.
    (b) Borrower retains ownership of the security. 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.
    (1) Leasing. 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.
    (2) Operation by family. 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

[[Page 10]]

borrower to enter into formal contractual arrangements whenever possible 
to do so.
    (c) Borrower does not retain ownership of the security. The security 
may be transferred to another approved applicant or sold in accordance 
with applicable procedure.
    (d) Borrower abandons the security or fails to make satisfactory 
arrangements. This paragraph does not 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.
    (e) Statement of account. 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.

[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]



Sec.  1950.105  Interest rate.

    (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.
    (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.
    (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.
    (d) Additional directions for handling Single Family Housing Loans 
are contained in subpart G of part 1951 of this chapter.

[52 FR 26134, July 13, 1987, as amended at 60 FR 55122, Oct. 27, 1995]

    Effective Date Note: At 67 FR 78329, Dec. 24, 2002, Sec.  1950.105 
was amended in paragraph

[[Page 11]]

(d) by revising the words ``subpart G of part 1951 of this chapter'' to 
read ``7 CFR part 3550'', effective Jan. 23, 2003.



PART 1951--SERVICING AND COLLECTIONS--Table of Contents




                  Subpart A--Account Servicing Policies

Sec.
1951.1 Purpose.
1951.2 Policy.
1951.3 Authorities and responsibilities.
1951.4-1951.5 [Reserved]
1951.6 Handling payments.
1951.7 Accounts of borrowers.
1951.8 Types of payments.
1951.9 Distribution of payments when a borrower owes more than one type 
          of FmHA or its successor agency under Public Law 103-354 loan.
1951.10 Application of payments on production type loan accounts.
1951.11 Application of payments on real estate accounts.
1951.12 Changes in the application of loan payments.
1951.13 Overpayments and refunds.
1951.14 Recoverable and nonrecoverable cost charges.
1951.15 Return of paid-in-full or satisfied notes to borrower.
1951.16 Other servicing actions on real estate type loan accounts.
1951.17-1951.24 [Reserved]
1951.25 Review of limited resource FO, OL, and SW loans.
1951.26-1951.49 [Reserved]
1951.50 OMB control number.

Exhibit A to Subpart A--Notice to FmHA or its successor agency under 
          Public Law 103-354 Borrowers
Exhibit B to Subpart A--Notice of Change in Interest Rate

                         Subpart B--Collections

1951.51 General.
1951.52-1951.53 [Reserved]
1951.54 Authority.
1951.55 Receiving and processing collections.

     Subpart C--Offsets of Federal Payments to USDA Agency Borrowers

1951.101 General.
1951.102 Administrative offset.
1951.103-1951.105 [Reserved]
1951.106 Offset of payments to entities related to debtors.
1951.107-1951.110 [Reserved]
1951.111 Salary offset.
1951.112-1951.135 [Reserved]
1951.136 Procedures for Department of Treasury offset and cross-
          servicing for the Rural Housing Service (Community Facility 
          Program only) and the Rural Business-Cooperative Service.
1951.137 Procedures for Treasury offset and cross-servicing for the Farm 
          Service Agency (FSA) farm loan programs.
1951.138-1951.149 [Reserved]
1951.150 OMB control number.

                    Subpart D--Final Payment on Loans

1951.151 Purpose.
1951.152 Definition.
1951.153 Chattel security or note-only cases.
1951.154 Satisfaction and release of documents.
1951.155 County and/or District Office actions.
1951.156-1951.200 [Reserved]

Subpart E--Servicing of Community and Direct Business Programs Loans and 
                                 Grants

1951.201 Purposes.
1951.202 Objectives.
1951.203 Definitions.
1951.204 Nondiscrimination.
1951.205 Redelegation of authority.
1951.206 Forms.
1951.207 State supplements.
1951.208-1951.209 [Reserved]
1951.210 Environmental requirements.
1951.211 Refinancing requirements.
1951.212 Unauthorized financial assistance.
1951.213 Debt settlement.
1951.214 Care, management, and disposal of acquired property.
1951.215 Grants.
1951.216 Nonprogram (NP) loans.
1951.217 Public bodies.
1951.218-1951.219 [Reserved]
1951.220 General servicing actions.
1951.221 Collections, payments, and refunds.
1951.222 Subordination of security.
1951.223 Reamortization.
1951.224 Third party agreements.
1951.225 Liquidation of security.
1951.226 Sale or exchange of security property.
1951.227 Protective advances.
1951.228-1951.229 [Reserved]
1951.230 Transfer of security and assumption of loans.
1951.231 Special provisions applicable to Economic Opportunity (EO) 
          Cooperative Loans.
1951.232 Water and waste disposal systems which have become part of an 
          urban area.
1951.233-1951.239 [Reserved]
1951.240 State Director's additional authorizations and guidance.
1951.241 Special provision for interest rate change.
1951.242-1951.249 [Reserved]
1951.250 OMB control number.
Exhibit A to Subpart E--Report on Servicing Action

[[Page 12]]

Exhibit B to Subpart E--Agreement for New Member (With or Without 
          Withdrawing Member)
Exhibit C to Subpart E--Agreement for Withdrawal of Member (Without New 
          Member)
Exhibit D to Subpart E--Items to be Included in Transfer and Assumption 
          Dockets (if applicable)
Exhibit E to Subpart E--Interest Rate Requirements and Effective Dates
Exhibit F to Subpart E--Instruction to FmHA or its successor agency 
          under Public Law 103-354 Personnel to Implement Public Law 
          100-233
Exhibit G to Subpart E--Letter to Borrower Notifying of Choice of 
          Interest Rate
Exhibit H to Subpart E--Rescheduling Agreement--Public Bodies

      Subpart F--Analyzing Credit Needs and Graduation of Borrowers

1951.251 Purpose.
1951.252 Definitions.
1951.253 Objectives.
1951.254 [Reserved]
1951.255 Nondiscrimination.
1951.256-1951.261 [Reserved]
1951.262 Farm Credit Programs-graduation of borrowers.
1951.263 Graduation on non-Farm Credit programs borrowers.
1951.264 Action when borrower fails to cooperate, respond or graduate.
1951.265 Application for subsequent loan, subordination, or consent to 
          additional indebtedness from a borrower who has been requested 
          to graduate.
1951.266 Special requirements for MFH borrowers.
1951.267-1951.299 [Reserved]
1951.300 OMB control number.
Exhibit A to Subpart F [Reserved]
Exhibit B to Subpart F--Suggested Outline for Seeking Information From 
          Lenders on Credit Criteria for Graduation of Single Family 
          Housing Loans

Subparts G-I [Reserved]

      Subpart J--Management and Collection of Nonprogram (NP) Loans

1951.451 General.
1951.452 Policy.
1951.453 [Reserved]
1951.454 Review of adverse decisions.
1951.455 NP loan making for Single Family Housing (SFH) and farm 
          property (real and chattel).
1951.456 [Reserved]
1951.457 Payments.
1951.458 Servicing real estate taxes.
1951.459 Preservation of security.
1951.460 Release of security property or sale or lease of related 
          property rights.
1951.461 Release of valueless FmHA or its successor agency under Public 
          Law 103-354 lien without monetary consideration.
1951.462 Deceased borrower.
1951.463 Transfer of security and assumption of indebtedness.
1951.464-1951.467 [Reserved]
1951.468 Liquidation.
1951.469 Actions after liquidation of property.
1951.470-1951.478 [Reserved]
1951.479 Pilot projects.
1951.480 [Reserved]
1951.481 FmHA or its successor agency under Public Law 103-354 
          Instructions.
1951.482-1951.500 [Reserved]

  Subpart K--Predetermined Amortization Schedule System (PASS) Account 
                                Servicing

1951.501 General.
1951.502 [Reserved]
1951.503 Authorities and responsibilities.
1951.504 Definitions and statements of policy.
1951.505 [Reserved]
1951.506 Processing payments.
1951.507 Maintaining borrower accounts.
1951.508-1951.509 [Reserved]
1951.510 Payment application.
1951.511 [Reserved]
1951.512 Changes in the application of loan payments.
1951.513 Overpayments and refunds to borrowers.
1951.514 Recoverable and non-recoverable cost charges.
1951.515 Promissory notes for borrowers who convert to PASS.
1951.516 [Reserved]
1951.517 Conversion from DIAS to PASS.
1951.518 Determining current loan balances for transfer.
1951.519-1951.547 [Reserved]
1951.548 Exception authority.
1951.549 [Reserved]
1951.550 OMB control number.

 Subpart L--Servicing Cases Where Unauthorized Loan or Other Financial 
                Assistance Was Received--Farmer Programs

1951.551 Purpose.
1951.552 Definitions.
1951.553 Policy.
1951.554-1951.555 [Reserved]
1951.556 Initial determination that unauthorized assistance was 
          received.
1951.557 Notification to borrower.
1951.558 Decision on servicing actions.
1951.559-1951.560 [Reserved]
1951.561 Servicing options in lieu of liquidation or legal action.
1951.562-1951.567 [Reserved]

[[Page 13]]

1951.568 Account adjustments and reporting requirements.
1951.569 Exception authority.
1951.570-1951.599 [Reserved]
1951.600 OMB control number.

Subpart M [Reserved]

 Subpart N--Servicing Cases Where Unauthorized Loan or Other Financial 
            Assistance Was Received--Multiple Family Housing

1951.651 Purpose.
1951.652 Definitions.
1951.653 Policy.
1951.654 Categories of unauthorized assistance.
1951.655 [Reserved]
1951.656 Initial determination that unauthorized assistance was 
          received.
1951.657 Notification to recipient.
1951.658 Decision on servicing actions.
1951.659-1951.660 [Reserved]
1951.661 Servicing options in lieu of liquidation or legal action to 
          collect.
1951.662-1951.667 [Reserved]
1951.668 Servicing unauthorized assistance accounts.
1951.669 Exception authority.
1951.670-1951.699 [Reserved]
1951.700 OMB control number.

Subpart O--Servicing Cases Where Unauthorized Loan(s) or Other Financial 
    Assistance Was Received--Community and Insured Business Programs

1951.701 Purpose.
1951.702 Definitions.
1951.703 Policy.
1951.704-1951.705 [Reserved]
1951.706 Initial determination that unauthorized assistance was 
          received.
1951.707 Notification to recipient.
1951.708 Decision on servicing actions.
1951.709-1951.710 [Reserved]
1951.711 Servicing options in lieu of liquidation or legal action to 
          collect.
1951.712-1951.714 [Reserved]
1951.715 Account adjustments and reporting requirement.
1951.716 Exception authority.
1951.717-1951.749 [Reserved]
1951.750 OMB Control number.

Subparts P-Q [Reserved]

               Subpart R--Rural Development Loan Servicing

1951.851 Introduction.
1951.852 Definitions and abbreviations.
1951.853 Loan purposes for undisbursed RDLF loan funds from HHS.
1951.854 Ineligible assistance purposes.
1951.855-1951.858 [Reserved]
1951.859 Terms of loans.
1951.860 Interest on loans.
1951.861-1951.865 [Reserved]
1951.866 Security.
1951.867 Conflict of interest.
1951.868-1951.870 [Reserved]
1951.871 Post award requirements.
1951.872 Other regulatory requirements.
1951.873-1951.876 [Reserved]
1951.877 Loan agreements.
1951.878-1951.880 [Reserved]
1951.881 Loan servicing.
1951.882 [Reserved]
1951.883 Reporting requirements.
1951.884 Non-Federal funds.
1951.885 Loan classifications.
1951.886-1951.888 [Reserved]
1951.889 Transfer and assumption.
1951.890 Office of Inspector General and Office of General Counsel 
          referrals.
1951.891 Liquidation; default.
1951.892-1951.893 [Reserved]
1951.894 Debt settlement.
1951.895 [Reserved]
1951.896 Appeals.
1951.897 Exception authority.
1951.898-1951.899 [Reserved]
1951.900 OMB control number.

        Subpart S-- Farm Loan Programs Account Servicing Policies

1951.901 Purpose.
1951.902 General.
1951.903 Authorities and responsibilities.
1951.904 Mediation, reviews and appeals.
1951.905 [Reserved]
1951.906 Definitions.
1951.907 Notice of Loan Service Programs.
1951.908 Servicing financially distressed current borrowers.
1951.909 Processing primary loan service programs requests.
1951.910 Consideration of borrower's other assets for new applications.
1951.911 Homestead protection.
1951.912 Mediation.
1951.913 Servicing Net Recovery Buyout Recapture Agreements.
1951.914 Servicing shared appreciation agreements.
1951.915 [Reserved]
1951.916 Exception authority.
1951.917-1951.949 [Reserved]
1951.950 OMB control number.
Exhibit A to Subpart S--Notice of the Availability of Loan Servicing and 
          Debt Settlement Programs for Delinquent Farm Borrowers
Exhibit D to Subpart S [Reserved]
Exhibit G to Subpart S--Deferral, Reamortization, and Reclassification 
          of Distressed Farmer Program (FP) Loans for Softwood Timber 
          Production (ST) Loans
Exhibit H to Subpart S--Conservation Contract Program

[[Page 14]]

                  Subpart T--Disaster Set-Aside Program

1951.951 Purpose.
1951.952 General.
1951.953 Notification and request for DSA.
1951.954 Eligibility and loan limitation requirements.
1951.955-1951.956 [Reserved]
1951.957 Eligibility determination and processing.
1951.958 Cancellation and reversal of DSA.
1951.959 Exception authority.
1951.960-1951.999 [Reserved]
1951.1000 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1932 Note; 7 U.S.C. 1989; 31 
U.S.C. 3716; 42 U.S.C. 1480

    Editorial Note: 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.



                  Subpart A--Account Servicing Policies

    Source: 50 FR 45764, Nov. 1. 1985, unless otherwise noted.



Sec.  1951.1  Purpose.

    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.

[52 FR 26134, July 13, 1987]



Sec.  1951.2  Policy.

    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).



Sec.  1951.3  Authorities and responsibilities.

    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.



Sec. Sec.  1951.4-1951.5  [Reserved]



Sec.  1951.6  Handling payments.

    (a) Payments on Rural Housing (RH) loans. Payments on RH loans will 
be handled in accordance with subparts B and G of this part.
    (b) Payments for other than RH, FO and SW loans. These payments will 
be handled in accordance with part 1951, subpart B.
    (c) Payments for FO and SW loans. (1) Payments made through the 
County Office without direct payment coupons

[[Page 15]]

for FO and SW loans will be handled in accordance with part 1951, 
subpart B.
    (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:
    (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.
    (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.
    (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.
    (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.
    (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.
    (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.
    (3) Direct payment for FO and SW loans mailed directly to the 
Finance Office by the borrower are handled as follows:
    (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.
    (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.
    (iii) For Assumption Agreements, the packet will be mailed to the 
borrower at the time the Assumption Agreement is processed in the 
Finance Office.
    (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.
    (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.
    (vi) When the Finance Office receives Form FmHA or its successor 
agency

[[Page 16]]

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.
    (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.
    (d) County Office handling of direct payment accounts. 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.
    (e) Account servicing actions retained by the County Office. For 
those borrowers who make direct payments to the Finance Office, the 
County Supervisor will continue to handle the following servicing 
actions:
    (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.
    (2) All payments other than regular payments will be made through 
the County Office in the usual manner.
    (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.
    (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.

[[Page 17]]

    (f) Borrowers receiving other type loans. If a borrower is on direct 
payment and subsequently receives another type loan, the original loan 
may remain on the direct payment system.
    (g) Borrowers with RRH, RCH, or LH, loans on a Predetermined 
Amortization Schedule System (PASS). Loans or PASS will be administered 
under Subpart K of this part.
    (h) Borrowers with RRH, RCH, LH, RHS and SO loans administered under 
this subpart. 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 Sec.  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, 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.

[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 29175, Aug. 6, 1987; 54 
FR 46844, Nov. 8, 1989]



Sec.  1951.7  Accounts of borrowers.

    (a) Accounts of active borrowers. 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.
    (b) Accounts of collection-only borrowers. (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.
    (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.
    (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.
    (4) The following actions will be taken in servicing accounts owed 
by collection-only borrowers:
    (i) District Directors will review, yearly, all collection-only 
cases in each County Office with the County Supervisor as early in each 
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.''
    (ii) District Directors will establish with County Supervisors a 
systematic plan for collecting the accounts or initiating appropriate 
debt settlement actions during the year.
    (iii) County Supervisors will include in their monthly calendars 
plans for servicing these accounts.
    (iv) On visits to County Offices, District Directors will review the 
progress being made by County Supervisors to insure that goals will be 
reached.
    (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.
    (c) Notifying borrowers of payments. 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.

[[Page 18]]

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.
    (d) Subsequent servicing. (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.
    (2) When a borrower other than a Farmer Program borrower fails to 
make a payment as agreed, the County 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.
    (e) Maintaining records of accounts in County Offices. 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).
    (f) Inquiry for Multiple Family Housing (MFH) loans. 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.
    (g) Inquiry for other than Multiple Family Housing (MFH) loans. 
Inquiry for these loan programs will be made through field terminals 
using procedures in the ``Automated Discrepancy Processing System 
(ADPS)'' manuals.
    (h) Loan Summary Statements. 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.
    (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.
    (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.

[[Page 19]]

    (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.

[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]



Sec.  1951.8  Types of payments.

    (a) Regular payments. Regular payments are all payments other than 
extra payments and refunds. Usually, regular payments are derived from 
farm income, as defined Sec.  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 Sec.  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.
    (b) Extra payments. Extra payments are payments derived from:
    (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.
    (2) Refinancing of the real estate debt.
    (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).
    (4) A sale of real estate not mortgaged to the Government, pursuant 
to a condition of loan approval.
    (5) Agricultural Conservation Program payments as provided in 
subpart A of part 1941 of this chapter.
    (6) Transactions of a similar nature which reduce the value of 
security other than chattels which will be sold to produce farm income.
    (c) Refunds. 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.

[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]



Sec.  1951.9  Distribution of payments when a borrower owes more than one type of FmHA or its successor agency under Public Law 103-354 loan.

    ``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.''
    (a) Distribution of regular payments. (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 each crop year's income will be 
distributed in accordance with the following priorities:
    (i) First, 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

[[Page 20]]

excess should be distributed according to paragraph (a)(1)(ii) of this 
section.
    (ii) Second, 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 plus the 
amount due on each loan for the year, the excess should be distributed 
according to paragraph (a)(1)(iii) of this section.
    (iii) Third, 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 plus the amount 
due on each loan for the year plus any delinquencies, the excess should 
be distributed according to paragraph (a)(1)(iv) of this section.
    (iv) Fourth, 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.
    (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.
    (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.
    (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).
    (b) Distribution of extra payments. 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.
    (c) Application of payments. 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 Sec. Sec.  1951.10 
or 1951.11 of this subpart as appropriate.

[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 26134, July 13, 1987; 53 
FR 35717, Sept. 14, 1988]



Sec.  1951.10  Application of payments on production type loan accounts.

    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.

[[Page 21]]

    (a) Rules for selection of accounts. 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.
    (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:
    (i) To amounts due or falling due on loans made in connection with 
the current year's operations, except:
    (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.
    (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.
    (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:
    (A) The delinquent amount owed on each, or
    (B) The total amount owed on each if there are no delinquencies.
    (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).
    (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.
    (4) Total refunds of loan advances will be applied to the notes 
which evidence such advances.
    (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:
    (i) To accounts with small balances, including recoverable costs.
    (ii) To accounts with the oldest unsecured note(s).
    (iii) To accounts with the oldest delinquencies.
    (iv) To accounts with the oldest secured note or notes.
    (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.
    (b) Payments in full. 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.

[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]



Sec.  1951.11  Application of payments on real estate accounts.

    (a) Regular payments. If a borrower owes more than one type of real 
estate

[[Page 22]]

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.
    (b) Refunds and extra payments. (1) Refunds will be applied to the 
note representing the loan from which the advance was made.
    (2) Extra payments will be applied to the note secured by the 
earliest mortgage on the property from which the extra payment was 
obtained.
    (3) Funds remaining from an RH grant or a combination loan and 
grant, after completion of development, will 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.
    (c) County Office actions. (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.
    (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.
    (d) Finance Office handling. (1) Regular payment will be handled as 
follows.
    (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.)
    (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.
    (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:
    (A) Advances from the insurance funds as shown on the latest Form 
FmHA or its successor agency under Public Law 103-354 389-404, 
``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.)
    (B) Principal advanced from the insurance fund.
    (C) Unamortized costs.
    (D) Amount due for amortized costs for taxes and insurance.
    (E) Unpaid loan insurance charges, including the current year's 
charge, when applicable.
    (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.
    (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.
    (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

[[Page 23]]

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.

[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 46845, Nov. 8, 1989]



Sec.  1951.12  Changes in the application of loan payments.

    (a) Authority to change payments. County Supervisors and Assistant 
County Supervisors are hereby authorized to approve requests for changes 
in 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.
    (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.
    (c) Changes by the Finance Office in application of remittances. (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.
    (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.

[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 18883, May 3, 1989]



Sec.  1951.13  Overpayments and refunds.

    (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.
    (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.
    (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.



Sec.  1951.14  Recoverable and nonrecoverable cost charges.

    (a) The County Supervisor will:
    (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 Sec.  1951.10(a) of this 
subpart).
    (2) If a recoverable cost, show on the voucher the fund code to 
which the advance is to be charged.
    (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).
    (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.

[[Page 24]]



Sec.  1951.15  Return of paid-in-full or satisfied notes to borrower.

    (a) Notes not held in County Office. 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.
    (b) Return of notes after collection. 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 Sec.  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:
    (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
    (2) When notes are needed in making marginal releases or 
satisfactions or security instruments, the notes will be held until the 
instruments are satisfied.
    (c) Surrender of notes to effect collection. (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.
    (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.
    (d) Return of notes reduced to judgment. 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).
    (e) Debt settlement case. See subparts B or C of part 1956 of this 
chapter for the handling of notes in debt settlement cases.
    (f) Lost notes. (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.
    (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.

[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]



Sec.  1951.16  Other servicing actions on real estate type loan accounts.

    (a) Installment on note and other charges--(1) Direct loan accounts. 
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:
    (i) Annual installment for the year as provided in the promissory 
note(s).
    (ii) Any recoverable cost charges paid for the borrower during the 
year. (``Recoverable costs'' is defined in Sec.  1951.10(a) of this 
Subpart.)
    (2) Insured loan accounts. ``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

[[Page 25]]

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:
    (i) Annual installment for the year as provided in the promissory 
note.
    (ii) Amounts owed the Agricultural Credit Insurance Fund. These 
amounts are covered by the general term ``Insurance Account'' and 
consist of the following:
    (A) Unpaid loan insurance charges from prior years.
    (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.
    (C) Any unpaid balance on advances from the insurance fund, 
including any recoverable cost charges paid for the borrower during the 
year.
    (D) Any accrued interest on advances from the insurance fund.
    (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.
    (b) Schedule status. 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.
    (c) Real estate payments. 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.



Sec. Sec.  1951.17-1951.24  [Reserved]



Sec.  1951.25  Review of limited resource FO, OL, and SW loans.

    (a) Frequency of reviews. 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.
    (b) Method of review. (1) Each loan will be considered on its own 
merit.
    (2) The County Supervisor should consider:
    (i) The borrower's income and repayment record during the preceding 
years;
    (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)
    (iii) Whether improved production practices have been or need to be 
implemented;
    (iv) The borrower's progress as a farmer; and
    (v) All other factors which the County Supervisor believes should be 
considered.
    (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

[[Page 26]]

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.
    (4) The County Office will be responsible for scheduling and 
completing the reviews.
    (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.
    (c) Processing. (1) If, after the review, the interest rate is to 
remain the same, no further action needs to be taken.
    (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:
    (i) The authorization for the change,
    (ii) Reason for change (repayment ability, etc.),
    (iii) The effective date and rate of the increase in interest,
    (iv) Amount of the new installments and dates due,
    (v) Right to appeal.
    (3) It is not necessary to obtain a new promissory note for this 
change in interest rate.

[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]



Sec. Sec.  1951.26-1951.49  [Reserved]



Sec.  1951.50  OMB control number.

    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.

[52 FR 26137, July 13, 1987]

  Exhibit A to Subpart A of Part 1951--Notice to FmHA or its successor 
                agency under Public Law 103-354 Borrowers

    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.

[54 FR 10270, Mar. 13, 1989]

 Exhibit B to Subpart A of Part 1951--Notice of Change in Interest Rate

                              (insert date)

                    Notice of Change in Interest Rate

________________________________________________________________________

    (insert borrower's address)
Re: [squ] [squ]
    Fund code
    [squ] [squ]
    Loan number
    [squ] [squ]
Kind code
    Dear (insert borrower's name and case number): Your promissory note 
dated ------, for the original amount of ------ dollars ($------) 
provides for a change in interest rate for a limited resource loan in 
accordance with the Farmers Home Administration or its successor agency 
under Public Law 103-354 regulations.
    Effective (insert date) the interest rate on this loan will be ---- 
percent ( %) on the unpaid principal balance. Your installment due 
January 1, 19 , will be ------ dollars ($------). This change in 
interest rate is for the reason indicated below.

    [squ] Increase in repayment ability as per Farm and Home Plan dated 
------.
    [squ] (insert reason if other than above for increase in interest 
rate).

    You may appeal this action by writing to (hearing officer), 
(address), within 30 calendar

[[Page 27]]

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.

[56 FR 3396, Jan. 30, 1991]



                         Subpart B--Collections

    Source: 53 FR 26591, July 14, 1988, unless otherwise noted.



Sec.  1951.51  General.

    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 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.



Sec. Sec.  1951.52-1951.53  [Reserved]



Sec.  1951.54  Authority.

    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.



Sec.  1951.55  Receiving and processing collections.

    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.

[56 FR 28038, June 19, 1991]



     Subpart C--Offsets of Federal Payments to USDA Agency Borrowers



Sec.  1951.101  General.

    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) for its community facility program, 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 may 
be subject to offset for the collection of a

[[Page 28]]

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 Sec.  1951.102 of this subpart. This subpart does not apply to 
direct single family housing loans, direct multi-family housing loans, 
and the Rural Utilities Service. Section 1951.136 of this subpart only 
applies to RHS for its community facility program and RBS for the offset 
of Federal payments. Nothing in this subpart affects the common law 
right of set off available to USDA Agencies.

[67 FR 69671, Nov. 19, 2002]



Sec.  1951.102  Administrative offset.

    (a) General. Collections of delinquent debts through administrative 
offset will be taken in accordance with 7 CFR part 3, subpart B and 
Sec.  1951.106.
    (b) Definitions. In this subpart:
    (1) Agency means Farm Service Agency, Farm Loan Programs; Rural 
Housing Service, except direct Single Family Housing loans and direct 
Multi-Family Housing loans; and Rural Business-Cooperative Service, or 
any successor agency.
    (2) Contracting officer 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.
    (3) County Committee 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.
    (4) Creditor agency means a Federal agency to whom a debtor owes a 
monetary debt. It need not be the same agency that effects the offset.
    (5) Debt management officer means an agency employee responsible for 
collection by administrative offset of debts owed the United States.
    (6) Delinquent means a payment that has not been paid within 30 
calendar days after the due date.
    (7) Entity 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.
    (8) FP means Farm Programs.
    (9) FLP means Farm Loan Programs.
    (10) FSA means Farm Service Agency.
    (11) National Appeals Division 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.
    (12) Offsetting agency 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.
    (13) Propriety 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.
    (14) Reviewing officer 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.

[65 FR 50602, Aug. 21, 2000, as amended at 67 FR 69671, Nov. 19, 2002]

[[Page 29]]



Sec. Sec.  1951.103-1951.105  [Reserved]



Sec.  1951.106  Offset of payments to entities related to debtors.

    (a) General. 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.
    (b) Offsetting entities. 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:
    (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;
    (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;
    (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 to the Agency of the value of the security or Agency consent to 
transfer of the assets;
    (4) A corporation to which a payment is due is the alter ego of a 
debtor; or
    (5) A debtor participates in, either directly or indirectly, the 
entity as determined by FSA.
    (c) Other remedies. Nothing in this section shall be deemed to limit 
remedies otherwise available to the Agency under other applicable law.

[65 FR 50603, Aug. 21, 2000]



Sec. Sec.  1951.107-1951.110  [Reserved]



Sec.  1951.111  Salary offset.

    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. For delinquent Farm Loan Programs direct loans, 
salary offset will not begin until the borrower has been notified of 
servicing options in accordance with 7 CFR 1951.907. In addition, for 
Farm Loan Programs direct 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. For Farm Loan Programs guaranteed 
debtors, salary offset can not begin until a final loss claim has been 
paid. 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.
    (a) Authorities. The following authorities are granted to USDA 
Agency employees in order that they may initiate and implement salary 
offset:
    (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.

[[Page 30]]

    (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.
    (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.
    (b) Definitions--(1) Certifying Officials.--State Directors; State 
Executive Directors; the Assistant Administrator; Finance Office; 
Financial Management Director; Financial Management Division, and the 
Deputy Administrator for Management, National Office.
    (2) Debt or debts. A term that refers to one or both of the 
following:
    (i) Delinquent debts. 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).
    (ii) Other debts. An amount owed to the United States by an employee 
for pecuniary losses where the employee has been determined to be liable 
due to the employee's negligent, willful, unauthorized or illegal acts, 
including but not limited to:
    (A) Theft, misuse, or loss of Government funds;
    (B) False claims for services and travel;
    (C) Illegal, unauthorized obligations and expenditures of Government 
appropriations;
    (D) Using or authorizing the use of Government owned or leased 
equipment, facilities supplies, and services for other than official or 
approved purposes;
    (E) Lost, stolen, damaged, or destroyed Government property;
    (F) Erroneous entries on accounting record or reports; and,
    (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.
    (3) Defalcation account. 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.
    (4) Disposable pay. 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.
    (5) Hearing Officer. 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.
    (6) Non-cash credit. 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.
    (7) Salary Offset. 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.
    (c) Feasibility of salary offset. 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

[[Page 31]]

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:
    (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.
    (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.
    (d) Notice to debtor. (1) After the Certifying Official determines 
that collection by salary offset is feasible, the debtor should be 
notified within 15 calendar days after the salary offset determination. 
This notice will notify the debtor of intended salary offset at least 30 
days before the salary offset begins. For Farm Loan Programs direct 
loans, this notice will be sent after the borrower is over 90 days past 
due and immediately after sending notification of servicing rights in 
accordance with 7 CFR 1951.907 of this subpart. For Farm Loan Programs 
guaranteed debtors, this notice will be sent after a final loss claim 
has been paid. The salary offset determination notice will be delivered 
to the debtor by regular mail.
    (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.
    (e) Notice requirement before salary offset. 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:
    (1) It has been determined that the debt is owed, the amount of the 
debt, and the facts giving rise to the debt;
    (2) The cost to the Government of collecting salary offset does not 
exceed the amount of the debt;
    (3) There are not any legal restrictions that would bar collecting 
the debt;
    (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;
    (5) The amount, frequency, approximate beginning date, and duration 
of the intended deductions;
    (6) An explanation of the requirements concerning interest, 
penalties and administrative costs, unless such payments are waived;
    (7) The employee's right to inspect and request a copy of records 
relating to the debt;
    (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;
    (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;

[[Page 32]]

    (10) The timely filing of a petition for hearing will stay the 
collection proceedings;
    (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;
    (12) That any knowingly false or frivolous statements may subject 
the employee to disciplinary procedures, or penalties, under the 
applicable statutory authority;
    (13) Any other rights and remedies available to the employee under 
statutes or regulations governing the program for which the collection 
is being made;
    (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;
    (15) The method and time period for requesting a hearing; and
    (16) The name and address of an official of USDA to whom 
communications should be directed.
    (f) Debtor's request for records, offer to repay, request for a 
hearing or request for information concerning debt settlement.
    (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.
    (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.
    (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.
    (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.
    (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.

[[Page 33]]

    (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.
    (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 103-354 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.
    (g) Hearings. (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.
    (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.
    (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.
    (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.
    (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:
    (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.
    (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.
    (iii) The hearing officer determines that an oral hearing is 
appropriate.
    (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.

[[Page 34]]

    (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.
    (h) Processing delinquent debts. (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:
    (i) The borrower does not respond to FmHA or its successor agency 
under Public Law 103-354 Guide Letter 1951-C-4 within 30 days.
    (ii) The borrower responds to FmHA or its successor agency under 
Public Law 103-354 Guide Letter 1951-C-4 within 30 days and
    (A) Has had an opportunity to review the file, if requested,
    (B) Has received a hearing, if requested, and
    (C) A decision has been made by the hearing officer to uphold the 
offset.
    (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.
    (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.
    (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.
    (5) Field offices will be notified of payments received from salary 
offset by receipt of a transaction record from the Finance Office.
    (i) Deduction percentage. (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.
    (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.
    (j) Agency/NFC responsibility for other debts. (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.

[[Page 35]]

    (2) Other indebtedness falls into two categories:
    (i) An agency-initiated indebtedness (i.e. personal telephone calls, 
property damages, etc.).
    (ii) An NFC-initiated indebtedness (i.e. duplicate salary payments, 
etc.). NFC will send the salary offset notice to the employing office.
    (k) Establishing employees or former employees defalcation accounts 
and non-cash credits to borrower accounts. 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.
    (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:
    (i) Employee's name (or former),
    (ii) Social Security Number,
    (iii) Present or last known address,
    (iv) Date of Payment, and
    (v) Amount of the defalcation account.
    (2) If a non-cash credit to a borrower's account(s) is required, the 
letter to the Finance Office will include:
    (i) Borrower's name and case number,
    (ii) Fund Code and Loan Code,
    (iii) Date and amount of missing payment,
    (iv) Copy of receipt issued for the missing payment, and
    (v) Name of employee who last had custody of the missing funds.
    (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.
    (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.
    (l) Application of payments, refunds and overpayments. (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.
    (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.
    (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.
    (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.
    (m) Cancellation of offset. If a debtor's name has been submitted to 
another agency for offset and the debtor's account is brought current or 
otherwise

[[Page 36]]

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.
    (n) Intra-departmental transfer. 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.
    (o) Liquidation from final checks. 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 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, Sec.  3.32).
    (p) Coordination with other agencies. (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).
    (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).
    (q) Deductions by the National Finance Center (NFC). 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.
    (r) Interest, penalties and administrative costs. 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.
    (s) Adjustment in rate of repayment. (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

[[Page 37]]

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.
    (2) When an employee has an existing reduced repayment schedule 
because of financial hardship, the creditor agency may arrange for a new 
repayment schedule.

[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; 67 FR 69671, Nov. 19, 2002]



Sec. Sec.  1951.112-1951.135  [Reserved]



Sec.  1951.136  Procedures for Department of Treasury offset and cross-servicing for the Rural Housing Service (Community Facility Program only) and the Rural 
          Business-Cooperative Service.

    (a) The National Offices of the Rural Housing Service (RHS), 
Community Facilities (CF) and the Rural Business-Cooperative Service 
(RBS) will refer past due, legally enforceable debts which are over 180 
days delinquent to the Secretary of the Treasury for collection by 
centralized administrative offset (TOP), Internal Revenue Service offset 
administered through TOP and Treasury's Cross-Servicing (Cross-
Servicing) Program, which centralizes all Government debt collection 
actions. A borrower with a workout agreement in place, in bankruptcy or 
litigation, or meeting other exclusion criteria, may be excluded from 
TOP or Cross-Servicing.
    (b) A 60 day due process notice will be sent to borrowers subject to 
TOP or Cross-Servicing. The borrower will be given 60 days to resolve 
any delinquency before the debt is reported to Treasury. The notice will 
include:
    (1) The nature and amount of the debt, the intention of the Agency 
to collect the debt through TOP or Cross-Servicing, and an explanation 
of the debtor's rights;
    (2) An opportunity to inspect and copy the records related to the 
debt from the Agency;
    (3) An opportunity to review the matter within the Agency or the 
National Appeals Division, if there has not been a previous opportunity 
to appeal the offset; and
    (4) An opportunity to enter into a written repayment agreement.
    (c) In referring debt to the Department of Treasury the Agency will 
certify that:
    (1) The debt is past due and legally enforceable in the amount 
submitted and the Agency will ensure that collections are properly 
credited to the debt;
    (2) Except in the case of a judgment debt or as otherwise allowed by 
law, the debt is referred for offset within 10 years after the Agency's 
right of action accrues;
    (3) The Agency has made reasonable efforts to obtain payment; and
    (4) Payments that are prohibited by law from being offset are exempt 
from centralized administrative offset.

[67 FR 69672, Nov. 19, 2002]



Sec.  1951.137  Procedures for Treasury offset and cross-servicing for the Farm Service Agency (FSA) farm loan programs.

    (a) The Farm Service Agency, Farm Loan Programs, will refer past 
due, legally enforceable debts which are over 180 days delinquent to the 
Secretary of the Treasury for collection by centralized administrative 
offset (TOP), Internal Revenue Service offset administered through TOP 
and Treasury's Cross-Servicing (Cross-Servicing) Program, which 
centralizes all Government debt collection actions. A borrower with a 
workout agreement in place, in bankruptcy or litigation, or meeting 
other exclusion criteria, may be excluded from TOP or Cross-Servicing. 
Guaranteed debtors will only be referred to TOP upon confirmation of 
payment on a final loss claim.
    (b) A 60 day due process notice will be sent to borrowers subject to 
TOP or Cross-Servicing by the Director of Kansas City Finance Office. 
The borrower will be given 60 days to resolve any delinquency before the 
debt is reported to Treasury. The notice will include:

[[Page 38]]

    (1) The nature and amount of the debt, the intention of the Agency 
to collect the debt through TOP or Cross-Servicing, and an explanation 
of the debtor's rights;
    (2) An opportunity to inspect and copy the records related to the 
debt, from the Agency;
    (3) An opportunity to review the matter within the Agency; and
    (4) An opportunity to enter into a written repayment agreement.
    (c) In referring debt to the Department of Treasury the Agency will 
certify that:
    (1) The debt is past due and legally enforceable in the amount 
submitted and the Agency will ensure that collections are properly 
credited to the debt;
    (2) Except in the case of a judgment debt or as otherwise allowed by 
law, the debt is referred for offset within 10 years after the Agency's 
right of action accrues;
    (3) The Agency has made reasonable efforts to obtain payment; and
    (4) Payments that are prohibited by law from being offset are exempt 
from centralized administrative offset.

[67 FR 69672, Nov. 19, 2002]



Sec. Sec.  1951.138-1951.149  [Reserved]



Sec.  1951.150  OMB control number.

    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.

[51 FR 42821, Nov. 26, 1986]



                    Subpart D--Final Payment on Loans

    Source: 57 FR 774, Jan. 9, 1992, unless otherwise noted.



Sec.  1951.151  Purpose.

    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.

[61 FR 59778, Nov. 22, 1996]



Sec.  1951.152  Definition.

    As used in this subpart:
    Mortgage. Includes real estate mortgage, deed of trust or any other 
form of security instrument or lien on real property.



Sec.  1951.153  Chattel security or note-only cases.

    (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.
    (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 Sec.  1951.155(c) 
of this subpart.



Sec.  1951.154  Satisfaction and release of documents.

    (a) Authorization. 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:
    (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;
    (2) Upon verification that the amount of payment received is 
sufficient to pay the full amount owed by the borrower; or
    (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.
    (b) [Reserved]
    (c) Lost note. 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.

[[Page 39]]



Sec.  1951.155  County and/or District Office actions.

    (a) Funds remaining in supervised bank accounts. 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.
    (b) Determining amount to be collected. 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).
    (c) Delivery of satisfaction, notes, and other documents. 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 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.
    (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.
    (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.
    (d)-(e) [Reserved]
    (f) Cost of recording or filing of satisfaction. 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.

[[Page 40]]

    (g) Property insurance. 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).
    (h) [Reserved]
    (i) Outstanding Loan Balance(s). 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.

[57 FR 774, Jan. 9, 1992, as amended at 60 FR 55145, Oct. 27, 1995]



Sec. Sec.  1951.156-1951.200  [Reserved]



Subpart E--Servicing of Community and Direct Business Programs Loans and 
                                 Grants

    Source: 55 FR 4399, Feb. 8, 1990, unless otherwise noted.



Sec.  1951.201  Purposes.

    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; 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.

[62 FR 33510, June 19, 1997, as amended at 62 FR 42387, Aug. 7, 1997; 66 
FR 1569, Jan. 9, 2001]



Sec.  1951.202  Objectives.

    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.



Sec.  1951.203  Definitions.

    (a) Approval official. 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).
    (b) Assumption of debt. The agreement by one party to legally bind 
itself to pay the debt incurred by another.

[[Page 41]]

    (c) CONACT. The Consolidated Farm and Rural Development Act, as 
amended.
    (d) Eligible applicant. An entity that would be legally qualified 
for financial assistance under the loan or grant program involved in the 
servicing action.
    (e) Ineligible applicant. An entity or individual that would not be 
considered eligible for financial assistance under the loan or grant 
program involved in the servicing action.
    (f) Nonprogram (NP) loan. 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 Sec.  1951.220(e) of this subpart resulting in 
the borrower being ineligible for program benefits.
    (g) Servicing office. The State, District, or County Office 
responsible for immediate servicing functions for the borrower or 
grantee.
    (h) Transfer fee. 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.



Sec.  1951.204  Nondiscrimination.

    Each instrument of conveyance required for a transfer, assumption, 
or other servicing action under this subpart will contain the following 
covenant.

    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.



Sec.  1951.205  Redelegation of authority.

    Servicing functions under this subpart which are specifically 
assigned to the State Director may be redelegated in writing to an 
appropriate sufficiently trained designee.



Sec.  1951.206  Forms.

    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.



Sec.  1951.207  State supplements.

    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).



Sec. Sec.  1951.208-1951.209  [Reserved]



Sec.  1951.210  Environmental requirements.

    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.



Sec.  1951.211  Refinancing requirements.

    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

[[Page 42]]

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.

[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]



Sec.  1951.212  Unauthorized financial assistance.

    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.



Sec.  1951.213  Debt settlement.

    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 Sec. Sec.  1951.216 and 1951.231.



Sec.  1951.214  Care, management, and disposal of acquired property.

    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.

[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]



Sec.  1951.215  Grants.

    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.
    (a) Applicability of requirements. 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.
    (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.
    (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.
    (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.
    (b) Authorities. Subject to the requirements of Sec.  1951.215(a), 
authority to approve servicing actions is as follows:
    (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 Sec. Sec.  1951.226, 
1951.230, or 1951.232 of this subpart and the buyer or transferee 
refuses to assume all terms of the grant agreement.

[[Page 43]]

    (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.

[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]



Sec.  1951.216  Nonprogram (NP) loans.

    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 under this subpart must have prior concurrence of the National 
Office.



Sec.  1951.217  Public bodies.

    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).



Sec. Sec.  1951.218-1951.219  [Reserved]



Sec.  1951.220  General servicing actions.

    (a) Payment in full. 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:
    (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.
    (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).
    (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.
    (b) Loan summary statements. 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.
    (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.
    (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.
    (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

[[Page 44]]

(ADPS), will constitute the loan summary statement to be provided to the 
borrower.
    (c) Insurance. FmHA or its successor agency under Public Law 103-354 
borrowers shall maintain insurance coverage as follows:
    (1) Community and Insured Business Programs borrowers shall 
continuously maintain adequate insurance coverage as required by the 
loan agreement and Sec.  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.
    (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.
    (d) Property taxes. Real property taxes are serviced according to 
Subpart A of 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 Sec. Sec.  1925.3 and 1925.4 of subpart A of part 1925 of 
this chapter.
    (e) Changes in borrower's legal organization. (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:
    (i) The change does not provide for a sole member type of 
organization;
    (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 Sec.  1942.17(b)(4) of subpart A of 
part 1942 of this chapter; and
    (iii) The borrower retains significant local ties with the rural 
community.
    (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:
    (i) The change is in the best interest of the Government;
    (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;
    (iii) The loan is classified as a nonprogram loan;
    (iv) The borrower is notified that it is no longer eligible for any 
program benefits, but will remain responsible under the loan agreement; 
and
    (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.
    (f) Membership liability. 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.''
    (g) Other security. Other security such as collateral assignments, 
water stock

[[Page 45]]

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.
    (h) Correcting errors in security instruments. 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.
    (i) Present market value determination. For purposes of this 
subpart, the value of security is determined by the approval official as 
follows:
    (1) Security representing a relatively small portion of the total 
value of the security property. 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.
    (2) Security representing a relatively large portion of the total 
value of the security property. 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.
    (3) Appraisal report. If required, a current appraisal report will 
be completed in accordance with Sec.  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.

[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]



Sec.  1951.221  Collections, payments and refunds.

    Collections are processed in accordance with subpart B of part 1951 
of this chapter. Payments and refunds are handled in accordance with the 
following:
    (a) Community and Insured Business Programs. (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.
    (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.
    (i) Distribution of such payments is made as follows:
    (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.
    (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.
    (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.
    (ii) Unless otherwise established by the debt instrument, regular 
payments will be applied as follows:
    (A) For amortized loans, first to interest accrued (as of the date 
of receipt of the payment), and then to principal.
    (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

[[Page 46]]

to the next scheduled principal installment.
    (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 Sec.  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:
    (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.
    (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 will be applied 
to the final unpaid principal installment.
    (b) Grazing Association Loans, Irrigation, Drainage and other Soil 
and Water Conservation Loans. (1) Regular payments for such loans are 
defined in Sec.  1951.8(a) of subpart A of part 1951 of this chapter, 
and are distributed according to Sec.  1951.9(a) of that subpart unless 
otherwise established by the note or bond.
    (2) Extra payments are defined in Sec.  1951.8(b) of subpart A of 
part 1951 of this chapter, and are distributed according to Sec.  
1951.9(b) of that subpart.

[55 FR 4399, Feb. 8, 1990, as amended at 66 FR 1569, Jan. 9, 2001]



Sec.  1951.222  Subordination of security.

    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.
    (a) General. The following requirements must normally be met:
    (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).
    (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.
    (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.
    (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.
    (5) Any proposed development work will be planned and performed 
according to Sec.  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.
    (6) All contracts, pay estimates, and change orders will be reviewed 
and concurred in by the State Director.
    (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.
    (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.

[[Page 47]]

    (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.
    (10) Necessary consent and subordination of all other outstanding 
security interests must be obtained.
    (b) Authorities. 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.
    (c) Processing. The case file is to include:
    (1) The borrower's written request on Form FmHA or its successor 
agency 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;
    (2) Current balance sheet;
    (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;
    (4) Copy of proposed security instrument;
    (5) Appraisal report, when applicable;
    (6) OGC opinion on the request;
    (7) Exhibit A of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), appropriately 
completed;
    (8) Appropriate environmental review; and
    (9) Any other necessary supporting information.
    (d) Closing. 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.

[55 FR 4399, Feb. 8, 1990, as amended at 66 FR 1569, Jan. 9, 2001]



Sec.  1951.223  Reamortization.

    (a) State Director authorization. The State Director is authorized 
to approve reamortization of loans under the following conditions:
    (1) The account is delinquent and cannot be brought current within 
one year while maintaining a reasonable reserve;
    (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;
    (3) The amount being reamortized is within the State Director's loan 
approval authorization; and
    (4) There is no extension of the final maturity date.
    (b) Requests requiring National Office approval. Reamortizations not 
meeting the above conditions require prior National Office approval. 
Requests will be forwarded to the National Office with the case file, 
including:
    (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;
    (2) Current balance sheet and income statement;
    (3) Exhibit A of this subpart, appropriately completed;
    (4) Form FmHA or its successor agency under Public Law 103-354 1951-
33, ``Reamortization Request,'' completed in accordance with Sec.  
1951.223(c)(3) of this subpart, when applicable; and

[[Page 48]]

    (5) Any other necessary supporting information.
    (c) Processing. 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.
    (1) Reamortizations will be perfected in accordance with OGC closing 
instructions.
    (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 will remain adequately protected if the security 
position will be affected.
    (3) Notes. Except as provided in Sec.  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.
    (4) Bonds and notes with other than real or chattel security pledged 
to FmHA or its successor agency under Public Law 103-354. 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.
    (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.
    (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.
    (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.
    (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.
    (5) New debt instruments or agreements. (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.
    (ii) Any agreement used will contain:
    (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);
    (B) The effective date of the reamortization;
    (C) The number of years over which the delinquency will be 
amortized;
    (D) The repayment schedule; and
    (E) The interest rate.

[[Page 49]]

    (iii) A payment will be due on the next scheduled due date. 
Deferment of interest and/or principal payments is not authorized.
    (iv) A separate new instrument will be required for each loan being 
reamortized.
    (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.
    (d) Reamortization with interest rate adjustment--Water and waste 
borrowers only. 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 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.
    (1) Eligibility determination. 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:
    (i) The borrower has exhausted all other servicing provisions 
contained in this subpart;
    (ii) The borrower is experiencing severe financial problems;
    (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;
    (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;
    (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
    (vi) The borrower's account must be delinquent at least one annual 
debt payment for 180 days.
    (2) Conditions of approval. All borrowers approved for an adjustment 
in the rate of interest by the Administrator shall agree to the 
following conditions:
    (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.
    (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.
    (iii) If requested, a copy of the latest audited financial 
statements or management report must be submitted to the Administrator.
    (3) Reamortization. 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.

[55 FR 4399, Feb. 8, 1990, as amended at 56 FR 25351, June 4, 1991; 63 
FR 41714, Aug. 5, 1998]



Sec.  1951.224  Third party agreements.

    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:
    (a) Leases--(1) Lease of all or part of a facility (except when 
liquidation action is pending). The State Director may consent to the 
leasing of all or a portion of security property when:
    (i) Leasing is the only feasible way to provide the service and is 
the customary practice as required under Sec.  1942.17(b)(4) of subpart 
A of part 1942 of this chapter;

[[Page 50]]

    (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 
Sec.  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;
    (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;
    (iv) The lease document contains nondiscrimination requirements as 
set forth in Sec.  1951.204 of this subpart;
    (v) The lease contains a provision which recognizes that FmHA or its 
successor agency under Public Law 103-354 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
    (vi) The lease does not constitute a lease/purchase arrangement, 
unless permitted under Sec.  1951.232 of this subpart.
    (2) Lease of all or part of a facility (pending liquidation action). 
The State Director may consent to the leasing of all or a portion of 
security property when:
    (i) The lease will not adversely affect the repayment of the loan or 
the Government's rights under the security or other instruments;
    (ii) The State Director has determined that liquidation will likely 
be necessary and the lease is necessary until liquidation can be 
accomplished;
    (iii) Leasing is not an alternative to, or means of delaying, 
liquidation action;
    (iv) The lease and use of any proceeds from the lease will further 
the objective of the loan;
    (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;
    (vi) The lease is advantageous to the borrower and is not 
disadvantageous to the Government;
    (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
    (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.
    (b) Mineral leases. Unless liquidation is pending, the State 
Director is authorized to approve mineral leases when:
    (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;
    (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;
    (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;
    (4) The lease, subordination, or consent form is acceptable to OGC;
    (5) The lease will not interfere with the purpose for which the loan 
or grant was made; and
    (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

[[Page 51]]

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.
    (c) Management agreements. 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).
    (d) Affiliation agreements. 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 its responsibilities as set forth in 
Sec.  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.
    (e) Processing. 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:
    (1) A copy of the proposed agreement;
    (2) Exhibit A of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), appropriately 
completed;
    (3) Any other necessary supporting information.

[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 21199, May 19, 1992]



Sec.  1951.225  Liquidation of security.

    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.



Sec.  1951.226  Sale or exchange of security property.

    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.
    (a) Authorities. (1) The District Director is authorized to approve 
actions under this section involving only chattels.
    (2) The State Director is authorized to approve real estate 
transactions except as noted in the following paragraph.
    (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.
    (b) General. Approval may be given when the approval official 
determines and documents that:
    (1) The consideration is adequate;
    (2) The release will not prevent carrying out the purpose of the 
loan;
    (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;

[[Page 52]]

    (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:
    (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 Sec.  1951.204 of 
this subpart; and
    (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 Sec.  1951.215 below 
for additional guidance on grant agreements.
    (5) The proceeds remaining after paying any reasonable and necessary 
selling expenses are used for one or more of the following purposes:
    (i) To pay on FmHA or its successor agency under Public Law 103-354 
debts according to Sec.  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.
    (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.
    (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.
    (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.
    (c) Processing. (1) The case file will contain the following:
    (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;
    (ii) The appraisal report, if appropriate;
    (iii) Name of purchaser, anticipated sales price, and proposed terms 
and conditions;
    (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;
    (v) An executed Form FmHA or its successor agency under Public Law 
103-354 400-4, if applicable;
    (vi) An executed Form FmHA or its successor agency under Public Law 
103-354 465-1, if applicable;
    (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
    (viii) Written approval of the Administrator when required under 
Sec.  1951.226(a)(3) of this subpart;
    (2) Releasing security. (i) The District Director is authorized to 
satisfy or terminate chattel security instruments when Sec.  1951.226(b) 
of this subpart and Sec.  1962.17 and Sec.  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.''
    (ii) Subject to Sec.  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.
    (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

[[Page 53]]

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.
    (d) Release from liability. (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.
    (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 for debt 
settlement actions set forth in subpart C of part 1956 of this chapter.
    (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.
    (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:

    ---------------- 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.



Sec.  1951.227  Protective advances.

    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.
    (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.
    (b) Protective advances are not to be used as a substitute for a 
loan.
    (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).

[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36591, Aug. 14, 1992]



Sec. Sec.  1951.228-1951.229  [Reserved]



Sec.  1951.230  Transfer of security and assumption of loans.

    (a) General. 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:
    (1) The present borrower is unable or unwilling to accomplish the 
objectives of the loan.
    (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.
    (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.

[[Page 54]]

    (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.
    (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.
    (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.
    (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 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 
Sec.  1951.204 of this subpart.
    (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.
    (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.
    (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.
    (11) A current appraisal report to establish the present market 
value of the security will be completed in accordance with Sec.  
1951.220(i) of this subpart when the full debt is not being assumed.
    (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.
    (b) Authorities. 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:
    (1) Proposals which will involve a loss to the Government;
    (2) Proposals involving a transfer to one or more members of the 
present borrower's organization;

[[Page 55]]

    (3) Proposals involving rates and terms which are more liberal than 
those set forth in Sec.  1951.230(c) of this subpart;
    (4) Proposals involving a cash payment to the present borrower which 
exceeds the actual sales expenses;
    (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; and
    (6) Proposed transfers to ineligible applicants when there is no 
significant downpayment and/or the repayment period is to exceed 25 
years.
    (c) Eligible applicants. Except as noted in Sec.  1951.230(b) of 
this subpart, the State Director is authorized to approve transfers of 
security property to and 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.
    (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.
    (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.
    (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, Sec.  1942.19(h)(11) will 
govern the preparation of any new debt instruments required.
    (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.
    (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.
    (d) Ineligible applicants. Except as noted in Sec.  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 
Sec.  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.
    (1) Ineligible applicants must pay a one-time nonrefundable transfer 
fee when they submit an application or proposal.
    (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-

[[Page 56]]

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.
    (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.
    (iii) If the State Director determines waiver of the transfer fee is 
in the best interest of the government, he or she 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).
    (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.
    (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.
    (4) The transferred loan will be identified as an NP loan and 
serviced in accordance with Sec.  1951.216 of this subpart.
    (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.
    (6) Consideration will be given to obtaining individual liability 
agreements from members of the transferee organization.
    (e) Release from liability. Except when nonprogram loans or Economic 
Opportunity Cooperative loans are involved, transferors may be released 
from liability in accordance with the following:
    (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.
    (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.
    (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.
    (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 Sec.  1951.226(d)(2)(ii) of this 
subpart.
    (f) Processing. Transfers and assumptions will be processed in 
accordance with the following:
    (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.
    (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.
    (3) Both the transferee and transferor are responsible for obtaining 
the legal services necessary to accomplish the transfer.
    (4) Transfers will be closed in accordance with instructions 
provided by OGC.
    (5) When the transferee is a public body and Form FmHA or its 
successor agency under Public Law 103-354 1951-15

[[Page 57]]

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.
    (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.
    (7) The following forms, if utilized, will be sent immediately to 
the Finance Office:
    (i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 or other appropriate assumption agreement;
    (ii) A conformed copy of Form FmHA or its successor agency under 
Public Law 103-354 1965-8.
    (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 Sec.  1951.215 for additional guidance on 
grant agreements.
    (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.
    (10) Rates and terms. (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.
    (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.
    (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.
    (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 Sec.  1951.204 of this subpart.
    (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.
    (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.
    (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.

[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36590, Aug. 14, 1992; 66 
FR 1569, Jan. 9, 2001]



Sec.  1951.231  Special provisions applicable to Economic Opportunity (EO) Cooperative Loans.

    (a) Withdrawal of member and transfer to and assumption by new 
members of Unincorporated Cooperatives. (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:
    (i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 executed by the proposed new member;

[[Page 58]]

    (ii) Statement of the current amount of the indebtedness involved;
    (iii) A description and statement of the value of the security 
property;
    (iv) A memorandum to justify the transaction;
    (v) Form FmHA or its successor agency under Public Law 103-354 440-
2, ``County Committee Certification or Recommendation;''
    (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
    (vii) Form FmHA or its successor agency under Public Law 103-354 
450-12, ``Bill of Sale (Transfer by Withdrawing Member),'' executed by 
the withdrawing member.
    (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.
    (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.
    (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.
    (b) Withdrawal of members from Unincorporated Cooperatives when new 
member not available. 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:
    (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
    (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.
    (c) Addition of new members (no withdrawing member or transfer 
involved) for both Incorporated and Unincorporated Cooperatives. (1) A 
new member may be admitted to the association even though there is no 
withdrawing member, if:
    (i) The members of the association agree to accept the proposed new 
member, and
    (ii) The State Director determines that the association owns 
adequate facilities to provide service to the new member.
    (2) The servicing office will submit to the State Office the case 
file and items (i) through (vi) of Sec.  1951.231(a)(1).
    (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.
    (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.
    (d) Deceased members of Unincorporated Cooperatives. Form FmHA or 
its successor agency under Public Law 103-354 442-24, ``Operating 
Agreement,''

[[Page 59]]

(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.
    (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 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.
    (2) The requirement of Sec.  1962.46(h) of subpart A of part 1962 
will also be followed.
    (e) Action which affects individual members of Unincorporated EO 
Cooperative security. 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.
    (f) Debt Settlement. 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.



Sec.  1951.232  Water and waste disposal systems which have become part of an urban area.

    A water and/or waste disposal system serving an area which was 
formerly a rural area as defined in Sec.  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.
    (a) Curtailment or limitation of service. Service may not be 
curtailed or limited by the inclusion of a system within an urban area.
    (b) Sale or transfer and assumption. (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
    (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.
    (3) When a grant is involved, the entity will agree in writing to 
assume all rights and obligations of the original grantee. See Sec.  
1951.215 for additional guidance on grant agreements.
    (c) Lease-purchase arrangement. If Sec.  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:
    (1) The urban community will:
    (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
    (ii) Pay the association annually an amount sufficient to enable it 
to meet all its obligations, including reserve account requirements.
    (2) The FmHA or its successor agency under Public Law 103-354 
borrower will:
    (i) Meet its debt service and reserve account requirements to FmHA 
or its successor agency under Public Law 103-354;
    (ii) Retain its corporate existence until FmHA or its successor 
agency under Public Law 103-354 has been paid in full; and
    (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.
    (d) Processing. (1) Sale of a borrower's assets will be handled in 
accordance with Sec.  1951.226 of this subpart.

[[Page 60]]

    (2) Transfer and assumption of a borrower's assets and indebtedness 
will be handled in accordance with Sec.  1951.230 of this subpart.
    (3) Lease-operation-to-purchase arrangements are not permitted.
    (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:
    (i) A copy of the proposed agreement;
    (ii) Exhibit A of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office), appropriately 
completed;
    (iii) OGC comments;
    (iv) The case file, including all documentation appropriate for the 
type of servicing action involved.

[55 FR 4399, Feb. 8, 1992, as amended at 57 FR 21199, May 19, 1992]



Sec. Sec.  1951.233-1951.239  [Reserved]



Sec.  1951.240  State Director's additional authorizations and guidance.

    (a) Promote financing purposes and improve or maintain 
collectibility. 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:
    (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.
    (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.
    (3) Renew existing security instruments.
    (4) Approve the extension or expansion of facilities and services.
    (5) Require additional security when:
    (i) Existing security is inadequate and the loan or security 
instruments obligate the borrower to give additional security; or
    (ii) The loan is in default and additional security is acceptable in 
lieu of other servicing actions.
    (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.
    (7) Approve requests for rights-of-way and easements and any 
subordination necessary in connection with such requests.
    (b) Referrals to National Office. All proposed servicing actions 
which the State Director is not authorized by this subpart to approve 
will be referred to the National Office.
    (c) Defeasance of FmHA or its successor agency under Public Law 103-
354 indebtedness. 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.



Sec.  1951.241  Special provision for interest rate change.

    (a) General. 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

[[Page 61]]

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 103-354 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.
    (b) Notification to borrower and borrower selection of interest 
rate. (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.
    (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.
    (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.
    (c) Processing loan interest rate change. 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:
    (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.
    (2) For paid-in-full accounts which meet the criteria of Sec.  
1951.241(a) of this subpart, the balance of loan payments after 
completion of the reversal and reapplication procedures will be returned

[[Page 62]]

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.
    (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 only 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 installment will be 
reduced by the amount of the balance previously generated by the 
reversal and reapplication of payments.
    (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 
Sec.  1951.223 of this subpart.
    (5) The borrower will be notified in writing of the new interest 
rate as changed.



Sec. Sec.  1951.242-1951.249  [Reserved]



Sec.  1951.250  OMB control number.

    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.

                          Exhibits to Subpart E

    Editorial Note: Exhibits A through H are not published in the Code 
of Federal Regulations.

                  Exhibit A--Report on Servicing Action

Exhibit B--Agreement for New Member (With or Without Withdrawing Member)

   Exhibit C--Agreement for Withdrawal of Member (Without New Member)

 Exhibit D--Items to be Included in Transfer and Assumption Dockets (if 
                               applicable)

        Exhibit E--Interest Rate Requirements and Effective Dates

Exhibit F--Instruction to FmHA or its successor agency under Public Law 
            103-354 Personnel to Implement Public Law 100-233

   Exhibit G--Letter to Borrower Notifying of Choice of Interest Rate

            Exhibit H--Rescheduling Agreement--Public Bodies



      Subpart F--Analyzing Credit Needs and Graduation of Borrowers

    Source: 61 FR 35927, July 9, 1996, unless otherwise noted.



Sec.  1951.251  Purpose.

    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 county and state committees and their personnel), Rural 
Utilities Service (RUS), Rural Housing Service (RHS),

[[Page 63]]

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.

[61 FR 35927, July 9, 1996, as amended at 61 FR 59778, Nov. 22, 1996]



Sec.  1951.252  Definitions.

    Commercial classified. 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.
    Farm Credit Programs (FCP) loans. 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).
    Graduation, FCP. 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.
    Graduation, other programs. 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.
    Prospectus, FCP. 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.
    Reasonable rates and terms. 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.
    Servicing official. The district or county office official 
responsible for the immediate servicing functions of the borrower.
    Standard classified. 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.



Sec.  1951.253  Objectives.

    (a) [Reserved]
    (b) Borrowers must graduate to other credit at reasonable rates and 
terms when they are able to do so.
    (c) If a borrower refuses to graduate, the account will be 
liquidated under the following conditions:
    (1) The borrower has the legal capacity and financial ability to 
obtain other credit.
    (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), and Rural Cooperative Housing (RCH) Programs, reasonable rates 
and terms

[[Page 64]]

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.
    (d) The Agency will enforce borrower graduation.



Sec.  1951.254  [Reserved]



Sec.  1951.255  Nondiscrimination.

    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.



Sec. Sec.  1951.256-1951.261  [Reserved]



Sec.  1951.262  Farm Credit Programs--graduation of borrowers.

    (a)-(d) [Reserved]
    (e) Graduation candidates. 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.
    (f) Sending prospectus information to lenders. (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.
    (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.

[61 FR 35927, July 9, 1996, as amended at 62 FR 10120, Mar. 5, 1997]



Sec.  1951.263  Graduation of non-Farm Credit programs borrowers.

    (a)-(b) [Reserved]
    (c) The thorough review. 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.
    (d) [Reserved]
    (e) Requesting the borrower to graduate. (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.
    (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.
    (3) If a borrower is unable to graduate the full amount of the loan, 
the borrower must furnish evidence to the Agency, showing:
    (i) The names of other lenders contacted;
    (ii) The amount of loan requested by the borrower and the amount, if 
any, offered by the lenders;
    (iii) The rates and terms offered by the lenders or the specific 
reasons why other credit is not available; and
    (iv) The purpose of the loan request.
    (4) The difference in interest rates between the Agency and other 
lenders will not be sufficient reason for failure

[[Page 65]]

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.
    (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.



Sec.  1951.264  Action when borrower fails to cooperate, respond or graduate.

    (a) When borrowers with other than FCP loans fail to:
    (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.
    (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 Sec.  1955.15(d)(2)(ii). If the borrower's account is 
accelerated, the borrower may appeal the decision.
    (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.



Sec.  1951.265  Application for subsequent loan, subordination, or consent to additional indebtedness from a borrower who has been requested to graduate.

    (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.
    (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.



Sec.  1951.266  Special requirements for MFH borrowers.

    All requirements of subpart E of part 1965 must be met prior to 
graduation and acceptance of the full payment from an MFH borrower.



Sec. Sec.  1951.267-1951.299  [Reserved]



Sec.  1951.300  OMB control number.

    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.

             Exhibit A to Subpart F of Part 1951 [Reserved]

   Exhibit B to Subpart F of Part 1951--Suggested Outline for Seeking 
  Information From Lenders on Credit Criteria for Graduation of Single 
                          Family Housing Loans

Date:___________________________________________________________________
Name of Lender:_________________________________________________________
Title:__________________________________________________________________
Address:________________________________________________________________
Name of County Supervisor:______________________________________________
Service Area:___________________________________________________________
    1. Is the lender interested in making loans to refinance rural 
housing borrowers? Yes:----; No:----.
If later, when?_________________________________________________________

    How much credit does the lender expect to have available in the next 
three to four months for making such loans? $------------
    In the next twelve (12) months? $------------

    2. What are the loan terms? ------------

    3. What is the current interest rate? ------------ [squ] Variable 
rate. [squ] Fixed rate.
    If variable, how is it determined? ------------


[[Page 66]]


    4. Is a risk differential used in establishing interest rates 
charged for new customers? Yes: ----; No: ----.
If yes, explain:________________________________________________________
    5. What can a typical loan applicant be expected to pay for:

------------------------------------------------------------------------
                                              Dollars       Or percent
------------------------------------------------------------------------
a. Filing an application................  ..............  ..............
b. Real estate appraisal................  ..............  ..............
c. Credit report........................  ..............  ..............
d. Loan orgination fee..................  ..............  ..............
e. Loan closing costs...................  ..............  ..............
------------------------------------------------------------------------

    6. Is mortgage guarantee insurance required? Yes: ----; No: ----. If 
yes, how many years? ----. Cost? ------------.

    7. Is there a minimum or maximum loan size policy? Yes: ----; No: --
--.
If yes, explain: --_____________________________________________________
    8. Is there a minimum and maximum home value the lender will loan 
on? Yes: ----; No: ----. If yes, minimum: $------------; maximum: $----
--------.

    9. Does the lender use a loan to market value ratio? ------------

    10. Is there a minimum net and gross income criteria? Yes: ----; No: 
----. If yes, net: $------------; gross: $------------.

    11. Does the lender use a minimum loan or home value to income 
ratio? Yes: ----; No: ----. If yes, loan to income ratio: ------------ 
Value to income ratio: ------------

    12. Is there a percentage of gross income a typical applicant should 
have available to pay housing costs? ------------

    a. To pay for principal, interest, taxes and insurance (PITI)? ----
%.

    b. To pay for the total housing costs and other credit obligations? 
----%.

    13. Are there any age of home, housing type, site size, and/or 
geographic restriction policies? Yes: ----; No: ----.
If yes, List:___________________________________________________________
 14. Other Comments:____________________________________________________
    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: ----; No: ----. If the answer is yes, only 
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.

[48 FR 40203, Sept. 6, 1983; 48 FR 41142, Sept. 14, 1983]

Subpart G-I [Reserved]



      Subpart J--Management and Collection of Nonprogram (NP) Loans

    Source: 58 FR 52646, Oct. 12, 1993, unless otherwise noted.



Sec.  1951.451  General.

    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.
    (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:
    (1) Sale of inventory property on NP terms;
    (2) Assumption of a program loan on NP terms;
    (3) Loans converted to NP status as a result of receipt of 
unauthorized assistance;
    (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;
    (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;
    (6) Sale of the real property of an FP borrower under the Homestead 
Protection program; or
    (7) FP accounts rescheduled under an accelerated repayment 
agreement.
    (b) C&BP/NP and MFH/NP transactions involving transfer of the 
security property will be submitted to the

[[Page 67]]

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.
    (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.

[58 FR 52646, Oct. 12, 1993, as amended at 61 FR 59778, Nov. 22, 1996]



Sec.  1951.452  Policy.

    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 Sec.  1951.460 (a) and (b) of this 
subpart.



Sec.  1951.453  [Reserved]



Sec.  1951.454  Review of adverse decisions.

    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.

[58 FR 52646, Oct. 12, 1993, as amended at 62 FR 10120, Mar. 5, 1997]



Sec.  1951.455  NP loan making for Single Family Housing (SFH) and farm property (real and chattel).

    (a) Application for NP credit. 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 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

[[Page 68]]

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 Sec.  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.
    (b) Fees. 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.
    (c) Eligibility restrictions. 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.
    (d) [Reserved]
    (e) Downpayment. 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.
    (f) Interest rate. 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.
    (g) Terms. 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:
    (1) Farm property (real estate security) and CONACT residential 
property classified as surplus. 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.
    (2) Farm property (chattels security). The note amount will be 
amortized over a period not to exceed 5 years.
    (3) Homestead protection. The note amount will be amortized over a 
period not to exceed 35 years.
    (h) Modification of security instruments. 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.

[[Page 69]]

    (i) Security. 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.
    (j) Closing. 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.

[58 FR 52646, Oct. 12, 1993, as amended at 62 FR 10120, Mar. 5, 1997]



Sec.  1951.456  [Reserved]



Sec.  1951.457  Payments.

    (a) Receiving payments. 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.
    (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.

[58 FR 52646, Oct. 12, 1993, as amended at 60 FR 55146, Oct. 27, 1995; 
62 FR 10120, Mar. 5, 1997]



Sec.  1951.458   Servicing real estate taxes.

    Refer to subpart A of part 1925 of this chapter for servicing real 
estate taxes.

[62 FR 10120, Mar. 5, 1997]



Sec.  1951.459  Preservation of security.

    (a) Inspections of NP security property. 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 Sec.  1955.55 of subpart B 
of part 1955 of this chapter.
    (b) Subordination. 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.
    (c) Bankruptcy. 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.



Sec.  1951.460  Release of security property or sale or lease of related property rights.

    (a) Partial release. Release of a portion of the security property 
may be made when the borrower requests it and FmHA or its successor 
agency 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

[[Page 70]]

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.
    (b) Easements, right-of-ways, and lease of mineral rights or other 
rights. 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.
    (c)-(d) [Reserved]



Sec.  1951.461  Release of valueless FmHA or its successor agency under Public Law 103-354 lien without monetary consideration.

    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.



Sec.  1951.462  Deceased borrower.

    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 Sec.  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.
    (a) Continue with jointly liable borrower. 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.
    (b) Assumption by spouse not liable for the FmHA or its successor 
agency under Public Law 103-354 debt. 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 Sec.  1951.463(d)(1) of this subpart.
    (c) Continue with joint tenant, tenant by the entirety, or other 
person. 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 Sec.  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 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

[[Page 71]]

is subject to the requirements of Sec.  1951.463 of this subpart.
    (d) 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. 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 Sec.  1951.463(d)(1) of this subpart 
provided:
    (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
    (2) There is reasonable prospect for orderly repayment of the loan 
and other obligations of the loan will be met.



Sec.  1951.463  Transfer of security and assumption of indebtedness.

    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 Sec.  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.
    (a) [Reserved]
    (b) General. The following policies apply to all transfers and 
assumptions under this subpart:
    (1) Amount of assumption. 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.
    (2) Conveyance of security property by borrower to spouse or child. 
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.
    (3) Withdrawal of jointly liable borrower. 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.
    (4) Addition of new transferee(s). When new stockholders/members/
[chyph]partners/[chyph]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.
    (5) Conveyance of security property into an inter vivos trust. 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 
take action to liquidate the loan as long as payments are made as 
scheduled and other obligations of the loan are met.
    (c) Program assumption. A NP loan may be assumed by an eligible 
program applicant if the property meets the eligibility requirements for 
a currently

[[Page 72]]

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.
    (d) NP assumption. The rates and terms for an NP assumption will be 
as provided in Sec.  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:
    (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:
    (i) A deceased borrower's surviving spouse.
    (ii) A divorced borrower's spouse.
    (iii) A joint tenant with right of survivorship or relative of a 
deceased borrower.
    (2) The spouse or child of a living borrower to whom title to the 
security property has been conveyed by spouse or parent.
    (3) A person other than the deceased borrower's spouse who wishes to 
continue with the loan under conditions outlined in Sec.  1951.462 (c) 
or (d) of this subpart may do so.
    (e) County Committee actions on Farmer Program assumptions. On 
program assumptions, the County Committee must certify the transferee's 
eligibility for the type of loan to be assumed.
    (f) Title clearance and loan closing. Title clearance and closing 
will be the same as for any program loan of the same type.
    (g) Release from liability. Release from liability of NP borrowers 
is not authorized.



Sec. Sec.  1951.464-1951.467  [Reserved]



Sec.  1951.468  Liquidation.

    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.
    (a) Voluntary. 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.
    (b) Foreclosure. 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 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.

[[Page 73]]

    (c) Conveyance to FmHA or its successor agency under Public Law 103-
354. 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:
    (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;
    (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
    (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.
    (d) 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. 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.



Sec.  1951.469  Actions after liquidation of property.

    (a) [Reserved]
    (b) Servicing unsatisfied account balances. 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.
    (c) [Reserved]



Sec. Sec.  1951.470-1951.478  [Reserved]



Sec.  1951.479  Pilot projects.

    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 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 Federal Register a

[[Page 74]]

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.



Sec.  1951.480  [Reserved]



Sec.  1951.481  FmHA or its successor agency under Public Law 103-354 Instructions.

    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).



Sec. Sec.  1951.482-1951.500  [Reserved]



  Subpart K--Predetermined Amortization Schedule System (PASS) Account 
                                Servicing

    Source: 50 FR 8597, Mar. 4, 1985, unless otherwise noted.



Sec.  1951.501  General.

    (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:
    (1) All MFH loans, credit sales, reamortizations, and transfers 
closed on or after May 1, 1985, and
    (2) All MFH loan recipients converting from the Daily Interest 
Accrual System (DIAS) to PASS according to Sec.  1951.517 of this 
subpart, except:
    (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.''
    (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 Sec.  1951.506 of 
this subpart.
    (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.''
    (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 Sec.  1951.504 of this subpart, and payment 
application as outlined in Sec.  1951.510 of this subpart.
    (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).

[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16244, May 6, 1988; 56 FR 
28038, June 19, 1991]



Sec.  1951.502  [Reserved]



Sec.  1951.503  Authorities and responsibilities.

    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.



Sec.  1951.504  Definitions and statements of policy.

    Advance regular payment. 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.
    Amortization schedule. An amortization schedule is the projected 
application of periodic payments to principal and interest at the 
promissory note

[[Page 75]]

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.
    Amortized recoverable costs. 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.
    (1) Payment of real estate taxes. 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.
    (2) Costs other than real estate taxes. 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.
    (3) Retroactive amortization of recoverable costs. 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.
    Audit receivables. 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.
    Conversion. The act of changing a borrower's account from DIAS to 
PASS.
    Daily Interest Accrual System (DIAS). 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.
    District Director. 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 Sec.  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.
    Extra payment. Extra payments are applied all to principal on the 
end of the loan and are funds derived from:
    (1) Sale of basic chattel or real estate security, including rental 
or lease of real estate security of a depreciating or depleting nature.
    (2) Refinancing of real estate debt.
    (3) Mineral royalties.
    (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).
    (5) Sale of real estate not mortgaged to the Government, pursuant to 
a condition of loan approval.
    (6) Transactions of a similar nature which reduce the value of the 
security for the loan(s).

[[Page 76]]

    Non-recoverable costs. 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.
    Overage. This term refers to both ``overage'' and ``surcharge'' 
described in exhibit H to subpart C of part 1930 of this chapter.
    Payment effective date. 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.
    Payment reception date. The day of the month the payment is received 
in the District Office.
    Predetermined Amortization Schedule System (PASS). System whereby 
FmHA or its successor agency under Public Law 103-354 will apply loan 
payments based on an amortization schedule.
    Project late fee. The amount charged a borrower's project account 
for a delinquent payment according to Sec.  1951.510(c)(2) of this 
subpart, or when an uncollectible regular payment has been processed 
according to Sec.  1951.506(c) of this subpart.
    Promissory note installment. The unrounded amortized installment 
shown on the promissory note, conversion agreement, assumption agreement 
or reamortization agreement, whichever is currently in effect.
    Recoverable costs. 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.
    Refund payment. Payments from unused loan funds which are applied to 
principal on the end of the loan account.
    Regular payment. All monthly payments scheduled according to PASS. 
Does not include extra payments, advance regular payments, refund 
payments or voluntary additional principal payments.
    Subsidized installment. 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.
    Subsidy credit. The difference between a borrower's monthly 
promissory note installment and the monthly subsidized installment.
    Voluntary additional principal payment. 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.

[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]



Sec.  1951.505  [Reserved]



Sec.  1951.506  Processing payments.

    (a) Regular payments. Regular payments and advance regular payments 
will be processed as follows:
    (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.''
    (2) The borrower must deliver all Forms FmHA or its successor agency 
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-

[[Page 77]]

Family Housing Tenant File System (MTFS) which will calculate the 
tenant's rent payment.
    (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.
    (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.
    (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.
    (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.
    (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.
    (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.
    (5) Form FmHA or its successor agency under Public Law 103-354 1944-
29, prepared by the borrower must reflect the following:
    (i) Only tenants occupying units the first day of the month prior to 
the payment due date.
    (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.
    (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 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.
    (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

[[Page 78]]

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.
    (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).
    (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.
    (b) Other payments. 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).
    (c) Uncollectible payment. 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.

[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]



Sec.  1951.507  Maintaining borrower accounts.

    (a) Accounts of active borrowers. 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.
    (b) Accounts of collection-only borrowers. Collection only accounts 
will be serviced according to Sec.  1951.7(b) of subpart A of this part.
    (c) Notifying borrowers of late fees and past due payments. 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.
    (d) Subsequent servicing. 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.
    (e) District Office monitoring. 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.

[50 FR 8597, Mar. 4, 1985, as amended at 58 FR 40955, July 30, 1993]



Sec.  Sec.  1951.508-1951.509  [Reserved]



Sec.  1951.510  Payment application.

    (a) Regular payment due date. The regular payment due date is the 
first day of each month. All months will be counted as 30 days (360 day 
year).
    (b) First regular payment. (1) The first regular amortized payment 
after loan closing for transfers (new terms), reamortizations, voluntary 
conversions, credit sales, or loans closed after interim financing must 
be at least one (1) month from closing. For example, if a 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.
    (2) For transfers (same terms) payments on loans already on PASS 
will be due on the next scheduled due date.
    (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.

[[Page 79]]

    (c) Delinquent payments. (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.
    (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).
    (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).
    (ii) A project late fee will be charged for any unpaid portion of 
the regular payment(s) exceeding $15.00.
    (iii) A project late fee will be charged one time only, for each 
regular payment.
    (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.
    (v) Exceptions may be made to late fee charges only as follows:
    (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.
    (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.
    (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.
    (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.
    (3) A project is considered delinquent on the 30th day of the month 
when any due amount is unpaid.
    (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 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.
    (d) Subsidy credit. 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.

[[Page 80]]

    (e) Regular payments. Regular payments will be applied in the 
following priority:
    (1) Amortized audit receivables.
    (2) Unamortized audit receivables.
    (3) All project late fees due.
    (4) Occupancy surcharges.
    (5) Amortized recoverable costs due.
    (6) Unamortized recoverable costs due.
    (7) Overage.
    (8) All other interest due.
    (9) Principal.
    (10) Any remaining regular payment will be applied as an advance 
regular payment unless specifically designated otherwise.
    (f) Advance regular payments. 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.
    (g) Extra and refund payments. Both will be applied as principal to 
the last installment to become due under the note.
    (h) Voluntary additional principal payments. 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.
    (i) Projects with initial and subsequent loan(s). Regular payments 
on projects with an initial and subsequent loan(s) will be applied 
according to the priorities listed in Sec.  1951.510(e) of this subpart. 
Each priority item will be paid for all project loans before moving to 
the next item.

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.
    (j) Final payments. 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 Sec.  1965.90 of subpart B to part 1965 of this chapter.

[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]



Sec.  1951.511  [Reserved]



Sec.  1951.512  Changes in the application of loan payments.

    District Office employees with State Director authorization 
according to Sec.  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.

[56 FR 28038, June 19, 1991, as amended at 58 FR 40955, July 30, 1993]



Sec.  1951.513  Overpayments and refunds to borrowers.

    Overpayments and refunds to borrowers will be processed according to 
Sec.  1951.13 of Subpart A of this part.



Sec.  1951.514  Recoverable and non-recoverable cost charges.

    The District Director will service recoverable and non-recoverable 
cost items according to Sec.  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 
Sec.  1951.504 of this subpart.)

[53 FR 16245, May 6, 1988, as amended at 57 FR 36591, Aug. 14, 1992]



Sec.  1951.515  Promissory notes for borrowers who convert to PASS.

    Promissory notes in the hands of investors when a loan is converted 
to

[[Page 81]]

PASS will be repurchased by the Finance Office and forwarded to the 
District Office for storage.



Sec.  1951.516  [Reserved]



Sec.  1951.517  Conversion from DIAS to PASS.

    (a) Conversion prior to May 1, 1985. 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.
    (b) Conversion on or after May 1, 1985--(1) Required conversion. 
After May 1, 1985, all MFH loans, transfers or reamortizations must be 
closed on PASS, except LH loans specified in Sec.  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.
    (2) Voluntary conversion. 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:
    (i) The loan account and reserve account are current less any 
authorized withdrawals at the time of conversion.
    (ii) Conversion does not result in a rent increase.
    (iii) The conversion is effective the first day of the month.
    (3) Processing conversions. The following actions must be taken to 
convert an account from DIAS to PASS:
    (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.
    (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.
    (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 ------ 198--, in the principal sum of 
$------, has been given to modify the payment schedule of the note.
    (4) Principal balance to be converted. For transfers and 
reamortizations, the applicable transfer or reamortization form will 
convert the account to PASS. The principal balance converted to 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:
    (i) For DIAS to PASS transactions (new terms):
    (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.
    (B) Other than the first of the month closing: Accrued interest, 
overage and late fees through the date of closing

[[Page 82]]

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.
    (ii) For DIAS to PASS transactions (same terms):
    (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.
    (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.
    (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.
    (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.
    (5) Terms of conversion. 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).

[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]



Sec.  1951.518  Determining current loan balances for transfer.

    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.

[53 FR 16245, May 6, 1988]



Sec. Sec.  1951.519-1951.547  [Reserved]



Sec.  1951.548  Exception authority.

    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.



Sec.  1951.549  [Reserved]



Sec.  1951.550  OMB control number.

    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

[[Page 83]]

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.

[56 FR 28039, June 19, 1991]



 Subpart L--Servicing Cases Where Unauthorized Loan or Other Financial 
                Assistence was Received--Farmer Programs

    Source: 50 FR 45777, Nov. 1, 1985, unless otherwised noted.



Sec.  1951.551  Purpose.

    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.

[52 FR 26138, July 13, 1987]



Sec.  1951.552  Definitions.

    As used in this subpart, the following definitions apply:
    (a) Active borrower. 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.
    (b) Assistance. Financial assistance in the form of a loan or 
interest subsidy received.
    (c) Debt instrument. Used as a collective term to include promissory 
note or assumption agreement.
    (d) False information. Information, known to be incorrect, provided 
with the intent to obtain benefits which would not have been obtainable 
based on correction information.
    (e) Inaccurate information. Incorrect information provided 
inadvertently without intent to obtain benefits fraudulently.
    (f) Inactive borrower. 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.
    (g) Unauthorized Assistance. 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.

[50 FR 45777, Nov. 1, 1985, as amended at 56 FR 33862, July 24, 1991]



Sec.  1951.553  Policy.

    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.



Sec. Sec.  1951.554-1951.555  [Reserved]



Sec.  1951.556  Initial determination that unauthorized assistance was received.

    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

[[Page 84]]

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 Sec.  
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:
    (a) Submission of inaccurate information by the borrower;
    (b) Submission of false information by the borrower;
    (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;
    (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
    (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.



Sec.  1951.557  Notification to borrower.

    (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:
    (1) Specify in detail the reason(s) the assistance was determined to 
be unauthorized;
    (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
    (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.
    (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 follow 
up necessary to assure that servicing of the case continues without 
undue delay.



Sec.  1951.558  Decision on servicing actions.

    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.

[[Page 85]]

    (a) Payment in full. 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 Sec.  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 Sec.  
1951.568(a) of this subpart.
    (b) Continuation with borrower. If the borrower agrees with FmHA or 
its successor agency under Public Law 103-[chyph]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 Sec.  1951.561 of this subpart 
will be taken, provided all of the following conditions are met:
    (1) The borrower did not provide false information as defined in 
Sec.  1951.552(d) of this subpart.
    (2) It would be highly inequitable to require prompt repayment of 
the unauthorized assistance; and
    (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.
    (c) Liquidation of loan(s) or legal action to enforce collection. 
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 Sec.  
1951.561 of this subpart, or when a borrower fails to respond to the 
initial letter prescribed in Sec.  1951.557 of this subpart within 30 
days, one of the following actions will be taken:
    (1) Active borrower with a secured loan. (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.)
    (ii) If the borrower wants to voluntarily convey, the County 
Supervisor will follow the directions in Sec.  1955.10 or Sec.  1955.20 
as applicable, of subpart A of part 1955 of this chapter.
    (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 Sec.  
1955.15 of subpart A of part 1955 of this chapter.
    (iv) Forced liquidation will not be pursued when:
    (A) The amount of unauthorized assistance outstanding, including 
principal, accrued interest, and recoverable costs charged to the 
account, is less that $1,000; or
    (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 Sec.  1951.569 of this subpart will be made.
    (v) Account adjustments will be made by FmHA or its successor agency 
under Public Law 103-354 without the signature of the borrower according 
to Sec.  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.

[[Page 86]]

    (2) (Inactive borrower or active borrower with unsecured loan such 
as collection-only or unsatisfied balance after liquidation). 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.

[50 FR 45777, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988]



Sec. Sec.  1951.559-1951.560  [Reserved]



Sec.  1951.561  Servicing options in lieu of liquidation or legal action.

    When all of the conditions outlined in Sec.  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 
Sec.  1951.568 of this subpart.
    (a) Active borrower--(1) Entire loan, or loan servicing 
unauthorized. 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:
    (i) Execution of Form FmHA or its successor agency under Public Law 
103-354 1965-11, ``Accelerated Repayment Agreement,'' according to Sec.  
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.
    (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.
    (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.
    (2) Portion of loan unauthorized. 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 Sec.  
1951.568 of this subpart for instructions on setting up separate 
accounts.
    (3) Unauthorized interest subsidy benefits received. 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.
    (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.
    (ii) When a subsidized interest rate was incorrectly charged on only 
a portion of the loan, the Finance Office will 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

[[Page 87]]

at the correct interest rate, both portions will be serviced as 
authorized loans.
    (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:
    (A) For disaster Emergency (EM) loans, to the rate for EM annual 
production loans.
    (B) For Operating Loans--Limited Resource (OL-LR), to the rate for 
regular Operating Loans (OL).
    (C) For Farm Ownership--Limited Resource (FO-LR), to the rate for 
regular Farm Ownership (FO).
    (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.
    (b) Inactive borrower. When the individual or entity does not have 
an outstanding account in the records of the Finance Office, the 
following actions will be taken:
    (1) Have the inactive borrower execute a promissory note in the 
amount of the assistance determined to be unauthorized according to 
Sec.  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.
    (2) Take the best lien obtainable on any collateral having equity 
value to secure the note.

[50 FR 45777, Nov. 1, 1985, as amended at 51 FR 4138, Feb. 3, 1986; 56 
FR 33862, July 24, 1991]



Sec. Sec.  1951.562-1951.567  [Reserved]



Sec.  1951.568  Account adjustments and reporting requirements.

    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.
    (a) Audit cases. 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.
    (1) Entire loan unauthorized. 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:
    (i) Accelerated repayment agreement or loan rescheduled. 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.
    (ii) Continuation with loan on existing terms. When it is determined 
that all the conditions outlined in Sec.  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.

[[Page 88]]

    (2) Portion of loan unauthorized. 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 Sec.  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).
    (3) Unauthorized subsidy benefits received. (i) Entire loan. 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.
    (ii) Portion of loan. 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.
    (4) Liquidation pending. 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.
    (5) Liquidation not initiated. Cases in which liquidation would 
normally be initiated, but where it is not because of the provisions of 
Sec.  1951.558 (c)(1)(iv)(A) or (c)(1)(iv)(B) of this subpart, will be 
adjusted according to Sec.  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 
only, 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.
    (6) Establishment of account of inactive borrower. (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.
    (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.
    (7) Payments on authorized and unauthorized loans concurrently. 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

[[Page 89]]

applied first to the unauthorized loan account to maintain it current, 
with the remainder of the payment applied to the other loan(s).
    (8) Reporting. 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:
    (i) For an unauthorized loan account established as provided in 
paragraph (a) (1), (2), or (6) of this section, reporting will be as 
follows:
    (A) When unauthorized assistance is paid in full, it will be 
reported on the next scheduled report only, giving the amount collected.
    (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.
    (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.
    (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.
    (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.
    (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.
    (b) Nonaudit cases. 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.
    (1) Account adjustments will be handled as follows:
    (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.
    (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.
    (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.
    (iv) If a loan is paid in full, the remittance will be handled in 
the same manner as any other final payment.
    (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.

[50 FR 45777, Nov. 1, 1985, as amended at 55 FR 35295, Aug. 29, 1990]



Sec.  1951.569  Exception authority.

    The Administrator may in individual cases make an exception to any 
requirement or provision of this subpart

[[Page 90]]

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.



Sec. Sec.  1951.570-1951.599  [Reserved]



Sec.  1951.600  OMB control number.

    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.

Subpart M [Reserved]



 Subpart N--Servicing Cases Where Unauthorized Loan or Other Financial 
            Assistance Was Received--Multiple Family Housing

    Source: 50 FR 12996, Apr. 2, 1985, unless otherwise noted.



Sec.  1951.651  Purpose.

    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.

[58 FR 38926, July 21, 1993]



Sec.  1951.652  Definitions.

    As used in this subpart, the following definitions apply:
    (a) Active borrower. 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.
    (b) Assistance. Financial assistance in the form of a loan, grant, 
or subsidy received.
    (c) Debt instrument. Used as a collective term to include promissory 
note, assumption agreement, grant agreement/resolution, or bond.
    (d) False information. Information, known to be incorrect, provided 
with the intent to obtain benefits which would not have been obtainable 
based on correct information.
    (e) Inaccurate information. Incorrect information provided 
inadvertently without intent to obtain benefits fraudulently.
    (f) Inactive borrower. 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.
    (g) Recipient. ``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.
    (h) Unauthorized assistance. 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.

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

[[Page 91]]

official, or the documents were prepared in error.

[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]



Sec.  1951.653  Policy.

    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.

[58 FR 38926, July 21, 1993]



Sec.  1951.654  Categories of unauthorized assistance.

    Unauthorized assistance includes, but is not limited to, these 
categories:
    (a) The recipient was not eligible for the assistance.
    (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.
    (c) The loan or grant was made for unauthorized purposes. For 
example: Purchase of an excessive amount of land.
    (d) The recipient was granted unauthorized subsidy in the form of:
    (1) Interest credits (IC) on an RRH loan;
    (2) Rental Assistance (RA) in connection with an RRH or LH loan; or
    (3) A subsidy benefit received through use of an incorrect interest 
rate.
    (e) The recipient was not subjected to obligations required by the 
assistance, such as restrictive-use provisions, at the time the 
assistance was provided.

[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]



Sec.  1951.655  [Reserved]



Sec.  1951.656  Initial determination that unauthorized assistance was received.

    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 Sec.  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:
    (a) Submission of inaccurate information by the recipient;
    (b) Submission of false information by the recipient;
    (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 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;
    (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
    (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

[[Page 92]]

omission from the instrument of language required by applicable 
regulation.

[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]



Sec.  1951.657  Notification to recipient.

    (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:
    (1) Specify in detail the reason(s) the assistance was determined to 
be unauthorized;
    (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
    (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.
    (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.



Sec.  1951.658  Decision on servicing actions.

    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.
    (a) Payment in full. 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:
    (1) In the case of the loan, for application to the borrower's 
account as an extra payment.
    (2) In the case of a grant, as a ``Miscellaneous Collection for 
Application to the General Fund.''
    (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 
Sec.  1951.668 (a)(1)((i), (a)(3), or (a)(6) as applicable.
    (4) In the case of RA, the repayment will be handled as outlined in 
Sec.  1951.661

[[Page 93]]

(a)(3) and exhibit E to FmHA or its successor agency under Public Law 
103-354 Instruction 1930-C.
    (b) Continuation with recipient. 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 Sec.  1951.668 will be 
taken provided all of the following conditions are met:
    (1) The recipient did not provide false information as defined in 
Sec.  1951.652 (d);
    (2) It would be highly inequitable to require prompt repayment of 
the unauthorized assistance; and
    (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.
    (c) Notice of determination when agreement is not reached. 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 Sec.  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:
    (1) The amount of assistance finally determined by FmHA or its 
successor agency under Public Law 103-354 to be unauthorized;
    (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
    (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).
    (d) Appeals. 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.
    (e) Liquidation of loan(s) or legal action to enforce collection. 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:
    (1) Active borrower with a secured loan. (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 accordance with subpart A of 1955 of this 
chapter unless:
    (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
    (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 Sec.  1951.669 will be made.

[[Page 94]]

    (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 Sec.  1951.661, liquidation action will be initiated as 
provided in paragraph (e)(1)(i) of this section.
    (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 Sec.  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.
    (2) Grantee, inactive borrower, or active borrower with unsecured 
loan (such as collection-only, or unsatisfied balance after 
liquidation). 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.

[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]



Sec. Sec.  1951.659-1951.660  [Reserved]



Sec.  1951.661  Servicing options in lieu of liquidation or legal action to collect.

    When all of the conditions outlined in Sec.  1951.658(b) are met, an 
unauthorized loan or grant will be serviced according to this section 
and Sec.  1951.668, provided the recipient has the legal and financial 
capabilities.
    (a) Active borrower/grantee--(1) Unauthorized loan. (i) Correction 
of problem. 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.
    (ii) Continuation on existing terms. When there is no specific 
problem which can be corrected, continuation on the existing terms is 
authorized.
    (2) Unauthorized subsidy benefits received through use of incorrect 
interest rate. 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 Sec.  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.
    (3) Unauthorized interest credits or rental assistance. 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.
    (i) Tenant's failure to properly report changes in income or size of 
the household to the borrower. 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

[[Page 95]]

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.
    (ii) Tenant knowingly misrepresented income or number of occupants 
to the borrower. 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.
    (iii) Unauthorized RA and/or IC paid due to borrower's error. 
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.
    (iv) Rental assistance assigned to wrong household. 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.
    (A) Notification and cancellation. 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:
    (1) The tenant has the right to cancel the lease based on the loss 
of subsidy benefit to the tenant.
    (2) The RA granted in error will not be recaptured.
    (3) The tenant may meet with management to discuss the cancellation 
and the facts on which the decision was based. The borrower must give 
the tenant appeal rights under subpart L or part 1944 of this chapter.
    (B) Reassignment of RA. Rental assistance will be reassigned in 
accordance with paragraph XII of exhibit E to subpart C of part 1930 of 
this chapter.
    (v) Rental assistance in excess of contract. 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.

[[Page 96]]

    (4) Unauthorized grant assistance. (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 Sec.  1951.668 (a)(6).
    (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.
    (5) Cases where recipient has both authorized and unauthorized loans 
outstanding. 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.
    (b) Inactive borrower. When a borrower no longer has an outstanding 
account in the records of the Finance Office, the following actions will 
be taken:
    (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 Sec.  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.
    (2) Take the best mortgage obtainable to secure the note.

[50 FR 12996, Apr. 2, 1985, as amended at 51 FR 11563, Apr. 4, 1986; 58 
FR 38926, July 21, 1993]



Sec. Sec.  1951.662-1951.667  [Reserved]



Sec.  1951.668  Servicing unauthorized assistance accounts.

    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.
    (a) Audit cases. 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.''
    (1) Unauthorized loan. 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:
    (i) Repayment in full. 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.

[[Page 97]]

    (ii) Continuation with loan on existing terms. When continuation 
with the loan on the existing terms is approved according to Sec.  
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.
    (2) Unauthorized subsidy benefits received through use of incorrect 
interest rate. 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.
    (3) Unauthorized interest credits and/or rental assistance. 
Unauthorized rental assistance and/or interest credits will be recovered 
according to the provisions of Sec.  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.
    (4) Liquidation pending. 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).
    (5) Liquidation not initiated. Cases in which Liquidation has not 
been initiated because of the provisions of Sec.  1951.658 (e)(1)(i)(A) 
or (e)(1)(i)(B) will be adjusted according to Sec. 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.
    (6) Unauthorized grant assistance. When grant funds are to be repaid 
as provided in Sec.  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.
    (7) Establishment of account for inactive borrower. 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 the account according to the 
terms indicated on Form FmHA or its successor agency under Public Law 
103-354 1951-52.
    (8) Reporting. 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:
    (i) For an unauthorized loan account as provided in paragraph (a)(1) 
or (a)(4)

[[Page 98]]

of this section, reporting will be as follows:
    (A) When unauthorized assistance is paid in full, this will be 
reported on the next scheduled report only.
    (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.
    (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.
    (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.
    (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.
    (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.
    (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.
    (b) Nonaudit cases. 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.
    (1) Account adjustments will be handled as follows:
    (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.
    (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.
    (iii) If a loan is paid in full, the remittance will be handled in 
the same manner as any other final payment.
    (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.
    (c) Collection of unauthorized assistance. 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.

[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]

[[Page 99]]



Sec.  1951.669  Exception authority.

    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.



Sec. Sec.  1951.670-1951.699  [Reserved]



Sec.  1951.700  OMB control number.

    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.



Subpart O--Servicing Cases Where Unauthorized Loan(s) or Other Financial 
    Assistance Was Received--Community and Insured Business Programs

    Source: 50 FR 13000, Apr. 2, 1985, unless otherwise noted.



Sec.  1951.701  Purpose.

    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.

[52 FR 38908, Oct. 20, 1987]



Sec.  1951.702  Definitions.

    As used in this subpart, the following definitions apply:
    (a) Active borrower. 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.
    (b) Assistance. Finance assistance in the form of a loan, grant, or 
subsidy received.
    (c) Debt instrument. Used as a collective term to include promissory 
note, assumption agreement, grant agreement agreement/resolution, or 
bond.
    (d) False information. Information, known to be incorrect, provided 
with the intent to obtain benefits which would not have been obtainable 
based on correct information.
    (e) Inaccurate information. Incorrect information provided 
inadvertently without intent to obtain benefits fraudulently.
    (f) Inactive borrower. 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.
    (g) Recipient. ``Recipient'' refers to an individual or entity that 
received a loan, or portion of a loan, an interest subsidy, a grant, or 
a portion of a grant which was unauthorized.
    (h) Servicing official. 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.
    (i) Unauthorized assistance. 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

[[Page 100]]

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.



Sec.  1951.703  Policy.

    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.



Sec. Sec.  1951.704-1951.705  [Reserved]



Sec.  1951.706  Initial determination that unauthorized assistance was received.

    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 Sec.  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:
    (a) Submission of inaccurate information by the recipient;
    (b) Submission of false information by the recipient.
    (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;
    (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
    (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.



Sec.  1951.707  Notification to recipient.

    (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:
    (1) Specify in detail the reason(s) the assistance was determined to 
be unauthorized;
    (2) State the amount of unauthorized assistance, including any 
accrued interest to be repaid; and
    (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-

[[Page 101]]

354's determination that the assistance received was unauthorized.
    (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.



Sec.  1951.708  Decision on servicing actions.

    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.
    (a) Payment in full. 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 
Sec.  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:
    (1) In the case of a loan, for application to the borrower's account 
as an extra payment.
    (2) In the case of a grant, as a ``Miscellaneous Collection for 
Application to the General Fund.''
    (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 
Sec.  1951.711(b)(2) or 1951.715 as applicable.
    (b) Continuation with recipient. 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 Sec.  1951.711 will be 
taken provided all of the following conditions are met:
    (1) The recipient did not provide false information as defined in 
Sec. 1951.702(d);
    (2) It would be highly inequitable to require prompt repayment of 
the unauthorized assistance; and
    (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.
    (c) Notice of determination when agreement is not reached. 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 Sec.  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:
    (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.
    (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
    (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).
    (d) Appeals. 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

[[Page 102]]

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.
    (e) Liquidation of loan(s) or legal action to enforce collection. 
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 Sec. 1951.711, one of the following actions 
will be taken:
    (1) Active borrower with a secured loan. (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:
    (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
    (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 Sec.  951.716 will be made.
    (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 Sec.  1951.711, liquidation action will be initiated as 
provided in paragraph (e)(1)(i) of this section.
    (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.
    (2) Grantee, inactive borrower, or active borrower with unsecured 
loan (such as collection-only, or unsatisfied balance after 
liquidation). 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.



Sec. Sec.  1951.709-1951.710  [Reserved]



Sec.  1951.711  Servicing options in lieu of liquidation or legal action to collect.

    When the conditions outlined in Sec.  1951.708(b) are met, the 
servicing options outlined in this section will be considered. Accounts 
will be serviced according to this section and Sec.  1951.715.
    (a) Determination of unauthorized loan and/or grant assistance 
amount--(1) Unauthorized loan amount. 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 Sec.  1951.708(a), or until the date other satisfactory financial 
arrangements are made in accordance with paragraph (b)(1) or (c) of this 
section.
    (2) Unauthorized grant amount. The unauthorized grant actually 
expended

[[Page 103]]

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 Sec.  1951.708(a), or until the date other 
satisfactory financial arrangements are made in accordance with 
paragraph (b)(2) or (c) of this section.
    (b) Continuation on modified terms. 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.
    (1) Unauthorized loan. 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.
    (2) Unauthorized grant. 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.
    (3) Unauthorized subsidy benefits received. 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.
    (c) Continuation on existing terms. When the recipient does not have 
the 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.

[[Page 104]]

    (d) Reporting requirements to National Office. 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.

[50 FR 13000, Apr. 2, 1985, as amended at 51 FR 11563, Apr. 4, 1986; 54 
FR 28020, July 5, 1989]



Sec. Sec.  1951.712-1951.714  [Reserved]



Sec.  1951.715  Account adjustments and reporting requirement.

    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 Sec.  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 Sec.  1951.711(b)(2) 
for inclusion in the report to OIG.
    (a) Entire loan unauthorized. 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.
    (1) Repayment in full. 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.
    (2) Continuation with loan on existing or modified terms. When it is 
determined, according to Sec.  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.
    (b) Portion of loan unauthorized. 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:
    (1) Repayment in full of unauthorized portion. 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.
    (2) Continuation with unauthorized portion of loan on existing or 
modified terms. When it is determined, according to Sec.  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

[[Page 105]]

the next available loan number. Installments for the authorized and 
unauthorized loans will be scheduled and paid concurrently.
    (c) Unauthorized subsidy benefits received. The unauthorized subsidy 
benefits received will be serviced according to Sec.  1951.711 (b)(3) or 
(c).
    (d) Liquidation pending. 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.
    (e) Liquidation not initiated. Cases in which liquidation would 
normally be initiated, but where it is not because of the provisions of 
Sec.  1951.708(e)(1), will be serviced in accordance with Sec.  
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.
    (f) Unauthorized grant assistance. A grant that is to be repaid will 
be serviced according to Sec.  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.
    (g) Reporting. 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:
    (1) For an unauthorized loan account established as provided in 
paragraph (a) or (b) of this section, reporting will be as follows:
    (i) When unauthorized assistance is paid in full, this will be 
reported on the next scheduled report only.
    (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.
    (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.
    (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.
    (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.
    (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.



Sec.  1951.716  Exception authority.

    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 
action, and show how the adverse effect will be eliminated or minimized 
if the exception is granted.



Sec. Sec.  1951.717-1951.749  [Reserved]



Sec.  1951.750  OMB control number.

    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.

Subparts P-Q [Reserved]

[[Page 106]]



               Subpart R--Rural Development Loan Servicing

    Source: 53 FR 30656, Aug. 15, 1988, unless otherwise noted.



Sec.  1951.851  Introduction.

    (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.
    (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).
    (c) The portion of this regulation pertaining to loanmaking applies 
to RDLF intermediaries cited in Sec.  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.
    (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.
    (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.



Sec.  1951.852  Definitions and abbreviations.

    (a) General definitions. The following definitions are applicable to 
the terms used in this subpart.
    (1) Intermediary (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.
    (2) Loan Agreement. 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.
    (3) Low-income. 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)).
    (4) Market value. 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.
    (5) Principals of intermediary. Includes members, officers, 
directors, and other entities directly involved in the operation and 
management of an intermediary organization.
    (6) Ultimate recipient. The entity receiving financial assistance 
from the intermediary. This may be interchangeable with the term 
``subrecipient'' in some documents previously issued by HHS.
    (7) Rural area. 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.
    (8) State. 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.
    (9) Technical assistance or service. 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.

[[Page 107]]

    (10) Working capital. 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.
    (b) Abbreviations. The following abbreviations are applicable:
    B&I--Business and Industry
    CSA--Community Services Administration
    EIS--Environmental Impact Statement
    HHS--U.S. Department of Health and Human Services
    IRP--Intermediary Relending Program
    OCS--Office of Community Services
    OIG--Office of Inspector General
    OGC--Office of the General Counsel
    RDLF--Rural Development Loan Fund
    USDA--United States Department of Agriculture

[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6052, Feb. 6, 1998]



Sec.  1951.853  Loan purposes for undisbursed RDLF loan funds from HHS.

    (a) RDLF Intermediaries. 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.
    (b) Ultimate recipients.
    (1) Financial assistance from the intermediary to the ultimate 
recipient must be for business facilities and community development 
projects in rural areas.
    (2) Financial assistance involving Rural Development Loan funds from 
the intermediary to the ultimate recipient may include but not be 
limited to:
    (i) Business acquisitions, construction, conversion, enlargement, 
repair, modernization, or development cost.
    (ii) Purchasing and development of land, easements, rights-of-way, 
building, facilities, leases, or materials.
    (iii) Purchasing of equipment, leasehold improvements, machinery or 
supplies.
    (iv) Pollution control and abatement.
    (v) Transportation services.
    (vi) Startup operating costs and working capital.
    (vii) Interest (including interest on interim financing) during the 
period before the facility becomes income producing, but not to exceed 3 
years.
    (viii) Feasibility studies.
    (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.
    (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 granting or augmenting publicly-owned or regulated stock of 
fish.

[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6053, Feb. 6, 1998]



Sec.  1951.854  Ineligible assistance purposes.

    (a) RDLF Intermediaries. RDLF loans may not be used by the 
intermediary:
    (1) For payment of the intermediary's own administrative costs or 
expenses.
    (2) To purchase goods or services or render assistance in excess of 
what is needed to accomplish the purpose of the ultimate recipient 
project.

[[Page 108]]

    (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.
    (4) For charitable and educational institutions, churches, 
organizations affiliated with or sponsored by churches, and fraternal 
organizations.
    (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.
    (6) For relending in a city with a population of twenty-five 
thousand or more as determined by the latest decennial census.
    (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.
    (8) For any line of credit.
    (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.
    (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.
    (b) Ultimate recipients. Ultimate recipients may not use assistance 
received from RDLF intermediaries involving RDLF funds:
    (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:
    (i) Aquaculture as identified under eligible purposes.
    (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.
    (iii) Forestry, which includes establishments primarily engaged in 
the operation of timber tracts, tree farms, forest nurseries, and 
related activities such as reforestation.
    (iv) Financial assistance for livestock and poultry processing as 
identified under eligible purposes.
    (v) The growing of mushrooms or hydroponics.
    (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.
    (3) For community antenna television services or facilities.
    (4) For any legitimate business activity when more than 10 percent 
of the annual gross revenue is derived from legalized gambling activity.
    (5) For any illegal activity.
    (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.
    (7) For any hotels, motels, tourist homes, or convention centers.
    (8) For any tourist, recreation, or amusement centers.

[[Page 109]]



Sec. Sec.  1951.855-1951.858  [Reserved]



Sec.  1951.859  Term of loans.

    (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.
    (b) The terms of loan repayment will be those stipulated in the loan 
agreement and/or promissory note.



Sec.  1951.860  Interest on loans.

    (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.
    (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.
    (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.
    (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.
    (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:
    (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.
    (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.
    (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.
    (D) The loans to be included in determining the weighted interest 
average will be those made from January 1, 1983, forward.
    (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.
    (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 should include calculations, list of outstanding 
loans, current interest rate being charged on the loan, etc.
    (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.



Sec. Sec.  1951.861-1951.865  [Reserved]



Sec.  1951.866  Security.

    (a) Loans from RDLF intermediaries to ultimate recipients. Security 
requirements for loans from intermediaries to

[[Page 110]]

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.
    (b) Additional security. 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.
    (c) Appraisals. 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.



Sec.  1951.867  Conflict of interest.

    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.



Sec.  1951.868-1951.870  [Reserved]



Sec.  1951.871  Post award requirements.

    (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.
    (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.
    (c) Intermediaries operating relending programs must maintain 
separate ledgers and segregated accounts for RDLF funds at all times.
    (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 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.
    (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.
    (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

[[Page 111]]

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.



Sec.  1951.872  Other regulatory requirements.

    (a) Intergovenmental consultation. 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.
    (b) Environmental requirements. (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 Sec. Sec. 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.
    (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.
    (c) Equal opportunity and nondiscrimination requirements.
    (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.
    (2) The regulations contained in part 1901, subpart E of this 
chapter apply to loans made under this program.
    (3) The Administrator will assure that equal opportunity and 
nondiscrimination requirements are met in accordance with Title VI of 
the Civil 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.



Sec. Sec.  1951.873-1951.876  [Reserved]



Sec.  1951.877  Loan agreements.

    (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:
    (1) The amount of the loan.
    (2) The interest rate.
    (3) The term and repayment schedule.

[[Page 112]]

    (4) The provisions for late charges.
    (5) Provisions regarding default.
    (6) Disbursement procedure.
    (7) Insurance requirements.
    (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.
    (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.
    (iii) Workmen's compensation insurance on ultimate recipients is 
required in accordance with State law.
    (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.
    (b) The RDLF intermediary will agree:
    (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.
    (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.



Sec. Sec.  1951.878-1951.880  [Reserved]



Sec.  1951.881  Loan servicing.

    (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.
    (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.
    (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.
    (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 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.
    (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

[[Page 113]]

state otherwise. If the loan documents state when late charge amounts or 
interest accruals are to be capitalized, the loan documents will 
prevail.
    (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.
    (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.
    (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.
    (4) Interest will be computed on a 365-day basis unless legal 
documents state otherwise.
    (f) It is the responsibility of the Finance Office to maintain 
complete accounting records for each intermediary. The Finance Office 
will:
    (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.
    (2) Send monthly statements to the National Office reflecting all 
payments received to date on each borrower.
    (3) Send to the Administrator or designee a monthly summary of all 
intermediary loans as follows:
    (i) Number and amount of all loans.
    (ii) Total advanced on all loans.
    (iii) Total interest and principal received on the loans.
    (iv) Total outstanding balance on all loans.
    (4) Prepare reamortization schedules needed as a result of 
restructuring any loans and send to the Administrator or designee.
    (5) Furnish in writing to the Administrator or designee a per diem 
amount on the actual interest amount due when requested by the 
Administrator.
    (g) It is the responsibility of the Administrator or designee to:
    (1) Review and analyze the semiannual report of the intermediaries 
and reconcile same to the annual audits.
    (2) Review the annual audits of intermediaries.
    (3) Review the semiannual reports of the intermediaries and take 
appropriate action when necessary.
    (4) Follow up on delinquent intermediaries to bring the account 
current.
    (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.
    (6) Furnish to the Finance Office the necessary information to 
produce reamortization schedules.
    (7) Provide the Finance Office a copy of any correspondence in 
regard to the restructuring of the loans.
    (8) Review reamortization schedules, the schedule will then be 
forwarded to the intermediary.
    (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. 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.
    (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.
    (11) Answer Congressional and other correspondence.
    (12) Review intermediary's plans, cash flow projections, balance 
sheets, and operating statements.

[[Page 114]]



Sec.  1951.882  [Reserved]



Sec.  1951.883  Reporting requirements.

    (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:
    (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.
    (2) Quarterly or semiannual reports (due 30 days after the end of 
the period).
    (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.
    (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.
    (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.
    (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.
    (4) Proposed budget for the following year.
    (5) Other reports as FmHA or its successor agency under Public Law 
103-354 may require from time to time.
    (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.

[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6053, Feb. 6, 1998]



Sec.  1951.884  Non-Federal funds.

    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.

[[Page 115]]



Sec.  1951.885  Loan classifications.

    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 
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:
    (a) Seasoned loan classification. To be classified as a seasoned 
loan, a loan must:
    (1) Have a remaining principal loan balance of two-thirds or less of 
the original aggregate of all existing loans made to that intermediary.
    (2) Be in compliance with all loan conditions and FmHA or its 
successor agency under Public Law 103-354 regulations.
    (3) Have been current on the loan(s) payments for 24 consecutive 
months.
    (4) Be secured by collateral which is determined to be adequate to 
ensure there will be no loss on the loan.
    (b) Current non-problem classification. 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.
    (c) Special mention classification. 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.
    (d) Substandard classification. 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.
    (e) Doubtful classification. 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.
    (f) Loss classification. 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.

[[Page 116]]



Sec. Sec.  1951.886-1951.888  [Reserved]



Sec.  1951.889  Transfer and assumption.

    (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.
    (b) Available transfer and assumption options to eligible 
intermediaries include the following:
    (1) The total indebtedness may be transferred to another eligible 
intermediary on the same terms.
    (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.
    (3) Less than total indebtedness may be transferred to another 
eligible intermediary on the same terms.
    (4) Less than total indebtedness may be transferred to another 
eligible intermediary on different terms.
    (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.
    (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.
    (e) The assumption agreement will contain the FmHA or its successor 
agency under Public Law 103-354 case nunber of the transferor and 
transferee.
    (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.
    (g) The Administrator or designee will approve or decline all 
transfers and assumptions.



Sec.  1951.890  Office of Inspector General and Office of General Counsel referrals.

    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.



Sec.  1951.891  Liquidation; default.

    (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

[[Page 117]]

hereunder, the FmHA or its successor agency under Public Law 103-354 
may:
    (1) Declare that the loan is immediately due and payable.
    (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.
    (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.
    (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.
    (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.
    (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).
    (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.
    (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.
    (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.



Sec. Sec.  1951.892-1951.893  [Reserved]



Sec.  1951.894  Debt settlement.

    Debt settlement of all claims will be handled in accordance with the 
Federal Claims Collection Standards (4 CFR parts 101-105).



Sec.  1951.895  [Reserved]



Sec.  1951.896  Appeals.

    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.



Sec.  1951.897  Exception authority.

    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.

[[Page 118]]



Sec. Sec.  1951.898-1951.899  [Reserved]



Sec.  1951.900  OMB control number.

    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.

[[Page 119]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      Total     Est. No. of
                                                                                 Estimated       Report filed         annual      man-hrs.    Est. total
      Sect. of regulations                 Title            Form No. (if any)      No. of          annually         responses       per        manhours
                                                                                respondents                         (d) x (e)     response    (f) x (g)
(A)                               (B)...................  (C).................          (D)  (E).................          (F)          (G)          (H)
---------------------------------
Reporting Requirements--No Forms
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
1951.860(a)(3)(i)...............  Weighted average        Written.............           12  1...................           12          3.0           36
                                   interest calculation.
1951.877(a)(7)(i)...............  Insurance.............  Assignment..........           36  On occasion.........          100          1.0          100
1951.882(a).....................  Intermediary            Meeting.............           36  1...................           36          4.5          162
                                   visitations.
1951.882(b).....................  Audited financial       Written.............           36  1...................           36           .5           18
                                   statement.
1951.883(a)(2)(ii)..............  Program narrative.....  Written.............  ...........  ....................  ...........  ...........  ...........
                                  IRP borrower..........  ....................           10  4...................           40          4.0          160
                                  RDLF borrower.........  ....................           26  2...................           52          4.0          208
1951.833(a)(2)(iii).............  Employment/income       Written.............           36  1...................           36          1.5           54
                                   narrative.
1951.883(a)(2)(iv)..............  Proposed budget.......  Written.............           36  1...................           36          2.5           90
1951.883(c).....................  Intermediary's report   Written.............           36  On occasion.........           50          1.0           50
                                   of loans 90 days in
                                   arrears.
1951.889(c).....................  Assumption Agreement..  Written.............            2  1...................            2          3.5            7
1951.889(d).....................  Transferee financial    Written.............            2  1...................            2           .5            1
                                   statement.
---------------------------------
Form Approved with this Docket
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
1951.883(a)(2)..................  IRP Lending Activity    1951-4..............  ...........  ....................  ...........  ...........  ...........
                                   Report.
                                  IRP borrower..........  ....................           10  4...................           40           20          800
                                  RDLF borrower.........  ....................           26  2...................           52           20         1040
---------------------------------
Reporting Requirements Under Other Numbers
 
--------------------------------------------------------------------------------------------------------------------------------------------------------
1951.872(b).....................  Request for             1940-20 (0575-0094).  ...........  ....................  ...........  ...........  ...........
                                   Environmental
                                   Information.
                                                                                ...........                             \1\494  ...........     \2\2,726
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Docket totals. \2\ Total hours.


[[Page 120]]



        Subpart S-- Farm Loan Programs Account Servicing Policies

    Source: 57 FR 18626, Apr. 30, 1992, unless otherwise noted.



Sec.  1951.901   Purpose.

    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 amortized payments (SA) may be reamortized 
under this subpart if the borrower also has outstanding FLP program 
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 Sec.  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.

[62 FR 10120, Mar. 5, 1997, as amended at 63 FR 6628, Feb. 10, 1998; 67 
FR 7943, Feb. 21, 2002]



Sec.  1951.902   General.

    Supervision and Servicing. 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:
    (a) To help farmers set goals, work on problem areas and work toward 
graduation to commercial credit;
    (b) To recover the maximum possible amount for the Government.

[62 FR 10120, Mar. 5, 1997]



Sec.  1951.903   Authorities and responsibilities.

    (a) Responsibilities. 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.
    (b) Authorities. 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 Sec.  
1951.909 of this Instruction. Only State Executive Directors are 
authorized to approve writedown and buyout in accordance

[[Page 121]]

with Sec.  1951.909 of this part and release a divorced spouse from 
liability on the debt in accordance with Sec.  1951.909(a) of this part.

[62 FR 10121, Mar. 5, 1997]



Sec.  1951.904  Mediation, reviews and appeals.

    (a) Participant rights. (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.
    (2) Any negotiation of an Agency appraisal must be completed prior 
to the meeting of creditors or mediation.
    (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.''
    (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.
    (b) Non-appealable decisions. The following types of decisions are 
not appealable:
    (1) Decisions made by parties outside the agency, even when those 
decisions are used as a basis for the agency's decisions.
    (2) Decisions that do not meet the eligibility requirements of 7 CFR 
part 11.
    (3) Interest rates as set forth in Agency procedures, except appeals 
alleging application of the incorrect interest rate.
    (4) Refusal to request or grant an administrative waiver permitted 
by program regulations.
    (5) Denials of assistance due to lack of funds.
    (6) In cases where the adverse decision is based on both appealable 
and non-appealable actions, the adverse action is not appealable.
    (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.
    (c) Next-level review. Any adverse decision, whether appealable or 
non-appealable, may be reviewed in accordance with 7 CFR part 780.
    (d) NAD review. (1) A participant may request that NAD review the 
Agency's determination that the decision may not be appealed.
    (2) A participant may request that NAD review any decision that is 
appealable.
    (3) NAD will review the participant's request in accordance with 7 
CFR part 11.
    (e) Agency actions pending outcome of appeal. 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.
    (f) Time limits. 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.

[62 FR 10121, Mar. 5, 1997]



Sec.  951.905  [Reserved]



Sec.  1951.906  Definitions.

    As used in this subpart, the following definitions apply:
    Borrower. 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.

[[Page 122]]

Borrower also includes any other party liable for the FLP debt. 
Nonprogram (NP) borrowers are not considered borrowers for the purposes 
of this subpart.
    CONACT or CONACT property. Property which secured a loan made or 
insured under the Consolidated Farm and Rural Development Act. Within 
this part, it shall also be construed to cover property which secured 
other FLP loans.
    Conservation contract. 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.
    Consolidation. 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.
    Current market value buyout. 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.
    Debt forgiveness. 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.
    Debt settlement. 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.
    Deferral. An approved delay in making regularly scheduled payments, 
including softwood timber (ST) loans. Deferral is not considered debt 
forgiveness.
    Delinquent borrower. 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.
    Entity. A corporation, partnership, joint operation, or cooperative.
    Farm Loan Programs (FLP) loans. 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).
    Farm plan. 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.
    Feasible plan. 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 Sec.  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 Sec.  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

[[Page 123]]

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:
    (1) Pay all operating expenses and taxes which are due during the 
projected farm business accounting period.
    (2) Meet scheduled payments on all debts.
    (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.
    (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.
    Financially distressed. 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.
    Foreclosed. The completed act of selling security either under the 
``power of sale'' in the security instrument or through court 
proceedings.
    Good faith. 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 (Sec.  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 Sec.  1962.17 of subpart A of part 1962 of this 
chapter.
    Homestead Protection. The right of a former owner to apply to lease, 
with an option to purchase the Homestead Protection property, not to 
exceed 10 acres.
    Homestead Protection property. This refers to the principal 
residence which secured a FLP loan.
    Indian Reservation. 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.
    Limited Resource Program. A reduction of interest rates for 
operating loans (OL), farm ownership loans (FO) and soil and water loans 
(SW).
    Liquidated. 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

[[Page 124]]

accounts. Collection-only accounts are not considered liquidated.
    Loan service program. A Primary Loan Servicing program or a 
Preservation Loan Servicing program (Homestead Protection) for FLP loan 
borrowers.
    New application. An application submitted on or after November 28, 
1990, for loan servicing programs. This does not include an application 
reconsidered after an appeal or revision of an application submitted 
before November 28, 1990.
    Nonessential assets. Nonessential assets are those in which the 
borrower has an ownership interest, that:
    (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
    (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.
    Nonprogram (NP) loan. 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.
    Preservation loan service program. See Homestead Protection.
    Primary loan service program. Primary loan service program means:
    (1) Loan consolidation, rescheduling, or reamortization;
    (2) Interest rate reduction, including use of the limited resource 
program;
    (3) Loan restructuring, including deferral, or writing down of the 
principal or accumulated interest; or
    (4) Any combination of the above.
    Reamortization. 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.
    Rescheduling. 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.
    Writedown. For purposes of this subpart, writedown is reducing a 
borrower's debt to an amount that will result in a feasible plan of 
operation.

[62 FR 10121, Mar. 5, 1997]



Sec.  1951.907  Notice of Loan Service Programs.

    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.
    (a) Notification of borrowers who file bankruptcy. The account will 
be serviced in accordance with instructions from the Regional Office of 
the General Counsel (OGC), and in accordance with Sec.  1962.47(a)(3) of 
subpart A of part 1962 of this chapter.
    (b) Notification of borrowers who have been discharged in bankruptcy 
or who have plans confirmed by bankruptcy courts. 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 Sec.  1962.47 
(a) or (c) of subpart A of part 1962 of this chapter.
    (c) Notification of borrowers 90 days past due on payments. 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 Sec.  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:
    (1) At the time an application is made for participation in an FLP 
loan

[[Page 125]]

service program, unless such application is the result of the notice 
provided to the borrower in accordance with this section,
    (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
    (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:
    (i) Initiating any liquidation action,
    (ii) Accepting a voluntary conveyance of security, or the borrower 
requesting permission to sell security,
    (iii) Accelerating payments on the loan,
    (iv) Repossessing the borrower's property,
    (v) Foreclosing on property, or
    (vi) Taking any other collection action.
    (d) Notification of borrowers in non-monetary default; delinquent 
borrowers also in non monetary default, or when a junior or senior 
lienholder is foreclosing. 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 Sec.  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.
    (e) Request for primary and preservation loan service programs. (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.
    (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 Sec.  1955.15 of this chapter.
    (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 
Sec.  1951.908. For borrowers receiving attachments 9 and 10 or 9-A and 
10-A, the agency will proceed with liquidation in accordance with Sec.  
1955.15 of this chapter.
    (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.
    (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:
    (i) Attachment 2 or 4 of exhibit A to this subpart, response form to 
apply for loan servicing.
    (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.
    (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.
    (iv) Form 440-32, ``Request for Statement of Debts and Collateral.''
    (v) Form RD 1910-5, ``Request for Verification of Employment.''

[[Page 126]]

    (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.
    (vii) Form SCS CPA-26, ``Highly Erodible Land and Wetland 
Determination,'' if not previously on file with the agency for the farm 
operation. This form is included as part of the application after being 
completed by NRCS. (This form is available at NRCS local offices.)
    (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.
    (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.
    (x) If the borrower is applying for debt settlement, Form RD1956-1, 
``Application for Settlement of Indebtedness.''
    (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.
    (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 Sec.  1951.908. Subsequent notices as provided for in this section 
will not be issued until the first notice is resolved.

[57 FR 18626, Apr. 30, 1992, as amended at 62 FR 10123, Mar. 5, 1997]



Sec.  1951.908  Servicing financially distressed current borrowers.

    A borrower who is financially distressed, but is not yet delinquent 
on FLP payments, may request servicing at any time.
    (a) Notification. If a current plan of operation demonstrates that 
the borrower is or will be financially distressed, as defined in Sec.  
1951.906, or if the borrower otherwise requests servicing, the servicing 
official will provide attachments 1 and 2 of exhibit A of this subpart.
    (b) Eligibility. 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 Sec.  1951.907(e).
    (1) The eligibility requirements of Sec.  1951.909(c) (1) and (2) 
apply to servicing under this section.
    (2) Eligible financially distressed borrowers who are current on 
their FLP loan payments may be considered for the Primary Loan Service 
programs described in Sec. Sec.  1951.909(e) (1), (2) and (3).
    (3) Financially distressed borrowers who are not delinquent are not 
eligible for writedown of debt or buyout as described in 1951.909.
    (c) Processing the application. The servicing official must process 
a completed application and notify the borrower of the decision.
    (1) Current borrowers will be considered only for the Primary Loan 
Servicing programs described in Sec. Sec.  1951.909 (e) (1), (2), and 
(3). The servicing official must use the Debt and Loan Restructuring 
System (DALR$) program, in accordance with exhibit J-1 of this subpart, 
to determine if a feasible plan can be developed as defined in Sec.  
1951.906.
    (2) If a feasible plan can be developed, the borrower will be sent 
exhibit B of this subpart with attachment 1 and the printout of the 
DALR$ 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 Sec. Sec.  1951.909 (e) (1), (2), or (3), as applicable.

[[Page 127]]

    (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.
    (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 Sec.  1951.907.
    (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.

[62 FR 10124, Mar. 5, 1997]



Sec.  1951.909  Processing primary loan service programs requests.

    (a) Servicing official responsibilities. (1) After receipt of 
attachment 2 or 4 and a completed application in accordance with Sec.  
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$) computer program, in accordance with 
exhibit J-1 of this subpart for borrowers who submit a new application, 
to attempt to find the combination of loan service programs that will 
result in a feasible plan. Borrowers who request loan servicing and who 
have disposed of all the FLP loan security, including Collection-Only 
borrowers, will be processed in accordance with part 1956, subpart B, of 
this chapter. If the application includes a request for the Conservation 
Contract program, as indicated by the submission of the information 
required in Sec.  1951.907(e)(5)(viii), the servicing official will 
determine whether the borrower is eligible, based on criteria as set 
forth in exhibit H of this subpart. If the borrower is eligible, the 
servicing official will make an estimate of the information needed to 
permit the DALR$ 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.
    (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.
    (i) A divorce decree or property settlement document held the 
withdrawing party not responsible for the loan payments;
    (ii) The withdrawing party's interest in the security is conveyed to 
the borrower with whom the loan will be continued;
    (iii) The person withdrawing does not have any repayment ability for 
the loan, and does not own any nonessential assets, as defined in Sec.  
1951.906;
    (iv) The individual withdrawing has never received debt forgiveness 
on another direct loan; and.
    (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.
    (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 
Sec.  1924.74 of this chapter.

[[Page 128]]

    (b) Adverse determination. (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.
    (2) Borrowers who do not buy out their debt at its current market 
value, 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 Sec.  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.
    (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.
    (c) Eligibility. Applicants will be eligible for Primary Loan 
Service programs if the servicing official has determined that they meet 
all of the following requirements:
    (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:
    (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;
    (ii) Illness, injury, or death of an individual borrower, 
stockholder, member or partner who operates the farm;
    (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
    (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.
    (2) The borrower has acted in good faith.
    (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.
    (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 Sec.  1951.910 of this subpart.
    (5) The borrower must agree to meet the training requirements of 
Sec.  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.
    (d) Feasibility determinations. The servicing official must 
determine:
    (1) That the borrower will be able to develop a feasible plan.
    (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.
    (e) Primary loan service programs. Any FLP borrower may request 
Primary

[[Page 129]]

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 Sec.  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 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.
    (1) Consolidation and rescheduling of OL and EO loans, EE operating-
type loans and EM loans made for subtitle B purposes including EM loss 
loans. This subsection explains how to consolidate and/or reschedule 
existing 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:
    (i) The borrower meets the eligibility requirements in paragraph (c) 
of this section;
    (ii) Such action is not taken to circumvent the FLP graduation 
requirements;
    (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;
    (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;
    (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;
    (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;
    (vii) Only loans of the same type will be consolidated;
    (viii) EM actual loss loans will not be consolidated;
    (ix) Loans serviced under subpart L of this part will not be 
consolidated with another loan;
    (x) Loans that have been deferred under this section will not be 
consolidated and/or rescheduled during the deferral period;
    (xi) Terms of consolidated and/or rescheduled loans are as follows:
    (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:
    (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).
    (C) Repayment of EE loans may not exceed 15 years from the date of 
rescheduling.
    (xii) Interest rates of consolidated and/or rescheduled loans will 
be as follows:
    (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 original 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

[[Page 130]]

not consolidated will be the lesser of the current interest rate for 
that type of loan or the original loan note rate.
    (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:
    (1) The borrower meets the requirements for the limited resource 
interest rate, and
    (2) A feasible plan cannot be developed at regular interest rates 
and maximum terms permitted in this section.
    (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.
    (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 Sec.  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
    (xv) For new applications, the amount of outstanding accrued 
interest and any outstanding protective advances, as defined in Sec.  
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.
    (2) Reamortization of FO, SW, RL, RHF, EE, or EM loans made for real 
estate purposes. 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:
    (i) The borrower meets the eligibility requirements of Sec.  
1951.909(c) of this subpart;
    (ii) Such action is not taken to circumvent the FLP graduation 
requirements;
    (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;
    (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;
    (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;
    (vi) Loans that have been deferred in this supbart will not be 
reamortized during the deferral period unless the deferral is cancelled;
    (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:
    (A) FO, SW, RL, EE, and EM loans may not exceed 40 years from the 
date of the original note or assumption agreement.
    (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.
    (C) RHF loans may not exceed 33 years from the date of the original 
note or assumption agreement.

[[Page 131]]

    (D) SA payment agreements may not exceed 25 years from the date of 
the original amortized agreement.
    (viii) The interest rate will be as follows:
    (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 payment agreements will be reamortized 
at the current SA amortization rate in effect on the date of approval or 
the rate on the original payment agreement, whichever is less.
    (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:
    (1) The borrower meets the requirements for a limited resource 
interest rate,
    (2) A feasible plan cannot be developed at regular interest rates 
and at the maximum terms permitted in this section, and
    (3) For SW loans, the loans funds were used for soil and water 
conservation and protection purposes as set forth in Sec.  1943.66 
(a)(1) through (a)(5) of subpart B of part 1943 of this chapter.
    (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 Sec.  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). Protective advances are not authorized 
for the payment of prior or junior liens except real estate tax liens. 
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.
    (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.
    (3) Deferral of existing OL, FO, SW, RL, EM, EO, RHF, and EE loans--
(i) Loan deferrals. 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.
    (ii) Conditions. In order to be considered for a deferral, the 
borrower must meet both of the following conditions:
    (A) The need for the deferral must be temporary. To be temporary 
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
    (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

[[Page 132]]

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.
    (iii) Approval offical determinations. The approval official must:
    (A) Determine that the borrower meets the eligibility requirements 
of Sec.  1951.909(c) of this subpart;
    (B) Determine that a deferral of payments is necessary and 
appropriately document the conditions causing the need for deferral;
    (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.
    (iv) Loan deferral considerations. 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$.
    (A) A sufficient number of loans must be considered for deferral to 
permit the borrower to have a feasible plan.
    (B) A deferral plan may include a reorganization of the farming 
operation, including the use of new enterprises, to overcome existing 
financial, economic or other limitations of the operation. If the 
proposed restructuring requires capital expenditures, a subordination or 
additional loan will be considered. Deferral of additional loan 
installments beyond those needed to allow the borrower to develop a 
feasible plan will not be used to create additional cash reserve for 
capital purchases. Such purchases are not considered operating expenses.
    (C) A typical year during the deferral period is a year which most 
closely represents the borrower's average operation for the entire 
deferral period. There may be no typical year for farming or ranching 
operations undergoing a major reorganization. If there is no typical 
year, then it will be necessary to develop a plan of operation for each 
year of the deferral. The plans must be considered in DALR$ to determine 
if each plan is feasible.
    (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.
    (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.
    (v) Additional and subsequent deferrals. 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.
    (vi) Term and interest rate. A deferral period will not exceed five 
(5) annual

[[Page 133]]

installments. Deferral interest rates will be determined as specified in 
paragraphs (e)(1)(xii) and (e)(2)(viii) of this section.
    (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 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 Sec.  
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).
    (B) The field office will process the deferral via the Automated 
Discrepancy Processing System (ADPS).
    (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.
    (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.
    (E) A deferral will be cancelled if the loan is later restructured 
in accordance with this subpart. The cancellation will be processed via 
ADPS.
    (vii) Increase in repayment ability. At the time the servicing 
official makes the analysis required by Sec.  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 
Sec.  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 Sec.  
1951.907 of this subpart.
    (4) Writedown. The following conditions shall be met in order for a 
borrower to receive writedown of FLP debts:
    (i) No other Primary Loan Service programs, including deferral, nor 
any

[[Page 134]]

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;
    (ii) The borrower must never have received debt forgiveness on 
another direct loan at any time;
    (iii) The amount written off may not exceed $300,000.
    (iv) A feasible plan must be developed that will result in a present 
value of loans to be repaid to the Government which is equal to or more 
than a net recovery from an involuntary liquidation or foreclosure;
    (v) The borrower must comply with the Highly Erodible Land and 
Wetland Conservation requirements of exibibit M of subpart G of part 
1940 of this chapter, if applicable;
    (vi) The borrower must agree to a Shared Appreciation Agreement if 
the loan is secured by real estate;
    (vii) Loans written down with the Primary Loan Servicing programs 
will be rescheduled, reamortized, or deferred in accordance with 
paragraph (e) of this section; and
    (viii) Borrower must agree to a lien on certain assets as provided 
in 1951.910 of this subpart, including nonessential assets, where the 
net recovery value of these assets was not paid to the Agency. (The 
Agency's lien will be taken only at the time of closing the restructured 
loans); and
    (ix) Debt reduction received through conservation easements or 
contracts will not be counted toward the limitations in paragraphs 
(e)(4) (ii) and (iii) of this section.
    (f) Determining value of net recovery from involuntary liquidation. 
After receipt of a complete application for Primary and Preservation 
Loan Service programs, the servicing official will make the calculations 
required in this section and notify the borrower of the result. For New 
Applications, nonessential assets will be considered in accordance with 
Sec.  1951.910(a) of this subpart.
    (1) The servicing official will use the computer program, DALR$, 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 Sec.  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:
    (i) Subtract the amount which would be required to pay prior liens 
on the collateral;
    (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

[[Page 135]]

suitable property is under lease will not be included in determining the 
average holding period for purposes of this subpart;
    (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;
    (iv) Subtract resale expenses, such as repairs, commissions, and 
advertising;
    (v) Other administrative and attorney's expenses;
    (vi) Add income which will be received after acquisition; and
    (vii) For a borrower who submits a ``new application'' as defined in 
Sec.  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 Sec.  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.
    (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.
    (g) Determining net recovery value resulting from primary servicing. 
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.
    (h) Notification requirements. 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.
    (1) Offer. 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

[[Page 136]]

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.
    (i) Exhibit F of this subpart will inform the borrower(s) of the 
Agency's offer to restructure the debt, the right 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.
    (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 Sec.  1955.15 of subpart A of part 1955 of 
this chapter.
    (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.
    (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.
    (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.
    (2) Conservation contracts. 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.
    (3) Mediation/voluntary meeting of creditors. If the DALR$ 
calculations indicate a feasible plan of operation cannot 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:
    (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.
    (A) When the borrower is in a State with 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

[[Page 137]]

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.
    (B) In States without 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.
    (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.
    (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.
    (4) Buyout of loans. 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.
    (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.
    (ii) The present value of the restructured loan must be less than 
the net recovery value to receive buyout.
    (iii) The Agency will not provide direct or guaranteed credit for a 
buyout.
    (iv) The borrower must never have received debt forgiveness on 
another direct loan. (Applies if any debt will be written off.)
    (v) The amount written off may not exceed $300,000.
    (vi) The borrower must have acted in good faith.
    (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.
    (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.
    (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.
    (i) Administrative appeals and negotiation of appraisals--(1) 
Appeals. The time limit to pay the current market value

[[Page 138]]

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.
    (2) Appeal process. (i) If the administrative appeal process results 
in a determination that the borrower is eligible for Primary Loan 
Servicing, the servicing official will process the request pursuant to 
Sec.  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.
    (ii) If the administrative appeal process results in a determination 
that the borrower is ineligible 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.
    (3) Appraisal appeals. (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.
    (ii) The appraisal report must conform to Sec.  761.7 of this title 
for real estate and chattels.
    (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.
    (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.
    (4) Negotiation of appraisals. 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.
    (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

[[Page 139]]

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.
    (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 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 
the remaining 50 percent of the cost.
    (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.
    (j) Processing of writedown. 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.
    (1) A separate note will be signed for each loan being reamortized.
    (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.
    (3) A lien will be taken on assets in accordance with Sec.  
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.

[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; 67 FR 7943, Feb. 21, 2002]



Sec.  1951.910  Consideration of borrower's other assets for new applications.

    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 Sec.  1951.906 of 
this subpart.
    (a) Nonessential assets. 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.
    (1) Determining the value of nonessential assets. 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

[[Page 140]]

with Sec.  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 Sec.  1951.909(i) of this subpart.
    (2) Eligibility. If the NRV of the nonessential assets is sufficient 
to bring the delinquent FLP account current, 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.
    (3) Inclusion in NRV. 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 Sec.  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.
    (b) Lien on certain assets. Delinquent borrowers must pledge certain 
assets, essential and nonessential, unencumbered to the Agency as 
security at the time FLP loans are restructured, as follows:
    (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.
    (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.
    (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.
    (4) The exceptions set forth in Sec.  1941.19(c) of subpart A of 
part 1941 of this chapter apply.
    (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.

[62 FR 10132, Mar. 5, 1997, as amended at 64 FR 62568, Nov. 17, 1999]



Sec.  1951.911  Homestead protection.

    (a) General. 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

[[Page 141]]

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 Sec.  1955.66(d) of 
subpart A of part 1955 of this chapter.
    (b) Homestead protection. Borrowers and former borrowers who had or 
have 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.
    (1) Purpose. 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.
    (2) Notification and processing. 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 Sec.  
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.
    (i) Determining homestead protection property. (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.
    (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.
    (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.
    (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.
    (E) Appraisals will be completed in accordance with paragraphs 
(b)(6) and (b)(7)(ii)(B) of this section.
    (ii) Processing homestead protection before the Agency acquires 
title. (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.
    (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.
    (C) The Agency's obligation to lease the dwelling to the borrower 
will be

[[Page 142]]

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 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.
    (iii) Application for homestead protection when the Agency acquires 
title. 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 Sec.  1951.907(e) of this subpart 
and indicate the buildings and land to be included in the request.
    (iv) Lease with option. 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 Sec.  1951.911 (b)(8) of this subpart.
    (3) Eligibility. The servicing official will make the determination 
on eligibility. To qualify for homestead protection, the borrower must 
meet the following requirements:
    (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.
    (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;
    (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 Sec. Sec.  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;
    (iv) The applicant and any spouse must have received, from the 
farming

[[Page 143]]

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;
    (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 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
    (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.
    (4) Transfer of homestead protection. 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.
    (5) Property requirements. (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.
    (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 
Sec.  1955.64 (a) of subpart A of part 1955 of this chapter.
    (iii) If necessary, the Agency will grant or retain for the benefit 
of adjoining property reasonable easements for ingress, egress, 
utilities, water rights, etc.
    (6) Appraisal. 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.
    (7) Terms of the lease and exercising the option. (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.
    (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.
    (B) Lease payments will be retained by the Government.
    (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.
    (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.
    (ii) Exercising the option to purchase.
    (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

[[Page 144]]

purchase the property. Failure to exercise the option within the lease 
period will end the lessee's rights under the option to purchase.
    (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 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.
    (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.
    (D) If a credit sale is involved, the applicant must furnish the 
servicing official the information required by Sec.  1951.907 (e) to 
assist in determining whether or not the applicant has adequate 
repayment ability.
    (8) Rates and terms for a credit sale. 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.
    (9) Closing. A credit sale will be closed in accordance with subpart 
J of this part.
    (10) Conflict with State law. 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.
    (11) Servicing homestead protection loans. Homestead protection 
loans will be serviced as set forth in subpart J of this part.

[62 FR 10132, Mar. 5, 1997]



Sec.  1951.912  Mediation.

    (a) States with a USDA certified mediation program. 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 Sec.  1951.909(i) of this 
subpart will be completed prior to mediation.
    (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.
    (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.
    (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.
    (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

[[Page 145]]

will set forth in writing the specific authority delegated to the 
designated representative.
    (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.
    (6) When mediation is not successful in resolving the borrower's 
financial difficulty, 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.
    (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).
    (b) States without a Certified Mediation Program. 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 Sec.  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 Sec.  1951.909(i) of this 
subpart will be completed prior to meeting with other creditors.
    (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.
    (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.
    (3) The designated FmHA or its successor agency under Public Law 
103-354 representative for conducting a meeting of creditors will do the 
following:
    (i) Schedule a meeting between the borrower and the borrower's 
creditors and encourage them to participate in such a meeting;
    (ii) State that the parties understand that the representative is 
neutral and does not represent any of the parties;
    (iii) Inform the borrower and creditors concerning FmHA or its 
successor agency under Public Law 103-354 programs available to assist 
the borrowers;
    (iv) Encourage the parties to utilize all available means to assist 
the borrower to overcome the financial difficulty;

[[Page 146]]

    (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;
    (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;
    (vii) Review the obligations of the participants, including but not 
limited to the maintenance of confidentiality and the promotion of good 
faith discussions in an effort to reach agreement; and
    (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.
    (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.
    (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.
    (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.
    (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.
    (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.



Sec.  1951.913  Servicing Net Recovery Buyout Recapture Agreements.

    (a) Death or retirement. If upon the death or retirement of a 
borrower who submitted a ``new application,'' as defined in Sec.  
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.
    (b) Record of net recovery buyout. 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.
    (1) For borrowers who applied for Loan Servicing and Preservation 
Service Programs before November 28, 1990,

[[Page 147]]

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.
    (2) For borrowers who submit ``new applications,'' as defined in 
Sec.  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 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.
    (c) Review by County Supervisor. 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.
    (d) Notification of recapture due. 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:
    (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;
    (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);
    (3) Appeal rights as set forth in subpart B of part 1900 of this 
chapter; and
    (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 Sec.  1955.15 
of subpart A of part 1955 of this chapter after all appeal rights have 
been exhausted.
    (e) Processing payments. 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.''
    (f) Release of liability. 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.
    (g) No recapture due. 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.



Sec.  1951.914  Servicing shared appreciation agreements.

    (a) [Reserved]
    (b) When shared appreciation is due. 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:
    (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;

[[Page 148]]

    (2) Repayment of the loans; or the loans are otherwise satisfied;
    (3) The borrower or surviving spouse ceases farming operations or no 
longer receives farm income, including lease income; or
    (4) The notes are accelerated.
    (c) Determining the amount of shared appreciation due. (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 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 Sec.  761.7 and subject to the following:
    (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.
    (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.
    (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:
    (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.
    (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.
    (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.
    (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:
    (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
    (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.
    (4) [Reserved]
    (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.
    (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.
    (d) [Reserved]

[[Page 149]]

    (e) Shared appreciation amortization. Shared appreciation may be 
amortized to a nonprogram amortized payment 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 converted to an SA amortized payment under the following 
conditions:
    (1) The borrower must have a feasible plan as defined in Sec.  
1951.906 including the SA amortized payment.
    (2) The borrower must be unable to pay the shared appreciation, or 
obtain the funds elsewhere to pay the shared appreciation.
    (3)-(4) [Reserved]
    (5) The payment agreement term will be based on the borrower's 
repayment ability and the life of the security, not to exceed 25 years.
    (6) The interest rate will be the SA amortization rate contained in 
RD Instruction 440.1 (available in any FSA office).
    (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 payment 
agreement, if available.
    (8) The borrower will sign a payment agreement for each SA amortized 
payment established.
    (9)-(10) [Reserved]
    (11) If the borrower has no outstanding Farm Loan Program loans and 
becomes delinquent on the SA amortized payment, the SA payment agreement 
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 Sec.  1951.906, 
the SA amortized payment will be considered for reamortization in 
accordance with Sec.  1951.909(e).
    (f) Priority of collection application. 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.
    (g) Subordination. 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.
    (h) Suspension of Recapture Payment Obligation under a Shared 
Appreciation Agreement. (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:
    (i) The shared appreciation agreement recapture payment is now due 
but there has been no agreement to pay the recapture payment;
    (ii) The 10 year term of the agreement ends on or before December 
31, 2000;
    (iii) The secured real estate has not yet been conveyed so that the 
entire amount of the shared appreciation agreement recapture payment is 
due;
    (iv) The borrower has complied with the other terms of the 
agreement;
    (v) The borrower certifies in writing that the borrower is not able 
to pay the recapture amount;
    (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
    (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.
    (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:
    (i) 30 days after the borrower has received notification of the 
recapture amount due; or
    (ii) May 24, 1999.
    (3) The term of the suspension of the obligation to pay the 
recapture amount is 1 year.

[[Page 150]]

    (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.
    (5) The amount of the recapture payment suspended will accrue 
interest at a rate equal to the applicable rate of interest of Federal 
borrowing, as determined by the Agency.
    (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.
    (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.
    (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.
    (9)-(10) [Reserved]
    (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).

[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; 67 FR 7943, Feb. 
21, 2002]



Sec.  1951.915  [Reserved]



Sec.  1951.916  Exception authority.

    (a) Administrator. 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.
    (b) State Director. 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

[[Page 151]]

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.

[58 FR 4066, Jan. 13, 1993, as amended at 58 FR 15418, Mar. 23, 1993]



Sec. Sec.  1951.917-1951.949  [Reserved]



Sec.  1951.950  OMB control number.

    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 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.

[57 FR 18626, Apr. 30, 1992, as amended at 63 FR 6629, Feb. 10, 1998]

Exhibit A to Subpart S of Part 1951--Notice of the Availability of Loan 
  Servicing and Debt Settlement Programs for Delinquent Farm Borrowers

    Dear (Borrower's Name):
    This notice is to inform you that you are behind with your loan 
payments and to inform you of your options.

                  I. Loan Servicing Programs Available

    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.
    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.

                       II. Application Information

                               Time Limits

    You must notify the county office within 60 days of getting this 
notice if you want to be considered for these programs.

                              How to Apply

    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.
    Included With This Notice You Will Find:
    (1) A summary of primary loan servicing programs options;
    (2) A summary of the preservation loan servicing program;
    (3) A summary of debt settlement programs;
    (4) The forms you need to apply for services;
    (5) Information on how to get copies of the Agency's regulations;
    (6) A description of the National Appeals Division appeal process.

                    III. Foreclosure and Liquidation

            What Happens if You Do Not Apply Within 60 Days?

    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.
    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.
     Sincerely,

     Attachment 1--Primary and Preservation Loan Servicing and Debt 
                       Settlement Programs Purpose

                                 Purpose

    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:

(1) How To get more information
(2) How to apply

[[Page 152]]

(3) Your appeal rights if you apply and are turned down

                       How To Get More Information

    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.

                             Who Can Apply?

    All ``farm loan programs borrowers'' who have one of the following 
loans:

Operating (OL)
Farm Ownership (FO)
Emergency (EM)
Economic Emergency (EE)
Soil and Water (SW)
Recreation (RL)
Rural Housing Loans made for farm service buildings (RHF)
Economic Opportunity (EO)

    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.

                      You May Need Help in Applying

    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.

    Note: Agency employees cannot recommend a particular attorney or 
organization.

                    I. Primary Loan Service Programs

                         (1) Loan Consolidation

    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.

                          (2) Loan Rescheduling

    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.

                         (3) Loan Reamortization

    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.

                       (4) Interest Rate Reduction

                          Regular Interest Rate

    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.

                     Limited Resource Interest Rate

    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.

                    Interest Rate for Loan Servicing

    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.
    For information about current interest rates, contact the FSA county 
office.

                            (5) Loan Deferral

    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.
    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.
    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.

    Note: You can only get a loan deferral if the FSA determines options 
1-4 will not work for you.

                       (6) Softwood Timber Program

    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.

[[Page 153]]

                    (7) Conservation Contract Program

    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.

                           (8) Debt Writedown

    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.
    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.
    Recovery value. The recovery value is the fair market value of the 
collateral pledged as 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.
    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.
    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.
    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.
    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.

          II. Who Can Qualify for Primary Loan Service Programs

    To qualify you must prove that:
    (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.
    You must have had less income than expected due to such things as:

(a) A natural disaster, weather, or insect problems;
(b) Family illness or injury;
(c) Loss or reduction of off-farm income;
(d) Disease in your livestock;
(e) Low commodity prices and high operating expenses in your local area; 
or
(f) Other circumstances beyond your control.

    (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.
    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.
    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.

                     Who Will Decide if You Qualify?

    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

[[Page 154]]

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.

                  Can You Get Your Debts Written Down?

    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.

             Conditions of the New Agreement if You Qualify

    You must sign a shared appreciation agreement for 5 years. Under the 
terms of the agreement:
    (1) You must repay a part of the sum written down.
    (2) The amount you must repay depends on how much your real estate 
collateral increases in value.
    During the 5 years, FSA will ask you to repay part of the debt 
written down if you do one of the following:
    (1) Sell or convey the real estate;
    (2) Stop farming; or
    (3) Pay off the entire debt
    If you do not do one of these things during the 5 years, FSA will 
ask you to repay part of the debt written down at the end of the 5 year 
period.
    FSA can only ask you to repay if the value of your real estate 
collateral goes up.
    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 year, 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.

                  Date To Begin Restructured Agreement

    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.

                III. Preservation Loan Servicing Program

                                 Purpose

    This program applies when the primary loan service programs cannot 
help you.
    Homestead Protection. (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.

              IV. Who Can Qualify for Homestead Protection?

    (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.
    (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.
    (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.
    (4) You must be the owner or former owner of the property.
    (5) If FSA has already taken your property, you must apply within 30 
days of the date FSA took your property.

                       How To Lease Your Dwelling

    (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.
    (2) You must maintain the property in good condition during the term 
of the lease.
    (3) You may lease for up to 5 years.
    (4) You cannot sublease your property.
    (5) If you do not keep up your rental payments to FSA, FSA will 
force you to leave.
    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.
    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.

                      V. Debt Settlement Programs.

                                 Purpose

    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

[[Page 155]]

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.

                           Programs Available

    (1) Compromise offer: A lump-sum payment of less than the total FSA 
debt owed.
    (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.
    (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.

                          Approval Requirements

    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.
    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.

 VI. How to Apply for Primary and Preservation Loan Servicing Programs.

                Application Forms and Information Needed

    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.
    (1) Attachment 2 or 4 of Exhibit A Response form to apply for loan 
services.
    (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.
    (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.
    (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.
    (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.
    (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.)
    (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.)
    (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.)
    (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).)
    (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

[[Page 156]]

or photo the portion of the land and approximate number of acres to be 
considered in the contract.)
    (11) RD 1956-1 Application for Settlement of Indebtedness (Complete 
this form only if you wish to apply for debt settlement.)

   Time to Apply for Primary and Preservation Loan Servicing Programs

    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.

  VII. What Happens When You Are Not Eligible for Primary Loan Service 
                                Programs?

    If the servicing official decides you are not eligible, you may 
request a meeting with that official so the official can explain the 
decision.
    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.

                      Negotiation of the Appraisal

    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.

                You May Request Mediation of Other Loans

    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.

                      You Have the Right to Appeal

    Appeal. 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.

   You May Buyout (Pay Off) Your Loan at the ``Current Market Value''

    (1) Current market Value. 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.
    (2) Limits. 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.
    (3) Eligibility. To qualify you must prove that:
    You cannot repay your FSA delinquent debt and the reason you cannot 
repay was due to circumstances beyond your control,
    You have acted in good faith, and
    The value of your restructured loan is less than the recovery value.
    (4) Time Limit. 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.
    (5) Cash. 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.

           Consideration for Preservation Loan Service Program

                         (Homestead Protection)

    You will be considered for homestead protection if:
    (1) You applied for primary loan servicing as required and did not 
qualify.
    (2) You do not appeal your primary loan servicing denial, or do not 
win your appeal.
    (3) You do not pay off the loan through buyout.
    (4) You agree to give FSA title to your land at the time FSA signs 
the written homestead protection agreement with you.

[[Page 157]]

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.
    (5) You must request Homestead Protection within 30 days of FSA 
obtaining title to the property.

               Consideration for Debt Settlement Programs

    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 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.

VIII. What Happens When You Are Turned Down for Homestead Protection or 
                        Debt Settlement Programs?

    If FSA decides that you cannot get homestead protection or debt 
settlement you can ask for
    (1) A meeting with FSA to discuss the decision, or
    (2) Appeal the determination.

                         The Right to a Meeting

    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.

                         The Right to an Appeal

    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.
    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.

                    IX. Acceleration and Foreclosure

    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.
    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:
    (1) Sell all the collateral for the loan at market value.
    (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.
    (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.)
    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:
    (1) Take action to collect the debt by offset or garnishment, 
including offset of tax refunds and garnishment of salary,
    (2) Refer the debt to a private collection agency for collection, or
    (3) Refer the debt for collection by the U.S. Department of Justice 
(DOJ).
    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

[[Page 158]]

DOJ for collection, your offer must be made to DOJ.

[62 FR 10134, Mar. 5, 1997, as amended at 64 FR 62972, 62973, Nov. 18, 
1999; 65 FR 50405, Aug. 18, 2000; 67 FR 12458, Mar. 19, 2002]

            Exhibits B-F to Subpart S of Part 1951 [Reserved]

   Exhibit G to Subpart S of Part 1951--Deferral, Reamortization and 
 Reclassification of Distressed Farmer Program (FP) Loans for Softwood 
                      Timber Production (ST) Loans

                               I. General.

    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 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.
    (A) Management assistance. 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.
    (B) Definitions.
    (1) Distressed FmHA or its successor agency under Public Law 103-354 
loan. 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.
    (2) Marginal land. 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 Sec.  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:
    (a) Highly erodible land as defined or classified by the SCS under 
Sec.  12.2 of subpart A of part 12 of this chapter, or
    (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 Sec.  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.
    (3) Softwood timber. 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.
    (c) ST loan eligibility. A borrower must:
    (1) Have the debt repayment ability and reliability, managerial 
ability and industry to carry out the proposed timber production 
operation.
    (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.
    (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.
    (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.
    (5) Have sufficient training or farming experience to assure 
reasonable prospects of success in the proposed timber operation.
    (6) Have one or more distressed FmHA or its successor agency under 
Public Law 103-354 loans as defined by this exhibit.
    (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.
    (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.

                    II. Reamortization requirements.

    (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

[[Page 159]]

practices, tree varieties, the harvesting projection, the planned use of 
the timber, etc.
    (B) The following requirements must also be met:
    (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 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 Sec.  1951.909(i) of this subpart after the County 
Supervisor determines the borrower's eligibility for the other servicing 
programs in this subpart.
    (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.
    (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 Sec.  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.
    (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.''
    (5) Applicable requirements of subpart G of part 1940 of this 
chapter must be met.
    (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.
    (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.
    (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.

                     III. Interest rate of ST loans.

    See Exhibit B of FmHA or its successor agency under Public Law 103-
354 Instruction

[[Page 160]]

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.

                        IV. Special requirements.

    (A) Size of the timber tract. 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.
    (B) Farm or residence situated in different counties. 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 the county in which the farm or a major portion of the 
farm is located unless otherwise approved by the State Director.
    (C) Graduation of ST borrowers. 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.

                              V. Planning.

    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.

        VI. Distressed reamortized loan approval or disapproval.

    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.

                     VII. Reamortizing disapproval.

    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 Sec.  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.

                      VIII. Processing of ST loans.

    (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.
    (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):
    (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
    (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.
    (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

[[Page 161]]

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.
    (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 Sec.  
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 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.
    (E) The following addendum will be typed and signed by the borrower 
and attached to the promissory note:
    Addendum For Deferred Interest For Softwood Timber Loans
    Addendum to promissory note dated -------- in the original amount of 
$-------- at an annual interest rate of -------- percent. This agreement 
amends and attaches to the above note. $-------- 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.
________________________________________________________________________
    Borrower
    (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.
    (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.

                             IX. Servicing.

    ST loans will be serviced in accordance with Subpart A of Part 1965 
of this chapter with the following exceptions:
    (A) ST loans will not be subordinated for any purpose.
    (B) Security property for ST loans will not be leased except for 
softwood timber production as authorized by the ST loan.
    (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 Sec.  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.
    (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.
    (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. 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.
    (F) The Timber Management Plan will be updated and revised, as 
needed, every five years or more often if necessary.
    (G) Harvesting softwood timber for Christmas trees is prohibited.
    (H) An ST loan will only be reamortized if:
    (1) The timber is not harvested in the year stated in the initial 
promissory note, and
    (2) The borrower is unable to pay the note as agreed.
    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.
    (3) For applications received before November 28, 1990, the interest 
less than 90 days

[[Page 162]]

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.

    S. State supplements.

    State supplements will be issued immediately and updated as 
necessary to implement this section.

  Attachment 1--Notice of Availability of Option To Reamortize Certain 
  Loans Secured by Future Revenue Produced by Planting Softwood Timber

 (Used by the County Supervisor to inform borrowers of the availability 
                        of Softwood Timber Loans)

CERTIFIED MAIL
RETURN RECEIPT REQUESTED
(Name and Address)
    Dear ----------------------:
    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.

    Sincerely,
County Supervisor

[53 FR 35718, Sept. 14, 1988, as amended at 56 FR 3396, Jan. 30, 1991; 
57 FR 18661, Apr. 30, 1992]

   Exhibit H to Subpart S of Part 1951--Conservation Contract Program

                               I. General

    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.

                               Definitions

    (1) Conservation purposes. These include protecting or conserving 
any of the following environmental resources or land uses:
    (a) Wetland, except when such term is part of the term Converted 
wetland, 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.
    (i) Hydric soils 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;
    (ii) Hydrophytic vegetation means a plant growing in--
    (A) Water; or
    (B) A substrate that is at least periodically deficient in oxygen 
during a growing season as a result of excessive water content;
    (b) Highly erodible land is land that NRCS has determined has an 
erodibility index of 8 or more.
    (c) Upland 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:
    (i) One-hundred year floodplain,

[[Page 163]]

    (ii) Aquatic life, or wildlife habitat or endangered plant habitat 
of local, regional, State or Federal importance,
    (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,
    (iv) Area of high water quality or scenic value,
    (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),
    (vi) Area that provides a buffer zone necessary for the adequate 
protection of proposed conservation contract areas,
    (vii) Area within or adjacent to a National Park, U.S. Fish and 
Wildlife Service administered area, State Fish and Wildlife agency 
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.
    (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.
    (d) Wildlife habitat 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.
    (2) Management authority. 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.
    (3) Person. Any agency of the United States, a State, a unit of 
local Government within a State, or a private or public nonprofit 
organization.
    (4) Recreational purposes. 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.
    (5) Wildlife. 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.
    (6) Wildlife purposes. These program objectives include establishing 
and managing areas that contain fish and wildlife habitats of local, 
regional, State or Federal importance.

                             II. Eligibility

    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:
    (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.
    (2) The proposed contract helps a qualified borrower to repay the 
loan in a timely manner.
    (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.

               III. Establishing the Contract Review Team

    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

[[Page 164]]

approximate location and a general description of the potentially 
affected land. All notified parties will be invited to serve on the 
contract review team.

            IV. Responsibilities of the Contract Review Team

    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 prepared by the review team. The items to be addressed in 
the review team report are:
    (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.
    (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.
    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.
    (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.
    (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.

                V. FSA's Review of Contract Team's Report

    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.

                         VI. Terms of Contracts

    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.

VII. Determining the Amount of Farm Loan Programs (FLP) Debt That Can Be 
                                Canceled

    (A) Calculate the amount of debt to be canceled for a delinquent 
borrower as follows:
    (1) Step 1. 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.
    Contract acres divided by Total Farm and Ranch Acres = Percent of 
Contract Acres to Total Acres.
    (2) Step 2. 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. Total FLP Debt x Percent 
Calculated in step 1 = --------
    (3) Step 3. 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. PMV of Total 
Farm x Percent Calculated in step 1 = --------
    (4) Step 4. Subtract the current value of the contract acres in step 
3 from the FLP debt that is secured by the contract acres in step

[[Page 165]]

2. Result from step 2-Result from step 3 = --------
    (5) Step 5. Select the greater of the amounts calculated in step 3 
and step 4.
    (6) Step 6. 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.
    (7) Step 7. For a 30-year contract term, the borrower will receive 
60 percent of the amount calculated in step 6. Result from Step 6 x 60% 
= --------
    (8) Step 8. For a 10-year contract term, the borrower will receive 
20 percent of the amount calculated in step 6. Result from Step 6 x 20% 
= --------
    (B) Calculate the amount of debt to be canceled for a current 
borrower as follows:
    (1) Step 1. 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. Contract Acres divided 
by Total Farm and Ranch Acres = --------%
    (2) Step 2. 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. Total FLP Debt x Percent 
Calculated in step 1 = --------
    (3) Step 3. Multiply the borrower's total unpaid FLP loan balance 
(principal, interest and recoverable costs already paid by thirty-three 
(33) percent. Total FLP Debt x 33% = --------
    (4) Step 4. 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.
    (5) Step 5. For a 30-year contact term, the borrower will receive 60 
percent of the amount calculated in step 4. Amount calculated in step 4 
x 60% = --------
    (6) Step 6. For a 10-year contract term, the borrower will receive 
20 percent of the amount calculated in step 4. Amount calculated in Step 
4 X 20% = --------
    (C) Feasibility of debt cancellation. 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.
    (D) The boundaries of the contract area will be determined by the 
most appropriate method including rectangular surveys, and aerial 
photographs. A professional survey of the contract area will not be 
required but can be used where needed.
    (E) Reaching an agreement with the borrower. 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.
    (F) Recording of noncash credit. 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.
    (G) [Reserved]
    (H) Contract Records. If State law allows, the CC will be recorded 
in the real estate records.

                 VIII. Violation of Terms and Conditions

    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.

                       IX. Authorization Requests

    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.

[62 FR 10147, Mar. 5, 1997]

[[Page 166]]



                  Subpart T--Disaster Set-Aside Program

    Source: 60 FR 46756, Sept. 8, 1995, unless otherwise noted.



Sec.  1951.951  Purpose.

    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 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.

[60 FR 46756, Sept. 8, 1995, as amended at 64 FR 393, Jan. 5, 1999; 65 
FR 31249, 31250, May 17, 2000]



Sec.  1951.952  General.

    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.

[60 FR 46756, Sept. 8, 1995, as amended at 64 FR 394, Jan. 5, 1999; 65 
FR 31249, May 17, 2000]



Sec.  1951.953  Notification and request for DSA.

    (a) [Reserved]
    (b) Deadline to apply. 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.
    (c) Information needed to apply. (1) A written request for DSA 
signed by all parties liable for the debt; and
    (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.

[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]



Sec.  1951.954  Eligibility and loan limitation requirements.

    (a) Eligibility requirements. The following requirements must be met 
to be eligible for DSA:
    (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.
    (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.
    (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.
    (iv) A borrower cannot have more than two installments set aside on 
any loan.
    (2) The borrower must have acted in good faith as defined in Sec.  
1951.906 of subpart S of this part.

[[Page 167]]

    (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.
    (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.
    (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.
    (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.
    (7) After the scheduled installments are set-aside, all FLP and NP 
farm type loans must be current.
    (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.
    (b) Loan limitation requirements. (1) The loan must have been 
outstanding at the time of the disaster.
    (2)(i) Except as provided in paragraph (a) of this section, only one 
unpaid installment for each FLP loan may be set-aside.
    (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.
    (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.
    (3) The term remaining on the loan receiving DSA equals or exceeds 2 
years from the due date of the installment being set-aside.
    (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.
    (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.
    (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

[[Page 168]]

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.

[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]



Sec. Sec.  1951.955-1951.956  [Reserved]



Sec.  1951.957  Eligibility determination and processing.

    (a) Eligibility determination. 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.
    (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.
    (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.
    (b) Processing.
    (1) [Reserved]
    (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.
    (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.
    (4) There are no additional security requirements attached to the 
DSA program. All existing security instruments will remain in effect.
    (5)-(6) [Reserved]
    (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.
    (c) Adverse determination. 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.

[60 FR 46756, Sept.8, 1995, as amended at 62 FR 41253, Aug. 1, 1997; 65 
FR 31250, May 17, 2000]



Sec.  1951.958  Cancellation and reversal of DSA.

    (a) Reasons for cancellation. The set-aside may be reversed and 
exhibit A of FmHA Instruction 1951-T cancelled under the following 
described situations:
    (1) The loan is later restructured with primary loan servicing, (the 
total unpaid balance must be restructured);
    (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
    (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

[[Page 169]]

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).
    (b) [Reserved]

[60 FR 46756, Sept. 8, 1995, as amended at 62 FR 10157, Mar. 5, 1997]



Sec.  1951.959  Exception authority.

    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.



Sec. Sec.  1951.960-1951.999  [Reserved]



Sec.  1951.1000  OMB control number.

    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 
0575-0163), Washington, DC 20503.



PART 1955--PROPERTY MANAGEMENT--Table of Contents




 Subpart A--Liquidation of Loans Secured by Real Estate and Acquisition 
                      of Real and Chattel Property

Sec.
1955.1 Purpose.
1955.2 Policy.
1955.3 Definitions.
1955.4 Redelegation of authority.
1955.5 General actions.
1955.6-1955.8 [Reserved]
1955.9 Requirements for voluntary conveyance of real property located 
          within a federally recognized Indian reservation owned by a 
          Native American borrower-owner.
1955.10 Voluntary conveyance of real property by the borrower to the 
          Government.
1955.11 Conveyance of property to FmHA or its successor agency under 
          Public Law 103-354 by trustee in bankruptcy.
1955.12 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.
1955.13 Acquisition of property by exercise of Government redemption 
          rights.
1955.14 [Reserved]
1955.15 Foreclosure by the Government of loans secured by real estate.
1955.16-1955.17 [Reserved]
1955.18 Actions required after acquisition of property.
1955.19 [Reserved]
1955.20 Acquisition of chattel property.
1955.21 Exception authority.
1955.22 State supplements.
1955.23-1955.49 [Reserved]
1955.50 OMB control number.

Exhibits A-F to Subpart A[Reserved]
Exhibit G to Subpart A--Worksheet for Accepting a Voluntary Conveyance 
          of Farm Credit Program Security Property Into Inventory
Exhibit G-1 to Subpart A--Worksheet for Determining Farm Credit 
          Programs, Maximum Bid on Real Estate Property

                    Subpart B--Management of Property

1955.51 Purpose.
1955.52 Policy.
1955.53 Definitions.
1955.54 Redelegation of authority.
1955.55 Taking abandoned real or chattel property into custody and 
          related actions.
1955.56 Real property located in Coastal Barrier Resources System 
          (CBRS).

[[Page 170]]

1955.57 Real property containing underground storage tanks.
1955.58-1955.59 [Reserved]
1955.60 Inventory property subject to redemption by the borrower.
1955.61 Eviction of persons occupying inventory real property or 
          dispossession of persons in possession of chattel property.
1955.62 Removal and disposition of nonsecurity personal property from 
          inventory real property.
1955.63 Suitability determination.
1955.64 [Reserved]
1955.65 Management of inventory and/or custodial real property.
1955.66 Lease of real property.
1955.67-1955.71 [Reserved]
1955.72 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.
1955.73-1955.80 [Reserved]
1955.81 Exception authority.
1955.82 State supplements.
1955.83-1955.99 [Reserved]
1955.100 OMB control number.
Exhibit A to Subpart B--Memorandum of Understanding Between the Federal 
          Emergency Management Agency and the Farmers Home 
          Administration or its successor agency under Public Law 103-
          354
Exhibit B to Subpart B--Notification of Tribe of Availablity of Farm 
          Property for Purchase
Exhibit C to Subpart B--Cooperative Agreement (Example)
Exhibit D to Subpart B--Fact Sheet--The Federal Interagency Task Force 
          on Food and Shelter for the Homeless

                Subpart C--Disposal of Inventory Property

                              Introduction

1955.101 Purpose.
1955.102 Policy.
1955.103 Definitions.
1955.104 Authorities and responsibilities.

   Consolidated Farm and Rural Development Act (CONACT) Real Property

1955.105 Real property affected (CONACT).
1955.106 Disposition of farm property.
1955.107 Sale of FSA property (CONACT).
1955.108 Sale of (CONACT) property other than FSA property.
1955.109 Processing and closing (CONACT).

                    Rural Housing (RH) Real Property

1955.110 [Reserved]
1955.111 Sale of real estate for RH purposes (housing).
1955.112 Method of sale (housing).
1955.113 Price (housing).
1955.114 Sales steps for program property (housing).
1955.115 Sales steps for nonprogram (NP) property (housing).
1955.116 Requirements for sale of property not meeting decent, safe and 
          sanitary (DSS) standards (housing).
1955.117 Processing credit sales on program terms (housing).
1955.118 Processing cash sales or MFH credit sales on NP terms.
1955.119 Sale of SFH inventory property to a public body or nonprofit 
          organization.
1955.120 Payment of points (housing).

                            Chattel Property

1955.121 Sale of acquired chattels (chattel).
1955.122 Method of sale (chattel).
1955.123 Sale procedures (chattel).
1955.124 Sale with inventory real estate (chattel).
1955.125-1955.126 [Reserved]

           Use of Contractors To Dispose of Inventory Property

1955.127 Selection and use of contractors to dispose of inventory 
          property.
1955.128 Appraisers.
1955.129 Business brokers.
1955.130 Real estate brokers.
1955.131 Auctioneers.

                                 General

1955.132 Pilot projects.
1955.133 Nondiscrimination.
1955.134 Loss, damage, or existing defects in inventory real property.
1955.135 Taxes on inventory real property.
1955.136 Environmental Assessment (EA) and Environmental Impact 
          Statement (EIS).
1955.137 Real property located in special areas or having special 
          characteristics.
1955.138 Property subject to redemption rights.
1955.139 Disposition of real property rights and title to real property.
1955.140 Sale in parcels.
1955.141 Transferring title.
1955.142-1955.143 [Reserved]
1955.144 Disposal of NP or surplus property to, through, or acquisition 
          from other agencies.
1955.145 Land acquisition to effect sale.
1955.146 Advertising.
1955.147 Sealed bid sales.
1955.148 Auction sales.
1955.149 Exception authority.
1955.150 State supplements.
Exhibit A to Subpart C--Notice of Flood, Mudslide Hazard, or Wetland 
          Area

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.

[[Page 171]]


    Source: 50 FR 23904, June 7, 1985, unless otherwise noted.

    Editorial Note: Exhibits A, C, D, and E referenced in this part are 
not published in the Code of Federal Regulations.



 Subpart A--Liquidation of Loans Secured by Real Estate and Acquisition 
                      of Real and Chattel Property



Sec.  1955.1  Purpose.

    This subpart delegates authority and prescribes procedures for the 
liquidation of loans to individuals and to organizations as identified 
in Sec.  1955.3. It pertains to the Farm Credit programs of the Farm 
Service Agency (FSA), 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.

[61 FR 59778, Nov. 22, 1996]



Sec.  1955.2  Policy.

    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 Sec.  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.

[51 FR 4138, Feb. 3, 1986, as amended at 53 FR 27826, July 25, 1988; 58 
FR 52652, Oct. 12, 1993]



Sec.  1955.3  Definitions.

    As used in this subpart, the following definitions apply:
    Closing agent. 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.
    CONACT or CONACT property. 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.
    Farmer Programs loans. 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).
    Government. 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.''
    Homestead protection. 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.

[[Page 172]]

    Interest credit. 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.
    Loans to individuals. 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) loans; and Land Conservation and Development (LCD); and 
Single-Family Housing (SFH), including both Section 502 and 504 loans.
    Loans to Native Americans. 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.
    Loans to organizations. 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.
    Market value. 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.
    Nonrecoverable cost is a contractual or noncontractual program loan 
cost expense not chargeable to a borrower, property account, or part of 
the loan subsidy.
    OGC. 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.
    Prior lien. 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).
    Recoverable cost is a contractual or noncontractual program loan 
cost expense chargeable to a borrower, property account, or part of the 
loan subsidy.
    Servicing official. 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.

[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]



Sec.  1955.4  Redelegation of authority.

    Authorities will be redelegated to the extent possible, consistent 
with program requirements and available resources.

[[Page 173]]

    (a) Except as provided in Sec.  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.
    (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 Sec.  1955.115(a)(2) of this subpart may not be redelegated. 
However, a duly-designated Acting State Director may approve or 
disapprove foreclosure.
    (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 Sec.  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.
    (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.
    (e) The monetary limitations on acceptance of voluntary conveyance 
as provided in Sec.  1955.10(a) of this subpart may not be redelegated 
from a higher-level official to a lower level official.

[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]



Sec.  1955.5  General actions.

    (a) Assignment of notes to FmHA or its successor agency under Public 
Law 103-354. 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.
    (b) Execution of documents. (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.
    (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:
    (i) Notice of acceleration; or
    (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.
    (c) Unused loan funds. (1) Funds remaining in a supervised bank 
account will be handed in accordance with Sec.  1902.15 of subpart A of 
part 1902 of this chapter before a voluntary conveyance or foreclosure 
is processed.
    (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.
    (d) Payment of costs. 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 Sec.  1955.3 of this 
subpart.
    (e) Escrow funds. Any funds remaining in the borrower's escrow 
account at the time of liquidation by voluntary

[[Page 174]]

conveyance or foreclosure are nonrefundable and will be credited to the 
borrower's loan account.

[50 FR 23904, June 7, 1985, as amended at 56 FR 6953, Feb. 21, 1991, 57 
FR 36590, Aug. 14, 1992]



Sec. Sec.  1955.6-1955.8  [Reserved]



Sec.  1955.9  Requirements for voluntary conveyance of real property located within a federally recognized Indian reservation owned by a Native American 
          borrower-owner.

    (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.
    (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.
    (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:
    (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:
    (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.
    (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;
    (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;
    (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:
    (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.
    (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:
    (A) FSA shall not foreclose the loan because of any default that 
occurred before the date of the assumption.
    (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.
    (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.
    (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:
    (i) The sale;
    (ii) The fair market value of the property; and
    (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 Sec.  1955.9(c)(2).
    (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

[[Page 175]]

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.
    (d) When determining whether to accept a voluntary conveyance of a 
Native American borrower-owner's real property, the county official must 
consider:
    (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 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.
    (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.

[62 FR 44395, Aug. 21, 1997]



Sec.  1955.10  Voluntary conveyance of real property by the borrower to the Government.

    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 under Public 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 Sec.  1965.25(d) of subpart A of part 1965 of this 
chapter or Sec.  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 service the 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

[[Page 176]]

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 Sec.  1955.137 of subpart C of part 
1955 of this chapter. When it is determined that all conditions of Sec.  
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 of this chapter. For Farmer Program 
borrowers who have received exhibit A with attachments 1 and 2 of 
subpart 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.
    (a) Authority--(1) Loans to individuals. (i) SFH loans. The County 
Supervisor is authorized to accept voluntary conveyances regardless of 
amount of indebtedness.
    (ii) [Reserved]
    (2) Loans to organizations. (i) The State Director is authorized to 
approve voluntary conveyance of property securing Farmer Programs and 
EOC loans regardless of amount of indebtedness.
    (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).
    (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.)
    (b) Forms and documents. 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.
    (c) Liens against the property other than FmHA or its successor 
agency under Public Law 103-354 liens--(1) Prior liens. (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:
    (A) A substantial recovery on the Government's investment plus the 
amount of the prior lien(s) can be obtained; and
    (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.
    (ii) If property is acquired subject to prior lien(s), payment of 
installments on the lien(s) may be made while title

[[Page 177]]

to the property is held by the Government in accordance with Sec.  
1955.67 of subpart B of part 1955 of this chapter.
    (2) Junior liens. The borrower must satisfy junior liens on the 
property (except FmHA or its successor agency 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.
    (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.
    (ii) For loans to organizations, the State Director will determine 
whether or not junior liens will be settled and voluntary conveyance 
accepted.
    (3) Payment of liens. A lien to be settled in accordance with 
paragraph (c)(1)(i) or (c)(2) of this section will be paid as outlined 
in Sec.  1955.5(d) of this subpart and charged to the borrower's account 
as a recoverable cost.
    (d) Offer of voluntary conveyance. An offer of voluntary conveyance 
will consist of the following:
    (1) Form FmHA or its successor agency under Public Law 103-354 1955-
1, ``Offer to Convey Security.''
    (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.
    (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.
    (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.
    (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.
    (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

[[Page 178]]

in force, it will be reduced to writing and assigned to the Government.
    (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 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.
    (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.
    (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.
    (e) Appraisal of property. 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 Sec.  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:
    (1) Certification by a National or State Appraisal Society.
    (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.
    (3) The appraiser has recent, relevant documented appraisal 
experience or training, or other factors clearly establishing the 
appraiser's qualifications.
    (f) Processing offer to convey security and acceptance by FmHA or 
its successor agency under Public Law 103-354. 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.
    (1) SFH loans. 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 Sec.  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 Sec.  
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:

[[Page 179]]

    (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 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:
    (A) The FmHA or its successor agency under Public Law 103-354 
lien(s);
    (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 Sec.  1955.10(c)(1) of this 
subpart; and/or
    (C) Real estate taxes and/or assessments which must be paid when 
title to the property is transferred.
    (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 Sec.  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.
    (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 Sec.  1955.10(g) of this subpart.
    (2) Consolidated Farm and Rural Development Act (CONACT) loans to 
individuals. For CONACT loans to individuals, as defined in Sec.  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.
    (i) Release from liability. 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).
    (ii) Unsatisfied indebtedness. 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 Sec.  1955.18(f) of this subpart. When the

[[Page 180]]

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 for review in accordance with 
exhibit A of subpart B of part 1956 of this chapter (available in any 
FSA office).
    (iii) Crediting accounts. 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:
    (A) The borrower-owner is a member of a tribe or the tribe.
    (B) The property is located within the confines of a federally 
recognized Indian reservation.
    (iv) Loans which are within the County Supervisor's approval 
authority. 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:
    (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 not 
recommended the borrower be released from liability; or
    (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.
    (v) Loans which are NOT within the County Supervisor's approval 
authority
    (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:
    (1) Form FmHA or its successor agency under Public Law 103-354 1955-
2, ``Report on Real Estate Problem Case;''
    (2) Report of title search;
    (3) Borrower's offer of voluntary conveyance (consisting of 
applicable items outlined in paragraphs (d)(1) through (d))(8) of this 
section);
    (4) Current appraisal of property;
    (5) Unpaid balance on FmHA or its successor agency under Public Law 
103-354 indebtedness and other liens, both prior and junior, if any:
    (6) 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;
    (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.
    (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.
    (3) Loans to organizations. When an offer of voluntary conveyance is 
received from an organization borrower, the servicing official will 
submit the

[[Page 181]]

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 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.
    (i) Items to be included in the borrower's case file for MFH loans:
    (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);
    (B) Liquidation and management plan with specific recommendations of 
the District Director;
    (C) Form FmHA or its successor agency under Public Law 103-354 1955-
1;
    (D) Resolution authorizing the conveyance, if applicable;
    (E) Report of title search from an approved closing agent covering 
the period of time since the latest title opinion is the case file;
    (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);
    (G) Form FmHA or its successor agency under Public Law 103-354 1930-
8, ``Year End Report and Analysis for Fiscal Year Ending ------,'' 
(Balance Sheet Portion);
    (H) Current appraisal prepared by a MFH designated appraiser;
    (I) Balance on FmHA or its successor agency under Public Law 103-354 
account(s) and other liens, if any;
    (J) Assignment of Housing Assistance Payment (HAP) contracts, if 
applicable, along with evidence of contract with HUD;
    (K) Current statement of account from the Finance Office;
    (L) Development plan with breakdown of costs, if applicable; and
    (M) Form FmHA or its successor agency under Public Law 103-354 440-
2, executed in accordance with the FMI, when applicable.
    (ii) Items to be included in the borrower's case file for loans 
other than MFH:
    (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);
    (B) Liquidation and management plan;
    (C) Form FmHA or its successor agency under Public Law 103-354 1955-
1;
    (D) Organization's Resolution authorizing the conveyance;
    (E) Report of title search from an approved closing agent covering 
the period of time since the latest title opinion in the case file;
    (F) Form FmHA or its successor agency under Public Law 103-354 442-
3;
    (G) Current appraisal;
    (H) Statement showing income and expenses due but unpaid;
    (I) Balance on FmHA or its successor agency under Public Law 103-354 
account(s) and other liens, if any; and
    (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.
    (g) Closing of conveyance. (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

[[Page 182]]

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 ID number and 
entered into the Acquired Property Tracking System through the Automated 
Discrepancy Processing System (ADPS) terminal in the County Office.
    (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 Sec.  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.
    (h) Actions to be taken after closing conveyance. (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.
    (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.
    (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.
    (4) After release of the lien(s), the servicing official will return 
the following to the borrower:
    (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
    (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.
    (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 FmHA or its successor agency under Public Law 
103-354 office).
    (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 Sec.  1965.215(e)(4) 
of subpart E of part 1965 of this chapter.
    (7) Actions outlined in Sec.  1955.18 of this subpart will be taken, 
as applicable.

[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; 66 FR 7568, Jan. 24, 2001]

    Effective Date Note: At 67 FR 78329, Dec. 24, 2002, Sec.  1955.10 
was amended in the introductory text of paragraph (f)(1) by revising the 
words ``Sec.  1965.125(a) of Subpart C of part 1965 of this chapter'' to 
read ``7 CFR part 3550'', effective Jan. 23, 2003.

[[Page 183]]



Sec.  1955.11  Conveyance of property to FmHA or its successor agency under Public Law 103-354 by trustee in bankruptcy.

    (a) Authority. 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:
    (1) The Bankruptcy Court has approved the conveyance;
    (2) The conveyance will permit a substantial recovery on the FmHA or 
its successor agency under Public Law 103-354 debt; and
    (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.
    (b) Fees and deed. (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 Sec.  1955.5(d) of this 
subpart for payment of fees as recoverable costs.
    (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.
    (c) Acceptance. 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 Sec.  1955.18(e)(4) of this subpart.
    (d) Reporting. Acquisition of property under this section will be 
reported in accordance with Sec.  1955.18(a) of this subpart.

[50 FR 23904, June 7, 1985, as amended at 53 FR 27827, July 25, 1988]



Sec.  1955.12  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.

    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 Sec.  1955.18(a) of this subpart.



Sec.  1955.13  Acquisition of property by exercise of Government redemption rights.

    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.

[53 FR 35762, Sept. 14, 1988]



Sec.  1955.14  [Reserved]



Sec.  1955.15  Foreclosure by the Government of loans secured by real estate.

    Foreclosure will be initiated when all reasonable efforts have 
failed to have

[[Page 184]]

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 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 Sec.  1955.9 (c)(1) of 
this subpart.
    (a) Authority--(1) Loans to individuals. The District Director is 
authorized to approve or disapprove foreclosure and accelerate the 
account.
    (2) Loans to organizations. (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.
    (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.
    (b) Problem case report. 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.
    (1) Appraisal. 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.
    (2) Recommendation for deficiency judgment. 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,

[[Page 185]]

credit will be given first to interest, principal and recoverable costs 
and then to recapture of subsidy.
    (3) Historic preservation. 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 Sec.  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 outlined in 
Sec.  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.
    (c) Submission of problem case. 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:
    (1) For loans to individuals. The County Supervisors will submit the 
case to the District Director.
    (2) For loans to organizations. 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 obtain the advice of OGC if required in connection 
with the type of loan being liquidated.
    (d) Approval of foreclosure. When foreclosure is approved, it will 
be handled as follows:
    (1) Prior lien(s). 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 Sec.  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.
    (2) Acceleration of account. 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

[[Page 186]]

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 Sec.  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 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:
    (i) Where monetary default is involved, the account may be 
accelerated immediately after approval of foreclosure.
    (ii) Where monetary default is not involved, the account will not be 
accelerated until the concurrence of OGC is obtained.
    (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.
    (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 
Sec. 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:
    (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 Sec.  1965.26(c)(1) of subpart A of part 
1965 of this chapter.
    (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 Sec.  1965.26 (c)(2) of subpart A of part 1965 of this 
chapter.
    (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

[[Page 187]]

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 
Sec.  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 based on 
provisions of Sec.  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.
    (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 Sec.  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 Sec.  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.
    (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 Sec.  1965.215(e)(4) or subpart E of part 1965 of 
this chapter.
    (3) Offers by borrowers after acceleration of account--(i) Farmers 
Programs (FP) accelerations. 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.
    (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.
    (1) Cash.
    (2) Transfer and assumption.

[[Page 188]]

    (3) Sale of property.
    (4) Voluntary conveyance.
    (B) Payments which do not pay the account in full can be accepted 
subject to the following requirements:
    (1) Payments will be accepted if there is no remaining security for 
the debt (real estate and chattel).
    (2) 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 be accepted. 
A State supplement will be issued to address State law on accepting 
payments after acceleration.
    (3) 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.
    (4) 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.
    (ii) All other accelerations. 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:
    (A) If an interest credit agreement expired after the account was 
accelerated, the effective date will be the date the previous agreement 
expired.
    (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.
    (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

[[Page 189]]

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.
    (4) Statement of account. 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, account balances and recapture information may 
be obtained from the field office terminal.
    (5) Appeals. 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.
    (6) Petition in bankruptcy filed by borrower after acceleration of 
account.
    (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:
    (A) The bankruptcy case is dismissed or closed (a discharge of 
debtor does not close the case);
    (B) An Order lifting the automatic stay is obtained from the 
Bankruptcy Court; or
    (C) The property is no longer property of the bankruptcy estate and 
the borrower has received a discharge.
    (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.
    (e) Referral of case. 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:
    (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.
    (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.
    (f) Completion of foreclosure--(1) Foreclosure advertisement for 
organization loans subject to title VI of the Civil Rights Act of 1964--
(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

[[Page 190]]

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 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:
    (A) Projected sale date and location;
    (B) Fair market value of property;
    (C) Amount FmHA or its successor agency under Public Law 103-354 
will bid on the property; and
    (D) Amount of FmHA or its successor agency under Public Law 103-354 
debt against the property.
    (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.
    (2) Restrictive-use provisions for MFH loans. For MFH loans, the 
advertisement will state the restrictive-use provisions which will be 
included in any deed used to transfer title.
    (3) Expenses. 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 Sec.  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).
    (4) Notice of judgment. 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.
    (5) Gross investment. The gross investment is the sum of the 
following:
    (i) The unpaid balance of one of the following, as applicable:
    (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
    (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.
    (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
    (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.
    (6) Amount of Government's bid. 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,

[[Page 191]]

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 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.
    (7) Bidding. 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.
    (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.
    (ii) When FmHA or its successor agency under Public Law 103-354 is 
not the senior lienholder and 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.
    (g) Reports on sale and finalizing foreclosure. 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.

[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]

    Effective Date Note: At 67 FR 78329, Dec. 24, 2002, Sec.  1955.15 
was amended as follows, effective Jan. 23, 2003:
    a. By removing in paragraph (b)(2) the third, fourth, and fifth 
sentences:
    b. By revising in the introductory text of paragraph (d)(2)(iv) the 
words ``subpart G of part 1951 of this chapter'' the first time they 
appear to read ``7 CFR part 3550'' and the words ``Sec.  1951.315 of 
subpart G of part 1951 of this chapter'' to read ``7 CFR part 3550;''
    c. By revising in paragraph (d)(2)(iv)(C) the words ``Sec.  1965.125 
of subpart C of part 1965 of this chapter'' in both places they appear 
to read ``7 CFR part 3550;''
    d. By revising in paragraph (d)(2)(iv)(D) the words ``Sec.  1965.125 
of subpart C of part 1965 of this chapter'' to read ``7 CFR part 3550.''



Sec. Sec.  1955.16-1955.17  [Reserved]



Sec.  1955.18  Actions required after acquisition of property.

    The approval official may employ the services of local designated 
attorneys, of a case by case basis, to process all

[[Page 192]]

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.
    (a)-(d) [Reserved]
    (e) Credit to the borrower's account or foreclosure judgment 
account.
    (1) For SFH accounts. When FmHA or its successor agency under Public 
Law 103-354 acquired the property, the account will be satisfied unless:
    (i) In a voluntary conveyance case where the debt exceeds the market 
value of the property and the borrower is not released from liability, 
in which case the account credit will be the market value (less 
outstanding liens if any); or
    (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.
    (2) For all types of accounts other than SFH. When FmHA or its 
successor agency under Public Law 103-354 acquired the property, the 
account credit will be as follows:
    (i) In a voluntary conveyance case:
    (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.
    (B) Where the debt exceeds the market value of the property and the 
borrower is not released from liability, the account credit will be the 
market value (less outstanding liens, if any).
    (ii) In a foreclosure, the account credit will be the amount of FmHA 
or its successor agency under Public Law 103-354's bid except when 
incremental bidding as provided for in Sec.  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.
    (3) For all types of accounts when FmHA or its successor agency 
under Public Law 103-354 did not acquire the property. 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.
    (4) In cases where FmHA or its successor agency under Public Law 
103-354 acquired security property by means other than voluntary 
conveyance or foreclosure. In these cases, such as conveyance by a 
bankruptcy trustee or by Court Order, the account credit will be as 
follows:
    (i) If the market value of the acquired property equals or exceeds 
the debt, the account will be satisfied.
    (ii) If the debt exceeds the market value of the acquired property, 
the account credit will be the market value.
    (f)-(l)

[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]



Sec.  1955.19  [Reserved]



Sec.  1955.20  Acquisition of chattel property.

    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:
    (a) Purchase at the following types of sale: (1) Execution sale 
conducted by the U.S. Marshal, sheriff or other party acting under Court 
order to satisfy judgment liens.
    (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.
    (3) Sale by trustee in bankruptcy.
    (4) Public sale by prior lienholder.
    (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

[[Page 193]]

of Chattel Security,'' the power of sale in security agreements or crop 
and chattel mortgage, or similar instrument, if authorized by State 
Supplement.
    (b) Voluntary conveyance. Voluntary conveyance of chattels will be 
accepted only when the borrower can convey ownership free of other liens 
and the borrower can be released from liability under the conditions set 
forth in Sec.  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.
    (1) Offer. 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 bill of sale itemizing each item of chattel property being 
conveyed and will provide titles to vehicles or other equipment, where 
applicable.
    (2) Acceptance of offer release from liability. 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.
    (3) Release of lien(s). 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.
    (4) Rejection of offer. 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.
    (c) Attending sales. The servicing official will:
    (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.
    (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).
    (3) Obtain the advice of the State Director on attending sales 
described in paragraphs (a) (1), (2), and (3) of this section.
    (d) Appraising chattel property. 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).
    (e) Abandonment of security interest. The State Director may 
authorize

[[Page 194]]

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.
    (f) Bidding at sale. (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:
    (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
    (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.
    (2) Bids will not be made in the following situations unless 
authorized by the State Director:
    (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.
    (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.
    (iii) When the sale is being conducted by a lienholder junior to 
FmHA or its successor agency under Public Law 103-354.
    (iv) At a private sale.
    (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)''.
    (g) Payment of costs. 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 Sec.  1955.5(d) of this 
subpart as recoverable costs.

    Note: Payment of other lienholders' debts in connection with 
voluntary conveyance of chattels is not authorized.

    (h) Reporting acquisition of chattel property. 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.

[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]



Sec.  1955.21  Exception authority.

    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.



Sec.  1955.22  State supplements.

    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

[[Page 195]]

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).



Sec. Sec.  1955.23-1955.49  [Reserved]



Sec.  1955.50  OMB control number.

    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, 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.

[57 FR 1372, Jan. 14, 1992]

            Exhibits A-F to Subpart A of Part 1955 [Reserved]

Exhibit G to Subpart A of Part 1955--Worksheet for Accepting a Voluntary 
   Conveyance of Farm Credit Program Security Property Into Inventory

________________________________________________________________________
(present owner/borrower)
    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).

1. Market Value of Property (Part 7, Form FmHA or its successor agency 
          under Public Law 103-354 1922-1) $----------
    Estimated Holding Period in Years ----------
2. Income
    a. Annual Rent ------ x Holding Period ------ = ------
    b. Annual Royalties ------ x Holding Period ------ = ------
    c. Other Annual Income ------ x Holding Period ------ = ------
    d. Annual Land Appreciation ------ x Holding Period ------ = ------
    e. Value gained due to restrictions that are placed on the farm such 
as Conservation Easements, Conservation Reserve Program (CRP), etc. = --
----
    f. Other (describe) ------ x Holding Period ------ = ------
    Total Additions = $----------
3. Expenses
    a. Total Prior Lienholder Indebtedness (P and I) = ------
    b. Other Acquisitions Costs (taxes presently owed, closing costs, 
survey costs, administrative costs, junior liens, etc.) List:
    ---------- ----------
    ---------- ---------- = ----------
    c. Annual Taxes & Assessment ------ x Holding Period ------ = ------
    d. Annual Building Depreciation ------ x Holding Period ------ = --
----
    e. Annual Management Costs ------ x Holding Period ------ = ------
    f. Total Essential Repairs to Secure & Resell = ------
    g. Annual Decrease In Land Value (if applicable) ------ x Holding 
Period ------ = ------
    h. Total Anticipated Resale Expenses (Commissions, Advertising, 
etc.) = ----------
    i. Total Interest Cost
    MKT Value $------ x Regular \1\ OL Rate ------ x Holding Period ----
-- = ------
    j. Value loss due to restrictions that are placed on the farm such 
as Conservation Easements, and Conservation Reserve Program (CRP), etc. 
= $----------
    k. Hazardous Waste Clean-up Costs = ----------
    Total Deductions (Items a through k) = ----------
4. Recovery Value End of Holding Period


   1.----------------      +     2. ----------------     -    3. ----------------     =      ----------------
      Market Value        ..       Total Additions      ..      Total Deductions     ..       Recovery Value
 


________________________________________________________________________
County Official
________________________________________________________________________
Date
Concurrence by:
________________________________________________________________________

[[Page 196]]

State Executive Director
________________________________________________________________________
Date

[56 FR 15823, Apr. 18, 1991, as amended at 58 FR 44752, Aug. 25, 1993; 
62 FR 44396, Aug. 21, 1997]

 Exhibit G-1 to Subpart A of Part 1955--Worksheet for Determining Farm 
          Credit Programs, Maximum Bid on Real Estate Property

________________________________________________________________________
(present owner/borrower)

    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).
---------------------------------------------------------------------------

    \1\ The regular operating loan rate more nearly reflects the 
Government's cost of money.
---------------------------------------------------------------------------

1. Market Value of Property (Part 7, Form FmHA or its successor agency 
          under Public Law 103-354 1922-1) $----------
    Estimated Holding Period in Years ----------
2. Income
    a. Annual Rent ------ x Holding Period ------ = ------
    ------ ------ = ------
    b. Annual Royalties ------ x Holding Period ------ = ------
    c. Other Annual Income ------ x Holding Period ------ = ------
    d. Annual Land Appreciation ------ x Holding Period ------ = ------
    e. Value gained due to restrictions that are placed on the farm such 
as Conservation Easements, Conservation Reserve Program (CRP), etc. = 
$------
    f. Other (describe) ------ x Holding Period ------ = ------
    Total Additions = $------
3. Expenses
    a. Total Prior Lienholder Indebtedness (P and I) = ------
    b. Other Acquisitions Costs (taxes presently owed, closing costs, 
survey costs, administrative costs, etc.) List:
    ---------- ----------
    ------ ------ = ------
    c. Annual Taxes & Assessment ------ x Holding Period ------ = ------
    d. Annual Building Depreciation ------ x Holding Period ------ = --
----
    e. Annual Management Costs ------ x Holding Period ------ = ------
    f. Total Essential Repairs to Secure & Resell = ------
    g. Annual % Decrease In Land Value (if applicable) ------ x Holding 
Period ------ = ------
    h. Total Anticipated Resale Expenses (Commissions, Advertising, 
etc.) = ------
    i. Total Interest Cost
    MKT Value $------ x Regular \2\ OL Rate ------ x Holding Period ----
-- = ------
---------------------------------------------------------------------------

    \2\ The regular operating loan rate more nearly reflects the 
Government's cost of money.
---------------------------------------------------------------------------

    j. Value loss due to restrictions that are placed on the farm such 
as Conservation Easements, and Conservation Reserve Program (CRP), etc. 
= $------
    k. Hazardous Waste Clean-up Costs = ------
    Total Deductions (Items a through k) = ------
4. Bid will be the lesser of:

     a. 1.       +  2.------------   -        3.        =  -------------
  ------------            ---            ------------            ---
                                              ---
 Market Value   ..       Total      ..      Total      ..      Total
                       Additions          Deductions
 

    or,

   b. ----------------     +      ----------------       =      ----------------
   Unpaid FmHA or its     ..         Prior Liens        ..           Total
  successor agency under
    Public Law 103-354
 Balance on Secured Debt
 

________________________________________________________________________
County Official
________________________________________________________________________
Date
Concurrence by:
________________________________________________________________________
State Executive Director
________________________________________________________________________
Date

[56 FR 15823, Apr. 18, 1991, as amended at 58 FR 44752, Aug. 25, 1993; 
62 FR 44396, Aug. 21, 1997]

[[Page 197]]



                    Subpart B--Management of Property

    Source: 53 FR 35765, Sept. 14, 1988, unless otherwise noted.



Sec.  1955.51  Purpose.

    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:
    (a) Management of real property which has been taken into custody by 
the respective Agency after abandonment by the borrower;
    (b) Management of real and chattel property which is in Agency 
inventory; and
    (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).

[61 FR 59778, Nov. 22, 1996]



Sec.  1955.52  Policy.

    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 Sec.  1955.80 
of this subpart.



Sec.  1955.53  Definitions.

    As used in this subpart, the following definitions apply:
    CONACT or CONACT property. 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.
    Contracting Officer (CO). 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.
    Custodial property. 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.
    Farmer program loans. 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).
    Government. The United States of America, acting through the FmHA or 
its successor agency under Public Law 103-354, U.S. Department of 
Agriculture.
    Indian reservation. 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

[[Page 198]]

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.
    Inventory property. Real and chattel property and related rights to 
which the Government has acquired title.
    Loans to individuals. 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.
    Loans to organizations. 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 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.
    Nonprogram (NP) property. 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.
    Nonrecoverable cost is a contractual or noncontractual program loan 
cost expense not chargeable to a borrower, property account, or part of 
the loan subsidy.
    Office of the General Counsel (OGC). The OGC, U.S. Department of 
Agriculture, refers to the Regional Attorney or Attorney-in-Charge in an 
OGC field office unless otherwise indicated.
    Program property. 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.
    Recoverable cost is a contractual or noncontractual program loan 
expense chargeable to a borrower, property account, or part of the loan 
subsidy.
    Servicing official. 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.
    Suitable property. 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.
    Surplus property. 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

[[Page 199]]

available through the applicable loan program.

[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]

    Effective Date Note: At 67 FR 78329, Dec. 24, 2002, Sec.  1955.53 
was amended in the definition of ``Nonprogram (NP) property'' by 
revising the words ``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'' to read ``requirements for existing housing as 
described in 7 CFR part 3550'', effective Jan. 23, 2003.



Sec.  1955.54  Redelegation of authority.

    Authorities will be redelegated to the extent possible, consistent 
with program objectives and available resources.
    (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.
    (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.
    (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 subpart applies to Area Loan Specialists in Alaska and 
the Director for the Western Pacific Territories.
    (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.



Sec.  1955.55  Taking abandoned real or chattel property into custody and related actions.

    (a) Determination of abandonment. (Multiple housing type loans will 
be handled in accordance with Sec.  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 Sec.  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.
    (b) Taking security property into FmHA or its successor agency under 
Public Law 103-354 custody. 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:
    (1) For loans to individuals (except those with Farmer Program 
loans), if there are no prior liens, or if a prior

[[Page 200]]

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 
Sec.  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 Sec.  1965.26 of Subpart A of Part 1965 of this 
chapter will be followed.
    (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.
    (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.
    (ii) If the unpaid loan balance plus recoverable costs exceeds the 
State Director's loan approval authority, the 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.
    (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).
    (iv) The District Director will prepare a problem case report to 
initiate foreclosure in accordance with Sec.  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.
    (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 Sec.  
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.
    (c) Protecting custodial property. 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.
    (1) Nonsecurity personal property on premises. 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 
before 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

[[Page 201]]

property and that FmHA or its successor agency under Public Law 103-354 
has taken the real property into custody.
    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.
    (2) Repairs to custodial property. 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.
    (d) Emergency advances where liquidation is pending. 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.
    (e) Income and costs. Income received from the property will be 
handled in accordance with 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 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).
    (f) Off-site procurements. 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.
    (1) Conditions for procurement. Such expenditures may be made only 
when all of the following conditions are met:
    (i) A determination is made that failure to procure work would 
likely result in a property loss greater than the expenditure;
    (ii) There are no other feasible means (including cooperative 
agreements) to accomplish the same result;
    (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);
    (iv) Written documentation supporting subparagraphs (i), (ii) and 
(iii) has been obtained from the authorized program official;
    (v) Approval has been obtained from the appropriate Assistant 
Administrator.
    (2) Direct procurement action. Where direct procurement action is 
contemplated, an opinion must be obtained from the Regional Attorney 
that:
    (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
    (ii) A specific legal entity has authority to grant an easement 
(right-of-way) to FmHA or its successor agency under

[[Page 202]]

Public Law 103-354 for the contemplated work and such an easement, in a 
form approved by the Regional Attorney, has been obtained.
    (3) Cooperative agreements. 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.
    (4) Consideration of maintenance agreements. 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.

[53 FR 35765, Sept. 14, 1988, as amended at 54 FR 20521, May 12, 1989; 
57 FR 36591, Aug. 14, 1992]



Sec.  1955.56  Real property located in Coastal Barrier Resources System (CBRS).

    (a) Approval official's scope of authority. 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:
    (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;
    (2) The action is inconsistent with the purposes of the CBRA; or
    (3) The property to be repaired or maintained was initially the 
subject of a financial transaction that violated the CBRA.
    (b) Administrator's review. 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.
    (c) Emergency provisions. 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.



Sec.  1955.57  Real property containing underground storage tanks.

    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

[[Page 203]]

providing the appropriate forms required by EPA and instructions on 
processing same.
    (a) Underground storage tanks which meet the following criteria must 
be reported:
    (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
    (2) It is not exempt from the reporting requirements as outlined in 
paragraph (b) of this section; and
    (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
    (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.
    (b) The following underground storage tanks are exempt from the EPA 
reporting requirements:
    (1) Farm or residential tanks of 1,100 gallons or less capacity used 
for storing motor fuel for noncommercial purposes;
    (2) Tanks used for storing heating oil for consumptive use on the 
premises where stored;
    (3) Septic tanks;
    (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;
    (5) Surface impoundments, pits, ponds, or lagoons;
    (6) Storm water or wastewater collection systems;
    (7) Flow-through process tanks;
    (8) Liquid traps or associated gathering lines directly related to 
oil or gas production and gathering operations; or
    (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.
    (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.
    (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.
    (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.
    (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.



Sec. Sec.  1955.58-1955.59  [Reserved]



Sec.  1955.60  Inventory property subject to redemption by the borrower.

    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 
Sec.  1955.64 of this subpart to

[[Page 204]]

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 Sec.  
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 Sec.  1955.138 of Subpart C of this part.

[54 FR 20522, May 12, 1989]



Sec.  1955.61  Eviction of persons occupying inventory real property or dispossession of persons in possession of chattel property.

    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 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.

[54 FR 20522, May 12, 1989]



Sec.  1955.62  Removal and disposition of nonsecurity personal property from inventory real property.

    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:
    (a) Notification to owner or lienholder. The servicing official will 
check the public records to see if there is a lien on any of the 
personal property.
    (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.
    (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.
    (b) Disposal of unclaimed personal property. 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

[[Page 205]]

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:
    (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:
    (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).
    (ii) To an unsatisfied balance on the FmHA or its successor agency 
under Public Law 103-354 loan account, if any.
    (iii) To the borrower, if whereabouts are known.
    (2) If personal property is not sold, a mover or hauler may be 
authorized to 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.
    (c) Payment of costs. 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.
    (d) Removal of abandoned motor vehicles from inventory property. 
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.



Sec.  1955.63  Suitability determination.

    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.
    (a) Determination. 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 Sec.  
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.
    (b) Grouping and subdividing farm properties larger than family-
size. 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 Sec.  1955.140 of subpart C 
of this part.
    (c) Housing property. 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 Sec.  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,

[[Page 206]]

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:
    (1) A dwelling which has been enlarged or improved to the point 
where it is clearly above modest.
    (2) When a determination is made that the property should not have 
been financed originally.
    (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.
    (4) A dwelling which is obsolete due to location, design, 
construction or age.
    (5) A dwelling which requires major redesign/renovation to be 
brought to program standards.
    (d) [Reserved]

[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]



Sec.  1955.64  [Reserved]



Sec.  1955.65  Management of inventory and/or custodial real property.

    (a) Authority--(1) County Supervisor. 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.
    (2) State Director. 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.
    (b) Management methods. 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 Sec.  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

[[Page 207]]

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 Sec.  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.
    (c) Obtaining services for management and/or operation of 
properties. 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).
    (1) Management contracts. 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 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).
    (2) Authority to enter into management contracts. (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).
    (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.
    (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).

[[Page 208]]

    (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.
    (3) Specification of services. 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).
    (4) Costs. 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 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).
    (d) Additional management services. 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.

[53 FR 35765, Sept. 14, 1988, as amended at 57 FR 36591, Aug. 14, 1992]



Sec.  1955.66  Lease of real property.

    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 Sec.  1955.55(c) of this subpart. The 
requirements of subpart G of part 1940 of this chapter will be met for 
all leases.
    (a) Authority to approve lease of property. (1) Custodial property. 
Custodial property may be leased pending foreclosure with the servicing 
official approving the lease on behalf of the Agency.
    (2) Inventory property. 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

[[Page 209]]

servicing official and the State Historic Preservation Officer determine 
that the lease will adequately ensure the property's condition and 
historic character.
    (i) SFH. 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.
    (ii) MFH. 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.
    (iii) Farm property. (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.
    (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 not able to 
complete the purchase due to the lack of Agency funding.
    (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 Sec. 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.
    (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.
    (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.
    (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.
    (iv) Organization property other than MFH. 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.
    (b) Selection of lessees for other than farm property. 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

[[Page 210]]

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.
    (c) Selection of lessees for FSA property. 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 Sec. 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 Sec. 1955.107(a)(2)(ii) of subpart C of this part.
    (d) Property securing Farm Credit Programs loans located within an 
Indian Reservation. (1) State Executive Directors will contact the 
Bureau of Indian Affairs Agency supervisor to determine the boundaries 
of Indian Reservations and Indian allotments.
    (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. The purchase shall be in accordance with the 
priority rights as follows:
    (i) To a member of the Indian tribe that has jurisdiction over the 
reservation within which the real property is located;
    (ii) To an Indian corporate entity;
    (iii) To the Indian tribe.
    (3) The Indian tribe having jurisdiction over the Indian reservation 
may revise the order of priority and may restrict the eligibility for 
purchase to:
    (i) Persons who are members of such Indian tribe;
    (ii) Indian corporate entities that are authorized by such Indian 
tribe to purchase lands within the boundaries of the reservation; or
    (iii) The Indian tribe itself.
    (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.
    (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 
Sec. Sec. 1955.137 and 1955.139 of subpart C of this part.
    (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.
    (e) Lease amount. 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.
    (1) Farm property. 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.
    (2) SFH property. 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

[[Page 211]]

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 \1/12\ of the estimated real estate taxes, property 
insurance, and maintenance which would be payable by a homeowner.
    (3) Property other than farm or SFH. 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.
    (f) Property containing wetlands or located in a floodplain or 
mudslide hazard area. 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 subject to the same use restrictions as contained in Sec.  
1955.137(a)(1) of subpart C of this part.
    (g) Highly erodible land. 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.
    (h) Lease of FSA property with option to purchase. 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.
    (1) The lease payments will not be applied toward the purchase 
price.
    (2) The purchase price (option price) will be the advertised sales 
price as determined by an appraisal prepared in accordance with Sec.  
761.7 of this title.
    (3) For inventory properties leased to a beginning farmer or rancher 
applicant, the term of the lease shall be the earlier of:
    (i) A period not to exceed 18 months from the date that the 
applicant was selected to purchase the inventory farm, or
    (ii) The date that direct, guaranteed, credit sale or other Agency 
funds become available for the beginning farmer or rancher to close the 
sale.
    (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.
    (i) Costs. 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 Sec.  1955.55 (c) (2) 
of this subpart will be charged to the borrower's account as recoverable 
costs.
    (j) Security deposit. 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.
    (k) Lease form. Form RD 1955-20 approved by OGC will be used by the 
agency to lease property.
    (l) Lease income. Lease proceeds will be remitted according to 
subpart B of part 1951 of this chapter.
    (1) Custodial property. 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.

[[Page 212]]

    (2) Inventory property. The proceeds from a lease of inventory 
property will be applied to the lease account.

[62 FR 44397, Aug. 21, 1997, as amended at 64 FR 62568, Nov. 17, 1999]



Sec. Sec.  1955.67-1955.71  [Reserved]



Sec.  1955.72  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.

    (a) FEMA. 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.
    (b) HHS. 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 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.

[54 FR 20523, May 12, 1989, as amended at 60 FR 34455, July 3, 1995]



Sec. Sec.  1955.73-1955.80  [Reserved]



Sec.  1955.81  Exception authority.

    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.

[53 FR 35765, Sept. 14, 1988, as amended at 58 FR 58649, Nov. 3, 1993]



Sec.  1955.82  State supplements.

    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.



Sec. Sec.  1955.83-1955.99  [Reserved]



Sec.  1955.100  OMB control number.

    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.

[[Page 213]]

                          Exhibits to Subpart B

    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.

Exhibit A to Subpart B of Part 1955--Memorandum of Understanding Between 
      the Federal Emergency Management Agency and the Farmers Home 
     Administration or its successor agency under Public Law 103-354

     Exhibit B to Subpart B of Part 1955--Notification of Tribe of 
               Availability of Farm Property for Purchase

           (To Be Used By Farm Service Agency to Notify Tribe)

From: County official
To: (Name of Tribe and address)
Subject: Availability of Farm Property for Purchase
    [To be Used within 90 days of acquisition]
    Recently the Farm Service Agency (FSA) acquired title to -------- 
acres of farm real property located within the boundaries of your 
Reservation. The previous owner of this property was --------. 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:
    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.
    2. Indian corporate entities. You may restrict eligible Indian 
corporate entities to those authorized by your Tribe to purchase lands 
within the boundaries of your Reservation. These entities also must meet 
the basic eligibility criteria established for the type of assistance 
granted.
    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.
    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.

                               Sincerely,

                             County official

[62 FR 44399, Aug. 21, 1997]

         Exhibit C to Subpart B--Cooperative Agreement (Example)

 Exhibit D to Subpart B--Fact Sheet--The Federal Interagency Task Force 
                  on Food and Shelter for the Homeless



                Subpart C--Disposal of Inventory Property

                              Introduction



Sec.  1955.101  Purpose.

    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.

[50 FR 23904, June 7, 1985, as amended at 58 FR 52652, Oct. 12, 1993; 61 
FR 59778, Nov. 22, 1996]



Sec.  1955.102  Policy.

    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

[[Page 214]]

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.

[53 FR 35776, Sept. 14, 1988, as amended at 58 FR 52652, Oct. 12, 1993; 
62 FR 44399, Aug. 21, 1997]



Sec.  1955.103  Definitions.

    As used in this subpart, the following apply:
    Approval official. 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.
    Auction sale. A public sale in which property is sold to the highest 
bidder in open verbal competition.
    Beginning farmer or rancher. A beginning farmer or rancher is an 
individual or entity who:
    (1) Is an eligible applicant for FO loan assistance in accordance 
with Sec.  1943.12 of subpart A of part 1943 of this chapter or Sec.  
1980.180 of subpart B of part 1980 of this chapter.
    (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.
    (3) Will materially and substantially participate in the operation 
of the farm or ranch.
    (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.
    (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.
    (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.
    (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.
    (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.
    (7) In the case of an entity:
    (i) All the members are related by blood or marriage.

[[Page 215]]

    (ii) All the stockholders in a corporation are qualified beginning 
farmers or ranchers.
    Borrower. 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.
    Capitalization value. The value determined in accordance with 
subpart E of part 1922 of this chapter.
    Closing agent. 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.
    CONACT or CONACT property, 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.
    Credit sale. A sale in which financing is provided to an applicant 
for the purchase of inventory property.
    Decent, safe and sanitary (DSS) housing. 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 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:
    (1) Are structurally sound and habitable,
    (2) Have a potable water supply,
    (3) Have functionally adequate, safe and operable heating, plumbing, 
electrical and sewage disposal systems,
    (4) Meet the Thermal Performance Standards as outlined in exhibit D 
of subpart A of part 1924 of this chapter, and
    (5) Are safe; that is, a hazard does not exist that would endanger 
the safety of dwelling occupants.
    Eligible terms. 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.''
    Farmer program loans. 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).
    Homestead protection (FP only). 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.
    Indian Reservation. 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.
    Ineligible terms. 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

[[Page 216]]

SFH and MFH properties, see the definition of ``Nonprogram (NP) terms.''
    Inventory property. 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.
    Market value. 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.
    Negotiated sale. A sale in which there is a bargaining of price and/
or terms.
    Nonprogram (NP) property. 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.
    Nonprogram (NP) terms. 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 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.''
    Organization property. 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.
    Owner. 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.
    Participating broker. A duly licensed real estate broker who has 
executed a listing agreement with FmHA or its successor agency under 
Public Law 103-354.
    Program property. 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.
    Program terms. 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.''
    Regular FmHA or its successor agency under Public Law 103-354 sale. 
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.
    Regular sale. Sale by FmHA or its successor agency under Public Law 
103-

[[Page 217]]

354 employees or real estate brokers other than by sealed bid, auction 
or negotiation.
    Safe. No hazard exists on property which would likely endanger the 
health or safety of occupants or users.
    Sealed bid sale. A public sale in which property is offered to the 
highest bidder by prior written bid submitted in a sealed envelope.
    Servicing official. For loans to individuals, as defined in Sec.  
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.
    Socially disadvantaged applicant. 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.
    Suitable property. 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.
    Surplus property. 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.

[50 FR 23904, June 7, 1985, as amended at 50 FR 45783, Nov. 1, 1985; 51 
FR 18436, May 20, 1986; 53 FR 27830, July 25, 1988; 53 FR 30664, Aug. 
15, 1988; 53 FR 35776, Sept. 14, 1988; 56 FR 29403, June 27, 1991; 56 FR 
67484, Dec. 31, 1991; 57 FR 19525, 19528, May 7, 1992; 57 FR 31642, July 
17, 1992; 58 FR 44752, Aug. 25, 1993; 58 FR 48290, Sept. 15, 1993; 58 FR 
58649, Nov. 3, 1993; 62 FR 44399, Aug. 21, 1997]



Sec.  1955.104  Authorities and responsibilities.

    (a) Redelegation of authority. FmHA or its successor agency under 
Public Law 103-354 officials will redelegate authorities to the maximum 
extent possible, consistent with program objectives and available 
resources.
    (1) 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.
    (2) Except as provided in paragraph (a)(1) 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.
    (3) 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 subpart applies to Area Loan Specialists in Alaska and 
the Director for the Western Pacific Territories.
    (4) 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

[[Page 218]]

Pacific Territories, and Area Supervisors in the Western Pacific 
Territories and American Samoa.
    (b) Responsibility. (1) National Office program directors are 
responsible for reviewing and providing guidance to State, District and 
County Offices in disposing of inventory property.
    (2) The State Director is responsible for establishing an effective 
program and insuring compliance with FmHA or its successor agency under 
Public Law 103-354 regulations.
    (3) District Directors are responsible for disposal actions for 
programs under their supervision and for monitoring County Office 
compliance with FmHA or its successor agency under Public Law 103-354 
regulations and State Supplements.
    (4) County Supervisors are responsible for timely disposal of 
inventory property for programs under their supervision.

[53 FR 27830, July 25, 1988, as amended at 66 FR 7568, Jan. 24, 2001]

   Consolidated Farm and Rural Development Act (CONACT) Real Property



Sec.  1955.105  Real property affected (CONACT).

    (a) Loan types. Sections 1955.106-1955.109 of this subpart prescribe 
procedures for the sale of inventory real property which secured any of 
the following type of loans (referred to as CONACT property in this 
subpart): Farm Ownership (FO); Recreation (RL); Soil and Water (SW); 
Operating (OL); Emergency (EM); Economic Opportunity (EO); Economic 
Emergency (EE); Softwood Timber (ST); Community Facility (CF); Water and 
Waste Disposal (WWD); Reserve Conservation and Development (RC&D); 
Watershed (WS); Association Recreation; EOC: Rural Renewal; Water 
Facility; Business and Industry (B&I); Rural Development Loan Fund 
(RDLF); Intermediary Relending Program (IRP); Nonprofit National 
Corporation (NNC); Irrigation and Drainage; Shift-in-Land Use (Grazing 
Association); and loans to Indian Tribes and Tribal Corporations. 
Homestead Protection, as set forth in Subpart S of Part 1951 of this 
chapter, is only applicable to Farmer Program loans as defined in Sec.  
1955.103 of this subpart.
    (b) Controlled substance conviction. In accordance with the Food 
Security Act of 1985 (Pub. L. 99-198), after December 23, 1985, if an 
individual or any member, stockholder, partner, or joint operator of an 
entity is convicted 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 to Subpart A of Part 1941 of this 
chapter and is available in any FmHA or its successor agency under 
Public Law 103-354 office, for the definition of ``controlled 
substance'') prior to a credit sale approval in any crop year, the 
individual or entity shall be ineligible for a credit sale for the crop 
year in which the individual or member, stockholder, partner, or joint 
operator of the entity was convicted and the four succeeding crop years. 
Applicants will attest on Form 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,'' that as individuals or that its members, 
if an entity, have not been convicted of such crime after December 23, 
1985.
    (c) Effects of farm property sales on farm values. State Directors 
will analyze farm real estate market conditions within the geographic 
areas of their jurisdiction and determine whether or not the sale of the 
FmHA or its successor agency under Public Law 103-354 farm inventory 
properties will have a detrimental effect on the value of farms within 
these areas. Such analysis will be carried out in January of each year 
and as often throughout the year as necessary to reflect changing farm 
real estate conditions. If the analyses of farm real estate conditions 
indicate that such sales would put downward pressure on farm real estate 
values in any area, all farm properties within the area affected will be 
withheld from the market and managed in accordance with the provisions 
of Subpart B of this Part until such time that a subsequent analysis 
indicates otherwise. The State Director will notify, in writing, the 
County Supervisor(s) servicing those areas that are restricted from 
selling farm inventory property.

[[Page 219]]

State Directors in consultation with other lenders, real estate agents, 
auctioneers, and others in the community will analyze all available 
information such as:
    (1) The number of farms and acres that FmHA or its successor agency 
under Public Law 103-354 expects to acquire in inventory.
    (2) The number of farms and acres other lenders expect to acquire in 
inventory.
    (3) The number of farms and acres that FmHA or its successor agency 
under Public Law 103-354 currently has in inventory.
    (4) The number of farms and acres other lenders currently have in 
inventory.
    (5) The number of farms not included in paragraphs (c)(3) and (c)(4) 
of this section which are currently listed for sale.
    (6) Published real estate values and trend reports such as those 
available from the Economic Research Service or professional appraisal 
organizations.
    (d) Highly erodible land. If farm inventory property contains 
``highly erodible land,'' as determined by the SCS, the lease must 
include conservation practices specified by the SCS and approved by FmHA 
or its successor agency under Public Law 103-354 as a condition for 
leasing. Refer to Sec.  1955.137(d) of this subpart for implementation 
requirements.

[53 FR 35777, Sept. 14, 1988, as amended at 57 FR 19528, May 7, 1992; 58 
FR 58649, Nov. 3, 1993; 62 FR 44399, Aug. 21, 1997]



Sec.  1955.106  Disposition of farm property.

    (a) Rights of previous owner and notification. Before property which 
secured a Farm Credit Programs loan is taken into inventory, the FSA 
county official will advise the borrower-owner of Homestead Protection 
rights (see subpart S of part 1951 of this chapter.)
    (b) Racial, ethnic, and gender consideration. The County Supervisor 
will make a special effort to insure that prospective purchasers, who 
traditionally would not be expected to apply for farm ownership loan 
assistance because of existing racial, ethnic, or gender prejudice, are 
informed of the availability of the Socially Disadvantaged Program. 
Emphasis will be placed on providing assistance to such socially 
disadvantaged applicants in accordance with the applicable sections of 
subpart A of part 1943 of this chapter.
    (c) Nonprogram (NP) borrowers. Nonprogram (NP) borrowers are not 
eligible for Homestead Protection provisions as set forth in subpart S 
of part 1951 of this chapter. When it is determined that all conditions 
of Sec.  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 will be eligible for homestead protection.

[53 FR 35777, Sept. 14, 1988, as amended at 58 FR 58649, Nov. 3, 1993; 
62 FR 44399, Aug. 21, 1997]



Sec.  1955.107  Sale of FSA property (CONACT).

    FSA inventory property will be advertised for sale in accordance 
with the provisions of this subpart. If a request is received from a 
Federal or State agency for transfer of a property for conservation 
purposes, the advertisement should be conditional on that possibility. 
Real property will be managed in accordance with the provisions of 
subpart B of this part until sold.
    (a) Suitable Property. Not later than 15 days from the date of 
acquisition, the Agency will advertise suitable property for sale. For 
properties currently under a lease, except leases to beginning farmers 
and ranchers under Sec.  1955.66(a)(2)(iii) of subpart B of this part, 
the property will be advertised for sale not later than 60 days after 
the lease expires or is terminated. There will be a preference for 
beginning farmers or ranchers. The advertisement will contain a 
provision to lease the property to a beginning farmer or rancher for up 
to 18 months should FSA credit assistance not be available at the time 
of sale. The first advertisement will not be required to contain the 
sales price but it should inform potential beginning farmer or rancher 
applicants that applications will be accepted pending completion of the 
advertisement process. When possible, the sale of suitable FSA property 
should be

[[Page 220]]

handled by county officials. Farm property will be advertised for sale 
by publishing, as a minimum, two weekly advertisements in at least two 
newspapers that are widely circulated in the area in which the farm is 
located. Consideration will be given to advertising inventory properties 
in major farm publications. Either Form RD 1955-40 or Form RD 1955-41, 
``Notice of Sale,'' will be posted in a prominent place in the county. 
Maximum publicity should be given to the sale under guidance provided by 
Sec.  1955.146 of this subpart and care should be taken to spell out 
eligibility criteria. Tribal Councils or other recognized Indian 
governing bodies having jurisdiction over Indian reservations (see Sec.  
1955.103 of this subpart) shall be responsible for notifying those 
parties in Sec.  1955.66(d)(2) of subpart B of this part.
    (1) Price. Property will be advertised for sale for its appraised 
market value based on the condition of the property at the time it is 
made available for sale. The market value will be determined by an 
appraisal made in accordance with Sec.  761.7 of this title. Property 
contaminated with hazardous waste will be appraised ``as improved'' 
which will be used as the sale price for advertisement to beginning 
farmers or ranchers.
    (2) Selection of purchaser. After homestead protection rights have 
expired, suitable farmland must be sold in the priority outlined in this 
paragraph. When farm inventory property is larger than family size, the 
property will be subdivided into suitable family size farms pursuant to 
Sec.  1955.140 of this subpart.
    (i) Sale to Beginning Farmers/Ranchers. Not later than 75 days from 
the date of acquisition, FSA will sell suitable farm property, with a 
priority given to applicants who are classified as beginning farmers or 
ranchers, as defined in Sec.  1955.103 of this subpart, as of the time 
of sale.
    (ii) Random selection. The county official will first determine 
whether applicants meet the eligibility requirements of a beginning 
farmer or rancher. For applicants who are not determined to be beginning 
farmers or ranchers, they may request that the State Executive Director 
provide an expedited review and determination of whether the applicant 
is a beginning farmer or rancher for the purpose of acquiring inventory 
property. This review shall take place not later than 30 days after 
denial of the application. The State Executive Director's review 
decision shall be final and is not administratively appealable. When 
there is more than one beginning farmer or rancher applicant, the Agency 
will select by lot by placing the names in a receptacle and drawing 
names sequentially. Drawn offers will be numbered and those drawn after 
the first drawn name will be held in suspense pending sale to the 
successful applicant. The random selection drawing will be open to the 
public, and applicants will be advised of the time and place.
    (iii) Notification of applicants not selected to purchase suitable 
farmland. When the Agency selects an applicant to purchase suitable 
farmland, in accordance with this paragraph, all applicants not selected 
will be notified in writing that they were not selected. The outcome of 
the random selection by lot is not appealable if such selection is 
conducted in accordance with this subpart.
    (3) Credit sale procedure. Subject to the availability of funds, 
credit sale to program applicants will be processed as follows:
    (i) The interest rate charged by the Agency will be the lower of the 
interest rates in effect at the time of loan approval or closing.
    (ii) The loan limits for the requested type of assistance are 
applicable to a credit sale to an eligible applicant.
    (iii) Title clearance and loan closing for a credit sale and any 
subsequent loan to be closed simultaneously must be the same as for an 
initial loan except that:
    (A) Form RD 1955-49, ``Quitclaim Deed,'' or other form of 
nonwarranty deed approved by the Office of the General Counsel (OGC) 
will be used.
    (B) The buyer will pay attorney's fees and title insurance costs, 
recording fees, and other customary fees unless they are included in a 
subsequent loan. A subsequent loan may not be made for the primary 
purpose of paying closing costs and fees.

[[Page 221]]

    (iv) Property sold on credit sale may 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, see 
Exhibit M of subpart G of part 1940 of this chapter. All prospective 
buyers will be notified in writing as a part of the property 
advertisement of the presence of highly erodible land and wetlands on 
inventory property.
    (b) Surplus Property and Suitable Property not sold to a Beginning 
Farmer or Rancher. Except where a lessee is exercising the option to 
purchase under the Homestead Protection provision of subpart S of part 
1951 of this chapter, surplus property will be offered for public sale 
by sealed bid or auction within 15 days from the date of acquisition in 
accordance with Sec. 1955.147 or Sec. 1955.148 of this subpart. Suitable 
farm property which has been advertised for sale to a beginning farmer 
or rancher in accordance with Sec. 1955.107 (a) of this subpart but has 
not sold within 75 days from the date of acquisition will be offered for 
public sale by sealed bid or auction to the highest bidder as provided 
in paragraph (b)(1) of this section. All prospective buyers will be 
notified in writing as a part of the property advertisement of the 
presence of highly erodible land, converted wetlands, floodplains, 
wetlands, or other special characteristics of the property that may 
limit its use or cause an easement to be placed on the property.
    (1) Advertising surplus property. FSA will advertise surplus 
property for sale by sealed bid or auction within 15 days from the date 
of acquisition or, for those suitable properties not sold to beginning 
farmers or ranchers in accordance with the provisions or paragraph (a) 
of this section, within 75 days of the date of acquisition.
    (2) Sale by sealed bid or auction. Surplus real estate must be 
offered for public sale by sealed bid or auction and must be sold no 
later than 105 days from the date of acquisition to the highest bidder. 
Preference will be given to a cash offer which is at least *percent of 
the highest offer requiring credit. (*Refer to Exhibit B of RD 
Instruction 440.1 (available in any Agency office) for the current 
percentage.) Equally acceptable sealed bid offers will be decided by 
lot.
    (3) Negotiated sale. If no acceptable bid is received through the 
sealed bid or auction process, the State Executive Director will sell 
surplus property at the maximum price obtainable without further public 
notice by negotiation with interested parties, including all previous 
bidders. The rates and terms offered for a credit sale through 
negotiation will be within the limitations established in paragraph (b) 
(4) of this section. A sale made through negotiation will require a bid 
deposit of not less than 10 percent of the negotiated price in the form 
of a cashier's check, certified check, postal or bank money order, or 
bank draft payable to FSA. Preference will be given to a cash offer 
which is at least * percent of the highest offer requiring credit. 
[*Refer to Exhibit B of RD Instruction 440.1 (available in any Agency 
office) for the current percentage.] Equally acceptable offers will be 
decided by lot.
    (4) Rates and terms. Subject to the availability of funds, rates and 
terms for Homestead Protection will be in accordance with subpart S of 
part 1951 of this chapter. Sales of suitable property offered to program 
eligible applicants will be on rates and terms provided in subpart A of 
part 1943 of this chapter. Surplus property and suitable property which 
has not been sold to program eligible applicants will be offered for 
cash or on ineligible terms in accordance with subpart J of part 1951 of 
this chapter. The State Executive Director will determine the loan terms 
for surplus property within these limitations. A credit sale made on 
ineligible terms will be closed at the interest rate in effect at the 
time the credit sale was approved. After extensive sales efforts where 
no acceptable offer has been received, the State Executive Director may 
request the Administrator to permit offering surplus property for sale 
on more favorable rates and terms; however, the terms may not be more 
favorable than those legally permissible for eligible borrowers. Surplus 
property will be offered for sale for cash or terms that will provide 
the best net return for the Government. The term of financing extended 
may not be longer than the period for which the

[[Page 222]]

property will serve as adequate security. All credit sales on ineligible 
terms will be identified as NP loans.

[62 FR 44399, Aug. 21, 1997, as amended at 64 FR 62569, Nov. 17, 1999]



Sec. 1955.108  Sale of (CONACT) property other than FSA property.

    Program officials will immediately contact the National Office 
whenever they acquire real property to obtain further instructions on 
the time frames and procedures for advertising and disposing of such 
property.

[62 FR 44401, Aug. 21, 1997]



Sec.  1955.109  Processing and closing (CONACT).

    (a) Determining repayment ability and creditworthiness. If a credit 
sale is involved, the applicant must furnish necessary financial 
information to assist in determining repayment ability and 
creditworthiness. Form FmHA or its successor agency under Public Law 
103-354 431-2, ``Farm and Home Plan,'' should be used for all eligible 
FSA applicants unless the applicant has furnished all required 
information in another acceptable format. Information regarding 
eligibility, planned development and total operations will be provided 
the same as for the respective type of FSA loan. Purchasers requesting 
credit on ineligible terms, except for C&BP, will be handled in 
accordance with subpart J of part 1951 of this chapter. For C&BP, 
information will be provided which is similar to an application 
including financial information required for the respective loan program 
to establish financial stability, creditworthiness and repayment 
ability.
    (b) [Reserved]
    (c) Form of payment. Payments at closing will be in the form of 
cash, cashier's check, certified check, postal or bank money order, or 
bank draft made payable to the Agency and handled in accordance with 
subpart B of part 1951 of this chapter.
    (d)-(e) [Reserved]
    (f) Earnest money. Earnest money, if any, will be used to pay 
purchaser's closing costs with any balance of the costs being paid by 
the purchaser. Any excess earnest money will be credited to the purchase 
price or recognized as a part of the purchaser's downpayment.
    (g) Closing and reporting sales. Title clearance, loan closing and 
property insurance requirements for a credit sale will be the same as 
for a program loan, except the property will be conveyed by Form FmHA or 
its successor agency under Public Law 103-354 1955-49, in accordance 
with Sec.  1955.141(a) of this subpart.
    (h) Classification. Credit sales on ineligible terms for C&BP will 
be classified as NP loans and serviced accordingly.
    (i) [Reserved]
    (j) Form FmHA or its successor agency under Public Law 103-354 1910-
11, ``Applicant Certification, Federal Collection Policies for Consumer 
or Commercial Debts.'' The County Supervisor or 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.

[53 FR 35780, Sept. 14, 1988, as amended at 54 FR 29333, July 12, 1989; 
58 FR 52652, Oct. 12, 1993; 60 FR 34455, July 3, 1995; 62 FR 44401, Aug. 
21, 1997]

                    Rural Housing (RH) Real Property



Sec.  1955.110  [Reserved]



Sec.  1955.111  Sale of real estate for RH purposes (housing).

    Sections 1955.112 through 1955.120 of this subpart pertain to the 
sale of acquired property pursuant to the Housing Act of 1949, as 
amended, (RH property). Single family units (generally which secured 
loans made under section 502 or 504 of the Housing Act of 1949, as 
amended) are referred to as SFH property. All other property is referred 
to as MFH property. Notwithstanding the provisions of Sec. Sec.  
1955.112 through 1955.118 of this subpart, Sec.  1955.119 is the 
governing section for the sale of SFH inventory property to a public 
body or nonprofit organization to use for transitional housing for the 
homeless.

[55 FR 3942, Feb. 6, 1990]

[[Page 223]]



Sec.  1955.112  Method of sale (housing).

    (a) Sales by FmHA or its successor agency under Public Law 103-354. 
Sales customarily will be made by FmHA or its successor agency under 
Public Law 103-354 personnel in accordance with Sec. Sec.  1955.114 and 
1955.115 of this subpart (as appropriate) when staffing and workload 
permit and inventory levels do not exceed those outlined in paragraph 
(b) of this section. Adequate and timely advertising in accordance with 
Sec.  1955.146 of this subpart is of utmost importance when this method 
is used. No earnest money will be collected in connection with sales by 
FmHA or its successor agency under Public Law 103-354. For MFH, this 
method will always be used unless another method is authorized by the 
Assistant Administrator, Housing.
    (b) Real estate brokers. The County Office will utilize the services 
of real estate brokers for regular sales when there are five or more 
properties in inventory at any one time during the calendar year. When 
real estate brokers are used, first consideration will be given to 
utilizing such services under an exclusive broker contract as provided 
for in Sec.  1955.130 of this subpart. Only when it is determined that 
an exclusive broker contract is not practicable, will the services of 
real estate brokers under an open listing agreement be utilized. The use 
of real estatebrokers in offices having less than five properties in 
inventory at any one time during the calendar year is optional provided 
staffing and workload permit diligent and timely sales by FmHA or its 
successor agency under Public Law 103-354. When broker services for SFH 
are utilized, the FmHA or its successor agency under Public Law 103-354 
office will not conduct direct sales, but will refer inquiries to the 
broker or list of participating brokers. However, if FmHA or its 
successor agency under Public Law 103-354 has been approached by a 
potential buyer desiring to purchase a specific property and a sales 
contract has been accepted, the property will not be listed for sale 
with real estate brokers. Earnest money held by real estate brokers will 
be used to pay the purchaser's closing costs with any balance of the 
costs to be paid by the purchaser. Any required earnest money deposit is 
exclusive of any required credit report fee. Brokers may only be used 
for MFH with authorization of the Assistant Administrator, Housing.
    (c) Sealed bid or auction. The use of sealed bids or auctions is an 
effective method by which to sell inventory property. If the State 
Director determines that NP SFH property has been given adequate market 
exposure and that diligent sales efforts have not produced buyers, or 
under unusual circumstances as outlined in Sec.  1955.115(a)(1) of this 
subpart, he/she will authorize sale by sealed bid or auction unless 
additional sales methods appear more prudent. Program SFH property will 
be sold by regular sale only, unless the Assistant Administrator, 
Housing, authorizes sale by sealed bid or auction. The State Director 
will request such authorization when all reasonable marketing efforts 
fail to produce buyers and the conditions of Sec.  1955.114(a)(6) of 
this subpart have been met. The case file, including documentation of 
all marketing efforts, will be forwarded to the Assistant Administrator, 
Housing, ATTN: Single Family Housing Servicing and Property Management 
(SFH/SPM) Division, to request authority to sell program property by 
sealed bid or auction. The decision to utilize a sealed bid or auction 
must be carefully weighed when the property is located in a subdivision, 
since the resultant sale may have an adverse effect on surrounding 
property values. Detailed guidance for conducting sealed bid sales is 
provided in Sec.  1955.147 of this subpart and for conducting auction 
sales in Sec. Sec.  1955.131 and 1955.148 of this subpart.

[53 FR 27831, July 25, 1988]



Sec.  1955.113  Price (housing).

    Real property will be offered or listed for its present market 
value, as adjusted by any administrative price reductions provided for 
in this section. Market value will be based upon the condition of the 
property at the time it is made available for sale. However, when a 
section 515 RRH credit sale is being made to a nonprofit organization or 
public body to utilize former single

[[Page 224]]

family dwellings as a rental or cooperative project for very-low-income 
residents, the price will be the lesser of the Government's investment 
or market value, less administrative price reductions, if any. Market 
value for multi-family housing projects will be determined through an 
appraisal conducted in accordance with subpart B to part 1922 of this 
chapter. Multi-family housing appraisals conducted shall reflect the 
impact of any restrictive-use provisions attached to the project as part 
of the credit sale.
    (a) SFH price reduction. SFH property will be appraised at any time 
additional market data indicates this action is warranted. If SFH 
inventory has not sold after being actively marketed, the price will be 
administratively reduced. An administrative price reduction will be made 
without changing the SFH appraisal. For ease in computing dates for 
administrative price reductions, each month is assumed to have thirty 
days. The following schedule of administrative price reductions will be 
followed:
    (1) Program property. If program property has not sold after being 
actively marketed at the current appraised value for 45 days during 
which time program applicants have exclusive rights to purchase the 
property, plus an additional 30 days to any offeror, the price will be 
administratively reduced by 10 percent of the appraised value. During 
the first 45 days after the price reduction, the property will be 
actively marketed with program applicants having exclusive rights to 
purchase the property, and at the expiration of this 45-day period, the 
property may be sold to any offeror. If at the end of this 75-day period 
the property remains unsold, a second price reduction of 10 percent of 
the appraised value will be made. During the first 45 days after the 
second price reduction, the property will be actively marketed with 
program applicants having exclusive rights to purchase the property, and 
at the expiration of this 45-day period, the property may be sold to any 
offeror. If the property does not sell within 75 days of the second 
price reduction, further guidance is provided in Sec.  1955.114(a)(6) 
and Exhibit D (available in any FmHA or its successor agency under 
Public Law 103-354 office) of this subpart.
    (2) Nonprogram (NP) property. If NP property has not been sold after 
being actively marketed for 45 days, the price will be administratively 
reduced by 10 percent of the appraised value. If the property remains 
unsold after an additional 45-day period of active marketing, one 
further price reduction of 10 percent of the appraised value will be 
made. If the property does not sell within 45 days of the second price 
reduction, further guidance is provided in Sec.  1955.115(a)(1) and 
Exhibit D (available in any FmHA or its successor agency under Public 
Law 103-354 office) of this subpart.
    (b) MFH price reduction. For multiple-family property, the sale 
price will only be reduced to the extent that the market value has 
decreased as shown in a current market appraisal. The District Director 
will not reduce the price without the prior written approval of the 
State Director. The State Director must request National Office 
authorization on reductions in price for multiple-family property if the 
inventory value at the time of acquisition exceeded the State Director's 
loan approval authority.

[53 FR 27831, July 25, 1988; 54 FR 6875, Feb. 15, 1989, as amended at 58 
FR 38927, July 21, 1993]



Sec.  1955.114  Sales steps for program property (housing).

    Program property will be sold by regular sale unless the Assistant 
Administrator, Housing, authorizes another method. If the State Director 
determines that program property has been given adequate market exposure 
and that diligent sales efforts including the use of real estate brokers 
has not produced purchasers, the State Director may request the 
Assistant Administrator, Housing, to authorize sale by sealed bid or 
public auction as specified in Sec.  1955.112(c) of this subpart.
    (a) Single family housing (SFH). Sale prices will be established in 
accordance with Sec.  1955.113 of this subpart. The County Supervisor 
will either offer the property or list it with real estate brokers for 
regular sale under the provisions of Sec.  1955.112 of this subpart. See 
Exhibit D of this subpart (available in any FmHA or its successor agency

[[Page 225]]

under Public Law 103-354 office) which outlines chronologically the 
sales steps for program property.
    (1) The following provisions apply to all offers to purchase SFH 
inventory property:
    (i) Program property will be available for purchase only by program 
applicants for the first 45 days from the date of the initial offering 
or listing, and for the first 45 days following the date of any 
reduction in price. During these 45-day period(s), offers from others 
may be received and held until the first business day following the 45-
day period (the 46th day) when any such offer(s) will be considered as 
received on the 46th day along with offers received on that same (46th) 
day. After the expiration of each 45-day exclusive period for program 
applicants, program property may be purchased by offerors requesting 
credit on program terms, nonprogram (NP) terms or for cash in the order 
of priority set forth in paragraph (a)(3) of this section.
    (ii) In regular sales, an acceptable offer must be for at least the 
sale price. No offer for less than the sale price will be considered, 
accepted or held. Offers will be considered as acceptable or 
unacceptable independent of any accompanying credit request (on program 
or NP terms).
    (iii) All offers will be date-stamped when received. Selection of 
equally acceptable offers, considering offers in the category order 
outlined in paragraph (a)(3) of this section, received on the same 
business day will be made by lot by placing the names in a receptacle 
and drawing names sequentially. Drawn offers will be numbered and those 
drawn after the first drawn offer will be held as back-up offers pending 
sale to the successful offeror, unless the offeror has specifically 
noted on the offer that it may not be held as a back-up offer.
    (iv) An offer may be submitted any time after the effective date the 
property is available for sale or any price reduction; however, it is 
not considered until five business days after the effective date. An 
offer received during the five business day period is considered on the 
6th day, at the same time as any offer received on the 6th day.
    (v) If an offer subject to FmHA or its successor agency under Public 
Law 103-354 financing is accepted, and the offeror's credit request is 
later denied, the next offer (if any) will be accepted regardless of 
whether the rejected applicant appeals the adverse decision (NP 
applicants do not receive appeal rights). In cases involving program 
property, if no back-up offers are on hand, the property will be 
reoffered/relisted for sale utilizing the balance of any outstanding 
retention period. Property will not be held off the market pending the 
outcome of an appeal.
    (2) Effective date and method of offering. When ready for sale, each 
property will be offered for sale by use of Form FmHA or its successor 
agency under Public Law 103-354 1955-43 unless FmHA or its successor 
agency under Public Law 103-354 has on hand a signed offer from a 
program applicant to purchase a specific program property or an offer 
from any offeror to purchase a specific NP property. The date the form 
is posted or mailed to real estate brokers is the effective date the 
offer for sale has begun.
    Listings will provide for sales on program and NP terms, as 
appropriate.
    (3) Priority of offers. For program properties, acceptable offers 
received after the 45-day retention period specified in paragraph 
(a)(1)(i) of this section have priority in the order given in paragraphs 
(a)(3) (i), (ii), (iii) and (iv) of this section. For NP properties, 
acceptable offers have priority in the order given in paragraphs (a)(3) 
(ii), (iii) and (iv) of this section. Program applicants may purchase NP 
property, however, credit may only be extended on NP terms.
    (i) Offers with requests for credit on program terms. An offer from 
an applicant requesting credit on program terms in excess of the sale 
price will be considered as equally acceptable with other acceptable 
offers from program applicants and will be sold for the sale price.
    (ii) Cash offers, in descending order from highest to lowest, 
provided the cash offer is higher than any other offer which falls into 
the parameters of paragraph (a)(3)(iii) of this section multiplied by 
the current cash preference percentage listed in exhibit B of

[[Page 226]]

FmHA or its successor agency under Public Law 103-354 Instruction 440.1 
(available in any FmHA or its successor agency under Public Law 103-354 
office).
    (iii) Offers with requests for credit on NP terms in descending 
order from highest to lowest, for more than the sale price. An offer 
with a request for credit in excess of the market value of the property 
will not be accepted. If an offer of this type is received, the offeror 
will be given the opportunity to reduce the credit request to the market 
value (or lower) with no change to be made in the offered price.
    (iv) Offers with requests for credit on NP terms for the sale price.
    (4) Back-up offers and notification to offerors. Back-up offers will 
be taken in accordance with paragraph (a)(1)(iii) of this section. 
County offices utilizing the services of real estate brokers will advise 
the brokers of changes in the status of the property. County offices not 
utilizing real estate brokers will advise offerors of changes in the 
status of the property utilizing exhibit E of this subpart (available in 
any FmHA or its successor agency under Public Law 103-354 office) or 
similar format. Use of exhibit E is optional in offices utilizing real 
estate brokers.
    (5) Finalizing sales. Credit sales on program terms will be made in 
accordance with Sec.  1955.117 of this subpart and subpart A of part 
1944 of this chapter. Cash sales will be handled in accordance with 
Sec.  1955.118 of this subpart and credit sales on NP terms will be made 
in accordance with subpart J of part 1951 of this chapter.
    (6) Unsold property. If program property remains unsold after eight 
months of active marketing, the case file, with documentation of all 
marketing efforts, will be forwarded to the State Office for review with 
a recommendation of future sales efforts. The State Director will 
determine whether a request should be made to the Assistant 
Administrator, Housing, to sell the property by sealed bid or auction, 
or whether additional guidance such as, but not limited to advertising, 
reappraisal, offering a special effort sales bonus, or 20-year 
amortization factor (with balloon after 10 years) on NP financing may 
facilitate a sale.
    (b) Multiple family housing. The sale price will be established in 
accordance with Sec.  1955.113 of this subpart. Notification of known 
interested prospective offerors and advertising should be handled as set 
forth in Sec.  1955.146 of this subpart. The sale information will 
include a sale price, any restrictive-use provisions the project will be 
subject to and made part of the title, a date/time/location when offers 
will be drawn, and require all offerors to submit an application package 
comparable to that required by the respective loan program, which will 
be reviewed by the State Director or designee. The sale/time/location 
will be established by the District Director and will allow adequate 
time for advertising and review of applications to determine eligibility 
in accordance with MFH program requirements. Offerors whose applications 
are rejected by FmHA or its successor agency under Public Law 103-354 
will be notified in writing by the approval official, and for program 
applicants, given appeal rights in accordance with subpart B of part 
1900 of this chapter. If an application is rejected, the sale will 
continue regardless of whether the rejected applicant appeals the 
adverse decision. Property will not be held pending the outcome of an 
appeal. An offeror may withdraw an offer prior to the sale date, but not 
on the sale date. All offers from applicants determined eligible for the 
type loan being offered will be considered. The District Director, or 
delegate, and one other FmHA or its successor agency under Public Law 
103-354 employee will conduct the drawing at which time the public may 
be present. Offers will be placed in a receptacle and drawn 
sequentially. Drawn offers will be numbered and those drawn after the 
first drawn will be held as back-up offers, unless the offeror has 
indicated that the offer may not be held as back-up. Award will be made 
to the first offer drawn provided the offer is acceptable as to the 
terms and conditions set forth in the sale notice. The successful 
offeror will be notified immediately in writing by theapproval official, 
return receipt requested, that the successful offeror's offer has been 
accepted even if the successful offeror was present at the sale.

[[Page 227]]

The remaining offerors will each be notified by letter, return receipt 
requested, that their offer was not successful, but will be held as a 
back-up offer. The selection of the offeror was by lot and is therefore 
not appealable. If an unsuccessful offeror was not present at the sale 
and requests the name of the successful offeror, the name may be 
released. If the MFH property has been listed with real estate brokers 
after receiving authorization from the Assistant Administrator, Housing, 
Form FmHA or its successor agency under Public Law 103-354 1955-40, or 
another appropriate form designated for MFH property, will be used and 
the property sold to the first eligible program applicant. Any other 
method of sale must receive prior written authorization from the 
Assistant Administrator, Housing. Cash sales of program property will 
remain subject to restrictive-use provisions determined needed and 
included in the advertisement. The deed will contain the applicable 
restrictive-use provisions. Tenants and prospective tenants will receive 
the applicable protections for the specific restrictive-use provision 
contained in subpart E of part 1965 of this chapter.
    (c) Single family inventory converted to MFH. Written offers by 
nonprofit organizations, public bodies or for-profit entities, which 
have good records of providing low income housing under section 515, 
will be considered by FmHA or its successor agency under Public Law 103-
354 for the purchase of multiple SFH units for conversion to MFH. 
Section 514 credit sale mortgages may contain repayment terms up to 33 
years and section 515 credit sale mortgage terms may be up to 50 years.
    (1) The price provisions of Sec.  1955.113 and the processing 
provisions for MFH in Sec.  1955.117 of this subpart apply to such a 
conversion.
    (2) The provisions of Sec.  1955.130 of this subpart pertaining to 
real estate brokers apply, as applicable, and a commission will be due 
in the normal manner on units which were listed with the broker(s).
    (3) Prior approval of the National Office is required before 
issuance of Form AD-622, ``Notice of Preapplication Review Action.'' A 
preapplication with the information outlined in Exhibit A-7 of subpart E 
of part 1944 of this chapter, along with the State Director's 
recommendation, will be forwarded to the National Office, Attention: 
Assistant Administrator, Housing, for a determination and further 
guidance.
    (4) A credit sale for this purpose will be made according to the 
provisions of subpart E of part 1944 of this chapter, as modified by 
Sec.  1955.117 of this subpart, except the units need not be contiguous, 
but they must be located in close enough proximity so that management 
costs are not increased nor management capabilities diminished because 
of distance.
    (5) An additional loan may be made simultaneously with the credit 
sale, or later, only when the property involved meets the definition of 
``project'' set forth in subpart E of part 1944 of this chapter.
    (d) CONACT residential property suitable for the SFH program. When a 
single family house acquired under the CONACT is determined to be suited 
for the SFH program, it may be offered for sale as a SHF unit as though 
it had been acquired under the SFH program. It may, however, be sold in 
this manner to a program RH applicant on program terms only--not for 
cash or on NP terms. When a house is offered for sale under this 
paragraph, the listing notices and any advertising (whether being sold 
by FmHA or its successor agency under Public Law 103-354 or through real 
estate brokers) must state this restriction.

[53 FR 27832, July 25, 1988, as amended at 55 FR 3942, Feb. 6, 1990; 56 
FR 2257, Jan. 22, 1991; 58 FR 38927, July 21, 1993; 58 FR 38949, July 
21, 1993; 58 FR 52652, Oct. 12, 1993]

    Effective Date Note: At 67 FR 78329, Dec. 24, 2002, Sec.  1955.114 
was amended in paragraph (a)(5) by revising the words ``subpart A of 
part 1944 of this chapter'' to read ``7 CFR part 3550'', effective Jan. 
23, 2003.



Sec.  1955.115  Sales steps for nonprogram (NP) property (housing).

    The appropriate FmHA or its successor agency under Public Law 103-
354 office will take the following steps after repairs, if economically 
feasible, are completed. The appraisal will be updated to reflect 
changes in market conditions, repairs and improvements,

[[Page 228]]

if any. Form FmHA or its successor agency under Public Law 103-354 1955-
43 for SFH and 1955-40 for MFH will be completed to offer the property 
for sale. The advertising requirements and deed restrictions in Sec.  
1955.116 of this subpart apply if the property does not meet FmHA or its 
successor agency under Public Law 103-354 DSS standards.
    (a) Single Family Housing. Sales steps will be the same as for 
program properties as provided in Sec.  1955.114(a) of this subpart, 
except that sales must be for cash in accordance with Sec.  1955.118 or 
credit on NP terms as provided in subpart J of part 1951 of this 
chapter. See exhibit D of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office) which outlines 
chronologically the sales steps for NP properties.
    (1) Sale by sealed bid or auction. If a NP property has not sold 
within 150 days after being offered for sale, the inventory case file 
with documentation of marketing efforts will be submitted to the State 
Director. The State Director will authorize sale by sealed bid or 
auction in accordance with Sec. [chyph]1955.112(c) of this subpart 
unless additional sales methods appear more prudent. Use of the sealed 
bid or auction method may be considered as an initial sales effort under 
special or unusual circumstances such as, but not limited to, structures 
which have been substantially destroyed by fire or other causes.
    (2) Sale as chattel. If efforts to sell NP property by sealed bid or 
auction prove unsuccessful, the structure(s) may be sold as chattel (for 
chattel or salvage value, as appropriate) when authorized by the State 
Director. When the structure is to be sold as chattel (exclusive of 
land) further guidance is provided in Sec. Sec.  1955.121, 1955.122 and 
1955.141(b) of this subpart. If no offer is received, the structure(s) 
may be demolished and removed from the site and then the site offered 
for sale. If this method is utilized, FmHA or its successor agency under 
Public Law 103-354 will attempt to have the structure removed in 
exchange for the salvageable materials by contract, otherwise, will 
solicit for contracts to have the structure removed 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).
    (3) Sale of vacant land. When FmHA or its successor agency under 
Public Law 103-354 has vacant land in inventory which was security for 
an SFH loan, the land will be sold in accordance with this subparagraph. 
When the lot meets the requirements of Subpart A of Part 1944 of this 
chapter, and a program applicant desires to purchase the lot and 
construct a dwelling, a credit sale will not be made. Instead, one 
section 502 loan will be made which will include funds for the purchase 
of the lot and construction of a dwelling. Otherwise, the lot will be 
sold for cash or on NP terms with a loan not to exceed ten years in term 
and amortization.
    (b) Multiple family housing. Sales steps will be the same as for 
program MFH property as provided in Sec.  1955.114(b) of this subpart 
except that sales must be for cash or on NP terms as set forth in Sec.  
1955.118 of this subpart. Additionally, if cash offers are received, 
they will be given first preference by drawing from the cash offers 
only. If the State Director determines an auction sale should be used to 
sell NP MFH property, authority to use that method of sale must be 
requested from the Assistant Administrator, Housing. Inventory files, 
including information on the acquisition, marketing efforts made, 
management of the property, other pertinent information, a memorandum 
covering the facts of the case, and recommendations of the State 
Director must be submitted for review. If the housing is sold out of the 
FmHA or its successor agency under Public Law 103-354 program as NP 
property, the closing of the sale may not take place until tenants have 
received all notifications and benefits afforded to tenants in prepaying 
projects in accordance with subpart E of part 1965 of this chapter.

[53 FR 27833, July 25, 1988, as amended at 58 FR 38928, July 21, 1993; 
58 FR 52652, Oct. 12, 1993]

    Effective Date Note: At 67 FR 78329, Dec. 24, 2002, Sec.  1955.115 
was amended in paragraph (a)(3) by revising the words ``subpart A of 
Part 1944 of this chapter'' to read ``7 CFR part 3550'', effective Jan. 
23, 2003.

[[Page 229]]



Sec.  1955.116  Requirements for sale of property not meeting decent, safe and sanitary (DSS) standards (housing).

    For real property (exclusive of improvements) which is unsafe, refer 
to Sec.  1955.137(e) of this subpart for further guidance. For all other 
housing inventory property which does not meet decent, safe and sanitary 
(DSS) standards, the provisions of this section apply.
    (a) Notices and advertising. If the inventory property has a single 
family dwelling or MFH unit thereon which does not meet DSS standards as 
defined in Sec.  1955.103 of this subpart, but which could meet such 
standards through the repair or renovation activities of the future 
owner, any ``Notice of Real Property For Sale,'' ``Notice of Sale,'' or 
other advertisement used in conjunction with advertising the property 
for sale must include the following language which is contained in Form 
FmHA or its successor agency under Public Law 103-354 1955-44, ``Notice 
of Residential Occupancy Restriction'':

    This property contains a dwelling unit or units which FmHA or its 
successor agency under Public Law 103-354 has deemed to be inadequate 
for residential occupancy. The Quitclaim Deed by which this property 
will be conveyed will contain a covenant restricting the residential 
unit(s) on the property from being used for residential occupancy until 
the dwelling unit(s) is repaired, renovated or razed. This restriction 
is imposed pursuant to section 510(e) of the Housing Act of 1949, as 
amended, 42 U.S.C. 1480. The property must be repaired and/or renovated 
as follows:*.
    * For advertisements, the sentence preceding the asterisk may be 
deleted and replaced with the following, or similar sentence: ``Contact 
FmHA or its successor agency under Public Law 103-354 (or any real 
estate broker/name of exclusive broker) for a list of items which must 
be repaired/renovated.'' For notices other than advertising, insert 
those items which are necessary to make the dwelling unit(s) meet DSS 
standards. Examples are:
    --Replace flooring and floor joists in kitchen and bathroom.
    --Drill new well to provide for an adequate and potable water 
supply.
    --Hook-up to community water and sewage system now being installed.
    --Provide a functionally adequate, safe and operable * system. * 
Insert heating, plumbing, electrical and/or sewage disposal, etc., as 
appropriate.
    --Install *. * Insert new roof, foundation, sump pump, bathroom 
fixtures, etc., as appropriate.
    --Install R-* insulation in basement walls or ceiling, R-* 
insulation in attic, and storm windows/doors throughout. * Insert 
appropriate R-Values to meet Thermal Performance Standards.

    (b) Sale agreements. If a housing structure in inventory does not 
meet DSS standards, Form FmHA or its successor agency under Public Law 
103-354 1955-44 must be attached to Forms FmHA or its successor agency 
under Public Law 103-354 1955-45 or FmHA or its successor agency under 
Public Law 103-354 1955-46, as appropriate, to provide notification of 
the deed restriction and required repairs/renovations before the 
dwelling can be used for residential purposes.
    (c) Quitclaim Deed. The following, the original of Form FmHA or its 
successor agency under Public Law 103-354 1955-44, or similar 
restrictive clause adapted for use in an individual State pursuant to a 
State Supplement approved by OGC must be added to the Quitclaim Deed for 
properties which do not meet DSS standards at the time of sale but which 
could through the repair/renovation activities of the future owner:

    Pursuant to section 510(e) of the Housing Act of 1949, as amended, 
42 U.S.C. 1480(e), the purchaser (``Grantee'' herein) of the above-
described real property (the ``subject property'' herein) covenants and 
agrees with the United States acting by and through Farmers Home 
Administration or its successor agency under Public Law 103-354 (the 
``Grantor'' herein) that the dwelling unit(s) located on the subject 
property as of the date of this Quitclaim Deed will not be occupied or 
used for residential purposes until the item(s) listed at the end of 
this paragraph have been accomplished. This covenant shall be binding on 
Grantee and Grantee's heirs, assigns and successors and will be 
construed as both a covenant running with the subject property and as 
equitable servitude. This covenant will be enforceable by the United 
States in any court of competent jurisdiction. When the existing 
dwelling unit(s) on the subject property complies with the 
aforementioned standards of the Farmers Home Administration or its 
successor agency under Public Law 103-354 or the unit(s) has been 
completely razed, upon application to the Farmers Home Administration or 
its

[[Page 230]]

successor agency under Public Law 103-354 in accordance with its 
regulations, the subject property may be released from the effect of 
this covenant and the covenant will thereafter be of no further force or 
effect. The property must be repaired and/or renovated as follows: *.'' 
* Insert the same items referenced in the listing notice(s) and sale 
agreement which are necessary to make the dwelling unit(s) meet DSS 
standards.

    (d) Release of restrictive covenant. Upon request of the property 
owner for a release of the restrictive covenant, FmHA or its successor 
agency under Public Law 103-354 will inspect the property to ensure that 
the repairs/renovations outlined in the restrictive covenant have been 
properly completed or the structure(s) razed. A State Supplement 
outlining the procedure for releasing the restrictive covenant will be 
issued with the advice of OGC.

[53 FR 27834, July 25, 1988]



Sec.  1955.117  Processing credit sales on program terms (housing).

    The following provisions apply to all credit sales on program terms:
    (a) Offers. Form FmHA or its successor agency under Public Law 103-
354 1955-45 will be used to document the offer and acceptance for 
regular FmHA or its successor agency under Public Law 103-354 sales. The 
contract is accepted prior to processing Form FmHA or its successor 
agency under Public Law 103-354 410-4, ``Application for Rural Housing 
Assistance (Non-Farm Tract),'' for SFH property with the provision that 
acceptance is subject to program approval. MFH property sales require an 
application package comparable to that submitted for the respective loan 
program application.
    (b) Processing. The FmHA or its successor agency under Public Law 
103-354 regulations pertaining to the type of credit being extended will 
be followed in making credit sales on program terms except as modified 
by the provisions of this section. All MFH credit sales may be made for 
up to 100 percent of the current market value of the security, less any 
prior lien. However, if a profit or limited profit applicant desires to 
earn a return, the applicant will be required to contribute at least 3 
percent of the purchase price as a cash downpayment. All credit sales of 
RRH, RCH, and LH properties will be subject to prepayment and 
restrictive-use provisions specified by the respective program 
requirements.
    (c) Approval. Forms FmHA or its successor agency under Public Law 
103-354 1940-1 or FmHA or its successor agency under Public Law 103-354 
1944-51, as appropriate, will be used to approve a credit sale even 
though no obligation of funds is required.
    (d) Downpayment. When a downpayment is made, it will be collected at 
closing, identified by property identification number, purchaser's name 
and case number (and project number for MFH sales) and remitted in 
accordance with 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).
    (e) Interest rate. Upon request of the applicant, the interest rate 
charged by FmHA or its successor agency under Public Law 103-354 will be 
the lower of the interest rate in effect at the time of loan approval or 
closing. If the applicant does not indicate a choice, the loan will be 
closed at the rate in effect at the time of loan approval.
    (f) Closing costs. MFH purchasers will pay closing costs from their 
own funds. Where necessary, SFH purchasers who qualify may be made a 
subsequent loan to pay closing costs in an amount not to exceed 1 
percent of the sale price of the dwelling. Any closing costs which are 
legally or customarily paid by the seller will be paid by FmHA or its 
successor agency under Public Law 103-354 and charged to the inventory 
account as a nonrecoverable cost items.
    (g) Closing sale. Title clearance, loan closing and property 
insurance requirements for a credit sale, and any loan closed 
simultaneously with the credit sale, are the same as for a program loan 
of the same type except:
    (1) The property will be conveyed in accordance with Sec.  
1955.141(a) of this subpart.
    (2) Earnest money, if any, will be used to pay purchaser's closing 
costs with any balance of closing costs being paid from the purchaser's 
personal funds except as provided in paragraph (f) of this section. For 
SFH credit sales

[[Page 231]]

and MFH credit sales to nonprofit organizations or public bodies, any 
excess deposit will be refunded to the purchaser. For MFH credit sales 
to profit or limited profit buyers, any excess earnest money deposit 
will be credited to the purchase price and recognized as a part of the 
purchaser's initial investment.
    (3) The County Supervisor or District Director will provide the 
closing agent with the necessary information for closing the sale. The 
assistance of OGC will be requested to provide closing instructions in 
exceptional or complex cases and for all MFH sales.
    (h) Reporting. After the sale is closed, it will be reported 
according to Sec.  1955.142 of this subpart.

[53 FR 27834, July 25, 1988; 54 FR 6875, Feb. 15, 1989, as amended at 58 
FR 38928, July 21, 1993]



Sec.  1955.118  Processing cash sales or MFH credit sales on NP terms.

    (a) Cash sales. Cash sales will be closed by the servicing official 
collecting the purchase price (less any earnest money deposit or bid 
deposit) and delivering the deed to the purchaser Proceeds will be 
remitted in accordance with subparts B and K of part 1951 of this 
chapter.
    (b) Credit sales. The following provisions apply to MFH credit sales 
on NP terms:
    (1) Offers. Form FmHA or its successor agency under Public Law 103-
354 1955-45 or FmHA or its successor agency under Public Law 103-354 
1955-46, as appropriate, will be used to document the offer and 
acceptance. Contract acceptance is made prior to processing a request 
for credit on NP terms.
    (2) Processing. Purchasers requesting credit on NP terms will be 
required to submit documentation to establish financial stability, 
repayment ability, and creditworthiness. Standard forms used to process 
program applications may be utilized or comparable documentation may be 
accepted from the purchaser with the servicing official having the 
discretion to determine what information is required to support loan 
approval for the type property involved. Individual credit reports will 
be ordered for each individual applicant and each principal within an 
applicant entity in accordance with subpart B of part 1910 of this 
chapter. Commercial credit reports will be ordered for profit 
corporations and partnerships, and organizations with a substantial 
interest in the applicant entity in accordance with subpart C of part 
1910 of this chapter.
    (3) Approval. Form FmHA or its successor agency under Public Law 
103-354 1944-51 will be used to approve a credit sale even though no 
obligation of funds is involved. Special instructions on the FMI 
pertaining to NP credit sales will be followed.
    (4) Downpayment. A downpayment of not less than 10 percent of the 
purchase price is required at closing and will be remitted by the 
servicing official according to subpart B and K of part 1951 of this 
chapter.
    (5) Interest rate. The Section 515 RRH interest rate plus \1/2\ 
percent will be charged on all types of housing credit sales, except 
SFH. Refer to exhibit B of FmHA or its successor agency under Public Law 
103-354 Instruction 440.1 (available in any FmHA or its successor agency 
under Public Law 103-354 office) for interest rates. Loans made on NP 
terms will be closed at the interest rate which was in effect at the 
time the loan was approved.
    (6) Term of note. The note amount will be amortized over a period 
not to exceed 10 years. If the State Director determines more favorable 
terms are necessary to facilitate the sale, the note amount may be 
amortized using a 30-year factor with payment in full (balloon payment) 
due not later than 10 years from the date of closing. In no case will 
the term be longer than the period for which the property will serve as 
adequate security.
    (7) Modification of security instruments. If applicable to the type 
property being sold, modification of security instruments may be made. 
On the promissory note and/or security instrument (mortgage or deed of 
trust) any covenants relating to graduation to other credit, 
restrictive-use provisions on MFH projects, personal occupancy, 
inability to secure other financing, and restrictions on leasing may be 
deleted. Deletions are made by lining through only the specific 
inapplicable language with both the NP borrower and FmHA or its

[[Page 232]]

successor agency under Public Law 103-354 initialing the changes.
    (8) Closing sale. Title clearance, loan closing and property 
insurance requirements for a credit sale are the same as for a program 
loan except:
    (i) The property will be conveyed in accordance with Sec.  
1955.141(a) of this subpart.
    (ii) The purchaser will pay his/her own closing costs. Earnest 
money, if any, will be used to pay purchaser's closing costs with any 
balance of closing costs being paid by the purchaser. Any closing costs 
which are legally or customarily paid by the seller will be paid by FmHA 
or its successor agency under Public Law 103-354 from the downpayment.
    (iii) The County Supervisor or District Director will provide the 
closing agent with the necessary information for closing the sale. The 
assistance of OGC will be requested to provide closing instructions for 
all MFH sales.
    (iv) When more than one property is bought by the same buyer and the 
transactions are closed at the same time, a separate promissory note 
will be prepared for each property, but one mortgage will cover all the 
properties.
    (9) Reporting. After the sale is closed, it will be reported 
according to Sec.  1955.142 of this subpart.
    (10) Classification. MFH credit sales on NP terms will be classified 
as NP loans and serviced accordingly.
    (11) Form FmHA or its successor agency under Public Law 103-354 
1910-11, ``Applicant Certification, Federal Collection Policies for 
Consumer or Commercial Debts.'' The County Supervisor or 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.

[53 FR 27835, July 25, 1988, as amended at 54 FR 29333, July 12, 1989; 
55 FR 3942, Feb. 6, 1990; 58 FR 38928, July 21, 1993; 58 FR 52653, Oct. 
12, 1993]



Sec.  1955.119  Sale of SFH inventory property to a public body or nonprofit organization.

    Notwithstanding the provisions of Sec.  1955.111 through Sec.  
1955.118 of this subpart, this section contains provisions for the sale 
of SFH inventory property to a public body or nonprofit organization to 
use for transitional housing for the homeless. A public body or 
nonprofit organization is a nonprogram applicant. All other SFH credit 
sales on nonprogram terms will be handled in accordance with subpart J 
of part 1951 of this chapter.
    (a) Method of sale. The method of sale is according to Sec.  
1955.112 of this subpart. Upon request from a public body or nonprofit 
organization, FmHA or its successor agency under Public Law 103-354 will 
provide a list of all SFH inventory property, regardless of whether it 
is listed for sale with real estate brokers. The list will indicate 
whether the property is program or nonprogram. Upon written notice of 
the organization's intent to buy a specific property, if it is not under 
a sale contract, FmHA or its successor agency under Public Law 103-354 
will withdraw the property from the market for a period not to exceed 30 
days to provide the organization sufficient time to execute Form FmHA or 
its successor agency under Public Law 103-354 1955-45.
    (b) Price. The price of the property will be established according 
to Sec.  1955.113 of this subpart; however, a 10 percent discount of the 
listed price is authorized on nonprogram property. No discount is 
authorized on program property.
    (c) Decent, safe and sanitary (DSS) standards. If an organization 
wants to buy a property which does not meet DSS standards, FmHA or its 
successor agency under Public Law 103-354 will repair it to meet those 
standards, including thermal performance standards, unless FmHA or its 
successor agency under Public Law 103-354 determines it is not feasible 
to do so according to Sec.  1955.64(a)(1)(ii) of subpart B of part 1955 
of this chapter. The price will be adjusted to reflect any resulting 
change in value. Cosmetic repairs, if needed, such as painting, floor 
covering, landscaping, etc., are the responsibility of the organization. 
Form FmHA or its successor agency under Public Law 103-354 1955-44, 
itemizing the required repairs and FmHA or its successor agency under 
Public Law 103-

[[Page 233]]

354's agreement to complete them before closing will be made a part of 
Form FmHA or its successor agency under Public Law 103-354 1955-45, the 
sales contract, before it is signed. Required repairs must be completed 
before closing so DSS restrictions will not be required in the deed.
    (d) Approval and closing. Processing cash sales or MFH credit sales 
on nonprogram terms is according to Sec.  1955.118 of this subpart, 
except as follows:
    (1) Earnest money deposit. No earnest money deposit is required.
    (2) Downpayment. No downpayment is required.
    (3) Term of note. The term of the note may not exceed 30 years.

[55 FR 3942, Feb. 6, 1990, as amended at 58 FR 52653, Oct. 12, 1993]



Sec.  1955.120  Payment of points (housing).

    To effect regular sale of inventory SFH property to a purchaser who 
is financing the purchase of the property with a non-FmHA or its 
successor agency under Public Law 103-354 loan, the County Supervisor 
may authorize the payment by FmHA or its successor agency under Public 
Law 103-354 of not more than three points. The payment must be a 
customary requirement of the lender for the seller within the community 
where the property is located. Terms of payment will be incorporated in 
Form FmHA or its successor agency under Public Law 103-354 1955-45 and 
will be fixed as of the date the form is signed by the appropriate FmHA 
or its successor agency under Public Law 103-354 official. Points will 
not be paid to reduce the purchaser's interest rate. The payment will be 
deducted from the funds to be received by FmHA or its successor agency 
under Public Law 103-354 at closing. These payments will be handled in 
accordance with subpart B of part 1951 of this chapter.

[53 FR 27836, July 25, 1988. Redesignated at 55 FR 3942, Feb. 6, 1990, 
as amended at 58 FR 52653, Oct. 12, 1993]

                            Chattel Property



Sec.  1955.121  Sale of acquired chattels (chattel).

    Sections 1955.122 through 1955.124 of this subpart prescribe 
procedures for the sale of all acquired chattel property except real 
property rights. The State Director is authorized to sell acquired 
chattels by auction, sealed bid, regular sale or, for perishable items 
and crops, by negotiated sale. The State Director may redelegate 
authority to any qualified FmHA or its successor agency under Public Law 
103-354 employee.



Sec.  1955.122  Method of sale (chattel).

    Acquired chattels will be sold as expeditiously as possible using 
the method(s) considered most appropriate. If the chattel is not sold 
within 180 days after acquisition, assistance will be requested as 
outlined in Sec.  1955.143 of this subpart.
    (a) Sale to beginning farmers or ranchers. Beginning farmers or 
ranchers obtaining special OL loan assistance under Sec.  1941.15 of 
subpart A of part 1941 of this chapter will receive priority in the 
purchase of farm equipment held in government inventory during the 
commitment period. The County Supervisor will notify such applicants/
borrowers of any farm equipment held in government inventory within the 
service area of the FmHA or its successor agency under Public Law 103-
354 County Office. These applicants/borrowers will be given 10 working 
days to respond that they are interested in purchasing any or all items 
of equipment at the appraised fair market value established by FmHA or 
its successor agency under Public Law 103-354. FmHA or its successor 
agency under Public Law 103-354 Form Letter 1955-C-1 will be used to 
notify applicants/borrowers of the availability of farm equipment in 
FmHA or its successor agency under Public Law 103-354 inventory. The 
equipment must be essential to the success of the operation described in 
the loan application in order for the applicant to have an opportunity 
to purchase such equipment.

[[Page 234]]

The County Supervisor will determine what equipment is essential.
    (b) Regular sale. Chattels will be sold by FmHA or its successor 
agency under Public Law 103-354 employees at market value to program 
applicants. Form FmHA or its successor agency under Public Law 103-354 
440-21, ``Appraisal of Chattel Property,'' will be used when appraising 
chattels for regular sale.
    (c) Auctions. Section 1955.148 of this subpart provides detailed 
guidance on auctions applicable to the sale of chattels, as supplemented 
by this section.
    (1) Established public auction. An established public auction is an 
auction that is widely advertised and held on a regularly scheduled 
basis at the same facility. This method of sale is particularly suited 
for the sale of commodities, farm machinery and livestock. No additional 
public notice of sale is required other than that commonly used by the 
facility. This is the preferred method of disposal.
    (2) Other auctions. Other auctions, whether conducted by FmHA or its 
successor agency under Public Law 103-354 employees or fee auctioneers, 
are suitable for on-premises sales, for sale of dissimilar chattels, and 
for the sale of chattels in conjunction with the auction of real 
property. A minimum of 5 days public notice will be given prior to the 
date of auction.
    (d) Sealed bid sales. Section 1955.147 of this subpart provides 
detailed guidance on sealed bid sales applicable to the sale of 
chattels. When it is believed that financing will have to be provided 
through a credit sale, this method has advantages over auction sales. It 
requires, however, additional steps in the event any established minimum 
price is not obtained. Preference will be given to a cash offer which is 
at least ----* percent of the highest offer requiring credit.

    [* Refer to exhibit B of FmHA or its successor agency under Public 
Law 103-354 Instruction 440.1 (available in any FmHA or its successor 
agency under Public Law 103-354 office) for the current percentage.]

    (e) Negotiated sale. Perishable acquired items and crops (except 
timber) and chattels for which no acceptable bid was received from 
auction or sealed bid methods may be sold by direct negotiation for the 
best price obtainable. Preference will be given to a cash offer which is 
at least ------*------ percent of the highest offer requiring credit. 
[*Refer to exhibit B of FmHA or its successor agency under Public Law 
103-354 Instruction 440.1 (available in any FmHA or its successor agency 
under Public Law 103-354 office) for the current percentage.] No public 
notice is required to negotiate with interested parties including 
priorbidders. Justification for the use of this method of sale will be 
documented. A copy of the sale instrument (Form FmHA or its successor 
agency under Public Law 103-354 1955-47, ``Bill of Sale ``A''--Sale of 
Government Property'') will be kept in the County or District Office 
inventory file. Sale proceeds 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). A 
State supplement, when needed, will be prepared with the assistance of 
OGC to provide additional guidance on negotiated sales and to insure 
compliance with State laws.
    (f) Notification. In many States the original owner of the chattel 
property must personally be notified of the sale date and method of sale 
within a certain time prior to the sale. The State Director then will 
issue a State supplement clearly stating what notices are to be sent, if 
any. County Supervisor will review State supplements to determine what 
notices must be sent to the previous owner of the chattel property prior 
to FmHA or its successor agency under Public Law 103-354 taking action 
to sell the property.

No public notice is required to negotiate with interested parties 
including prior bidders. Justification for the use of this method of 
sale will be documented. A copy of the sale instrument (Form FmHA or its 
successor agency under Public Law 103-354 1955-47, ``Bill of Sale `A'--
Sale of Government Property'') will be kept in the County or District 
Office inventory file. Sale proceeds 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). A State Supplement, when

[[Page 235]]

needed, will be prepared with the assistance of OGC to provide 
additional guidance on negotiated sales and to insure compliance with 
State laws.

[50 FR 23904, June 7, 1985, as amended at 53 FR 35780, Sept. 14, 1988; 
58 FR 48290, Sept. 15, 1993; 58 FR 58650, Nov. 3, 1993; 62 FR 44401, 
Aug. 21, 1997]



Sec.  1955.123  Sale procedures (chattel).

    (a) Sales. Although cash sales are preferred in the sale of 
chattels, credit sales may be used advantageously in the sale of 
chattels to eligible purchasers and to facilitate sales of high-priced 
chattels. Chattel sales will be made to eligible purchasers in 
accordance with the provisions of this chapter. Preference will be given 
to a cash offer which is at least * percent of the highest offer 
requiring credit. (*Refer to exhibit B of FmHA or its successor agency 
under Public Law 103-354 Instruction 440.1 (available in any FmHA or its 
successor agency under Public Law 103-354 office) for the current 
percentage.) Credit sales made to ineligible purchasers will require not 
less than a 10 percent downpayment with the remaining balance amortized 
over a period not to exceed 5 years. The interest rate for ineligible 
purchasers will be the current ineligible interest rate for Farmer 
Programs property set forth in exhibit B of FmHA or its successor agency 
under Public Law 103-354 Instruction 440.1 (available in any FmHA or its 
successor agency under Public Law 103-354 office). Form FmHA or its 
successor agency under Public Law 103-354 431-2, in conjunction with 
Form FmHA or its successor agency under Public Law 103-354 440-32, 
``Request for Statement of Debts and Collateral,'' may be used to show 
financial capability. For Farmer Programs, County Supervisors, District 
Directors, and State Directors are authorized to approve or disapprove 
chattel sales on eligible terms in accordance with the respective loan 
approval authorities in exhibit C 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). Applicants who have 
been determined ineligible, and eligible applicants who have their 
application disapproved, will be notified of the opportunity to appeal 
in accordance with subpart B of part 1900 of this chapter. County 
Supervisors, District Directors, and State Directors are authorized to 
approve or disapprove chattel sales on ineligible terms in accordance 
with the respective type of program approval authorities in exhibit 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.)
    (b) Receipt of payment. Payment will be by cashier's check, 
certified check, postal or bank money order, or personal check (not in 
excess of $500) made payable to FmHA or its successor agency under 
Public Law 103-354. Cash may be accepted if it is not possible for one 
of these forms of payment to be used. Third party checks are not 
acceptable. Payments will be handled in accordance with subpart B of 
part 1951 of this chapter. If full payment is not received at the time 
of sale, the offer will be documented by Form FmHA or its successor 
agency under Public Law 103-354 1955-45 or FmHA or its successor agency 
under Public Law 103-354 1955-46 where the chattel is sold jointly with 
real estate by regular sale.
    (c) Transfer of title. Title will be transferred to a purchaser in 
accordance with Sec.  1955.141(b) of this subpart.
    (d) Reporting sale. Sales will be reported in accordance with Sec.  
1955.142 of this subpart.
    (e) Reporting and disposal of inventory property not sold. Refer to 
Sec. Sec.  1955.143 and 1955.144 of this subpart for additional guidance 
in disposing of problem property.

[50 FR 23904, June 7, 1985, as amended at 58 FR 52653, Oct. 12, 1993; 58 
FR 58650, Nov. 3, 1993



Sec.  1955.124  Sale with inventory real estate (chattel).

    Inventory chattel property may be sold with inventory real estate if 
a higher aggregate price can be obtained. Proceeds from a joint sale 
will be applied to the respective inventory accounts based on the value 
of the property sold. Form FmHA or its successor agency under Public Law 
103-354 440-21 will be used to determine the value of the chattel 
property. The offer for the

[[Page 236]]

sale of the chattels will be documented by incorporating the terms and 
conditions of the sale of Form FmHA or its successor agency under Public 
Law 103-354 1955-45 or Form FmHA or its successor agency under Public 
Law 103-354 1955-46, and may be accepted by the appropriate approval 
official based upon the combined final sale price.



Sec. Sec.  1955.125-1955.126  [Reserved]

           Use of Contractors To Dispose of Inventory Property



Sec.  1955.127  Selection and use of contractors to dispose of inventory property.

    Sections 1955.128 through 1955.131 prescribe procedures for 
contracting for services to facilitate disposal of inventory property. 
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) is applicable for procurement of nonpersonal services.

[53 FR 27836, July 25, 1988]



Sec.  1955.128  Appraisers.

    (a) Real property. The State Director may authorize the County 
Supervisor or District Director to procure fee appraisals of inventory 
property, except MFH properties, to expedite the sale of inventory real 
or chattel property. (Fee appraisals of MFH properties will only be 
authorized by the Assistant Administrator, Housing, when unusual 
circumstances preclude the use of a qualified FmHA or its successor 
agency under Public Law 103-354 MFH appraiser.) The decision will be 
based on the availability of comparables, the capability and 
availability of personnel, and the number and type of properties (such 
as large farms and business property) requiring valuation. For Farmer 
Programs real estate properties, all contract (fee) appraisers should 
include the sales comparison, income (when applicable), and the cost 
approach to value. All FmHA or its successor agency under Public Law 
103-354 real estate contract appraisers must be certified as State-
Certified General Appraisers.
    (b) Chattel property. For Farmer Programs chattel appraisals, the 
contractor/appraiser completing the report must meet at least one of the 
following qualifications:
    (1) Certification by a National or State appraisal society.
    (2) If the contractor is not a certified appraiser and a certified 
appraiser is not available, the contractor may qualify or may use other 
qualified appraisers, if the contractor can establish that he/she or 
that the appraiser meets the criteria for a certification in a National 
or State appraisal society.
    (3) The appraiser has recent, relevant, documented appraisal 
experience or training, or other factors clearly establish the 
appraiser's qualifications.

[58 FR 58650, Nov. 3, 1993]



Sec.  1955.129  Business brokers.

    The services of business brokers or business opportunity brokers may 
be authorized by the appropriate Assistant Administrator in lieu of or 
in addition to real estate brokers for the sale of businesses as a 
whole, including goodwill and chattel, when:
    (a) The primary use of the structure included in the sale is other 
than residential;
    (b) The business broker is duly licensed by the respective state; 
and
    (c) The primary function of the business is other than farming or 
ranching.



Sec.  1955.130  Real estate brokers.

    Contracting authority for the use of real estate brokers is 
prescribed in Exhibit D of 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). Brokers who are managing 
custodial or inventory property may also participate in sales activities 
under the same conditions offered other brokers. Brokers must be 
properly licensed in the State in which they do business.
    (a) Type of listings. The State Director may authorize use of 
exclusive listings during any calendar year. Since the Agency receives 
many more marketing services for its commission dollar and saves time 
listing the property with only one broker, it is strongly recommended 
that all County Offices

[[Page 237]]

be authorized the use of exclusive brokers.
    (1) Exclusive broker contract. An exclusive broker contract provides 
for the selection of one broker by competitive negotiation who will be 
the only authorized broker for the FmHA or its successor agency under 
Public Law 103-354 office awarding the contract within a defined area 
and for specific property or type of property. Criteria will be 
specified in the solicitation together with a numerical weighting system 
to be used (usually 1--100). Responses will be calculated on the basis 
of the criteria such as personal qualifications, membership in Multiple 
Listing Service (MLS), previous experience with FmHA or its successor 
agency under Public Law 103-354 sales, advertising plans, proposed 
innovative promotion methods, and financial capability. The 
responsibilities of the broker under an exclusive broker contract exceed 
those of the open listing agreement and therefore, an exclusive broker 
contract is the preferred method of listing properties.
    (2) Open listing. Open listing agreements provide for any licensed 
real estate broker to provide sales services for any property listed 
under the terms and conditions of Form FmHA or its successor agency 
under Public Law 103-354 1955-42, ``Open Real Property Master Listing 
Agreement.'' If this method is used, a newspaper advertisement will be 
published at least once yearly, or a notice sent to all real estate 
brokers in the counties served by the FmHA or its successor agency under 
Public Law 103-354 office, informing brokers that sales services are 
being requested. The advertising will be substantially similar to the 
example given in Exhibit B of this subpart (available in any FmHA or its 
successor agency under Public Law 103-354 office). An open listing 
agreement may be executed at any time during the year, but must be 
effective prior to the broker showing the property. When this method is 
used, the FmHA or its successor agency under Public Law 103-354 office 
is responsible for ensuring that adequate advertising is performed to 
effectively market the property.
    (b) Listing notices. Forms FmHA or its successor agency under Public 
Law 103-354 1955-40 or FmHA or its successor agency under Public Law 
103-354 1955-43, as appropriate, will be used to provide brokers with 
notice of initial listing, withdrawal, price change, terms change, 
relisting, sale cancellation, restrictions on sale, etc.
    (c) Priority of offers. All offers received during the same business 
day will be considered as having been received at the same time. The 
successful offer from among equally acceptable offers within each 
category will be determined by lot by FmHA or its successor agency under 
Public Law 103-354. Priority rules for specific categories of property 
are:
    (1) Program SFH. See Sec.  1955.114(a) of this subpart.
    (2) Program MFH. Offers will be considered from program applicants 
only.
    (3) NP SFH. See Sec.  1955.115(a) of this subpart.
    (4) NP MFH. See Sec.  1955.115(b) of this subpart.
    (5) Suitable and surplus FSA CONACT. See Sec.  1955.107 of this 
subpart.
    (6) Suitable and Surplus Non-FSA CONACT. See Sec.  1955.108 of this 
subpart.
    (d) Price. No offer for less than the listed price will be accepted 
during the period of regular sale.
    (e) Earnest money. The broker will collect earnest money in the 
amount specified in paragraph (e)(1) of this section when a sale 
contract is executed. The earnest money will be retained by the broker 
until contract closing, withdrawal, cancellation, or rejection by FmHA 
or its successor agency under Public Law 103-354. When a contract is 
cancelled because FmHA or its successor agency under Public Law 103-354 
rejects the offeror's application for credit, the earnest money will be 
returned to the offeror. When a contract closes, the broker will make 
the earnest money available to be used toward closing costs, or in the 
case of a cash sale it may be returned to the purchaser. For MFH sales 
to profit or limited profit buyers, any excess earnest money deposit 
will be credited to the purchaser's initial investment.
    (1) Amount. The amount of earnest money collected will be:
    (i) For single family properties or MFH projects of 2 to 5 units, 
$50.

[[Page 238]]

    (ii) For all property other than that covered in paragraph (e)(1)(i) 
of this section, the greater of the estimated closing costs shown on the 
notice of listing (Form FmHA or its successor agency under Public Law 
103-354 1955-40) or \1/2\ of 1 percent of the purchase price.
    (2) Offeror default. When a contract is cancelled due to offeror 
default, the earnest money will be delivered to and retained by FmHA or 
its successor agency under Public Law 103-354 as full liquidated damages 
and will be remitted by the servicing official 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) for 
application to the General Fund.
    (f) Commission--(1) Amount--(i) Exclusive broker contract. FmHA or 
its successor agency under Public Law 103-354 may not set the commission 
rate in an exclusive broker solicitation/contract. The rate of 
commission will be one of the evaluation criteria in the solicitation. 
However, any broker who submits an offer with a commission rate lower 
than the typical rate for such services in the area must provide 
documentation that they have successfully sold properties at the lower 
rate with no compromise in services. The solicitation/contract will 
explicitly detail this policy.
    (ii) Open listing agreement. A uniform fee or commission schedule, 
by property type, will be established by the servicing official within a 
given sales area. The commission rate to be paid will be the typical 
rate for such services in the sales area and will not exceed or be lower 
than commissions paid for similar types of services provided by the 
broker to other sellers of similar property.
    (2) Special effort sales bonuses. The servicing official may request 
authorization from the State Director to pay fixed amount bonuses for 
special effort property, such as a property with a value so low that the 
commission alone does not warrant broker interest or property that has 
been held in inventory for an extended period of time where it is 
believed that an added bonus will create additional efforts by the 
broker to sell the property. The State Director may authorize use of 
short-term (not to exceed three months) special effort sales bonuses on 
a group, county, district or state-wide basis, if it appears necessary 
to facilitate the sale of nonprogram property.
    (3) Payment of commission. Payment of a broker's commission is 
contingent on the closing of the sale and will not be paid until the 
sale has closed and title has passed to the purchaser. No commission 
will be paid where 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 is contingent upon receiving FmHA or its successor agency under 
Public Law 103-354 credit. If credit is not being extended in these 
instances (a cash sale), a commission will be paid. Under an exclusive 
broker contract, if a cooperating broker purchases the property and is 
receiving FmHA or its successor agency under Public Law 103-354 credit, 
one-half the respective commission will be paid to the exclusive broker. 
Commissions will be paid at closing if sufficient cash to cover the 
commission is paid by the purchaser. Otherwise, the commission will be 
paid by the appropriate FmHA or its successor agency under Public Law 
103-354 official by completing Form AD-838 and processing Form FmHA or 
its successor agency under Public Law 103-354 838-B for payment in 
accordance with the respective FMI's, and charged to the inventory 
account as a nonrecoverable cost.
    (g) Nondiscrimination. Brokers who execute listing agreements with 
FmHA or its successor agency under Public Law 103-354 shall certify to 
nondiscrimination practices as provided in Form FmHA or its successor 
agency under Public Law 103-354 1955-42. In addition, all brokers 
participating in the sale of property shall sign the nondiscrimination 
certification on Form FmHA or its successor agency under Public Law 103-
354 1955-45.

[53 FR 27836, July 25, 1988, as amended at 55 FR 3943, Feb. 6, 1990; 62 
FR 44401, Aug. 21, 1997]

[[Page 239]]



Sec.  1955.131  Auctioneers.

    The services of licensed auctioneers, if required, may be used to 
conduct auction sales as described in Sec.  1955.148 of this subpart and 
procured by competitive negotiation under the contracting authority of 
Exhibit C 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).
    (a) Selection criteria. The auctioneer should be selected by 
evaluating criteria such as proposed sales dates, location, advertising, 
broker cooperation, innovations, mechanics of sale, sample advertising, 
personal qualifications, financial capability, private sector financing 
and license/bonding.
    (b) Commission. FmHA or its successor agency under Public Law 103-
354 may not set the commission rate in an auctioneer solicitation/
contract. The rate of commission will be one of the evaluation criteria 
in the solicitation. However, any offeror that submits an offer with a 
commission rate lower than the typical rate for such services in the 
area must include documentation that they have successfully sold 
properties at the lower rate with no compromise in services. The 
solicitation/contract will explicitly detail this policy. Commissions 
will be paid at closing if sufficient cash to cover the commission is 
paid by the purchaser. Otherwise, the commission will be paid by the 
appropriate FmHA or its successor agency under Public Law 103-354 
official completing Form AD-838 and processing Form FmHA or its 
successor agency under Public Law 103-354 838-B for payment in 
accordance with the respective FMI's, and charged to the inventory 
account as a nonrecoverable cost.
    (c) Auctioneer restriction. The auctioneer, his/her sales agents, 
cooperating brokers or persons living in his, her or their immediate 
household are restricted from bidding or from subsequent purchase of any 
property sold or offered at the auctioneer's sale for a period of one 
year from the auction date.

[50 FR 23904, June 7, 1985, as amended at 53 FR 27837, July 25, 1988]

                                 General



Sec.  1955.132  Pilot projects.

    FmHA or its successor agency under Public Law 103-354 may conduct 
pilot projects to test policies and procedures for the management and 
disposition of inventory property which deviate from the provisions of 
this subpart, but are not inconsistent with the provisions of the 
authorizing statute or other applicable Acts. A pilot project may be 
conducted by FmHA or its successor agency under Public Law 103-354 
employees or by contract with individuals, organizations or other 
entities. Prior to initiation of a pilot project, FmHA or its successor 
agency under Public Law 103-354 will publish notice in the Federal 
Register of its nature, scope, and duration.

[55 FR 3943, Feb. 6, 1990]



Sec.  1955.133  Nondiscrimination.

    (a) Title VI provisions. If the inventory real property to be sold 
secured a loan that was subject to Title VI of the Civil Rights Act of 
1964, and the property will be used for its original or similar purpose, 
or if FmHA or its successor agency under Public Law 103-354 extends 
credit and the property then becomes subject to Title VI, the buyer will 
sign Form FmHA or its successor agency under Public Law 103-354 400-4. 
``Assurance Agreement.'' The instrument of conveyance will contain the 
following statement:

    The property described herein was obtained or improved through 
Federal financial assistance. This property is subject to the provisions 
of Title VI of the Civil Rights Act of 1964 and the regulations issued 
pursuant thereto for so long as the property continues to be used for 
the same or similar purposes for which the Federal financial assistance 
was extended.

    (b) Affirmative Fair Housing Marketing Plan. Exclusive listing 
brokers or auctioneers selling SFH properties having 5 or more 
properties in the same subdivision listed or offered for sale at the 
same time will prepare and submit to FmHA or its successor agency under 
Public Law 103-354 an acceptable Form HUD 935.2, ``Affirmative Fair 
Housing Marketing Plan,'' for each such subdivision in accordance with 
Sec.  1901.203(c)

[[Page 240]]

of Subpart E of Part 1901 of this chapter.
    (c) Equal Housing Opportunity logo. All FmHA or its successor agency 
under Public Law 103-354 and contractor sale advertisements will contain 
the Equal Housing Opportunity logo.



Sec.  1955.134  Loss, damage, or existing defects in inventory real property.

    (a) Property under contract. If a bid or offer has been accepted by 
the FmHA or its successor agency under Public Law 103-354 and through no 
fault of either party, the property is lost or damaged as a result of 
fire, vandalism, or an act of God between the time of acceptance of the 
bid or offer and the time the title of the property is conveyed by FmHA 
or its successor agency under Public Law 103-354, FmHA or its successor 
agency under Public Law 103-354 will reappraise the property. The 
reappraised value of the property will serve as the amount FmHA or its 
successor agency under Public Law 103-354 will accept from the 
purchaser. However, if the actual loss based on the reduction in market 
value of the property as determined by FmHA or its successor agency 
under Public Law 103-354 is less than $500, payment of the full purchase 
price is required. In the event the two parties cannot agree upon an 
adjusted price, either party, by mailing notice in writing to the other, 
may terminate the contract of sale, and the bid deposit or earnest 
money, if any, will be returned to the offeror.
    (b) Existing defects. FmHA or its successor agency under Public Law 
103-354 does not provide any warranty on property sold from inventory. 
Subsequent loans may be made, in accordance with applicable loan making 
regulations for the respective loan program, to correct defects.

[50 FR 23904, June 7, 1985, as amended at 53 FR 27837, July 25, 1988]



Sec.  1955.135  Taxes on inventory real property.

    Where FmHA or its successor agency under Public Law 103-354 owned 
property is subject to taxation, taxes and assessment installments will 
be prorated between FmHA or its successor agency under Public Law 103-
354 and the purchaser as of the date the title is conveyed in accordance 
with the conditions of Forms FmHA or its successor agency under Public 
Law 103-354 1955-45 or FmHA or its successor agency under Public Law 
103-354 1955-46. The purchaser will be responsible for paying all taxes 
and assessment installments accruing after the title is conveyed. The 
County Supervisor or District Director will advise the taxing authority 
of the sale, the purchaser's name, and the description of the property 
sold. Only the prorata share of assessment installments for property 
improvements (water, sewer, curb and gutter, etc.) accrued as of the 
date property is sold will be paid by FmHA or its successor agency under 
Public Law 103-354 for inventory property. At the closing, payment of 
taxes and assessment installments due to be paid by FmHA or its 
successor agency under Public Law 103-354 will be paid from cash 
proceeds FmHA or its successor agency under Public Law 103-354 is to 
receive as a result of the sale or by voucher and will be accomplished 
by one of the following:
    (a) For purchasers receiving FmHA or its successor agency under 
Public Law 103-354 credit and required to escrow, FmHA or its successor 
agency under Public Law 103-354's share of accrued taxes and assessment 
installments will be deposited in the purchaser's escrow account.
    (b) For purchasers not required to escrow, accrued taxes and 
assessment installments may be:
    (i) Paid to the local taxing authority if they will accept payment 
at that time; or
    (ii) Paid to the purchaser. If appropriate, for program purchasers, 
the funds can be deposited in a supervised bank account until the taxes 
can be paid.
    (c) Except for SFH, deducted from the sale price (which may result 
in a promissory note less than the sale price), if acceptable to the 
purchaser.

[56 FR 6953, Feb. 21, 1991]

[[Page 241]]



Sec.  1955.136  Environmental Assessment (EA) and Environmental Impact Statement (EIS).

    (a) Prior to a final decision on some disposal actions, an 
environmental assessment must be made and when necessary, an 
enviornmental impact statement. Detailed guidance on when and how to 
prepare an EA or an EIS is found in Subpart G of Part 1940 of this 
Chapter. Assessments must be made for those proposed conveyances that 
meet one of the following criteria:
    (1) The conveyance is controversial for environmental reasons and/or 
is qualified within those categories described in Sec.  1955.137 of this 
subpart.
    (2) The FmHA or its successor agency under Public Law 103-354 
approval official has reason to believe that conveyance would result in 
a change in use of the real property. For example, farmland would be 
converted to a nonfarm use; or an industrial facility would be changed 
to a different industrial use that would produce increased gaseous, 
liquid or solid wastes over the former use or changes in the type or 
contents of such wastes. Assessments are not required for conveyance 
where the real property would be retained in its former use within the 
reasonably foreseeable future.
    (b) When an EA or EIS is prepared it shall address the requirements 
of Departmental Regulation 9500-3, ``Land Use Policy,'' in connection 
with the conversion to other uses of prime and unique farmlands, 
farmlands of statewide or local importance, prime forest and prime 
rangelands, the alteration of wetlands or flood plains, or the creation 
of nonfarm uses beyond the boundaries of existing settlements.



Sec.  1955.137  Real property located in special areas or having special characteristics.

    (a) Real property located in flood, mudslide hazard, wetland or 
Coastal Barrier Resources System (CBRS). (1) Use restrictions. Executive 
Order 11988, ``Floodplain Management,'' and Executive Order 11990, 
``Protection of Wetlands,'' require the conveyance instrument for 
inventory property containing floodplains or wetlands which is proposed 
for lease or sale to specify those uses that are restricted under 
identified Federal, State and local floodplains or wetlands regulations 
as well as other appropriate restrictions. The restrictions shall be to 
the uses of the property by the lessee or purchaser and any successors, 
except where prohibited by law. Applicable restrictions will be 
incorporated into quitclaim deeds in a format similar to that contained 
in Exhibits H and I of RD Instruction 1955-C (available in any Agency 
office). A listing of all restrictions will be included in the notices 
required in paragraph (a)(2) of this section.
    (2) Notice of hazards. Acquired real property located in an 
identified special flood or mudslide hazard area as defined in, subpart 
B of part 1806 of this chapter will not be sold for residential purposes 
unless determined by the county official or district director to be safe 
(that is, any hazard that exists would not likely endanger the safety of 
dwelling occupants).
    (3) Limitations placed on financial assistance. (i) Financial 
assistance is limited to property located in areas where flood insurance 
is available. Flood insurance must be provided at closing of loans on 
program-eligible and nonprogram (NP)-ineligible terms. Appraisals of 
property in flood or mudslide hazard areas will reflect this condition 
and any restrictions on use. Financial assistance for substantial 
improvement or repair of property located in a flood or mudslide hazard 
area is subject to the limitations outlined in, paragraph 3b (1) and (2) 
of Exhibit C of subpart G of part 1940.
    (ii) Pursuant to the requirements of the Coastal Barrier Resources 
Act (CBRA) and except as specified in paragraph (a)(3)(v) of this 
section, no credit sales will be provided for property located within a 
CBRS where:
    (A) It is known that the purchaser plans to further develop the 
property;
    (B) A subsequent loan or any other type of Federal financial 
assistance as defined by the CBRA has been requested for additional 
development of the property;
    (C) The sale is inconsistent with the purpose of the CBRA; or
    (D) The property to be sold was the subject of a previous financial 
transaction that violated the CBRA.

[[Page 242]]

    (iii) For purposes of this section, additional development means the 
expansion, but not maintenance, replacement-in-kind, reconstruction, or 
repair of any roads, structures or facilities. Water and waste disposal 
facilities as well as community facilities may be repaired to the extent 
required to meet health and safety requirements, but may not be improved 
or expanded to serve new users, patients or residents.
    (iv) A sale which is not in conflict with the limitations in 
paragraph (a)(3)(ii) of this section shall not be completed until the 
approval official has consulted with the appropriate Regional Director 
of the U.S. Fish and Wildlife Service and the Regional Director concurs 
that the proposed sale does not violate the provisions of the CBRA.
    (v) Any proposed sale that does not conform to the requirements of 
paragraph (a)(3)(ii) of this section must be forwarded to the 
Administrator for review. Approval will not be granted unless the 
Administrator determines, through consultation with the Department of 
Interior, that the proposed sale does not violate the provisions of the 
CBRA.
    (b) Wetlands located on FSA inventory property. Perpetual wetland 
conservation easements (encumbrances in deeds) to protect and restore 
wetlands or converted wetlands that exist on suitable or surplus 
inventory property will be established prior to sale of such property. 
The provisions of paragraphs (a) (2) and (3) of this section also apply, 
as does paragraph (a)(1) of this section insofar as floodplains are 
concerned. This requirement applies to either cash or credit sales. 
Similar restrictions will be included in leases of inventory properties 
to beginning farmers or ranchers. Wetland conservation easements will be 
established as follows:
    (1) All wetlands or converted wetlands located on FSA inventory 
property which were not considered cropland on the date the property was 
acquired and were not used for farming at any time during the period 
beginning on the date 5 years before the property was acquired and 
ending on the date the property was acquired will receive a wetland 
conservation easement.
    (2) All wetlands or converted wetlands located on FSA inventory 
property that were considered cropland on the date the property was 
acquired or were used for farming at any time during the period 
beginning on the date 5 years before the property was acquired and 
ending on the date the property was acquired will not receive a wetland 
conservation easement.
    (3) The following steps should be taken in determining if 
conservation easements are necessary for the protection of wetlands or 
converted wetland on inventory property:
    (i) NRCS will be contacted first to identify the wetlands or 
converted wetlands and wetland boundaries of each wetland or converted 
wetland on inventory property.
    (ii) After receiving the wetland determination from NRCS, the FSA 
county committee will review the determination for each inventory 
property and determine if any of the wetlands or converted wetlands 
identified by NRCS were considered cropland on the date the property was 
acquired or were used for farming at any time during the period 
beginning on the date 5 years before the property was acquired and 
ending on the date the property was acquired. Property will be 
considered to have been used for farming if it was primarily used for 
agricultural purposes including but not limited to such uses as 
cropland, pasture, hayland, orchards, vineyards and tree farming.
    (iii) After the county committee has completed their determination 
of whether the wetlands or converted wetlands located on an inventory 
property were used for cropland or farming, the U.S. Fish and Wildlife 
Service (FWS) will be contacted. Based on the technical considerations 
of the potential functions and values of the wetlands on the property, 
FWS will identify those wetlands or converted wetlands that require 
protection with a wetland conservation easement along with the 
boundaries of the required wetland conservation easement. FWS may also 
make other recommendations if needed for the protection of important 
resources such as threatened or endangered species during this review.
    (4) The wetland conservation easement will provide for access to 
other

[[Page 243]]

portions of the property as necessary for farming and other uses.
    (5) The appraisal of the property must be updated to reflect the 
value of the land due to the conservation easement on the property.
    (6) Easement areas shall be described in accordance with State or 
local laws. If State or local law does not require a survey, the 
easement area can be described by rectangular survey, plat map, or other 
recordable methods.
    (7) In most cases the FWS shall be responsible for easement 
management and administration responsibilities for such areas unless the 
wetland easement area is an inholding in Federal or State property and 
that entity agrees to assume such responsibility, or a State fish and 
wildlife agency having counterpart responsibilities to the FWS is 
willing to assume easement management and administration 
responsibilities. The costs associated with such easement management 
responsibilities shall be the responsibility of the agency that assumes 
easement management and administration.
    (8) County officials are encouraged to begin the easement process 
before the property is taken into inventory, if possible, in order to 
have the program completed before the statutory time requirement for 
sale.
    (c) Historic preservation. (1) Pursuant to the requirements of the 
National Historic Preservation Act and Executive Order 11593, 
``Protection and Enhancement of the Cultural Environment,'' the Agency 
official responsible for the conveyance must determine if the property 
is listed on or eligible for listing on the National Register of 
Historic Places. (See subpart F of part 1901 of this chapter for 
additional guidance.) The State Historic Preservation Officer (SHPO) 
must be consulted whenever one of the following criteria are met:
    (i) The property includes a structure that is more than 50 years 
old.
    (ii) Regardless of age, the property is known to be of historical or 
archaeological importance; has apparent significant architectural 
features; or is similar to other Agency properties that have been 
determined to be eligible.
    (iii) An environmental assessment is required prior to a decision on 
the conveyance.
    (2) If the result of the consultations with the SHPO is that a 
property may be eligible or that it is questionable, an official 
determination must be obtained from the Secretary of the Interior.
    (3) If a property is listed on the National Register or is 
determined eligible for listing by the Secretary of Interior, the Agency 
official responsible for the conveyance must consult with the SHPO in 
order to develop any necessary restrictions on the use of the property 
so that the future use will be compatible with preservation objectives 
and which does not result in an unreasonable economic burden to public 
or private interest. The Advisory Council on Historic Preservation must 
be consulted by the State Director or State Executive Director after the 
discussions with the SHPO are concluded regardless of whether or not an 
agreement is reached.
    (4) Any restrictions that are developed on the use of the property 
as a result of the above consultations must be made known to a potential 
bidder or purchaser through a notice procedure similar to that in 
Sec. 1955.13(a)(2) of this subpart.
    (d) Highly erodible farmland. (1) The FSA county official will 
determine if any inventory property contains highly erodible land as 
defined by the NRCS and, if so, what specific conservation practices 
will be made a condition of a sale of the property.
    (2) If the county official does not concur in the need for a 
conservation practice recommended by NRCS, any differences shall be 
discussed with the recommending NRCS office. Failure to reach an 
agreement at that level shall require the State Executive Director to 
make a final decision after consultation with the NRCS State 
Conservationist.
    (3) Whenever NRCS technical assistance is requested in implementing 
these requirements and NRCS responds that it cannot provide such 
assistance within a time frame compatible with the proposed sale, the 
sale arrangements will go forward. The sale will

[[Page 244]]

proceed, conditioned on the requirement that a purchaser will 
immediately contact (NRCS) have a conservation plan developed and comply 
with this plan. The county official will monitor the borrower's 
compliance with the recommendations in the conservation plan. If 
problems occur in obtaining NRCS assistance, the State Executive 
Director should consult with the NRCS State Conservationist.
    (e) Notification to purchasers of inventory property with reportable 
underground storage tanks. If the Agency is selling inventory property 
containing a storage tank which was reported to the Environmental 
Protection Agency (EPA) pursuant to the provisions of Sec. 1955.57 of 
subpart B of this part, the potential purchaser will be informed of the 
reporting requirement and provided a copy of the report filed by the 
Agency.
    (f) Real property that is unsafe. If the Agency has in inventory, 
real property, exclusive of any improvements, that is unsafe, that is it 
does not meet the definition of ``safe'' as contained in Sec. 1955.103 
of this subpart and which cannot be feasibly made safe, the State 
Director or State Executive Director will submit the case file, together 
with documentation of the hazard and a recommended course of action to 
the National Office, ATTN: appropriate Deputy Administrator, for review 
and guidance.
    (g) Real property containing hazardous waste contamination. All 
inventory property must be inspected for hazardous waste contamination 
either through the use of a preliminary hazardous waste site survey or 
Transaction Screen Questionnaire. If possible contamination is noted, a 
Phase I or II environmental assessment will be completed per the advice 
of the State Environmental Coordinator.

[62 FR 44401, Aug. 21, 1997]



Sec.  1955.138  Property subject to redemption rights.

    If, under State law, FmHA or its successor agency under Public Law 
103-354's interest may be sold subject to redemption rights, the 
property may be sold provided there is no apparent likelihood of its 
being redeemed.
    (a) A credit sale of a program or suitable property subject to 
redemption rights may be made to a program applicant when the property 
meets the standards for the respective loan program. In areas where 
State law does not provide for full recovery of the cost of repairs 
during the redemption period, a program sale is generally precluded 
unless the property already meets program standards.
    (b) Each purchaser will sign a statement acknowledging that:
    (1) The property is subject to redemption rights according to State 
law, and
    (2) If the property is redeemed, ownership and possession of the 
property would revert to the previous owner and likely result in loss of 
any additional investment in the property not recoverable under the 
State's provisions of redemption.
    (c) The signed original statement will be filed in the purchaser's 
County or District Office case file.
    (d) If real estate brokers or auctioneers are engaged to sell the 
property, the County Supervisor or District Director will inform them of 
the redemption rights of the borrower and the conditions under which the 
property may be sold.
    (e) The State Director, with prior approval of OGC, will issue a 
State supplement incorporating the requirements of this section and 
providing additional guidance appropriate for the State.

[50 FR 23904, June 7, 1985, as amended at 53 FR 27837, July 25, 1988]



Sec.  1955.139  Disposition of real property rights and title to real property.

    (a) Easements, rights-of-way, development rights, restrictions or 
the equivalent thereof. The State Director is authorized to convey these 
rights for conservation purposes, roads, utilities, and other purposes 
as follows:
    (1) Except as provided in paragraph (a)(3) of this section, 
easements or rights-of-way may be conveyed to public bodies or utilities 
if the conveyance is in the public interest and will not adversely 
affect the value of the real estate. The consideration must be adequate 
for the inventory property being released or for a purpose which will 
enhance the value of the real estate. If

[[Page 245]]

there is to be an assessment as a result of the conveyance, relative 
values must be considered, including any appropriate adjustment to the 
property's market value, and adequate consideration must be received for 
any reduction in value.
    (2) Except as provided in paragraph (a)(3) of this section easements 
or rights-of-way may be sold by negotiation for market value to any 
purchaser for cash without giving public notice if the conveyance would 
not change the classification from program/suitable to NP or surplus, 
nor decrease the value by more than the price received. Sale proceeds 
will be handled in accordance with Subpart B of Part 1951 of this 
chapter.
    (3) For FSA properties only, easements, restrictions, development 
rights or similar legal rights may be granted or sold separately from 
the underlying fee or sum of all other rights possessed by the 
Government if such conveyances are for conservation purposes and are 
transferred to a State, a political subdivision of a State, or a private 
nonprofit organization. Easements may be granted or sold to a Federal 
agency for conservation purposes as long as the requirements of 
Sec. 1955.139(c)(2) of this subpart are followed. If FSA has an 
affirmative responsibility such as protecting an endangered species as 
provided for in paragraph (a)(3(v) of this section, the requirements in 
Sec. 1955.139(c) of this subpart do not apply.
    (i) Conservation purposes include but are not limited to protecting 
or conserving the following environmental resources or land uses:
    (A) Fish and wildlife habitats of local, regional, State, or Federal 
importance,
    (B) Floodplain and wetland areas as defined in Executive Orders 
11988 and 11990,
    (C) Highly erodible land as defined by SCS,
    (D) Important farmland, prime forest land, or prime rangeland as 
defined in Departmental Regulation 9500-3, Land Use Policy,
    (E) Aquifer recharge areas of local, regional or State importance,
    (F) Areas of high water quality or scenic value, and
    (G) Historic and cultural properties.
    (ii) Development rights may be sold for conservation purposes for 
their market value directly to a unit of local or State governmental or 
a private nonprofit organization by negotiation.
    (iii) An easement, restriction or the equivalent thereof may be 
granted or sold for less than market value to a unit of local, State, 
Federal government or a private nonprofit organization for conservation 
purposes. If such a conveyance will adversely affect the FmHA or its 
successor agency under Public Law 103-354 financial interest, the State 
Director will submit the proposal to the Administrator for approval 
unless the State Director has been delegated approval authority in 
writing from the Administrator to approve such transactions based upon 
demonstrated capability and experience in processing such conveyances. 
Factors to be addressed in formulating such a request include the 
intended conservation purpose(s) and the environmental importance of the 
affected property, the impact to the Government's financial interest, 
the financial resources of the potential purchaser or grantee and its 
normal method of acquiring similar property rights, the likely impact to 
environment should the property interest not be sold or granted and any 
other relevant factors or concerns prompting the State Director's 
request.
    (iv) Property interests under this paragraph may be conveyed by 
negotiation with any eligible recipient without giving public notice if 
the conveyance would not change program/suitable property to NP or 
surplus. Sales proceeds will be handled in accordance with Subpart B of 
Part 1951 of this chapter. Conveyances shall include terms and 
conditions which clearly specify the property interest(s) being conveyed 
as well as all appropriate restrictions and allowable uses. The 
conveyances shall also require the owner of such interest to permit the 
FmHA or its successor agency under Public Law 103-354, and any person or 
government entity designated by the FmHA or its successor agency under 
Public Law 103-354, to have access to the affected property for the 
purpose of monitoring compliance with terms and conditions of the 
conveyance. To the maximum

[[Page 246]]

extent possible, the conveyance should designate an organization or 
government entity for monitoring purposes. In developing the conveyance, 
the approval official shall consult with any State or Federal agency 
having special expertise regarding the environmental resource(s) or land 
uses to be protected.
    (v) For FP cases except when FmHA or its successor agency under 
Public Law 103-354 has an affirmative responsibility to place a 
conservation easement upon a farm property, easements under the 
authority of this paragraph will not be established unless either the 
rights of all prior owner(s) have been met or the prior owner(s) 
consents to the easement. Examples of instances where an affirmative 
responsibility exists to place an easement on a farm property include 
wetland and floodplain conservation easements required by Sec.  1955.137 
of this subpart or easements designed as environmental mitigation 
measures and required in the implementation of Subpart G of Part 1940 of 
this chapter for the purpose of protecting federally designated 
important environmental resources. These resources include: Listed or 
proposed endangered or threatened species, listed or proposed critical 
habitats, designated or proposed wilderness areas, designated or 
proposed wild or scenic rivers, historic or archaeological sites listed 
or eligible for listing on the National Register of Historic Places, 
coastal barriers included in Coastal Barrier Resource Systems, natural 
landmarks listed on national Registry of Natural Landmarks, and sole 
source aquifer recharge as designated by the Environmental Protection 
Agency.
    (vi) For FP cases whenever a request is made for an easement under 
the authority of this paragraph and such request overlaps an area upon 
which FmHA or its successor agency under Public Law 103-354 has an 
affirmative responsibility to place an easement, that required portion 
of the easement, either in terms of geographical extent or content, will 
not be considered to adversely impact the value of the farm property.
    (4) A copy of the conveyance instrument will be retained in the 
County or District Office inventory file. The grantee is responsible for 
recording the instrument.
    (b) Mineral and water rights, mineral lease interests, air rights, 
and agricultural or other leases. (1) Mineral and water rights, mineral 
lease interests, mineral royalty interests, air rights, and agricultural 
and other lease interests will be sold with the surface land and will 
not be sold separately, except as provided in paragrah (a) of this 
section and in Sec.  1955.66(a)(2)(iii) of Subpart B of Part 1955 of 
this chapter. If the land is to be sold in separate parcels, any rights 
or interests that apply to each parcel will be included with the sale.
    (2) Lease or royalty interests not passing by deed will be assigned 
to the purchaser when property is sold. The County Supervisor or 
District Director, as applicable, will notify the lessee or payor of the 
assignment. A copy of this notice will be furnished to the purchaser.
    (3) The value of such rights, interests or leases will be considered 
when the property is appraised.
    (c) Transfer of FSA inventory property for conservation purposes. 
(1) In accordance with the provisions of this paragraph, FSA may 
transfer, to a Federal or State agency for conservation purposes (as 
defined in paragraph (a)(3)(i) of this section), inventory property, or 
an interest therein, meeting any one of the following three criteria and 
subject only to the homestead protection rights of all previous owners 
having been met.
    (i) A predominance of the land being transferred has marginal value 
for agricultural production. This is land that NRCS has determined to be 
either highly erodible or generally not used for cultivation, such as 
soils in classes IV, V, VII or VIII of NRCS's Land Capability 
Classification, or
    (ii) A predominance of land is environmentally sensitive. This is 
land that meets any of the following criteria:
    (A) Wetlands, as defined in Executive Order 11990 and USDA 
Regulation 9500.
    (B) Riparian zones and floodplains as they pertain to Executive 
Order 11988.
    (C) Coastal barriers and zones as they pertain to the Coastal 
Barrier Resources Act or Coastal Zone Management Act.

[[Page 247]]

    (D) Areas supporting endangered and threatened wildlife and plants 
(including proposed and candidate species), critical habitat, or 
potential habitat for recovery pertaining to the Endangered Species Act.
    (E) Fish and wildlife habitats of local, regional, State or Federal 
importance on lands that provide or have the potential to provide 
habitat value to species of Federal trust responsibility (e.g., 
Migratory Bird Treaty Act, Anadromous Fish Conservation Act).
    (F) Aquifer recharges areas of local, regional, State or Federal 
importance.
    (G) Areas of high water quality or scenic value.
    (H) Areas containing historic or cultural property; or
    (iii) A predominance of land with special management importance. 
This is land that meets the following criteria:
    (A) Lands that are in holdings, lie adjacent to, or occur in 
proximity to, Federally or State-owned lands or interest in lands.
    (B) Lands that would contribute to the regulation of ingress or 
egress of persons or equipment to existing Federally or State-owned 
conservation lands.
    (C) Lands that would provide a necessary buffer to development if 
such development would adversely affect the existing Federally or State-
owned lands.
    (D) Lands that would contribute to boundary identification and 
control of existing conservation lands.
    (2) When a State or Federal agency requests title to inventory 
property, the State Executive Director will make a preliminary 
determination as to whether the property can be transferred.
    (3) If a decision is made by the State Executive Director to deny a 
transfer request by a Federal or State agency, the requesting agency 
will be informed of the decision in writing and informed that they may 
request a review of the decision by the FSA Administrator.
    (4) When a State or Federal agency requests title to inventory 
property and the State Executive Director determines that the property 
is suited for transfer, the following actions must be taken prior to 
approval of the transfer:
    (i) At least two public notices must be provided. These notices will 
be published in a newspaper with a wide circulation in the area in which 
the requested property is located. The notice will provide information 
on the proposed use of the property by the requesting agency and request 
any comments concerning the negative or positive aspects of the request. 
A 30-day comment period should be established for the receipt of 
comments.
    (ii) If requested, at least one public meeting must be held to 
discuss the request. A representative of the requesting agency should be 
present at the meeting in order to answer questions concerning the 
proposed conservation use of the property. The date and time for a 
public meeting should be advertised.
    (iii) Written notice must be provided to the Governor of the State 
in which the property is located as well as at least one elected 
official of the county in which the property is located. The 
notification should provide information on the request and solicit any 
comments regarding the proposed transfer. All procedural requirements in 
paragraph (c) (3) of this section must be completed in 75 days.
    (5) Determining priorities for transfer or inventory lands.
    (i) A Federal entity will be selected over a State entity.
    (ii) If two Federal agencies request the same land tract, priority 
will be given to the Federal agency that owns or controls property 
adjacent to the property in question or if this is not the case, to the 
Federal agency whose mission or expertise best matches the conservation 
purposes for which the transfer would be established.
    (iii) In selecting between State agencies, priority will be given to 
the State agency that owns or controls property adjacent to the property 
in question or if that is not the case, to the State agency whose 
mission or expertise best matches the conservation purpose(s) for which 
the transfer would be established.
    (6) In cases where land transfer is requested for conservation 
purposes that would contribute directly to the furtherance of 
International Treaties or Plans (e.g., Migratory Bird Treaty Act

[[Page 248]]

or North American Waterfowl Management Plan), to the recovery of a 
listed endangered species, or to a habitat of National importance (e.g., 
wetlands as addressed in the Emergency Wetlands Resources Act), priority 
consideration will be given to land transfer for conservation purposes, 
without reimbursement, over other land disposal alternatives.
    (7) An individual property may be subdivided into parcels and a 
parcel can be transferred under the requirements of this paragraph as 
long as the remaining parcels to be sold make up a viable sales unit, 
suitable or surplus.

[50 FR 23904, June 7, 1985, as amended at 51 FR 13479, Apr. 21, 1986; 53 
FR 27838, July 25, 1988; 53 FR 35781, Sept. 14, 1988; 57 FR 36592, Aug. 
14, 1992; 62 FR 44403, Aug. 21, 1997]



Sec. 1955.140  Sale in parcels.

    (a) Individual property subdivided. An individual property, other 
than Farm Credit Programs property, may be offered for sale as a whole 
or subdivided into parcels as determined by the State Director. For MFH 
property, guidance will be requested from the National Office for all 
properties other than RHS projects. When farm inventory property is 
larger than a family-size farm, the county official will subdivide the 
property into one or more tracts to be sold in accordance with 
Sec. 1955.107 of this subpart. Division of the land or separate sales of 
portions of the property, such as timber, growing crops, inventory for 
small business enterprises, buildings, facilities, and similar items may 
be permitted if a better total price for the property can be obtained in 
this manner. Environmental effects should also be considered pursuant to 
subpart G of part 1940 of this chapter. Any applicable State laws will 
be set forth in a State supplement and will be complied with in 
connection with the division of land. Subdivision of acquired property 
will be reported on Form RD 1955-3C, ``Acquired Property--Subdivision,'' 
in accordance with the FMI.
    (b) Grouping of individual properties. The county official for FCP 
cases, and the State Director for all other cases, may authorize the 
combining of two or more individual properties into a single parcel for 
sale as a suitable program property.

[62 FR 44403, Aug. 21, 1997]



Sec.  1955.141  Transferring title.

    (a)-(c) [Reserved]
    (d) Rent increases for MFH property. After approval of a credit sale 
for an occupied MFH project, but prior to closing, the purchaser will 
prepare a realistic budget for project operation (and a utility 
allowance, i