[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2007 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          7


          Parts 1950 to 1999

                         Revised as of January 1, 2007


          Agriculture
          



________________________

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2007
          With Ancillaries
                    Published by:
                    Office of the Federal Register
                    National Archives and Records
                    Administration
                    A Special Edition of the Federal Register

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 7:
    Subtitle B--Regulations of the Department of Agriculture 
      (Continued)
          Chapter XVIII--Rural Housing Service, Rural 
          Business-Cooperative Service, Rural Utilities 
          Service, and Farm Service Agency, Department of 
          Agriculture (Continued)                                    5
  Finding Aids:
      Table of CFR Titles and Chapters........................     459
      Alphabetical List of Agencies Appearing in the CFR......     477
      List of CFR Sections Affected...........................     487

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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

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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

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[[Page vii]]

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

January 1, 2007.

[[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, 2007.

    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.

    For this volume, Moja N. Mwaniki and Bonnie Fritts were Chief 
Editors. The Code of Federal Regulations publication program is under 
the direction of Frances D. McDonald, assisted by Ann Worley.


[[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 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...................          10
1955            Property management.........................         143
1956            Debt settlement.............................         221
1957            Asset sales.................................         246
1962            Personal property...........................         247
1965            Real property...............................         285
1980            General.....................................         316
1981-1999       [Reserved]

[[Page 7]]



              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 7 CFR part 3550.

[52 FR 26134, July 13, 1987, as amended at 60 FR 55122, Oct. 27, 1995; 
67 FR 78329, Dec. 24, 2002]



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.
1951.4-1951.6 [Reserved]

[[Page 11]]

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 [Reserved]

     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.
1951.112-1951.132 [Reserved]
1951.133 Establishment of Federal Debt.
1951.134-1951.135 [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 Servicing delinquent Community Facility loans.
1951.243-1951.249 [Reserved]
1951.250 OMB control number.

Exhibits A-H to Subpart E [Note]

      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

[[Page 12]]

          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 [Reserved]

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

Subparts M-N [Reserved]

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 Determination of the amount of unauthorized assistance.
1951.708 Notification to recipient.
1951.709 Decision on servicing actions.
1951.710 [Reserved]
1951.711 Servicing options in lieu of liquidation or legal action to 
          collect.
1951.712-1951.716 [Reserved]
1951.717 Exception authority.
1951.718-1951.750 [Reserved]

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.

[[Page 13]]

         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

                  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.
1951.960-1951.1000 [Reserved]

    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 7 CFR part 3560, subpart I. 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, as amended at 69 FR 69105, Nov. 26, 2004]



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).

[[Page 14]]



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. 1951.4-1951.6  [Reserved]



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. 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

[[Page 15]]

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.
    (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

[[Page 16]]

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 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

[[Page 17]]

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.
    (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.

[[Page 18]]

    (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 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.

[[Page 19]]

    (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 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

[[Page 20]]

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.



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.

[[Page 21]]

    (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 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:

[[Page 22]]

    (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 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

[[Page 23]]

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

[fxsp0]_________________________________________________________________

    (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 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 [Reserved]

[[Page 24]]



     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 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 or past-due means a payment that was not made by 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

[[Page 25]]

indirectly equal to the debtor's interest in the entity. To be feasible 
the debt must exist and be 90 days past due or the borrower must be in 
default of other obligations to the Agency, which can be cured by the 
payment.
    (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; 
69 FR 5267, Feb. 4, 2004]



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

[[Page 26]]

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.
    (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

[[Page 27]]

to use this offset procedure is to decide, on a case by case basis, 
whether offset is feasible. If an offset is feasible, the directions in 
the following paragraphs of this section will be used to collect by 
salary offset. If the official making this determination decides that 
salary offset is not feasible, the reasons supporting this decision will 
be documented in the borrower's running case record in the case of 
delinquent debts, or the ``For Official Use Only'' file in cases of 
other debts. Ordinarily, and where possible, debts should be collected 
in one lump-sum; but payments may be made in installments. Installment 
deductions can be made over a period not greater than the anticipated 
period of employment. However, the amount deducted for a pay period will 
not exceed 15 percent of the disposable pay from which the deduction is 
made. If possible, the installment payment will be sufficient in size 
and frequency to liquidate the debt in approximately 3 years. Based on 
the Comptroller General's decisions, other debts by employees cannot be 
forgiven. If the employee retires or resigns, or if employment ends 
before collection of the debt is completed, final salary payment, lump-
sum leave, etc. may be offset to the extent necessary to liquidate the 
debt. Salary offset is feasible if:
    (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

[[Page 28]]

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;
    (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

[[Page 29]]

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.
    (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

[[Page 30]]

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.
    (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

[[Page 31]]

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.
    (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

[[Page 32]]

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 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.

[[Page 33]]

    (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 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. 1951.112-1951.132  [Reserved]



Sec. 1951.133  Establishment of Federal Debt.

    Any amounts paid by RBS on account of liabilities of a business and 
industry (B&I) program guaranteed loan borrower will constitute a 
Federal debt owing to RBS by the B&I guaranteed loan borrower. In such 
case, the RBS may use all remedies available to it, including offset 
under the Debt Collection Improvement Act of 1996 (DCIA), to collect the 
debt from the borrower. Interest charges will be established at the note 
rate of the guaranteed loan on the date a loss claim is paid. RBS may, 
at its option, refer such debt in all or part to the Department of the 
Treasury, before a final loss claim is determined.

[69 FR 3000, Jan. 22, 2004]



Sec. Sec. 1951.134-1951.135  [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:

[[Page 34]]

    (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:
    (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 or to the Rural Rental 
Housing, Rural Cooperative Housing, or Farm Labor Housing programs of 
the RHS.

[61 FR 59778, Nov. 22, 1996, as amended at 69 FR 69105, Nov. 26, 2004]



Sec. 1951.152  Definition.

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

[[Page 35]]

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.



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-

[[Page 36]]

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.
    (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 the following programs: 
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, in part 
4284 of

[[Page 37]]

this title, Rural and Cooperative Development Grants, Value-Added 
Producer Grants and Agriculture Innovation Center Grants. 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.

[69 FR 23425, Apr. 29, 2004]



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

[55 FR 4399, Feb. 8, 1990, as amended at 69 FR 70884, Dec. 8, 2004]



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.

[[Page 38]]



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 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-

[[Page 39]]

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.
    (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

[[Page 40]]

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 (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:

[[Page 41]]

    (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 tracked in the Multi-Family Housing Information System (MFIS).
    (g) Other security. Other security such as collateral assignments, 
water stock certificates, notices of lienholder interest (Bureau of Land 
Management grazing permits) and waivers of grazing privileges (Forest 
Service grazing permits) will be serviced to protect the interest of 
FmHA or its successor agency under Public Law 103-354, and in compliance 
with any special servicing actions developed by the State Director with 
OGC assistance. Evidence of the security will be filed in the servicing 
office case file. Necessary servicing actions will be noted in MFIS.
    (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; 69 FR 69105, Nov. 26, 
2004]



Sec. 1951.221  Collections, payments and refunds.

    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.

[[Page 42]]

    (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 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) 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; 68 FR 
61331, Oct. 28, 2003; 68 FR 69952, Dec. 16, 2003]



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 Rural Development indebtedness.
    (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.

[[Page 43]]

    (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.
    (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; 69 FR 
70884, Dec. 8, 2004]



Sec. 1951.223  Reamortization.

    (a) State Director authorization. The State Director is authorized 
to approve

[[Page 44]]

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 RD 3560-15, ``Reamortization Request,'' completed in 
accordance with Sec. 1951.223(c)(3) of this subpart, when applicable; 
and
    (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 RD 3560-15 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.

[[Page 45]]

    (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.
    (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.

[[Page 46]]

    (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; 69 FR 69105, Nov. 26, 2004]



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;
    (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:

[[Page 47]]

    (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 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.

[[Page 48]]



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;
    (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 of 
this subpart 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,

[[Page 49]]

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 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 
liability upon the completion of the sale.

[55 FR 4399, Feb. 8, 1990, as amended at 69 FR 70884, Dec. 8, 2004]



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.

[[Page 50]]

    (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.
    (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

[[Page 51]]

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;
    (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

[[Page 52]]

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 103-354 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.

[[Page 53]]

    (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 an Agency approved form, ``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 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),

[[Page 54]]

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; 69 FR 70884, Dec. 8, 2004]



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;
    (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-

[[Page 55]]

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,'' (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

[[Page 56]]

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.
    (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.

[[Page 57]]

    (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 
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

[[Page 58]]

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 
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. 1951.242  Servicing delinquent Community Facility loans.

    (a) For the purpose of this section, a loan is delinquent when a 
borrower fails to make all or part of a payment by the due date.
    (b) The delinquent loan borrower and the Agency, at its discretion, 
may enter into a written workout agreement.
    (c) For loans that are delinquent, the borrower must provide, 
monthly comparative financial statements in a format that is acceptable 
to the Agency by the 15th day of the following month. The Agency may 
waive this requirement if it would cause a hardship for the borrower or 
the borrower is actively marketing the security property.

[69 FR 70884, Dec. 8, 2004]



Sec. Sec. 1951.243-1951.249  [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.

[55 FR 4399, Feb. 8, 1990, as amended at 69 FR 70884, Dec. 8, 2004]

[[Page 59]]

                   Exhibits to Subpart E of Part 1951

    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), 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.

[[Page 60]]

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 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

[[Page 61]]

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 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

[[Page 62]]

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 7 CFR part 3560, subpart K must be met prior to 
graduation and acceptance of the full payment from an MFH borrower.

[69 FR 69105, Nov. 26, 2004]



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? ------------

    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]

Subparts G-I [Reserved]

[[Page 63]]



      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 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/

[[Page 64]]

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 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. 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

[[Page 65]]

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.
    (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; 68 
FR 61331, Oct. 28, 2003]



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]

[[Page 66]]



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 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

[[Page 67]]

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 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

[[Page 68]]

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/
partners/joint operators enter an entity, assumption of the indebtedness 
is required, however, the indebtedness may be assumed on existing terms. 
A downpayment based on the unpaid balance of the loan is required when 
the assumption is closed.
    (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 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) [Reserved]
    (f) Title clearance and loan closing. Title clearance and closing 
will be the

[[Page 69]]

same as for any program loan of the same type.
    (g) Release from liability. Release from liability of NP borrowers 
is not authorized.

[58 FR 52646, Oct. 12, 1993, as amended at 68 FR 7698, Feb. 18, 2003]



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.
    (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

[[Page 70]]

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 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 [Reserved]



  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.

[[Page 71]]

    (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 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

[[Page 72]]

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.
    (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 103-354'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

[[Page 73]]

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.
    (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.

[[Page 74]]

    (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 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

[[Page 75]]

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.
    (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

[[Page 76]]

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 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)

[[Page 77]]

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 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.

Subparts M-N [Reserved]



Subpart O_Servicing Cases Where Unauthorized Loan(s) or Other Financial 
    Assistance Was Received_Community and Insured Business Programs.

    Source: 71 FR 75852, Dec. 19, 2006, 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 Rural 
Development 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 Rural Development 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.



Sec. 1951.702  Definitions.

    As used in this subpart, the following definitions apply:

[[Page 78]]

    Active borrower. A borrower who has an outstanding account in the 
records of the Office of the Deputy Chief Financial Officer (ODCFO), 
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.
    Assistance. Finance assistance in the form of a loan, grant, or 
subsidy received.
    Debt instrument. Used as a collective term to include promissory 
note, assumption agreement, grant agreement, or bond.
    False information. Information, known to be incorrect, provided with 
the intent to obtain benefits which would not have been obtainable based 
on correct information.
    Inaccurate information. Incorrect information provided inadvertently 
without intent to obtain benefits fraudulently.
    Inactive borrower. A former borrower whose loan(s) has been paid in 
full or assumed by another party(ies) and who does not have an 
outstanding account in the records of the ODCFO.
    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.
    Rural Development. A mission area within the U.S. Department of 
Agriculture consisting of the Office of the Under Secretary for Rural 
Development, Office of Community Development, Rural Business-Cooperative 
Service, Rural Housing Service, and Rural Utilities Service and their 
successors.
    Unauthorized assistance. Any loan, interest subsidy, grant, or 
portion thereof received by a recipient for which there was no 
regulatory authorization or for which the recipient was not eligible. 
Interest subsidy includes subsidy benefits received because a loan was 
closed at a lower interest rate than that to which the recipient was 
entitled, whether the incorrect interest rate was selected erroneously 
by the approval official or the documents were prepared in error.



Sec. 1951.703  Policy.

    When unauthorized assistance has been received, an expeditious 
effort must be made to collect from the recipient the sum which is 
determined to be unauthorized, regardless of amount.



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 USDA Office of Inspector General (OIG), through reviews made by 
Rural Development personnel, or through other means such as information 
provided by a private citizen who documents that unauthorized assistance 
has been received by a recipient of Rural Development assistance.



Sec. 1951.707  Determination of the amount of unauthorized assistance.

    (a) Unauthorized loan amount. The unauthorized loan amount will be 
the unauthorized principal plus any interest accruing on the 
unauthorized principal at the note interest rate until the date paid 
unless otherwise agreed in writing by Rural Development.
    (b) Unauthorized grant amount. The unauthorized amount will be the 
unauthorized grant amount actually expended under the grant agreement 
plus interest accrued beginning on the date of the demand letter at the 
interest rate stipulated in the applicable grant agreement, or, if none 
is stated, the default rate established by the U.S. Department of the 
Treasury, until the date paid unless otherwise agreed in writing by 
Rural Development.



Sec. 1951.708  Notification to recipient.

    (a) Upon determination that unauthorized assistance was received, 
Rural Development will send a demand letter to the recipient that:
    (1) Specifies the amount of unauthorized assistance, including any 
accrued interest to be repaid, and the standards for imposing accrued 
interest;
    (2) States the amount of penalties and administrative costs to be 
paid, the standards for imposing them, and the date on which they will 
begin to accrue;

[[Page 79]]

    (3) Provides detailed reason(s) why the assistance was determined to 
be unauthorized;
    (4) States the amount is immediately due and payable to Rural 
Development;
    (5) Describes the rights the recipient has for seeking review of 
Rural Development's determination pursuant to 7 CFR part 11;
    (6) Describes the Agency's available remedies regarding enforced 
collection, including referral of debt delinquent more than 180 days for 
Federal salary, benefit, and tax offset under the Department of Treasury 
Offset Program (TOP); and
    (7) Provides an opportunity for the recipient to meet with Rural 
Development to provide facts, figures, written records, or other 
information which might refute Rural Development's determination.
    (b) If the recipient meets with Rural Development, Rural Development 
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 Rural Development's findings. When requested by 
the recipient, Rural Development may grant additional time for the 
recipient to assemble documentation. Such extension of time for payment 
will be valid only if Rural Development documents the extension in 
writing and specifies the period in days during which period the payment 
obligation created by the demand letter (but not the ongoing accrual of 
interest) will be suspended. Interest and other charges will continue to 
accrue pursuant to the demand letter during any extension period unless 
the terms of the demand letter are modified in writing by Rural 
Development.
    (c) Unless Rural Development modifies the original demand, it will 
remain in full force and effect.



Sec. 1951.709  Decision on servicing actions.

    (a) Payment in full. If the recipient agrees with Rural 
Development's determination or will pay the amount in question, Rural 
Development 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. 1951.707.
    (b) Continuation with recipient. If the recipient agrees with Rural 
Development'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 may be taken provided all of the following conditions are 
met:
    (1) The recipient did not provide false information as defined in 
Sec. 1951.702.
    (2) It would be highly inequitable to require prompt repayment of 
the unauthorized assistance.
    (3) Failure to collect the unauthorized assistance in full will not 
adversely affect Rural Development's financial interest.
    (c) Appeals. Appeals resulting from the letter prescribed in Sec. 
1951.708 will be handled according to 7 CFR Part 11. All appeal 
provisions will be concluded before proceeding with further actions.
    (d) 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 or more of the following 
actions will be taken:
    (1) Active borrower with a secured loan. (i) Rural Development will 
attempt to have the recipient liquidate voluntarily. 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 would not be in the best financial interest of the Government 
to force liquidation.
    (ii) When all of the conditions of paragraph (a) or (b) of this 
section are met, but the recipient does not repay

[[Page 80]]

or refuses to execute documents to effect necessary account adjustments 
according of the provisions of Sec. 1951.711, forced liquidation action 
will be initiated as provided in paragraph (d)(1)(i) of this section.
    (iii) When forced liquidation would be initiated, except that the 
loan is being handled in accordance with paragraph (d)(1)(i)(A) or 
(d)(1)(i)(B) of this section, continuation with the loan on existing 
terms may be provided.
    (iv) If the debt is not otherwise resolved, Rural Development will 
take appropriate debt collection actions in accordance with 7 CFR Part 
3, subparts B and C, and the Federal Claims Collection Standards at 31 
CFR Chapter IX, Parts 900-904.
    (2) Grantee, inactive borrower, or active borrower with unsecured 
loan (such as collection-only, or unsatisfied balance after 
liquidation). Rural Development may pursue all reasonable legal 
remedies.



Sec. 1951.710  [Reserved]



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

    When the conditions outlined in Sec. 1951.709(b) are met, the 
servicing options outlined in this section will be considered.
    (a) 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.
    (1) Unauthorized loan. A loan for the unauthorized amount determined 
according to Sec. 1951.707(a) will remain accelerated per the demand 
letter sent in accordance with Sec. 1951.708 unless modified terms are 
timely reached with the recipient and accrued 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 per a repayment 
schedule satisfactory to Rural Development, but in no event may the 
revised repayment schedule exceed a period of 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 Sec. 1951.707(b) will be converted to an account 
receivable, with interest payable at the market interest rate for the 
respective Community Facilities or Business and Industry Program area in 
effect on the date the financial assistance was provided. In all cases, 
the receivable will be amortized per a repayment schedule satisfactory 
to Rural Development, but in no event may the amortization period exceed 
fifteen (15) years. The recipient will be required to execute a debt 
instrument to evidence this receivable, and the best security position 
available to adequately protect Rural Development's interest during the 
repayment period will be taken as security.
    (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 follows:
    (i) The recipient will be given the option to submit a written 
request that the interest rate be corrected to the lower of the rate for 
which they were eligible that was in effect at the date of loan approval 
or loan closing.
    (ii) Any accrued unauthorized subsidy will be handled in accordance 
with Sec. 1951.709.
    (b) Continuation on existing terms. When the recipient does not have 
the legal and/or financial capabilities for the options outlined in 
paragraph (a)(1), (a)(2), or (a)(3) of this section, the recipient may 
be allowed to continue to meet the loan obligations outlined in the 
existing loan instruments. Rural Development will not continue with 
unauthorized grants on existing terms.



Sec. Sec. 1951.712-1951.716  [Reserved]



Sec. 1951.717  Exception authority.

    The Administrator may, in individual cases, make an exception to any 
requirement or provision of this subpart, provided that any such 
exception is not inconsistent with any applicable

[[Page 81]]

law or opinion of the Comptroller General, and provided further, the 
Administrator determines that the application of the requirement or 
provision would adversely affect the Government's interest.



Sec. Sec. 1951.718-1951.750  [Reserved]

Subparts P-Q [Reserved]



               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

[[Page 82]]

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.
    (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]

[[Page 83]]



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.
    (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.

[[Page 84]]

    (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.



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

[[Page 85]]

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 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.

[[Page 86]]

    (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 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.

[[Page 87]]



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.
    (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,

[[Page 88]]

the Finance Office will send a past due notice to the intermediary. The 
notice will show the late charge amount, if applicable, and the interest 
amount past due. The late charge amount, if applicable, and the interest 
past due amount will be capitalized as principal due 30 days after the 
due date of the monthly payment unless existing loan documents prior to 
this regulation state otherwise. If the loan documents state when late 
charge amounts or interest accruals are to be capitalized, the loan 
documents will prevail.
    (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.

[[Page 89]]

    (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.



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

[[Page 90]]

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.



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.

[[Page 91]]

    (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.



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

[[Page 92]]

intermediary and the ultimate recipient. Should the FmHA or its 
successor agency under Public Law 103-354 determine that it is necessary 
or desirable to take action to protect or further the interests of FmHA 
or its successor agency under Public Law 103-354 in connection with any 
default or breach of conditions under any loan made hereunder, the FmHA 
or its successor agency under Public Law 103-354 may:
    (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

[[Page 93]]

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.



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.



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.

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


[[Page 94]]



         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 
in accordance with Sec. Sec. 1951.907(e), 1951.909(c)(6) and 
1951.909(e)(2). 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; 69 FR 5263, Feb. 4, 2004]



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 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 with Sec. 1951.909 of this part and release a 
divorced spouse from liability

[[Page 95]]

on the debt in accordance with Sec. 1951.909(a) of this part.

[62 FR 10121, Mar. 5, 1997, as amended at 68 FR 7698, Feb. 18, 2003]



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. 1951.905  [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. Borrower also includes any other party liable for 
the FLP debt. Nonprogram

[[Page 96]]

(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 or past-due borrower. A borrower who has failed to make 
all or part of a payment by 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 records will be used 
along with realistic anticipated prices, including any planned FLP loan 
payments, to determine that the income from the farming

[[Page 97]]

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 accounts. Collection-only accounts are not 
considered liquidated.
    Loan service program. A Primary Loan Servicing program or a 
Preservation

[[Page 98]]

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, as amended at 69 FR 5267, Feb. 4, 2004]



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. Delinquent borrowers who have also 
violated their loan agreements with the agency will be handled in 
accordance with paragraph (d) of this section. 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 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,

[[Page 99]]

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) The Agency will notify delinquent NP borrowers who have only SA 
amortization agreements within 15 days of the missed payment of their 
rights with regard to the debt. All items in paragraph (f)(5) of this 
section, with the exception of Attachments 2 or 4 of exhibit A and 
information for conservation contracts or debt settlement, must be 
submitted within 60 days of such notice for the borrower to be 
considered for reamortization.
    (f) 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.

[[Page 100]]

    (iv) Form 440-32, ``Request for Statement of Debts and Collateral.''
    (v) Form RD 1910-5, ``Request for Verification of Employment.''
    (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; 69 
FR 5263, Feb. 4, 2004]

    Editorial Note: At 69 FR 5267, Feb. 4, 2004, Sec. 1951.907(c) was 
amended; however, due to unclear amendatory instruction, the amendment 
could not be incorporated.



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

[[Page 101]]

borrower accepts, loan restructuring will be processed in accordance 
with Sec. Sec. 1951.909 (e) (1), (2), or (3), as applicable.
    (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 Agency 
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 102]]

    (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.
    (6) Non-Program borrowers who have only SA amortization agreements 
must meet the requirements in paragraph (c)(1) of this section, have 
acted in good faith in attempting to repay the recapture amount, and 
develop a feasible plan. Borrowers who are not eligible under this 
paragraph will be notified of the adverse decision. After review rights 
are provided in accordance with Sec. 1951.454, the account will be 
liquidated in accordance with Sec. 1951.468.
    (d) Feasibility determinations. The servicing official must 
determine:
    (1) That the borrower will be able to develop a feasible plan.

[[Page 103]]

    (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 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.

[[Page 104]]

    (xii) Interest rates of consolidated and/or rescheduled loans will 
be as follows:
    (A) The interest rate for loans made at the regular interest rate 
will be the lesser of:
    (1) The lowest interest rate for that type of loan on the date a 
complete servicing application was received;
    (2) The lowest interest rate for that type of loan on the date of 
restructure; or
    (3) The lowest original loan note rate on any of the original notes 
being consolidated and/or rescheduled.
    (B) The interest rate for loans made at the limited resource 
interest rate will be the lesser of:
    (1) The limited resource interest rate for that type of loan on the 
date a complete servicing application was received;
    (2) The limited resource interest rate for that type of loan on the 
date of restructure; or
    (3) The lowest original loan note rate on any of the original notes 
being consolidated and/or rescheduled.
    (C) 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 and SA amortization agreements. 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

[[Page 105]]

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.
    (D) SA payment agreements may not exceed 25 years from the date of 
the original amortized agreement.
    (viii) Interest rates of reamortized loans will be as follows:
    (A) The interest rate for loans made at the regular interest rate 
will be the lesser of:
    (1) The interest rate for that type of loan on the date a complete 
servicing application was received;
    (2) The interest rate for that type of loan on the date of 
restructure; or
    (3) The original loan note rate of the note being reamortized.
    (B) The interest rate of FO or SW loans made at the limited resource 
interest rate will be the lesser of:
    (1) The limited resource interest rate for that type of loan on the 
date a complete servicing application was received;
    (2) The limited resource interest rate for that type of loan on the 
date of restructure; or
    (3) The original loan note rate on the note being reamortized.
    (C) FO or SW 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;
    (2) A feasible plan cannot be developed at regular interest rates 
and maximum terms permitted in this section; and
    (3) For SW loans, the loan funds were used for soil and water 
conservation and protection purposes as set forth in Sec. 1943.66 
(a)(1) through (a)(5) of this chapter.
    (D) SA payment agreement 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.
    (ix) 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 
Promissory Note is processed and the next installment due date. 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). 
Protective advances are not authorized for the payment of prior or 
junior liens except real estate tax liens.
    (x) 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

[[Page 106]]

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 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

[[Page 107]]

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 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

[[Page 108]]

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 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

[[Page 109]]

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 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

[[Page 110]]

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 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

[[Page 111]]

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 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

[[Page 112]]

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 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 
this section. The servicing official will use the information the appeal 
officer used in making the decision on the appeal, unless stated 
otherwise in the final appeal decision letter. In cases of debt 
restructuring resulting from appeals, the interest rate will be 
determined in accordance with paragraphs (e)(1)(xii) and (e)(2)(viii) of 
this section as applicable. 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

[[Page 113]]

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 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; 68 FR 7698, Feb. 18, 2003; 69 FR 
5263, Feb. 4, 2004]



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.

[[Page 114]]

    (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 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.

[[Page 115]]

    (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 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

[[Page 116]]

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 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

[[Page 117]]

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 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

[[Page 118]]

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 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

[[Page 119]]

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 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

[[Page 120]]

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;
    (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

[[Page 121]]

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, 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

[[Page 122]]

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;
    (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

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    (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]
    (e) Shared appreciation amortization. Shared appreciation due under 
this section may be amortized to a Non-program amortized payment unless 
the amount is due because of acceleration or the borrower ceases 
farming. The amount due may be amortized as 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 a borrower with an SA amortized payment also has outstanding 
Farm Loan Programs loan and becomes delinquent or financially distressed 
in accordance with Sec. 1951.906 or if a borrower with an SA amortized 
payment has no outstanding Farm Loan Programs loan and becomes 
delinquent on the SA amortized payment, the SA payment agreement may be 
reamortized in accordance with Sec. 1951.909.
    (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

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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.
    (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; 69 FR 5263, Feb. 4, 2004]



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

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a complete application after the deadline, the County Supervisor must 
ask the borrower why the additional time is or was needed. The County 
Supervisor must ask the borrower whether there are extraordinary 
circumstances like serious medical illness, severe adverse weather, or a 
family emergency, and explain that only the State Director can authorize 
an extension of time for extraordinary circumstances. In such cases, the 
County Supervisor must document the situation in the case file and 
immediately submit the request with his or her recommendation on whether 
the State Director should grant an exception for an extension of time. 
The request should describe the circumstances in accordance with the 
examples of extraordinary circumstances mentioned above and recommend an 
estimate of the additional time needed. Normally, such an extension of 
time should not exceed 30 days.

[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,

[[Page 126]]

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
(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 of the new loan will be either the interest rate on the 
original loan, the interest rate on the date you submit a complete 
application for loan servicing, or the interest rate for that type of 
loan on the date of restructure, whichever is less. If you meet the 
eligibility requirements, you may be able to get the limited resource 
interest rate on OL, SW, or FO loans, if the loan was not originally 
approved with a limited resource rate. 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

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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.

                    (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

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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 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

[[Page 129]]

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 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 or adjustment, however, you may 
keep your collateral if you are unable to pay your total FSA debt and 
pay FSA the present 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.
    The County Committee will be consulted on all debt settlements of 
FLP loans. FSA must find that the statements on your application are 
true, and 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

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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 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

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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. 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

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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 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; 68 FR 
7699, Feb. 18, 2003]

            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.

[[Page 133]]

    (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 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

[[Page 134]]

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 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

[[Page 135]]

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 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.
[fxsp0]_________________________________________________________________
    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.

[[Page 136]]

    (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 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

[[Page 137]]

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,
    (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.

[[Page 138]]

               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 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

[[Page 139]]

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 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

[[Page 140]]

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]



                  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. 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; 68 FR 55303, Sept. 25, 2003]



Sec. 1951.952  General.

    DSA is a program whereby borrowers who are current or less than 90 
days past due on all FLP loans, may apply 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 natural disaster. DSA will not be used to 
circumvent the servicing available under subpart S of this part.

[68 FR 55303, Sept. 25, 2003]



Sec. 1951.953  Notification and request for DSA.

    (a) [Reserved]
    (b) Deadline to apply. Subject to Sec. 1951.954(a)(5), all FLP 
borrowers liable for the debt must request DSA within 8 months from the 
date the natural disaster was designated in accordance with 7 CFR part 
1945, subpart A.
    (c) Information needed for a complete application. (1) A written 
request for DSA signed by all parties liable for the debt;
    (2) Actual production, income, and expense records for the past five 
years, including the production and marketing period in which the 
natural disaster occurred; and
    (3) Other information requested by the servicing official when 
needed to make an eligibility determination.

[68 FR 55303, Sept. 25, 2003]



Sec. 1951.954  Eligibility and loan limitation requirements.

    (a) Eligibility requirements. The following requirements must be met 
to be eligible for DSA:
    (1) The borrower must have:
    (i) Operated a farm or ranch in a county designated a natural 
disaster area or a contiguous county as provided in 7 CFR part 1945, 
subpart A, and
    (ii) Been a borrower and operated the farm or ranch at the time of 
the disaster period.
    (2) A borrower cannot have more than one installment set aside under 
the DSA program on each loan. If all previously approved 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 again be 
considered for DSA.
    (3) The borrower must have acted in good faith as defined in Sec. 
1951.906 of subpart S of this part and the borrowers inability to make 
the upcoming scheduled FSA payments must be for reasons which are not 
within the borrower's control.
    (4) All nonmonetary defaults must have been resolved. This means 
that even though the borrower has acted in

[[Page 141]]

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.
    (5) The borrower must be current or less than 90 days past due on 
all FLP loans at the time the application for DSA is complete. Borrowers 
paying under a debt settlement adjustment agreement in accordance with 
subpart B of part 1956 of this chapter are not eligible.
    (6) The borrower must not be 165 or more days past due when Exhibit 
A of Agency Instruction 1951-T (available in any FSA office) is 
executed.
    (7) As a direct result of the designated natural disaster, 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 the disaster.
    (8) 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, including FLP 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.
    (9) After the amount for each loan is set-aside, all FLP and NP farm 
type loans of the borrower must be current.
    (10) The borrower's FLP loans have not been accelerated.
    (11) The borrower's FLP loans have not been restructured under 
subpart S of this part since the natural disaster occurred.
    (b) Loan limitation requirements. (1) The loan must have been 
outstanding at the time of the natural disaster.
    (2) The term remaining on the loan receiving DSA equals or exceeds 2 
years from the due date of the installment being set-aside.
    (3) The amount set-aside may not exceed the amount of the first or 
second scheduled annual installment due after the disaster occurred.
    (4) The amount set-aside may not exceed the amount the borrower was 
unable to pay FSA due to the disaster. Borrowers are required to pay any 
portion of an installment that they are able to pay.
    (5) The amount set-aside will equal the unpaid balance remaining on 
the installment at the time the borrower signs Exhibit A of Agency 
Instruction 1951-T (available in any FSA office.) This amount will 
include the unpaid interest and any principal that would be credited to 
the account as if the installment were paid on the due date taking into 
consideration any payments applied to principal and interest since the 
due date. Recoverable cost items may not be set aside and the account 
must be serviced in accordance with Sec. 1951.907(d).

[68 FR 55303, Sept. 25, 2003; 68 FR 69955, Dec. 16, 2003]



Sec. Sec. 1951.955-1951.956  [Reserved]



Sec. 1951.957  Eligibility determination and processing.

    (a) Eligibility determination. (1) Within 30 days of a complete DSA 
application, the Agency official will determine if the borrower meets 
the requirements set forth in Sec. 1951.954. Approval shall be 
contingent upon the borrower's continuing eligibility through the 
signing of Exhibit A of Agency Instruction 1951-T (available in any FSA 
office).
    (2) The borrower has 45 days to sign Exhibit A of Agency Instruction 
1951-T (available in any FSA office) for each loan installment set-aside 
approved. Subject to Sec. 1951.954(a)(6), the Agency may provide for a 
longer period of time under extenuating circumstances, such as where the 
Agency's approval is contingent upon the borrower paying a

[[Page 142]]

portion of the FLP payments from proceeds that may not be immediately 
available.
    (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) If the borrower is not current on all FLP loans when Exhibit A 
of Agency Instruction 1951-T (available in any FSA office) is executed, 
the borrower, and all obligors in the case of an entity, must execute 
and provide to the Agency a best lien obtainable on all of their assets 
except:
    (i) When taking a lien on such property will prevent the borrower 
from obtaining credit from other sources;
    (ii) When the property could have significant environmental problems 
or costs;
    (iii) When the Agency cannot obtain a valid lien;
    (iv) When the property is the borrower's personal residence and 
appurtenances; provided:
    (A) They are located on a separate parcel; and
    (B) The real estate that serves as collateral for the Agency loan 
plus crops and chattels are valued at greater than or equal to 150 
percent of the unpaid balance due on the loan.; or
    (v) When the property is subsistence livestock, cash, special 
collateral accounts the borrower uses for the farming operation or for 
necessary living expenses, retirement accounts, personal vehicles 
necessary for family living or farm operating purposes, household goods 
and small tools and small equipment such as hand tools and lawn mowers, 
and other similar items.
    (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; 68 FR 55303, Sept. 25, 2003]



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 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

[[Page 143]]

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. 1951.960-1951.1000  [Reserved]



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]

                    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).
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 [Note]
Exhibit B to Subpart B--Notification of Tribe of Availablity of Farm 
          Property for Purchase
Exhibit C to Subpart B--Cooperative Agreement (Example) [Note]
Exhibit D to Subpart B--Fact Sheet--The Federal Interagency Task Force 
          on Food and Shelter for the Homeless [Note]

                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]

[[Page 144]]

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.

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



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. This subpart 
does not apply to the Rural Rental Housing, Rural Cooperative Housing, 
or Farm Labor Housing programs of RHS.

[61 FR 59778, Nov. 22, 1996, as amended at 69 FR 69105, Nov. 26, 2004]



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

[[Page 145]]

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.
    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.

[[Page 146]]

    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.
    (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]

[[Page 147]]



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 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,

[[Page 148]]

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 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

[[Page 149]]

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 be 
considered 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 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

[[Page 150]]

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 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

[[Page 151]]

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 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 Payments (HAP) 
Contracts will be obtained. Rental Assistance will be retained until the 
State Director is advised by OGC that the Agency has title to the 
property. After a voluntary conveyance, the Agency may transfer Rental 
Assistance in accordance with 7 CFR part 3560, subpart F.
    (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

[[Page 152]]

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 7 CFR part 3550,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:
    (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

[[Page 153]]

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. If the Agency indebtedness plus any prior liens exceeds the 
market value of the property, the indebtedness cannot be satisfied but a 
credit can be given equal to the market value less prior liens. Debt 
settlement will be considered in accordance with subpart B of part 1956 
of this chapter.
    (i) Crediting accounts. The Agency will credit an account by an 
amount equal to the market value less prior liens, unless the borrower 
is Native American. Native American borrower-owners will be credited 
with the fair market value or the Agency debt against the property, 
whichever is greater, provided:
    (A) The borrower-owner is a member of a tribe or the tribe, and
    (B) The property is located within the confines of a federally 
recognized Indian reservation.
    (ii) Agency approval. The same procedure outlined in paragraphs 
(f)(1)(i) through (f)(1)(iii) of this section will be followed for 
approving the voluntary conveyance. The conveyance will be accepted in 
full satisfaction of the indebtedness unless the market value of the 
property to be conveyed is less than the total of Government 
indebtedness and prior liens, and the borrower has agreed to accept a 
credit in the amount of the market value of the security property less 
prior liens, if any.
    (3) Loans to organizations. When an offer of voluntary conveyance is 
received from an organization borrower, and the market value of the 
property being conveyed (less prior liens, if any) is less than the 
Government debt, full consideration must be given to the borrower's 
present situation and future prospects for paying all or a part of the 
debt.
    (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 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

[[Page 154]]

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. If the 
project is to be removed from the Rural Development 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.
    (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; 69 
FR 69105, Nov. 26, 2004]



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

[[Page 155]]

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 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

[[Page 156]]

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.
    (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

[[Page 157]]

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 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 7 CFR part 3550 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 7

[[Page 158]]

CFR part 3550. 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 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 7 CFR part 3550, 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 7 CFR part 3550, 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 7 CFR part 3550. 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 7 CFR part 
3560, subpart N. 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. 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.
    (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

[[Page 159]]

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.
    (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:

[[Page 160]]

    (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 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.

[[Page 161]]

    (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 
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,

[[Page 162]]

whichever is less. For real property located within the confines of a 
federally recognized Indian reservation and which is owned by an FmHA or 
its successor agency under Public Law 103-354 borrower who is a member 
of the tribe with jurisdiction over the reservation, the Government's 
bid will be the greater of the fair market value or the FmHA or its 
successor agency under Public Law 103-354 debt against the property, 
unless FmHA or its successor agency under Public Law 103-354 determines 
that, because of the presence of hazardous substances on the property, 
it is not in the best interest of the Government to bid such amount, in 
which case there may be a deduction from the bid for the costs for 
hazardous material assessment and/or mitigation. For FP loans, except as 
modified by paragraph (f)(7)(ii) of this section, the Government's bid 
will be the amount of FmHA or its successor agency under Public Law 103-
354's gross investment or the amount determined by use of exhibit G-1 of 
this subpart, whichever is less. When the foreclosure sale is imminent, 
the State Director must request the servicing official to submit a 
current 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]

    Editorial Note: For Federal Register citations affecting Sec. 
1955.15, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



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 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

[[Page 163]]

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) [Reserved]

[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 of Chattel Security,'' the power of sale in 
security agreements or crop and chattel mortgage, or similar instrument, 
if authorized by State Supplement.

[[Page 164]]

    (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 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.

[[Page 165]]

    (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 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

[[Page 166]]

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]



                    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 does not apply to the Rural Rental Housing, Rural Cooperative 
Housing, or Farm Labor Housing programs of RHS. 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, as amended at 69 FR 69106, Nov. 26, 2004]



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.

[[Page 167]]

    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 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 
requirements for existing housing as described in 7 CFR part 3550. 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.

[[Page 168]]

    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 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; 67 FR 78329, Dec. 24, 2002]



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. (Multi-family housing type loans 
will be handled in accordance with 7 CFR part 3560, subpart J.) 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

[[Page 169]]

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 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 7 CFR 
part 3560.
    (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,

[[Page 170]]

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 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 
applied to the borrower's account as an extra payment. Expenditures will 
be charged to the borrower's account as a recoverable cost.
    (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.

[[Page 171]]

    (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 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; 68 FR 61331, Oct. 28, 2003; 69 FR 69106, 
Nov. 26, 2004]



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.

[[Page 172]]



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 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.

[[Page 173]]



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 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 7 CFR part 3560, 
subpart D 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, as amended at 69 FR 69106, Nov. 26, 2004]



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

[[Page 174]]

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 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 the agency 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 lienholders 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 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.

[53 FR 35765, Sept. 14, 1988, as amended at 68 FR 61332, Oct. 28, 2003]



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. The Agency will classify property that secured 
loans or was acquired under the CONACT as ``suitable property'' or 
``surplus property'' in accordance with the definitions found in Sec. 
1955.53.
    (b) Grouping and subdividing farm properties. To the maximum extent 
practicable, the Agency will maximize the opportunity for beginning 
farmers and ranchers to purchase inventory properties. Farm properties 
may be subdivided or grouped according to Sec. 1955.140, as feasible, 
to carry out the objectives of the applicable loan program. 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. The environmental effects of such 
actions will be considered pursuant to subpart G of part 1940 of this 
chapter.
    (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

[[Page 175]]

the program, items such as size, design, possible health and/or safety 
hazards and obsolescence due to functional, economic, or locational 
conditions must carefully be considered. Generally, program property 
will meet, or can be realistically repaired to meet, the standards for 
existing housing outlined in Subpart A of Part 1944 of this chapter 
provided the property is typical of modest homes in the area. The cost 
of repairs will generally not be considered in determining suitability. 
Since houses, sites and locations vary widely throughout the country, 
discretion and sound judgment must be used in determining suitability. 
The majority of houses RHS acquires will be suited for retention and 
classified as program property. In some instances, property will not be 
suited for retention in the program and will be classified as 
``nonprogram (NP)'' property. Situations of this type include, but are 
not limited to:
    (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; 68 FR 7700, Feb. 18, 2003]



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

[[Page 176]]

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 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 
projects, tenant occupancy and selection will be in accordance with the 
occupancy standards set forth in 7 CFR part 3560, subpart D. 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

[[Page 177]]

FmHA or its successor agency under Public Law 103-354 office).
    (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 or his/
her associates from doing the repair work.
    (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; 
69 FR 69106, Nov. 26, 2004; 70 FR 20704, Apr. 21, 2005]



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 servicing official and the State Historic 
Preservation Officer determine that the lease will adequately ensure

[[Page 178]]

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 
7 CFR part 3560. 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 the 
potential as a program applicant for purchase of the property (if 
property is suited for program purposes)

[[Page 179]]

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 monthly payment if a 
loan were made (reflecting payment assistance, if any) calculated on the 
basis of the price of

[[Page 180]]

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 applied as follows:
    (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 181]]

    (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; 
68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov. 26, 2004]



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 182]]

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

    Editorial Note: Exhibit A is not published in the Code of Federal 
Regulations. It is available in any FmHA or its successor agency under 
Public Law 103-354 County Office.

     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 of Part 1955--Cooperative Agreement (Example)

    Editorial Note: Exhibit C is not published in the Code of Federal 
Regulations. It is available in any FmHA or its successor agency under 
Public Law 103-354 County Office.

Exhibit D to Subpart B of Part 1955--Fact Sheet--The Federal Interagency 
             Task Force on Food and Shelter for the Homeless

    Editorial Note: Exhibit D is not published in the Code of Federal 
Regulations. It is available in any FmHA or its successor agency under 
Public Law 103-354 County Office.



                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 
or to the

[[Page 183]]

Rural Rental Housing, Rural Cooperative Housing, and Farm Labor Housing 
programs.

[50 FR 23904, June 7, 1985, as amended at 58 FR 52652, Oct. 12, 1993; 61 
FR 59778, Nov. 22, 1996; 69 FR 69106, Nov. 26, 2004]



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 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 30 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

[[Page 184]]

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.
    (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

[[Page 185]]

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 
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

[[Page 186]]

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 
103-354 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 (SDA). An applicant who is a member 
of a socially disadvantaged group whose members have been subjected to 
racial, ethnic, or gender prejudice because of their identity as a 
member of a group, without regard to their individual qualities. For 
entity SDA applicants, the majority interest in the entity must be held 
by socially disadvantaged individuals. The Agency has identified 
socially disadvantaged groups as Women, Blacks, American Indians, 
Alaskan Natives, Hispanics, 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]

    Editorial Note: For Federal Register citations affecting Sec. 
1955.103, see the List of CFR Sections Affected, which appears in the 
Finding Aids section of the printed volume and on GPO Access.



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 187]]

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 188]]

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 189]]

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 135 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, 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.
    (iv) Property sold on credit sale may not be used for any purpose 
that will

[[Page 190]]

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. Suitable farm property 
which has been advertised for sale to a beginning farmer or rancher in 
accordance with paragraph (a) of this section, but has not sold within 
135 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 part of the property advertisement of the presence of any 
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 this section, within 135 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 165 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 191]]

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; 
68 FR 7700, Feb. 18, 2003]



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.
    (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; 68 FR 61332, Oct. 28, 2003]

                    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]



Sec. 1955.112  Method of sale (housing).

    (a) Sales by FmHA or its successor agency under Public Law 103-354. 
Sales

[[Page 192]]

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 estate brokers 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 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

[[Page 193]]

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 
under Public Law 103-354 office) which outlines chronologically the 
sales steps for program property.

[[Page 194]]

    (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 FmHA or 
its successor agency under Public Law 103-354 Instruction 440.1

[[Page 195]]

(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 7 CFR part 3550. 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 the approval 
official, return receipt requested, that the successful offeror's offer 
has been accepted even if the successful offeror was present at the 
sale. 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

[[Page 196]]

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 7 CFR part 3560, subpart N.
    (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 documentation as required by the Agency, 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 7 CFR part 3560, 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 requirements 
of 7 CFR part 3560, subpart K.
    (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; 67 FR 78329, Dec. 24, 2002; 69 FR 
69106, Nov. 26, 2004]



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, 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.

[[Page 197]]

    (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. 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 7 CFR part 3550, 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 7 CFR part 3560, subpart N.

[53 FR 27833, July 25, 1988, as amended at 58 FR 38928, July 21, 1993; 
58 FR 52652, Oct. 12, 1993; 67 FR 78329, Dec. 24, 2002; 69 FR 69106, 
Nov. 26, 2004]



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

[[Page 198]]

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 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

[[Page 199]]

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 RD 3560-51, 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.
    (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 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; 68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov. 
26, 2004]

[[Page 200]]



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.
    (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 RD 3560-51 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.
    (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 
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

[[Page 201]]

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; 68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov. 26, 2004]



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 103-354'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

[[Page 202]]

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.

[53 FR 27836, July 25, 1988. Redesignated at 55 FR 3942, Feb. 6, 1990, 
as amended at 58 FR 52653, Oct. 12, 1993; 68 FR 61332, Oct. 28, 2003]

                            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. 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

[[Page 203]]

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. 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.
    (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 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; 68 FR 61332, Oct. 28, 2003]



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

[[Page 204]]

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 the agency. 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. If full payment is not received at the 
time of sale, the offer will be documented by Form RD 1955-45 or Form RD 
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; 68 FR 61332, Oct. 28, 2003]



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 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

[[Page 205]]

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 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.

[[Page 206]]

    (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.
    (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 the 
agency as full liquidated damages.
    (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

[[Page 207]]

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; 68 FR 61332, Oct. 28, 2003]



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

[[Page 208]]

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) 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

[[Page 209]]

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]



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

[[Page 210]]

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.
    (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, FSA will 
review

[[Page 211]]

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 FSA has completed the 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 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

[[Page 212]]

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 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, as amended at 68 FR 7700, Feb. 18, 2003]



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.

[[Page 213]]

    (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 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.
    (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

[[Page 214]]

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. 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 
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.

[[Page 215]]

    (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.
    (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

[[Page 216]]

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 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; 68 FR 61332, Oct. 28, 2003]



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, if applicable) to determine if a rent increase may be needed 
to continue or place project operations on a sound basis. 7 CFR part 
3560, subpart E will be followed in processing the request for a rent 
increase. In processing the rent increase, the purchaser will have the 
same status as a borrower. An approved rent increase will be effective 
on or after the date of closing.
    (e) Interest credit and rental assistance for MFH property. Interest 
credit and rental assistance may be granted to program applicants 
purchasing MFH

[[Page 217]]

properties in accordance with the provisions of 7 CFR part 3560, subpart 
F.

[53 FR 27838, July 25, 1988, as amended at 56 FR 2257, Jan. 22, 1991; 57 
FR 36592, Aug. 14, 1992; 60 FR 34455, July 3, 1995; 69 FR 69106, Nov. 
26, 2004]



Sec. Sec. 1955.142-1955.143  [Reserved]



Sec. 1955.144  Disposal of NP or surplus property to, through, or acquisition 

from other agencies.

    (a) Property which cannot be sold. If NP or surplus real or chattel 
property cannot be sold (or only token offers are received for it), the 
appropriate Assistant Administrator shall give consideration to 
disposing of the property to other Federal Agencies or State or local 
governmental entities through the General Services Administration (GSA). 
Chattel property will be reported to GSA using Standard Form 120, 
``Report of Excess Personal Property,'' with transfer documented by 
Standard Form 122, ``Transfer Order Excess Personal Property.'' Real 
property will be reported to GSA using Standard Form 118, ``Report of 
Excess Real Property,'' Standard Form 118A, ``Buildings, Structures, 
Utilities and Miscellaneous Facilities (Schedule A),'' Standard Form 
118B, ``Land (Schedule B)'' and Standard Form 118C, ``Related Personal 
Property (Schedule B), '' with final disposition documented by a 
``Receiving Report,'' executed by the recipient with original forwarded 
to the Finance Office and a copy retained in the inventory file. Forms 
and preparation instructions will be obtained from the appropriate GSA 
Regional Office by the State Office.
    (b) Urban Homesteading Program (UH). Section 810 of the Housing and 
Community Development Act of 1979, as amended, authorizes the Secretary 
of Housing and Urban Development (HUD) to pay for acquired FmHA or its 
successor agency under Public Law 103-354 single family residential 
properties sold through the HUD-UH Program. Local governmental units may 
make application through HUD to participate in the UH Program. State 
Directors will be notified by the Assistant Administrator for Housing, 
when local governmental units in their States have obtained funding for 
the UH Program. The notification will provide specific guidance in 
accordance with the ``Memorandum of Agreement between the Farmers Home 
Administration or its successor agency under Public Law 103-354 and the 
Secretary of Housing and Urban Development'' dated October 2, 1981. (See 
Exhibit C of this subpart.) A Local Urban Homesteading Agency (LUHA) is 
authorized a 10 percent discount of the listed price on any SFH 
nonprogram property for the UH Program. No discount is authorized on 
program property.

[50 FR 23904, June 7, 1985, as amended at 53 FR 27839, July 25, 1988; 55 
FR 3943, Feb. 6, 1990]

    Editorial Note: At 60 FR 34455, July 3, 1995, Sec. 1955.144 was 
amended by removing the second through the fourth sentences. However, 
there are no undesignated paragraphs in the 1995 edition of this volume.



Sec. 1955.145  Land acquisition to effect sale.

    The State Director is authorized to acquire land which is necessary 
to effect sale of inventory real property. This action must be 
considered only on a case-by-case basis and may not be undertaken 
primarily to increase the financial return to the Government through 
speculation. The State Director's authority under this section may not 
be redelegated. For MFH and other organization-type loans, prior 
approval must be obtained from the appropriate Assistant Administrator 
prior to land acquisition.
    (a) Alternate site. Where real property has been determined to be NP 
due to location and where it is economically feasible to relocate the 
structure thereby making it a program property, the State Director may 
authorize the acquisition of a suitable parcel of land to relocate the 
structure if economically feasible. The remaining NP parcel of land will 
be sold for its market value.
    (b) Additional land. Where real property has been determined NP for 
reasons that may be cured by the acquisition of adjacent land or an 
alternate site, in order to cure title defects or encroachments or where 
structures have been built on the wrong land and where it is 
economically feasible, the State Director may authorize the acquisition

[[Page 218]]

of additional land at a price not in excess of its market value.
    (c) Easements or rights-of-way. The State Director may authorize the 
acquisition of easements, rights-of-way or other interests in land to 
cure title defects, encroachments or in order to make NP property a 
program property, if economically feasible.

[53 FR 27839, July 25, 1988]



Sec. 1955.146  Advertising.

    (a) General. When property is being sold by FmHA or its successor 
agency under Public Law 103-354 or through real estate brokers, it is 
the servicing official's responsibility to ensure adequate advertising 
of property to achieve a timely sale. The primary means of 
advertisements are newspaper advertisements in accordance with FmHA or 
its successor agency under Public Law 103-354 Instruction 2024-F 
(available in any FmHA or its successor agency under Public Law 103-354 
office), public notice using Form FmHA or its successor agency under 
Public Law 103-354 1955-41, ``Notice of Sale,'' and notification of 
known interested parties. Other innovative means are encouraged, such as 
the use of a bulletin board to display photographs of inventory 
properties for sale with a brief synopsis of the property attached; 
posting 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, in the reception area to attract applicant and 
broker interest; posting notices of sale at employment centers; door-to-
door distribution of sales notices at apartment complexes; radio and/or 
television spots; group meetings with potential applicants/investors/
real estate brokers; and advertisements in magazines and other 
periodicals. If FmHA or its successor agency under Public Law 103-354 
personnel are not available to perform these services, FmHA or its 
successor agency under Public Law 103-354 may contract for such services 
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).
    (b) Large-value and complex properties. Advertising for MFH, B&I and 
other large-value or complex properties should also be placed in 
appropriate newspapers and publications designed to reach the type of 
particular purchasers most likely to be interested in the inventory 
property. The State Director will assist the District Director in 
determining the scope of advertising necessary to adequately market 
these properties. Advertising for MFH and other complex properties must 
also include appropriate language stressing the need to obtain and 
submit complete application materials for the type program involved.
    (c) MFH restrictive-use provisions. Advertisements for multi-family 
housing projects will advise prospective purchasers of any restrictive-
use requirements that will be attached to the project and added to the 
title of the property.
    (d) Racial and socio-economic considerations. In accordance with the 
policies set forth in Sec. 1901.203(c) of subpart E of part 1901 of 
this chapter, the approval official will make a special effort to insure 
that those prospective purchasers in the marketing area who 
traditionally would not be expected to apply for housing assistance 
because of existing racial or socio-economic patterns are reached.
    (e) Rejected application for SFH loan. If an application for a SFH 
loan is being rejected because income is too high, a statement should be 
included in the rejection letter that inventory properties may be 
available for which they may apply.

[50 FR 23904, June 7, 1985, as amended at 53 FR 27839, July 25, 1988; 58 
FR 38928, July 21, 1993]



Sec. 1955.147  Sealed bid sales.

    This section provides guidance on the sale of all FmHA or its 
successor agency under Public Law 103-354 inventory property, except 
suitable FP real property which will not be sold by sealed bid. Before a 
sealed bid sale, the State Director will determine and document the 
minimum sale price acceptable. In determining a minimum sale price, the 
State Director will consider the length of time the property has been in 
inventory, previous marketing efforts, the

[[Page 219]]

type property involved, and potential purchasers. Program financing will 
be offered on sales of program and suitable property. For NP or surplus 
property, credit may be extended to facilitate the sale. When a group of 
properties is to be sold at one time, advertising may indicate that FmHA 
or its successor agency under Public Law 103-354 will consider bids on 
an individual property or a group of properties and FmHA or its 
successor agency under Public Law 103-354 will accept the bid or bids 
which are in the best financial interest of the Government. Credit, 
however, may not exceed the market value of the property nor may the 
term exceed the period for which the property will serve as adequate 
security. Sealed bids will be made on Form FmHA or its successor agency 
under Public Law 103-354 1955-46 with any accompanying deposit in the 
form of cashier's check, certified check, postal or bank money order or 
bank draft payable to FmHA or its successor agency under Public Law 103-
354. For program and suitable property, the minimum deposit will be the 
same as outlined in Sec. 1955.130(e)(1) of this subpart. For NP or 
surplus property, the minimum deposit will be ten percent (10%). The bid 
will be considered delivered when actually received at the FmHA or its 
successor agency under Public Law 103-354 office. All bids will be date 
and time stamped. Advertisements and notices will request bidders to 
submit their bid in a sealed envelope marked as follows:

SEALED BID OFFER ----------*----------.'' (*Insert ``PROPERTY 
IDENTIFICATION NUMBER ----------).

    (a) Opening bids. Sealed bids will be held in a secured file before 
bid opening which will be at the place and time specified in the notice. 
The bid opening will be public and usually held at the FmHA or its 
successor agency under Public Law 103-354 office. The County Supervisor, 
District Director, or State Director or his/her designee will open the 
bids with at least one other FmHA or its successor agency under Public 
Law 103-354 employee present. Each bid received will be tabulated 
showing the name and address of the bidder, the amount of the bid, the 
amount and form of the deposit, and any conditions of the bid. The 
tabulation will be signed by the County Supervisor, District Director or 
State Director or his/her designee and retained in the inventory file.
    (b) Successful bids. The highest complying bid meeting the minimum 
established price will be accepted by the approval official; however, it 
will be subject to loan approval by the appropriate official when a 
credit sale is involved. For SFH and FP (surplus property) sales, 
preference will be given to a cash offer on NP or surplus property sales 
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.] 
Otherwise, equal bids will be accepted by public lot drawing. For 
program or suitable property sales, no preference will be given to 
program purchasers unless two identical high bids are received, in which 
case the bid from the program purchaser will receive preference. If a 
bid is received from any purchaser with a request for credit that 
(considering any deposit) exceeds the market value of the property or 
requests a term which exceeds the period for which the property will 
serve as adequate security, the bidder will be given the opportunity to 
reduce the credit request and/or term with no accompanying change in the 
offered price.
    (c) Unsuccessful bids. Deposits of unsuccessful bidders will be 
returned by certified mail with letter of explanation, return receipt 
requested. If there were no acceptable bids, the letter will advise each 
bidder of any anticipated negotiations for the sale of the property and 
deposits will be returned.
    (d) Disqualified bids. Any bid that does not comply with the terms 
of the offer will be disqualified. Minor deviations and defects in bid 
submission may be waived by the FmHA or its successor agency under 
Public Law 103-354 official approving the sale.
    (e) Failure to close. If a successful bidder fails to perform under 
the terms of

[[Page 220]]

the offer, the bid deposit will be retained as full liquidated damages. 
However, if a credit sale complying with the FmHA or its successor 
agency under Public Law 103-354 notice is an element of the offer and 
FmHA or its successor agency under Public Law 103-354 disapproves the 
credit application, then the bid deposit will be returned to the 
otherwise successful bidder. Upon determination that the successful 
bidder will not close, the State Director may authorize either another 
sealed bid or auction sale of direct negotiations with the next highest 
bidder, all available unsuccessful bidders, or other interested parties.
    (f) No acceptable bid. Where no acceptable bid is received although 
adequate competition is evident, the State Director may authorize a 
negotiated sale in accordance with Sec. 1955.108(d) of this subpart.

[50 FR 23904, June 7, 1985, as amended at 53 FR 27839, July 25, 1988; 54 
FR 6875, Feb. 15, 1989; 55 FR 3943, Feb. 6, 1990; 68 FR 61332, Oct. 28, 
2003]



Sec. 1955.148  Auction sales.

    This section provides guidance on the sale of all inventory property 
by auction, except FSA real property. Before an auction, the State 
Director, with the advice of the National Office for organizational 
property, will determine and document the minimum sale price acceptable. 
In determining a minimum sale price, the State Director will consider 
the length of time the property has been in inventory, previous 
marketing efforts, the type property involved, and potential purchasers. 
Program financing will be offered on sales of program and property. For 
NP property, credit may be offered to facilitate the sale. Credit, 
however, may not exceed the market value of the property nor may the 
term exceed the period for which the property will serve as adequate 
security. For program property sales, no preference will be given to 
program purchasers. The State Director will also consider whether an 
Agency employee will conduct an auction or whether the services of a 
professional auctioneer are necessary due to the complexity of the sale. 
When the services of a professional auctioneer are advisable, the 
services will be procured by contract in accordance with RD Instruction 
2024-A (available in any Agency Office). Chattel property may be sold at 
public auction that is widely advertised and held on a regularly 
scheduled basis without solicitation. Form RD 1955-46 will be used for 
auction sales. At the auction, successful bidders will be required to 
make a bid deposit. For program and suitable property, the bid deposit 
will be the same as outlined in Sec. 1955.130(e)(1) of this subpart. 
For NP property sales, a bid deposit of 10 percent is required. Deposits 
will be in the form of cashier's check, certified check, postal or bank 
money order or bank draft payable to the Agency, cash or personal checks 
may be accepted when deemed necessary for a successful auction by the 
person conducting the auction. Where credit sales are authorized, all 
notices and publicity should provide for a method of prior approval of 
credit and the credit limit for potential purchasers. This may include 
submission of letters of credit or financial statements prior to the 
auction. The auctioneer should not accept a bid which requests credit in 
excess of the market value. When the highest bid is lower than the 
minimum amount acceptable to the Agency, negotiations should be 
conducted with the highest bidder or in turn, the next highest bidder or 
other persons to obtain an executed bid at the predetermined minimum.

[62 FR 44404, Aug. 21, 1997, as amended at 68 FR 61332, Oct. 28, 2003]



Sec. 1955.149  Exception authority.

    (a) 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 
recommendation of the appropriate program Assistant Administrator or 
upon request initiated by the appropriate

[[Page 221]]

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) The Administrator may authorize withholding sale of surplus farm 
inventory property temporarily upon making a determination that sales 
would likely depress real estate market and preclude obtaining at that 
time the best price for such land.



Sec. 1955.150  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 Instruction to provide guidance to FmHA or its successor agency 
under Public Law 103-354 officials. State Supplements applicable to MFH, 
B&I, and CP must have prior approval of the National Office. Request for 
approval for those affecting MFH must include complete justification, 
citations of State law, and an opinion from OGC.

Exhibit A to Subpart C of Part 1955--Notice of Flood, Mudslide Hazard or 
                              Wetland Area

TO:--------
DATE:--------
    This is to notify you that the real property located at ------------ 
is in a floodplain, wetland or area identified by the Federal Insurance 
Administration of the Federal Emergency Management Agency as having 
special flood or mudslide hazards. This identification means that the 
area has at least one percent chance of being flooded or affected by 
mudslide in any given year. For floodplains and wetlands on the 
property, restrictions are being imposed. Specific designation(s) of 
this property is(are) (special flood) (mudslide hazard) (wetland)*. The 
following restriction(s) on the use of the property will be included in 
the conveyance and shall apply to the purchasers, purchaser's heirs, 
assigns and successors and shall be construed as both a covenant running 
with the property and as equitable servitude subject to release by the 
Farmers Home Administration or its successor agency under Public Law 
103-354 (FmHA or its successor agency under Public Law 103-354) when/if 
no longer applicable:

(INSERT RESTRICTIONS)

    The FmHA or its successor agency under Public Law 103-354 will 
increase the number of acres placed under easement, if requested in 
writing, provided that the request is supported by a technical 
recommendation of the U.S. Fish and Wildlife Service. Where additional 
acreage is accepted by FmHA or its successor agency under Public Law 
103-354 for conservation easement, the purchase price of the inventory 
farm will be adjusted accordingly.
[fxsp0]_________________________________________________________________
(County Supervisor, District Director or Real Estate Broker)
ACKNOWLEDGEMENT--------
DATE:--------
    I hereby acknowledge receipt of the notice that the above stated 
real property is in a (special flood) (mudslide hazard) (wetland) * area 
and is subject to use restrictions as above cited. [Also, if I purchase 
the property through a credit sale, I agree to insure the property 
against loss from (floods) (mudslide) * in accordance with requirements 
of the FmHA or its successor agency under Public Law 103-354.]
[fxsp0]_________________________________________________________________
(Prospective Purchaser)

* Delete the hazard that does not apply.

[57 FR 31644, July 17, 1992]



PART 1956_DEBT SETTLEMENT--Table of Contents




Subpart A [Reserved]

  Subpart B_Debt Settlement_Farm Loan Programs and Multi-Family Housing

Sec.
1956.51 Purpose.
1956.52-1956.53 [Reserved]
1956.54 Definitions.
1956.55-1956.56 [Reserved]
1956.57 General provisions.
1956.58-1956.65 [Reserved]
1956.66 Compromise and adjustment of nonjudgment debts.
1956.67 Debts which the debtor is able to pay in full but refuses to do 
          so.
1956.68 Compromise or adjustment without debtor's signature.
1956.69 [Reserved]
1956.70 Cancellation.
1956.71 Settling uncollectible recapture receivables.
1956.72-1956.74 [Reserved]
1956.75 Chargeoff.
1956.76-1956.83 [Reserved]
1956.84 Approval or rejection.
1956.85 Payments and receipts.
1956.86-1956.95 [Reserved]
1956.96 Delinquent adjustment agreements.
1956.97 Disposition of promissory notes.
1956.98 [Reserved]
1956.99 Exception authority.

[[Page 222]]

1956.100 OMB control number.

        Subpart C_Debt Settlement_Community and Business Programs

1956.101 Purposes.
1956.102 Application of policies.
1956.103-1956.104 [Reserved]
1956.105 Definitions.
1956.106-1956.108 [Reserved]
1956.109 General requirements for debt settlement.
1956.110 Joint debtors.
1956.111 Debtors in bankruptcy.
1956.112 Debts ineligible for settlement.
1956.113-1956.117 [Reserved]
1956.118 Approval authority.
1956.119-1956.123 [Reserved]
1956.124 Compromise and adjustment.
1956.125-1956.129 [Reserved]
1956.130 Cancellation.
1956.131-1956.135 [Reserved]
1956.136 Chargeoff.
1956.137 [Reserved]
1956.138 Processing.
1956.139 Collections.
1956.140-1956.141 [Reserved]
1956.142 Delinquent adjustment agreements.
1956.143 Debt restructuring--hospitals and health care facilities.
1956.144 [Reserved]
1956.145 Disposition of essential FmHA or its successor agency under 
          Public Law 103-354 records.
1956.146 [Reserved]
1956.147 Debt settlement under the Federal Claims Collection Act.
1956.148 Exception authority.
1956.149 [Reserved]
1956.150 OMB control number.

    Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3711; 42 U.S.C. 
1480.

    Source: 51 FR 45434, Dec. 18, 1986, unless otherwise noted.

Subpart A [Reserved]



  Subpart B_Debt Settlement_Farm Loan Programs and Multi-Family Housing

    Source: 56 FR 10147, Mar. 11, 1991, unless otherwise noted.



Sec. 1956.51  Purpose.

    This subpart delegates authority and prescribes policy and 
procedures for settlement of debts owed to the United States under the 
Farm Credit loan programs of the Farm Service Agency (FSA) and the 
Multi-Family Housing (MFH) program of the Rural Housing Service (RHS). 
It also applies to Nonprogram (NP) loans secured by MFH property of the 
RHS. Settlement of claims against recipients of grant funds for reasons 
such as the use of funds for improper purposes is also covered by this 
subpart. Settlement of claims against third party converters, and 
Economic Opportunity (EO) loans is authorized under the Federal Claims 
Collection Standards, 4 CFR parts 101-105. This subpart does not apply 
to RHS direct Single Family Housing (SFH) loans, RHS NP loans secured by 
SFH property, or to the Rural Rental Housing, Rural Cooperative Housing, 
and Farm Labor Housing programs.

[61 FR 59779, Nov. 22, 1996, as amended at 69 FR 69106, Nov. 26, 2004]



Sec. Sec. 1956.52-1956.53  [Reserved]



Sec. 1956.54  Definitions.

    Adjustment. The reduction of a debt or claim conditioned upon 
completion of payment of the adjusted amount at a specific future time 
or times, with or without the payment of any consideration when the 
adjustment offer is approved. An adjustment is not a final settlement 
until all payments under the adjustment agreement(s) have been made.
    Amount of debt. The outstanding balance of the amount loaned 
including principal and interest plus any outstanding advances, 
including interest, and subsidy to be recaptured made by the Government 
on behalf of the borrower.
    Cancellation. The final discharge of a debt without any payment on 
it.
    Chargeoff. The writing off of a debt and termination of collection 
activity without release of personal liability.
    Compromise. The satisfaction of a debt or claim by the acceptance of 
a lump-sum payment of less than the total amount owed on the debt or 
claim.
    Debt forgiveness. For the purposes of servicing Farm Loan Programs 
loans, debt forgiveness is defined as a reduction or termination of a 
direct FLP loan in a manner that results in a loss to the Government. 
Included, but not limited to, are losses from a writedown or writeoff 
under subpart S of part 1951 of this chapter, debt settlement, after 
discharge under the provisions of the

[[Page 223]]

bankruptcy code, and associated with release of liability. Debt 
cancellation through conservation easements or contracts is not 
considered debt forgiveness for loan servicing purposes.
    Debtor. The borrower of funds under any of the FmHA or its successor 
agency under Public Law 103-354 programs. This includes co-signors, 
guarantors and persons or entities that initially obtained or assumed a 
loan. Debtor also includes grant recipients.
    Farm Loan Programs (FLP) loans. Farm Ownership (FO), Operating (OL), 
Soil and Water (SW), Economic Emergency (EE), Emergency (EM), Recreation 
(RL), Special Livestock (SL), Softwood Timber (ST) loans, and/or Rural 
Housing Loans for farm services buildings (RHF).
    Housing programs. All programs and claims arising under programs 
administered by FmHA or its successor agency under Public Law 103-354 
under title V of the Housing Act of 1949.
    Servicing office. The FmHA or its successor agency under Public Law 
103-354 office that is responsible for the account.
    Settlement. The compromise, adjustment, cancellation, or chargeoff 
of a debt owed to FmHA or its successor agency under Public Law 103-354. 
The term ``Settlement'' is used for convenience in referring to 
compromise, adjustment, cancellation, or chargeoff actions, individually 
or collectively.
    United States Attorney. An attorney for the United States Department 
of Justice.

[56 FR 10147, Mar. 11, 1991, as amended at 58 FR 21344, Apr. 21, 1993; 
62 FR 10157, Mar. 5, 1997]



Sec. Sec. 1956.55-1956.56  [Reserved]



Sec. 1956.57  General provisions.

    (a) Application of policies. All debtors are entitled to impartial 
treatment and uniform consideration under this subpart. Accordingly. 
FmHA or its successor agency under Public Law 103-354 personnel charged 
with any responsibility in connection with debt settlement will adhere 
strictly to the authorizations, requirements, and limitations in this 
subpart, and will not substitute individual feelings or sympathies in 
connection with any settlement.
    (b) Information needed for debt settlement. A debtor requesting debt 
settlement must submit complete and accurate information from which a 
full determination of his/her financial condition can be made. This 
should include, where applicable, but is not limited to, obtaining 
verification of employment, providing expense verification, verifying 
farm program benefits (e.g., Farm Service Agency/Commodity Credit 
Corporation payments), and examining county records to determine what 
other assets the debtor has or recently disposed of. When a FLP debtor 
is continuing to farm, a farm operating plan must be obtained. Also, 
where a spouse is not a co-debtor the spouse's income will be considered 
in meeting family living expenses. If it appears that a debtor will not 
be able to pay in full and the indebtedness is eligible for settlement 
under this subpart, action should be taken, if possible, to avoid 
unnecessary litigation to enforce collection. If the debt is eligible 
for settlement, the debt settlement authorities of FmHA or its successor 
agency under Public Law 103-354 should be explained and the privileges 
thereof extended to the debtor. The information obtained from the debtor 
should be documented on a debt settlement form.
    (c) Negotiating a settlement. County Supervisors may approve or 
reject compromises, adjustments, cancellations, or chargeoffs of SFH 
debts (to include recapture receivables), regardless of the amount. 
District Directors and County Supervisors cannot approve other debt 
settlement actions; therefore, other than SFH debt settlements, they 
will make no statements to a debtor concerning the action that may be 
taken upon a debtor's application. In negotiating a settlement, all of 
the factors which are pertinent to determining ability to pay will be 
discussed to assist the debtor in arriving at the proper type and terms 
of a settlement. The present and future repayment ability of a debtor, 
the factors mentioned in this subpart, and any other pertinent 
information will be the basis of determining whether the debt should be 
collected in full, compromised, adjusted, canceled, or charged off. It 
is

[[Page 224]]

impossible in cases eligible for debt settlement to forecast accurately 
the debtor's future repayment ability over a long period of time; 
consequently, the period of time during which payments on settlement 
offers are to be made should not exceed five years. Debtors have the 
right to make voluntary settlement offers in any amount should they 
elect to do so. Adjustment offers will not be approved in any case 
unless there is reasonable assurance that the debtor will be able to 
make the payments as they become due.
    (d) Disposition of property. Security may be retained by the debtor 
only under the conditions specified in Sec. 1956.66 of this subpart.
    (e) Proceeds from the disposal of security prior to approval of a 
debt settlement offer. A debtor is not required to have disposed of the 
security prior to application for debt settlement for a loan to be 
settled. However, if a debtor has disposed of security prior to applying 
for debt settlement, proceeds from the disposed security must first be 
applied on the debtor's account, irrespective of an application for debt 
settlement unless the conditions specified in Sec. 1956.66 of this 
subpart are met.
    (f) [Reserved]
    (g) Settlement when legal or investigative action has been taken, 
recommended, or is contemplated. (1) Debts cannot be settled:
    (i) If the matter has been referred either to the Office of the 
Inspector General (OIG) under Sec. 1962.49(a) of subpart A of part 1962 
of this chapter or to Office of the General Counsel (OGC) because of 
suspected criminal violation, or criminal prosecution is pending because 
of an illegal act(s) committed by the debtor in connection with the debt 
or the security for that debt, the procedure outlined in paragraph 
(g)(3) of this section will be followed, unless, the OIG has declined to 
investigate the matter or, OGC has advised otherwise, or the case is in 
the hands of the United States Attorney.
    (ii) If a request for referral to the United States Attorney to 
institute a civil action to protect the interest of the Government has 
been made by FmHA or its successor agency under Public Law 103-354.
    (iii) Except as provided in paragraph (g)(3) of this section, if the 
case has been referred to the United States Attorney and is not closed.
    (2) If a debtor's account is involved in a fiscal irregularity 
investigation in which final action has not been taken or the account 
shows evidence that a shortage may exist and an investigation will be 
requested, the account will not be approved for settlement.
    (3) When a claim has been referred to, or a judgment has been 
obtained by the United States Attorney, and the debtor requests 
settlement, the employee in charge of the account will explain to the 
debtor that the United States Attorney has exclusive jurisdiction over 
the claim or judgment, that FmHA or its successor agency under Public 
Law 103-354 has no authority to agree to a settlement offer when the 
United States Attorney's file is not closed, and that if the debtor 
wishes to make a compromise or adjustment offer when the United States 
Attorney's file is not closed, if will be submitted with any related 
payment directly to the United States Attorney for a decision on the 
settlement offer.
    (h) Advice from OGC. State Directors will obtain, when necessary, 
advice from the OGC in handling proposed debt settlement actions which 
involve legal problems.
    (i) Settlement of claims against estates. Settlement of a claim 
against an estate under the provisions of this subpart will be based on 
the recovery that may reasonably be expected, taking into consideration 
such items as the security, costs of administration, allowances of minor 
children and surviving spouse, allowable funeral expenses, and dower and 
courtesy rights, and specific encumbrances on the property having 
priority over claims of the Government.
    (j) Joint debtors. Settlement may not be approved for one joint 
debtor unless approved for all debtors. ``Joint debtors'' includes all 
parties (individuals, partnerships, joint operators, cooperatives, 
corporations, estates) who are legally liable for payment of the debt.
    (1) Separate and individual adjustment offers from joint debtors 
must be accepted and processed only as a joint offer. Joint debtors must 
be advised

[[Page 225]]

that all debtors will remain liable for the balance of the debt until 
all payments due under the joint offer have been made.
    (2) A separate Form FmHA or its successor agency under Public Law 
103-354 1956-1 will be completed by each debtor, unless the debtors are 
members of the same family and all necessary financial information on 
each debtor can be shown clearly on a single application. Separate 
applications will be sent to the State Office as a unit.
    (3) If one debtor applies for compromise, adjustment, or 
cancellation, or if the debt is to be charged off, and the other 
debtor(s) is deceased or has received a discharge of the debt in 
bankruptcy, or the whereabouts of the other debtor(s) is unknown, or it 
is impossible or impracticable to obtain the signature of the other 
debtor(s), Form FmHA or its successor agency under Public Law 103-354 
1956-1 or Form FmHA or its successor agency under Public Law 103-354 
1956-2 (for housing loans) ``Cancellation or Charge-off of FmHA or its 
successor agency under Public Law 103-354 Indebtedness,'' will be 
prepared by showing at the top of the form the name of the debtor 
requesting settlement, following by the name of the other debtor.
    For example, ``John Doe, joint debtor with Bill Doe, deceased,'' 
``John Doe, joint debtor with Sam Doe, discharged in bankruptcy,'' 
``John Doe, joint debtor with Mary Doe, impossible or impracticable to 
obtain signature,'' as appropriate. In addition to the information 
concerning settlement of the debt by the applicant, information which 
justifies settlement of the debt as to the debtor(s) not joining in the 
application will be shown on Form FmHA or its successor agency under 
Public Law 103-354 1956-1, or 1956-2 for housing loans.
    (k) Settlement where debtor owes more than one type of Agency loan. 
It is not the policy to settle any loan indebtedness of a debtor who is 
also indebted on another agency loan and who will continue as an active 
borrower. In such case, the facts will be fully documented in part VIII 
of Form RD 1956-1.
    (l) No previous debt forgiveness. Debt settlement may not be 
approved for any direct Farm Loan Programs loan if the borrower has 
received debt forgiveness on any other direct loan as defined in Sec. 
1956.54 of this subpart.

[56 FR 10147, Mar. 11, 1991, as amended at 58 FR 21344, Apr. 21, 1993; 
62 FR 10157, Mar. 5, 1997; 68 FR 7700, Feb. 18, 2003]



Sec. Sec. 1956.58-1956.65  [Reserved]



Sec. 1956.66  Compromise and adjustment of nonjudgment debts.

    Nonjudgment debts which the debtor is unable to pay may be 
compromised or adjusted in accordance with applicable provisions of this 
section, and the debtor may retain the security property, if any. 
Application will be made on Form RD 1956-1 by the debtor; or if the 
debtor is unable to act, by another party having legal authority to act 
for the debtor. Collection of a lump sum offer may be deferred until the 
debtor is advised that the offer is approved. Upon full payment of the 
approved compromise or adjustment amount, the Agency will release the 
debtor from liability by delivering the note(s) to the debtor stamped 
``Satisfied by compromise or adjustment.''
    (a) FLP debts. The debt or any extension thereof on which compromise 
or adjustment is requested does not have to be due and payable under the 
terms of the note or other instrument, or because of acceleration by 
written notice prior to the date of application. Nonjudgment secured FLP 
debts may be compromised or adjusted in accordance with the following 
conditions:
    (1) Security may be retained by the debtor if the debtor offers an 
amount at least equal to the current fair market value (including any 
crop security) less any prior lien amounts. Any remaining unsecured debt 
may be debt settled.
    (2) Where the debtor is able to pay an amount in excess of the lump 
sum compromise offer, an adjustment offer must call for a lump sum 
payment as set out in paragraph (a)(1) of this section, plus any 
additional amounts the Agency determines the debtor is able to pay over 
a period of time not to exceed 5 years.
    (3) The acceptability of a compromise or adjustment offer will be 
arrived at by determining and evaluating:

[[Page 226]]

    (i) Statement of indebtedness owed on any prior liens. Statements 
will be retained in the debtor's file.
    (ii) Value of existing security as determined by a current appraisal 
made or obtained by the Agency. The appraisal will be retained in the 
debtor's file.
    (iii) Debtor's total present income and probable sources, amount and 
stability of income over the next 5 years. Old age pensions, other 
public assistance, and veteran's disability pensions will not be 
considered as sources of funds for making compromise and adjustment 
offers.
    (iv) Amount of debtor's other debts.
    (v) Amount of debtor's essential family living expenses, and farm or 
business operation expenses necessary to continue the operation, if 
applicable.
    (vi) Age and health when the debtor is largely depending on income 
from an occupation where manual labor is required.
    (vii) Size of debtor's family, their ages and health.
    (viii) Value of debtor's assets in relation to debts and liens of 
third parties. Reasonable equity in a modest nonsecurity homestead 
occupied by the debtor will not be considered as available for 
settlement. Nonsecurity property in excess of minimum family living 
needs which is not exempt from levy and execution should be considered 
in determining the debtor's ability to pay.
    (b) Housing debts (both Single-family and Multi-family). Nonjudgment 
secured debts may be compromised or adjusted as follows:
    (1) The debt is fully matured under the terms of the note or other 
instrument; or has been accelerated by written notice prior to the date 
of the settlement application.
    (2) A compromise offer must at least equal the value of the security 
as determined by FmHA or its successor agency under Public Law 103-354 
(less any prior liens) plus any additional amount FmHA or its successor 
agency under Public Law 103-354 determines the debtor is able to pay 
based on a current financial statement.
    (3) An adjustment offer must meet the requirements of paragraph 
(b)(2) of this section, except the debt (or the amount offered) is to be 
scheduled for payment over the shortest period FmHA or its successor 
agency under Public Law 103-354 determines is feasible based on the 
debtor's financial resources, but not to exceed 5 years.
    (c) Unsecured debts. Unsecured debts considered under this paragraph 
(c) are most frequently account balances remaining after the debtor has 
sold security property to another party/entity, the security has been 
liquidated through foreclosure, or FmHA or its successor agency under 
Public Law 103-354 has accepted a deed in lieu of foreclosure and the 
borrower was not released from liability. An offer to compromise or 
adjust an unsecured debt must represent the maximum amount FmHA or its 
successor agency under Public Law 103-354 determines the debtor can pay 
based on a current financial statement and other information available 
to FmHA or its successor agency under Public Law 103-354. An adjustment 
offer is to be scheduled for payment over the shortest period FmHA or 
its successor agency under Public Law 103-354 determines is feasible, 
but not to exceed 5 years.

[56 FR 10147, Mar. 11, 1991, as amended at 58 FR 21345, Apr. 21, 1993; 
62 FR 10157, Mar. 5, 1997]



Sec. 1956.67  Debts which the debtor is able to pay in full but refuses to do so.

    Debts which the debtor may have the ability to pay in full but has 
refused to do so may be compromised or adjusted in the following 
situations on Form FmHA or its successor agency under Public Law 103-354 
1956-1:
    (a) When the full amount cannot be collected because of the refusal 
of the debtor to pay the debt in full and the OGC advises that the 
Government is unable to enforce collection in full within a reasonable 
time by enforced collection proceedings, the debt may be compromised. In 
determining inability to collect, the following factors will be 
considered:
    (1) Availability of assets or income which may be realized by 
enforced collection proceedings, considering the applicable exemptions 
available to the debtor under State and Federal law.

[[Page 227]]

    (2) Inheritance prospects within 5 years.
    (3) Likelihood of debtor obtaining nonexempt property or income 
within 5 years, out of which there could be collected a substantially 
larger sum than the amount of the present offer.
    (4) Uncertainty as to price the security or other property will 
bring at forced sale.
    (b) The debt may be compromised or adjusted when the OGC has advised 
in writing that:
    (1) There is a real doubt concerning the Government's ability to 
prove its case in court for the full amount of the debt, and
    (2) The amount offered represents a reasonable settlement 
considering:
    (i) The probability of prevailing on the legal issues involved.
    (ii) The probability of proving facts to establish full or partial 
recovery, with due regard to the availability of witnesses and other 
pertinent factors.
    (iii) The probable amount of court costs and attorney's fees which 
may be assessed against the Government if it is unsuccessful in 
litigation.
    (c) When the cost of collecting the debt does not justify enforced 
collection of the full amount, the amount accepted in compromise or 
adjustment may reflect an appropriate discount for administrative and 
litigation costs of collection. Such discount will not exceed $2,000 
unless the OGC advises that in the particular case a larger discount is 
appropriate. The cost of collecting may be a substantial factor in 
settling small debts but normally will not carry great weight in 
settling large debts.



Sec. 1956.68  Compromise or adjustment without debtor's signature.

    Debts of a living debtor may be compromised or adjusted if it is 
impossible or impracticable to obtain a signed application and all other 
requirements of this section applicable to compromise or adjustment with 
a signed application have been met. Form FmHA or its successor agency 
under Public Law 103-354 1956-1 will show:
    (a) The sources from which the information was obtained.
    (b) That a current effort was made to obtain the debtor's signature 
and the date(s) of such effort.
    (c) The specific reasons why it was impossible or impracticable to 
obtain the signature of the debtor and, if the debtor refused to sign, 
the reason(s) given.



Sec. 1956.69  [Reserved]



Sec. 1956.70  Cancellation.

    Nonjudgment debts may be canceled in the following instances:
    (a) With application. The debt or any extension thereof on Farmer 
Programs debts do not have to be due and payable under the terms of the 
note or other instrument, or because of acceleration by written notice 
prior to the date of application. Debts due the FmHA or its successor 
agency under Public Law 103-354 may be canceled upon application of the 
debtor, or if a debtor is unable to act, upon application of a guardian, 
executor, or administrator, subject to the following conditions:
    (1) The FmHA or its successor agency under Public Law 103-354 
employee in charge of the account furnishes a report and favorable 
recommendation concerning the cancellation.
    (2) There is no known security for the debt and the debtor has no 
other assets from which the debt could be collected.
    (3) The debtor is unable to pay any part of the debt and has no 
reasonable prospect of being able to do so.
    (b) Without application. Debts due the FmHA or its successor agency 
under Public Law 103-354 may be canceled upon a report and the favorable 
recommendation of the employee in charge of the account in the following 
instances:
    (1) Deceased debtors. The following conditions must exist:
    (i) There is no known security; and
    (ii) An administrator or executor has not been appointed to settle 
the debtor's estate and the financial condition of the estate has been 
investigated and it has been established that there is no reasonable 
prospect of recovery; or
    (iii) An administrator or executor has been appointed to settle the 
estate of the debtor; and
    (A) A final settlement has been made and confirmed by the probate 
court and the Government's claim was recognized properly and the 
Government has received all funds it was entitled to, or

[[Page 228]]

    (B) A final settlement has not been made and confirmed by the 
probate court but there are no assets in the estate from which there is 
any reasonable prospect of recovery, or
    (C) Regardless of whether a final settlement has been made, there 
were assets in the estate from which recovery might have been affected 
but such assets have been disposed of or lost in a manner which OGC 
advises will preclude any reasonable prospect of recovery by the 
Government.
    (2) Disappeared debtors. The debt may be canceled without 
application where the debtor has no known assets or future debt-paying 
ability, has disappeared and cannot be found without undue expense, and 
there is no existing security for the debt. Reasonable efforts will be 
made to locate the debtor. These efforts will generally include 
contacts, either in person or in writing, with postmasters, motor 
vehicle licensing and title authorities, telephone directories, city 
directories, utility companies, State and local governmental agencies, 
other Federal agencies, employees, friends, and credit agency skip 
locate reports, known relatives, neighbors and County Committee members. 
Also, the debtor's loan file should be reviewed carefully for possible 
leads that may be of assistance in locating the debtor. The efforts made 
to locate the debtor, including the names and dates of contacts, and the 
information furnished by each person, will be fully documented in the 
appropriate space on Form FmHA or its successor agency under Public Law 
103-354 1956-1 or Form FmHA or its successor agency under Public Law 
103-354 1956-2 for housing loans.
    (3) Debtors discharged in bankruptcy. If there is no security for 
the debt, debts discharged in bankruptcy shall be cancelled by use of 
the appropriate Agency form with the attachments noted below. No attempt 
will be made to obtain the debtor's signature. If the debtor has 
executed a new promise to pay prior to discharge and has otherwise 
accomplished a valid reaffirmation of the debt in accordance with advice 
from OGC, the debt is not discharged.
    (i) Chapter 7 Bankruptcy cases will be documented with a copy of the 
``Discharge of Debtor'' order(s) by the court for all obligors.
    (ii) For debts identified as being part of an unsecured claim under 
Chapter 11, the cancellation will be documented with a copy of the 
organization plan, copy of the order by the court confirming the plan, a 
copy of the order completing the plan (a similar order), and an opinion 
by OGC that the confirming order has discharged the obligor(s) of 
liability to that part of the debt.
    (iii) For debts identified as being part of an unsecured claim under 
chapters 12 or 13, the cancellation will be documented with a copy of 
the reorganization plan and confirmation order, as above, a copy of the 
order completing the plan and closing the case, and an opinion by OGC 
that the completion order has discharged the obligor(s) of liability to 
that portion of the debt.
    (c) Signature of debtor cannot be obtained. Debts of a living debtor 
may be canceled if it is impossible or impracticable to obtain a signed 
application and the requirements in paragraph (a) of this section 
concerning cancellation with application have been met or if the debt 
has been discharged in bankruptcy and there is no security. Form FmHA or 
its successor agency under Public Law 103-354 1956-1 will state:
    (1) The sources of information obtained.
    (2) That a current effort was made to obtain the debtor's 
application and the date of such effort.
    (3) The specific reasons why it was impossible or impracticable to 
obtain the signature of the debtor and, if the debtor refused to sign, 
the reason(s) given.

[56 FR 10147, Mar. 11, 1991, as amended at 68 FR 7700, Feb. 18, 2003]



Sec. 1956.71  Settling uncollectible recapture receivables.

    The settlement of uncollectible recapture receivables will be fully 
documented on a debt settlement form and retained in the case file.

[58 FR 21345, Apr. 21, 1993]

[[Page 229]]



Sec. Sec. 1956.72-1956.74  [Reserved]



Sec. 1956.75  Chargeoff.

    (a) Judgment debts. Subject to the provisions of Sec. 
1956.57(g)(3), judgment debts may be charged off by use of Form FmHA or 
its successor agency under Public Law 103-354 1956-1 or Form FmHA or its 
successor agency under Public Law 103-354 1956-2 for housing upon a 
report and favorable recommendation of the employee in charge of the 
account provided:
    (1) The United States Attorney's file is closed, and
    (2) The requirements of Sec. 1956.70(b)(2) have been met, or two 
years have elapsed since any collections were made on the judgment and 
the debtor(s) has no equity in property on which the judgment is a lien 
or on which it can presently be made a lien.
    (b) Nonjudgment debts. Debts which cannot be settled under other 
sections of this subpart may be charged off using Form FmHA or its 
successor agency under Public Law 103-354 1956-1 or Form FmHA or its 
successor agency under Public Law 103-354 1956-2 for housing loans 
without the debtor's signature subject to the following provisions:
    (1) When the principal balance is $2,000 or less and efforts to 
collect have been unsuccessful or it is apparent that further collection 
efforts would be ineffectual or uneconomical,
    (2) When the OGC advises in writing that the claim is legally 
without merit.
    (3) Even though FmHA or its successor agency under Public Law 103-
354 considers the claim to be valid, when efforts to induce voluntary 
payments are unsuccessful and the OGC advises in writing that evidence 
necessary to prove the claim in court cannot be produced, or
    (4) When the employee in charge of the account recommends the 
chargeoff and has made the following determinations on the basis of 
information in FmHA or its successor agency under Public Law 103-354's 
official files or from other informed reliable sources:
    (i) That the debtor is:
    (A) Unable to pay any part of the debt and has no apparent future 
debt repayment ability as specified in Sec. 1956.66(a); or
    (B) Able to pay part or all of the debt but is unwilling to do so, 
it is clear that the Government cannot enforce collection of a 
significant amount from assets or income, and an opinion is received 
from OGC to that effect; and
    (ii) There is no security for the debt.
    (c) For debts identified as being part of an unsecured claim under a 
confirmed Chapter 11 plan, the chargeoff will be documented with a copy 
of the organization plan, a copy of the court order confirming the plan, 
an opinion by OGC that the order confirming the plan has discharged the 
debtor(s) of liability on the unsecured part of the debt.



Sec. Sec. 1956.76-1956.83  [Reserved]



Sec. 1956.84  Approval or rejection.

    (a)-(d) [Reserved]
    (e) Appeal rights. A debtor whose debt settlement offer is rejected 
will be notified of appeal rights pursuant to 7 CFR part 11.

[58 FR 21345, Apr. 21, 1993, as amended at 68 FR 7700, Feb. 18, 2003]



Sec. 1956.85  Payments and receipts.

    (a) Servicing office handling. (1) An application with which the 
debtor offers a lump-sum payment in compromise, or with which the debtor 
offers an initial payment on an adjustment offer, will be accompanied by 
the payments required at the time such application is filed in the 
servicing office.
    (2) [Reserved]
    (3) Checks or check transmittal letter containing restrictive 
notations such as ``Settlement in full'' or ``Payment in full,'' or in 
those exceptional instances when the debtor refuses to sign the Form 
FmHA or its successor agency under Public Law 103-354 1956-1 in 
connection with a compromise offer, will be forwarded to the State 
Office where they will be retained until approval or rejection of the 
offer. The use of restrictive notations will be discouraged to the 
fullest extent possible.
    (b) Finance Office handling. (1) All payments evidenced by Form FmHA 
or its successor agency under Public Law 103-354 451-2, ``Schedule of 
Remittances,'' bearing the legend ``Compromise Offer--FmHA or its 
successor agency under Public Law 103-354'' or

[[Page 230]]

``Adjustment Offer--FmHA or its successor agency under Public Law 103-
354,'' will be held in the Deposits Fund Account by the Finance Office 
until notification is received from the State Office of the approval or 
rejection of the offer. In cases of approved offers, remittances will be 
applied in accordance with established policies, beginning with the 
oldest loan included in the settlement, except that when the request for 
settlement includes loans made from different revolving funds the 
Finance Office will prorate the amount received, on the basis of the 
total principal balance due the respective revolving funds. Upon 
notification of a rejection of a debtor's offer and receipt of a request 
from the State Director for a refund, the Finance Office will refund to 
the debtor, in care of the employee in charge of the account, the amount 
held in the Deposits Fund Account representing a rejected compromise or 
adjustment offer.
    (2) When a debtor's adjustment offer is approved, the accounts 
involved will not be adjusted in the records of the Finance Office until 
all payments have been made. Form FmHA or its successor agency under 
Public Law 103-354 1956-1 will be held in a suspense file pending 
payment of the full amount of the approved offer. The original Form FmHA 
or its successor agency under Public Law 103-354 1956-1 in approved 
cases will be retained in the Finance Office.

[56 FR 10147, Mar. 11, 1991, as amended at 58 FR 21345, Apr. 21, 1993; 
68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov. 26, 2004]



Sec. Sec. 1956.86-1956.95  [Reserved]



Sec. 1956.96  Delinquent adjustment agreements.

    A 90-day extension for making the payments may be given by the 
Agency when the circumstances of the case justify an extension. A 
decision not to extend the time for making payments is not appealable. 
If the debtor is delinquent under the terms of the adjustment agreement 
and is likely to be financially unable to meet the terms of the 
agreement, the Agency may cancel the existing agreement and process a 
different type of settlement more consistent with the debtor's repayment 
ability, provided the facts in the case justify such action. The 
cancellation of an adjustment agreement is appealable. If an agreement 
is cancelled, any payments received shall be retained as payments on the 
debt owed at the time of the adjustment agreement.

[68 FR 7700, Feb. 18, 2003]



Sec. 1956.97  Disposition of promissory notes.

    (a) Notes evidencing debts settled by completed adjustments, 
completed compromise with or without signature, or canceled with 
signature will be returned to the debtor or to the debtor's legal 
representative. The original and copies of notes will be stamped 
``Satisfied by Approved Compromise,'' ``Satisfied by Approved 
Cancellation,'' or ``Satisfied by Completed Adjustment Offer.'' In such 
cases, the security instrument(s) will be released of record according 
to State law.
    (b) Notes evidencing debts canceled without application will be 
placed in the debtor's case folder and disposed of pursant to 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). However, if the debtor requests the notes, they may be stamped 
``Satisfied By Approved Cancellation'' and returned.
    (c) Notes evidencing charged off debts will be retained in the 
servicing office and will not be stamped or returned to the debtor. They 
will be destroyed six years after charged off pursuant to 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).
    (d) In case of a transfer of security with assumption for less than 
the debt, the promissory note will be attached to the assumption 
agreement covered by the note and kept in the transferee's file.

[56 FR 10147, Mar. 11, 1991. Redesignated and amended at 58 FR 21346, 
Apr. 21, 1993]



Sec. 1956.98  [Reserved]



Sec. 1956.99  Exception authority.

    The Administrator may, in individual cases, make an exception to any

[[Page 231]]

requirement or provision of this subpart which is not inconsistent with 
the authorizing statute or other applicable law if the Administrator 
determines that application of the requirement or provision would 
adversely affect 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 affect on the 
Government's interest, propose alternative courses of action, and show 
how the adverse affect will be eliminated or minimized if the exception 
is granted. Any settlement actions approved by the Administrator under 
this section will be documented on Form FmHA or its successor agency 
under Public Law 103-354 1956-1 and returned to the State Office for 
submission to the Finance Office.



Sec. 1956.100  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 0575-0118. Public reporting burden for this collection of 
information is estimated to vary from 15 to 20 minutes per response, 
with an average of 20 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 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 Information and 
Regulatory Affairs, Office of Management and Budget, Washington, DC 
20503.



        Subpart C_Debt Settlement_Community and Business Programs

    Source: 53 FR 13100, Apr. 21, 1988, unless otherwise noted.



Sec. 1956.101  Purposes.

    This subpart delegates authority and prescribes policies and 
procedures for debt settlement of Water and Waste Disposal System loans; 
Community Facility loans; Association Recreation loans; Watershed loans 
and advances; Resource, Conservation and Development loans; Rural 
Renewal loans; direct Business and Industry loans; Irrigation and 
Drainage loans; Shift-in-land-use loans; and Section 306C WWD loans. 
Settlement of Economic Opportunity Cooperative loans, Claims Against 
Third Party Converters, Nonprogram loans, Rural Business Enterprise/
Television Demonstration Grants, Rural Development Loan Fund loans, 
Intermediary Relending Program loans, Nonprofit National Corporations 
Loans and Grants, and 601 Energy Impact Assistance Grants, is not 
authorized under independent statutory authority and settlement under 
these programs is handled pursuant to the Federal Claims Collection 
Joint Standards, 4 CFR parts 101-105 as described in Sec. 1956.147 of 
this subpart.

[62 FR 33511, June 19, 1997, as amended at 66 FR 1569, Jan. 9, 2001]



Sec. 1956.102  Application of policies.

    (a) General. If a debt is eligible for settlement, the debt 
settlement authorities of the Farmers Home Administration or its 
successor agency under Public Law 103-354 (FmHA or its successor agency 
under Public Law 103-354) should be explained and the privileges thereof 
extended to the debtor. All debtors are entitled to impartial treatment 
and uniform consideration under this subpart. Accordingly, FmHA or its 
successor agency under Public Law 103-354 personnel charged with any 
responsibility in connection with debt settlement will adhere strictly 
to the authorizations, requirements, and limitations in this subpart.
    (b) For hospitals and health care facilities only. Loan servicing 
and debt restructuring options according to Sec. 1956.143 of this 
subpart must be exhausted before the other settlement authorities of 
this subpart are applicable.

[53 FR 13100, Apr. 21, 1988, as amended at 59 FR 46160, Sept. 7, 1994]

[[Page 232]]



Sec. Sec. 1956.103-1956.104  [Reserved]



Sec. 1956.105  Definitions.

    (a) Settlement. The compromise, adjustment, cancellation, or 
chargeoff of a debt owed to FmHA or its successor agency under Public 
Law 103-354. The term ``settlement'' is used for convenience in 
referring to compromise, adjustment, cancellation, or chargeoff actions, 
individually or collectively.
    (b) Compromise. The satisfaction of a debt, including a release of 
liability, by the acceptance of a lump-sum payment of less than the 
total amount owed on the debt.
    (c) Adjustment. The satisfaction of a debt, including a release of 
liability, when acceptance is conditioned upon completion of payment of 
the adjusted amount at a specific future time or times, with or without 
the payment of any consideration when the adjustment offer is approved. 
An adjustment is not a final settlement until all payments under the 
adjustment agreement have been made.
    (d) Cancellation. The final discharge of a debt with a release of 
liability.
    (e) Chargeoff. To write off a debt and terminate all servicing 
activity without a release of liability. This is not a final discharge 
of the debt, but rather a decision upon the part of the agency to remove 
the debt from agency receivables.
    (f) Debtor. The borrower of loan funds under any of the FmHA or its 
successor agency under Public Law 103-354 programs specified in Sec. 
1956.101 of this subpart.
    (g) Security. All that serves as collateral for the FmHA or its 
successor agency under Public Law 103-354 loan(s), including, but not 
limited to, revenues, tax levies, municipal bonds, and real and chattel 
property.
    (h) Servicing official. The FmHA or its successor agency under 
Public Law 103-354 official who is primarily responsible for servicing 
the account.
    (i) United States Attorney. An attorney for the United States 
Department of Justice.
    (j) Independent Qualified Fee Appraiser. An individual who is a 
designated member of the American Institute of Real Estate Appraisers, 
Society of Real Estate Appraisers, or an equivalent organization, 
requiring appraisal education, testing, and experience.

[53 FR 13100, Apr. 21, 1988, as amended at 54 FR 47510, Nov. 15, 1989; 
66 FR 1569, Jan. 9, 2001]



Sec. Sec. 1956.106-1956.108  [Reserved]



Sec. 1956.109  General requirements for debt settlement.

    (a) Debt due and payable. The debt or any extension thereof on which 
settlement is requested must be due and payable under the terms of the 
note or other instrument, or because of acceleration by written notice 
prior to the date of application for settlement, unless the debt is to 
be cancelled without application under Sec. 1956.130(b) or charged off 
under Sec. 1956.136 of this subpart.
    (b) Disposition of security. Ordinarily, all security will be 
disposed of prior to the date of application for settlement. There are 
exceptions:
    (1) It may be necessary to abandon security through the debt 
settlement process. For example, a community may be rendered 
uninhabitable by a toxic or hazardous substance. In such cases, debt 
settlement may proceed provided the servicing official determines:
    (i) That further collection efforts with respect to the security in 
question would be ineffective or uneconomical,
    (ii) That it is in the best interests of the Government to proceed 
with debt settlement,
    (iii) That the proposal otherwise meets the requirements appropriate 
to the type of settlement under consideration, and
    (iv) The approval of the Administrator is obtained.
    (2) A servicing action may have been carried out which resulted in a 
less than complete disposition of security. For example, the Government 
may have consented to a voluntary sale of a debtor's real and chattel 
property without reference to other security, which might include, but 
is not limited to: an additional lien on revenue, a third party pledge 
of security, or a pledge of personal liability. In such cases, debt 
settlement may proceed provided the requirements of Sec. 1956.109(b)(1) 
of this subpart are met.

[[Page 233]]

    (3) Security can be retained under the compromise and adjustment 
offers as specified in Sec. 1956.124 of this subpart.
    (4) Settlement of a claim against an estate will be based on the 
recovery that may reasonably be expected, taking into consideration such 
items as the security, costs of administration, allowances of minor 
children and surviving spouse, allowable funeral expenses, dower and 
curtesy rights, and specific encumbrances on the property having 
priority over claims of the Government.
    (c) Proceeds from the sale of security. Proceeds from the sale of 
security must be applied on the debtor's account, taking into 
consideration the disposition requirements of any grant agreement, prior 
to the date of application for settlement, except when security is 
retained as provided for in Sec. 1956.109(b) of this subpart. Debtors 
will not be allowed to sell security and use the proceeds as part or all 
of the debt settlement offer.
    (d) County Committee review. Proposed settlement actions will be 
reviewed by the County Committee except for the cancellation of debts 
discharged in bankruptcy under Sec. 1956.130(b)(1) of this subpart or 
when a claim has been referred to a United States Attorney under Sec. 
1956.112(d) of this subpart. No settlement shall be approved if it is 
more favorable to the debtor than recommended by the County Committee.
    (e) Assistance from Office of General Counsel (OGC). When necessary, 
State Directors will obtain advice from OGC in handling proposed debt 
settlement actions.
    (f) Format. Form FmHA or its successor agency under Public Law 103-
354 1956-1, ``Application for Settlement of Indebtedness,'' will be 
utilized for all settlement actions under this subpart.



Sec. 1956.110  Joint debtors.

    Settlements may not be approved for one joint debtor unless approved 
for all debtors. Joint debtors includes all parties, individuals, and 
organizations, who are legally liable for payment of the debt.
    (a) Individual settlement offers from joint debtors can be accepted 
and processed only as a joint offer. A separate Form FmHA or its 
successor agency under Public Law 103-354 1956-1 will be completed by 
each debtor unless the debtors are members of the same family and all 
necessary financial information on each debtor can be shown clearly on a 
single application.
    (b) If one of the joint debtors is deceased or has received a 
discharge of the debt in bankruptcy, or if the whereabouts of one of the 
debtors is unknown, or it is otherwise impossible or impractical to 
obtain the signature of the debtor, the application for settlement may 
be accepted without that debtor's signature if it contains adequate 
information on each of the debtors to justify settlement of the debt as 
to each of the debtors. The name of the debtor requesting settlement 
will be shown at the top of Form FmHA or its successor agency under 
Public Law 103-354 1956-1 followed by name and status of the other 
debtor. For example, ``John Doe, joint debtor with Jane Doe, deceased.''
    (c) Joint debtors must be advised in writing that all debtors will 
remain liable for the balance of the debt until any payment(s) due under 
the joint offer have been made.



Sec. 1956.111  Debtors in bankruptcy.

    FmHA or its successor agency under Public Law 103-354 personnel will 
process reorganization plans of debtors filing under Chapter 9, Chapter 
11, or Chapter 13 as follows:
    (a) Plans submitted by debtors under Chapters 9, 11, and 13 must be 
sent by the servicing official to the State Director who will recommend 
either acceptance or rejection of the plans and refer them to the United 
States Attorney through OGC. When the plan calls for the adjustment of a 
debt to FmHA or its successor agency under Public Law 103-354, the State 
Director will obtain the advice of the Administrator before providing 
OGC with a recommendation on acceptance or rejection of this plan.
    (b) The United States Attorney will advise the State Director, 
through OGC, as to approval or rejection of the debtor's reorganization 
plan. The State Director will then notify the Finance Office by 
memorandum of the terms

[[Page 234]]

and conditions of the bankruptcy reorganization plan, including any 
adjustment of the debt.



Sec. 1956.112  Debts ineligible for settlement.

    Debts will not be settled:
    (a) If referral to the Office of Inspector General (OIG) and/or to 
the OGC is contemplated or pending because of suspected criminal 
violation, or
    (b) If civil action to protect the interests of the Government is 
contemplated or pending, or
    (c) If an investigation for suspected fiscal irregularity is 
contemplated or pending, or
    (d) When a claim has been referred to or a judgment has been 
obtained by the United States Attorney and the debtor requests 
settlement, the servicing official will explain to the debtor that the 
United States Attorney has exclusive jurisdiction over the claim or 
judgment, and therefore, FmHA or its successor agency under Public Law 
103-354 has no authority to agree to a settlement offer. If the debtor 
wishes to make a settlement offer, it must be submitted with any related 
payment directly to the United States Attorney for consideration.



Sec. Sec. 1956.113-1956.117  [Reserved]



Sec. 1956.118  Approval authority.

    District Directors cannot approve debt settlement actions. 
Therefore, they will make no statements to a debtor concerning the 
action that may be taken upon a debtor's application. Subject to this 
subpart, the compromise, adjustment, cancellation, or chargeoff of debts 
will be approved or rejected:
    (a) By the State Director when the outstanding balance of the 
indebtedness involved in the settlement is less then $50,000, including 
principal, interest, and other charges.
    (b) By the Administrator or his designee when the outstanding 
balance of the indebtedness involved in the settlement is $50,000 or 
more, including principal, interest, and other charges.



Sec. Sec. 1956.119-1956.123  [Reserved]



Sec. 1956.124  Compromise and adjustment.

    Nonjudgment debts may be compromised or adjusted upon application of 
the debtor(s), or if the debtor is an individual and unable to act, upon 
application of the guardian, executor, or administrator of the debtor's 
estate.
    (a) General provisions. Debts, regardless of the amount, may be 
compromised or adjusted subject to the following:
    (1) The debt or any extension thereof on which compromise or 
adjustment is requested is due and payable under the terms of the note 
or other instrument, or because of acceleration by written notice, prior 
to the date of application for settlement.
    (2) The period of time during which payments on adjustment offers 
are to be made cannot exceed five years without the approval of the 
Administrator.
    (3) Efforts will be made to avoid applications for settlement in 
which debtors offer a specified amount payable upon notice of approval 
of the proposed settlement.
    (b) Debtor's ability to pay. In evaluating the debtor's settlement 
application, it is essential that reliable information be obtained in 
sufficient detail to assure that the offer accurately reflects the 
debtor's ability to pay. The debtor's income, expenses, and nonsecurity 
assets are critical factors in determining the type of settlement and 
the amount which the debtor can reasonably be expected to offer. 
Critical information should include the following:
    (1) The debtor's total present income from all sources will be 
determined. In addition, careful consideration will be given to the 
probable sources, amount, and stability of income to be received over a 
reasonable period of years. For individuals, public welfare assistance 
and pensions, including old age pensions and pensions received by 
veterans for pensionable disabilities will not be considered as sources 
of funds with which to make compromise and adjustment offers.
    (2) The debtor's operation and maintenance expenses, and, in the 
case of individuals, probable living expenses.

[[Page 235]]

    (3) The priority of payments on debts to third parties.
    (4) When the debtor is largely dependent on income from an 
occupation in which manual labor is required, age and health of the 
individual are vital factors in determining the ability to pay. The 
number in the debtor's family, their ages and condition of health, will 
also be weighed in determining the ability to pay. However, when the 
debtor's income is from investments, business enterprises, or management 
efforts, age and health of both individual and family are of less 
importance.
    (5) The value of the debtor's assets in relation to debts and liens 
of third parties is important in determining the debtor's ability to 
pay. It is recognized that debtors must retain a reasonable equity in 
essential nonsecurity property in order to continue normal operations 
and, in the case of an individual, to meet family living expenses over a 
period of years. Under this policy a reasonable equity in a modest 
nonsecurity homestead occupied by the debtor, whether or not exempt from 
levy and execution will not be considered as available for offer in 
settlement. Nonsecurity property which is in excess of minimum business 
and/or family living needs and which is not exempt from levy and 
execution should be considered when determining the debtor's ability to 
pay.
    (c) Debtor unable to pay in full. Debts may be compromised or 
adjusted and security property retained by the debtor, provided:
    (1) The debtor is unable to pay the indebtedness in full, and
    (2) The debtor has offered an amount equal to the present fair 
market value of all security or facility financed, and
    (3) The debtor has offered any additional amount which the debtor is 
able to pay, and
    (4) The total amount offered represents a reasonable determination 
of the debtor's ability to pay.
    (d) Debtor able to pay in full but refuses to do so. If the debtor 
has the ability to pay in full but refuses to do so, debts may be 
compromised or adjusted and security property retained by the debtor 
under certain conditions:
    (1) The OGC advises that the Government is unable to enforce 
collection in full within a reasonable time by enforced collection 
proceedings, and the amount offered represents a reasonable settlement 
considering:
    (i) Availability of assets or income which may be realized by 
enforced collection proceedings, considering the applicable exemptions 
available to the debtor under State and Federal law, and
    (ii) Inheritance prospects within 5 years, and
    (iii) Likelihood of debtor obtaining nonexempt property or income 
within 5 years out of which there could be collected a substantially 
larger sum than the amount of the present offer, and
    (iv) Uncertainty as to the price that the security or other property 
will bring at forced sale, or
    (2) The OGC advises that there is a real doubt concerning the 
Government's ability to prove its case in court for the full amount of 
the debt, and the amount offered represents a reasonable settlement 
considering:
    (i) The probability of prevailing on the legal issues involved, and
    (ii) The probability of proving facts to establish full or partial 
recovery, with due regard to the availability of witnesses and other 
pertinent factors, and
    (iii) The probable amount of court costs and attorney's fees which 
may be assessed against the Government if it is unsuccessful in 
litigation, or
    (3) When the cost of collecting the debt does not justify enforced 
collection of the full amount. In such cases, the amount accepted in 
compromise or adjustment may reflect an appropriate discount for 
administrative and litigious costs of collection. Such discount will not 
exceed $600 unless the OGC advises that in the particular case a larger 
discount is appropriate. The cost of collecting may be a substantial 
factor in settling small debts but normally will not carry great weight 
in settling large debts.



Sec. Sec. 1956.125-1956.129  [Reserved]



Sec. 1956.130  Cancellation.

    Nonjudgment debts, regardless of the amount, may be cancelled with 
or without application by the debtor.

[[Page 236]]

    (a) With application by debtor. Debts may be cancelled upon 
application of the debtor(s), or if the debtor is an individual and 
unable to act, upon application of the guardian, executor, or 
administrator of the debtor's estate. The following conditions apply:
    (1) The servicing official furnishes a favorable recommendation 
concerning the cancellation, and
    (2) There is no known security for the debt and the debtor has no 
other assets from which the debt could be collected, and
    (3) The debtor is unable to pay any part of the debt and has no 
reasonable prospect of being able to do so, and
    (4) The debt or any extension thereof is due and payable under the 
terms of the note or other instrument, or because of acceleration by 
written notice prior to the date of application.
    (b) Without application by debtor. Debts may be cancelled upon a 
favorable recommendation of the servicing official in the following 
instances:
    (1) Debtors discharged in bankruptcy. If there is no security for 
the debt, debts discharged in bankruptcy shall be cancelled by the use 
of Form FmHA or its successor agency under Public Law 103-354 1956-1 
with a copy of the Bankruptcy Court's Discharge Order attached. No 
attempt will be made to obtain the debtor's signature and County 
Committee review is unnecessary. If the debtor has executed a new 
promise to pay prior to discharge and has otherwise accomplished a valid 
reaffirmation of the debt in accordance with advice from OGC, the debt 
is not discharged.
    (2) Impossible or impractical to obtain a debtor's signature. Debts 
may be cancelled if it is impossible or impractical to obtain a signed 
application and the requirements of Sec. 1956.130(a) (1), (2), and (3) 
only of this subpart are met. Form FmHA or its successor agency under 
Public Law 103-354 1956-1 will document:
    (i) The sources of information obtained.
    (ii) That a current effort was made to obtain the debtor's 
application and the date of such effort.
    (iii) The specific reasons why it was impossible or impracticable to 
obtain the signature of the debtor and, if the debtor refused to sign, 
the reason(s) given.
    (3) Deceased debtors (individuals only). The following conditions 
must exist:
    (i) There is no known security,
    (ii) An administrator or executor has not been appointed to settle 
the debtor's estate but the financial condition of the estate has been 
investigated and it has been established that there is no reasonable 
prospect of recovery, or
    (iii) An administrator or executor has been appointed to settle the 
estate of the debtor, and
    (A) A final settlement has been made and confirmed by the probate 
court and the Government's claim was recognized properly and the 
Government has received all funds it was entitled to, or
    (B) A final settlement has not been made and confirmed by the 
probate court, but there are no assets in the estate from which there is 
any reasonable prospect of recovery, or
    (C) Regardless of whether a final settlement has been made, there 
were assets in the estate from which recovery might have been effected 
but such assets have been disposed of or lost in a manner which the OGC 
advises will preclude any reasonable prospect of recovery by the 
Government.
    (4) Disappeared debtor (individuals only). The following conditions 
must exist:
    (i) The debtor has disappeared and cannot be found without undue 
expense. Reasonable efforts either in person or in writing will be made 
to locate the debtor. These efforts, including the names and dates of 
contacts, and the information furnished by each person, will be fully 
documented on Form FmHA or its successor agency under Public Law 103-354 
1956-1,
    (ii) There is no known security for the debt and the debtor has no 
other assets from which the debt could be collected, and
    (iii) The debtor is unable to pay any part of the debt and has no 
reasonable prospect of being able to do so.



Sec. Sec. 1956.131-1956.135  [Reserved]



Sec. 1956.136  Chargeoff.

    (a) Judgment debts. Subject to the provisions of Sec. 1956.112(d) 
of this subpart, judgment debts, regardless of the

[[Page 237]]

amount, may be charged off without the debtor's signature upon a 
favorable recommendation of the servicing official provided:
    (1) The United States Attorney's file is closed, and
    (2) The requirements of Sec. 1956.130(b)(1), (2), (3), or (4) of 
this subpart have been met, as appropriate, or two years have elapsed 
since any collections were made on the judgment and the debtor(s) has no 
equity in property on which the judgment is a lien or on which it can 
presently be made a lien.
    (b) Nonjudgment debts. Debts which cannot be settled under other 
sections of this subpart may be charged off without the debtor's 
signature upon a favorable recommendation of the servicing official in 
the following instances:
    (1) When the OGC advises in writing that the claim is legally 
without merit, or that evidence necessary to prove the claim in court 
cannout be produced.
    (2) When there is no known security for the debt, the debtor has no 
other assets from which the debt could be collected, and the debtor:
    (i) Is unable to pay any party of the debt and has no reasonable 
prospect of being able to do so, or
    (ii) Is able to pay part or all of the debt but refuses to do so, 
and an opinion is received from OGC to the effect that the Government 
cannot enforce collection of a significant amount from assets or income.
    (3) When the debtor is deceased (individuals only), disappeared 
(individuals only), or when it is impossible or impractical to obtain 
the debtor's signature, and the conditions of Sec. 1956.136(b)(2) of 
this subpart are met.



Sec. 1956.137  [Reserved]



Sec. 1956.138  Processing.

    (a) Approval. When a debt settlement application is approved, the 
State Director will:
    (1) Send the original approved Form FmHA or its successor agency 
under Public Law 103-354 1956-1 to the Finance Office.
    (2) Notify debtors in writing of settlement approval, including the 
specific amount and terms of the offer that were accepted, for 
compromise and adjustment offers under Sec. 1956.124 and cancellations 
with application under Sec. 1956.130(a) of this subpart.
    (3) Not be required to notify debtors of settlement approval when 
debts are cancelled without application under Sec. 1956.130(b) or 
charged off under Sec. 1956.136 of this subpart.
    (b) Requesting additional information. When rejection appears to be 
necessary either because of lack of information or because the amount of 
a compromise or adjustment offer is inadequate, the State Director may 
request the servicing official to obtain the additional information or 
make an effort to obtain a more acceptable offer, as the circumstances 
justify. Notice of rejection of an offer will be withheld in such cases 
until sufficient time has elapsed to enable the debtor to present 
further information or a new offer.
    (c) Rejection. When a debt settlement application is rejected, the 
State Director will:
    (1) Insert the reasons for rejection on the Form FmHA or its 
successor agency under Public Law 103-354 1956-1.
    (2) Retain the original Form FmHA or its successor agency under 
Public Law 103-354 1956-1 in the State Office and return case files and 
copies of Form FmHA or its successor agency under Public Law 103-354 
1956-1 to the servicing official.
    (3) Request the Finance Office to return any adjustment or 
compromise payment held by the Finance Office to the borrower, in care 
of the servicing official.
    (4) Return any adjustment or compromise payment held by the State 
Office to the borrower, in care of the servicing official.
    (5) Notify the debtor in writing of the reasons for the rejection 
for compromise and adjustment offers under Sec. 1956.124 and 
cancellations with application under Sec. 1956.130(a) of this subpart.
    (d) Appeal rights. In accordance with Subpart B of Part 1900 of this 
chapter, the debtor will be given the right to appeal the rejection of 
any debt settlement offer made by the debtor under this subpart.

[[Page 238]]



Sec. 1956.139  Collections.

    (a) When the debtor offers a lump-sum payment in compromise or an 
initial payment on an adjustment offer, that payment will accompany the 
settlement application at the time the application is filed with the 
servicing official.
    (b) [Reserved]
    (c) Checks or check transmittal letters containing restrictive 
notations such as ``Settlement in full'' or ``Payment in full,'' will be 
forwarded to the State Office where they will be retained until approval 
or rejection of the offer. The use of restrictive notations will be 
discouraged to the fullest extent possible.
    (d) All payments evidenced by Form FmHA or its successor agency 
under Public Law 103-354 451-2, ``Schedule of Remittances,'' bearing the 
legend ``Compromise Offer--FmHA or its successor agency under Public Law 
103-354'' or ``Adjustment Offer--FmHA or its successor agency under 
Public Law 103-354,'' will be held in the Deposits Fund Account by the 
Finance Office until notification is received from the State Office of 
the approval or rejection of the offer.
    (1) Upon receipt of an approved Form FmHA or its successor agency 
under Public Law 103-354 1956-1, remittances will be applied in 
accordance with established policies, beginning with the oldest loan 
included in the settlement, except that when the request for settlement 
includes loans made from different revolving funds, the Finance Office 
will prorate the amount received on the basis of the total principal 
balance due the respective revolving funds.
    (2) Upon notification of a rejection of a debtor's offer and receipt 
of a request from the State Director for a refund, the Finance Office 
will refund to the debtor, in care of the servicing official, the amount 
held in the Deposits Fund Account.
    (e) When a debtor's adjustment offer is approved, the accounts 
involved will not be adjusted in the records of the Finance Office until 
all payments have been made. Form FmHA or its successor agency under 
Public Law 103-354 1956-1 will be held in a suspense file pending 
payment of the full amount of the approved offer.
    (f) If an approved debt settlement agreement is later voided by the 
State Director in accordance with Sec. 1956.142(e) of this subpart, any 
payments which have been received shall be retained as payments on the 
debt owed at the time the compromise or adjustment offer was approved.

[53 FR 13100, Apr. 21, 1988, as amended at 68 FR 61332, Oct. 28, 2003]



Sec. Sec. 1956.140-1956.141  [Reserved]



Sec. 1956.142  Delinquent adjustment agreements.

    (a) The servicing official is responsible for notifying debtors in 
advance of the due dates of payments on debt settlement agreements and 
for monitoring compliance with the terms of settlement agreements. If a 
payment is delinquent, the servicing official should contact the debtor 
promptly to determine the reason for the delinquency and the debtor's 
plan for completing the agreement.
    (b) Delinquencies of 30 days or more will be reported to the State 
Director along with other pertinent information and the recommendation 
of the servicing official regarding further handling of the case.
    (c) The State Director may extend, for ninety days, the time for 
making the payments when the circumstances of the case justify an 
extension. Extensions for a greater period of time may be made by the 
State Director upon the recommendation of the County Committee and the 
servicing official.
    (d) When the debtor is financially unable to meet the terms of the 
debt settlement agreement, the State Director may void the existing 
agreement and process a new settlement more consistent with the debtor's 
repayment ability, provided the facts in the case justify such action.
    (e) If the State Director determines that the debtor cannot or will 
not meet the terms of the settlement agreement and if the facts do not 
justify approval of a new settlement agreement, the State Director will 
void the existing agreement and direct the servicing official to take 
other servicing actions

[[Page 239]]

appropriate to the circumstances of the case.
    (f) When an adjustment agreement is voided, the State Director will 
notify the debtor giving the reasons in writing, with a copy to the 
Finance Office and to the servicing official. Upon receipt, the Finance 
Office will return the original Form FmHA or its successor agency under 
Public Law 103-354 1956-1 to the State Office.



Sec. 1956.143  Debt restructuring--hospitals and health care facilities.

    This section pertains exclusively to delinquent Community Facility 
hospital and health care facility loans. Those facilities which are 
nonprogram (NP) loans as defined in Sec. 1951.203 (f) of subpart E of 
part 1951 of this chapter are excluded. The purpose of debt 
restructuring is to keep the hospital or health care facility in 
operation with manageable debt.
    (a) Definitions. As used in this section, the following definitions 
apply:
    Consolidation. The combining of two or more debt instruments into 
one instrument, normally accompanied by reamortization.
    Debt writedown. A one-time reduction of the debt owed to FmHA or its 
successor agency under Public Law 103-354 including principal and 
interest. This reduction will be the minimum amount necessary to meet 
the level of the facility's ability to service the debt. The writedown 
will be applied first to interest and then principal.
    Delinquency due to circumstances beyond the control of the debtor. 
Includes situations such as: The debtor has less money than planned due 
to unexpected and uncontrollable events such as unexpected loss of 
service area population, unforeseeable costs incurred for compliance 
with State or Federal regulatory requirements, or the loss of key 
personnel.
    Delinquent debtor. For purposes of this section, delinquency is 
defined as being 180 days behind schedule on the FmHA or its successor 
agency under Public Law 103-354 payments. That is, one full annual 
installment or the equivalent for monthly, quarterly, or semiannual 
installments.
    Eligibility. Applicants must be delinquent due to circumstances 
beyond their control and have acted in good faith by trying to fulfill 
the agreements with FmHA or its successor agency under Public Law 103-
354 in connection with the delinquent loans.
    Interest rate reduction. Reduction of the interest rate on the 
restructured loan to as low as the poverty line interest rate in effect 
on community and business programs loans.
    Loan deferral. The temporary delay of principal and interest 
payments for up to 6 months. The debtor must be able to demonstrate the 
ability to pay the debt, as restructured, at the end of this delay 
period.
    Net recovery value. A calculation of the net value of the collateral 
and other assets held by the debtor. This value would be determined by 
adding the fair market value of FmHA or its successor agency under 
Public Law 103-354's interest in any real property pledged as collateral 
for the loan, plus the value of any other assets pledged or otherwise 
available for the repayment of the debt, minus the anticipated 
administrative and legal expenses that would be incurred in connection 
with the liquidation of the loan. This value of the assets should be 
calculated based upon the facility continuing to operate as a going 
concern. Therefore, the facility should be valued not merely as an empty 
building but as a facility continuing to offer health care services 
which may, or may not, be similar to those offered by the current 
operators.
    Operations review. A study of management and business operations of 
the facility by an independent expert. For example, a study of a 
hospital and nursing home would include such areas as: general and 
administrative, dietary, housekeeping, laundry, nursing, physical plant, 
social services, income potential, Federal, State, and insurance 
payments, and rate analysis. Also, recommendations and conclusions are 
to be included in the study which would indicate the creditworthiness of 
the facility and its ability to continue as a going concern. In 
analyzing a debtor's proposed restructuring plan, FmHA or its successor 
agency under Public Law 103-354 may contract for the completion of an 
operations review. These reviews will be developed by individuals and 
entities who have demonstrated an

[[Page 240]]

expertise in the analysis of health care facilities from an operational 
and administrative standpoint. FmHA or its successor agency under Public 
Law 103-354 will consider the following criteria for selection: past 
experience in health care facility analysis, a familiarity with the 
problems of rural health care facilities, a knowledge of the particular 
area currently served by the facility in question, and a willingness to 
work with both FmHA or its successor agency under Public Law 103-354 and 
the debtor in developing a final plan for restructuring.
    Restructured loan. A revision of the debt instruments including any 
combination of the following: writing down of accumulated interest 
charges and principal, deferral, consolidation, and adjustment of the 
interest rates and terms, usually followed by reamortization.
    (b) Debtor notification. All servicing actions permitted under 
subpart E of part 1951 of this chapter are to be exhausted prior to 
consideration for debt restructuring under this section. To this end, 
the servicing official must ensure that the casefile clearly documents 
that all servicing actions under subpart E of part 1951 of this chapter 
have been exhausted and that the debtor is at least 1 full year's debt 
service behind schedule for a minimum of 180 days. The debtor then 
should be informed of the debt restructuring available under this 
section by using language similar to that provided in Guide 1 of this 
subpart (available in any FmHA or its successor agency under Public Law 
103-354 Office) as follows:
    (1) Any introductory paragraph;
    (2) A paragraph concerning prior servicing attempts;
    (3) A discussion of eligibility, as defined in this section, 
including the provision that the debtor acted in good faith in 
connection with their FmHA or its successor agency under Public Law 103-
354 loan and that the delinquency was caused by circumstances beyond 
their control;
    (4) Two paragraphs that explain the goal of the debt restructuring 
program;
    (5) A paragraph stating that debt restructuring may include a 
combination of servicing actions listed in paragraph (a) of this 
section;
    (6) Information that details what the debtor must do to apply for 
restructuring. A response must be received within 45 days of receipt of 
this letter to request consideration for debt restructuring and the 
request must include projected balance sheets, budgets, and cash-flow 
statements which include and clearly identify funding of the FmHA or its 
successor agency under Public Law 103-354 reserve account for the next 3 
years;
    (7) A discussion of FmHA or its successor agency under Public Law 
103-354's analysis and calculation process; and
    (8) A paragraph identifying the FmHA or its successor agency under 
Public Law 103-354 official who may be contacted for assistance.
    (c) State Director's restructuring determination. Upon receipt of 
the delinquent debtor's request for debt restructuring consideration, 
the State Director will:
    (1) Within 15 days of receipt of debtor's request, if an operations 
review is deemed necessary, send a memorandum to the Administrator 
asking for program authority to contract for the review in accordance 
with 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). The name of the debtor involved and the 
projected amount of funds anticipated to be spent for the contract 
should also be provided. It is anticipated that an operations review 
will be necessary in most cases and that the only exceptions would be 
for smaller health care facilities or facilities that have developed a 
proposed plan that is comprehensive and realistic. Upon receipt of the 
Administrator's program contracting approval authority, a contract is to 
be awarded to an organization qualified to perform an operations review 
as defined in paragraph (a) of this section. The operations review 
normally will be completed and delivered to FmHA or its successor agency 
under Public Law 103-354 within 60 days of the award date.
    (2) Contract for an appraisal to be performed by an independent, 
qualified fee appraiser. Note: To the extent possible, the appraisal 
should be scheduled

[[Page 241]]

for completion no later than the completion date of the operations 
review.
    (3) Complete an analysis of the operations review, appraisal, and 
other documented information, and make an eligibility determination.
    (i) Eligibility determination. The State Director must conclude that 
the debtor is eligible for debt restructuring consideration. This 
conclusion will be clearly documented in the casefile based on a review 
of the following:
    (A) The debtor acted in good faith with regard to the delinquent 
loan. The casefile must reflect the debtor's cooperation in exploring 
servicing alternatives. The casefile should contain no evidence of 
fraud, waste, or conversion by the debtor, and no evidence that the 
debtor violated the loan agreement or FmHA or its successor agency under 
Public Law 103-354 regulations.
    (B) The delinquency was caused by circumstances beyond the control 
of the debtor. This determination will be based on the debtor's 
narrative on this issue, which is a required part of the application for 
debt restructuring, and a separate review of the debtor's casefile and 
operations.
    (C) As part of the application for debt restructuring, the debtor 
submitted a proposed operating plan that presents feasible alternatives 
for addressing the delinquency.
    (ii) Debtor determined eligible. If the debtor is determined to be 
eligible for debt restructuring, a determination of a net recovery value 
and level of debt the facility will support will be made. It is 
anticipated that meetings with the debtor, the contractor who performed 
the operations review, and others, as appropriate, could be necessary to 
develop these values; although it should be emphasized throughout these 
meetings that any calculations and conclusions reached are preliminary 
in nature, pending final review by the Administrator. For debt 
restructuring calculations and computing a feasible cash-flow 
projection, the following order and combinations of loan servicing 
actions will be followed:
    (A) Loan deferral for up to 6 months.
    (B) Interest rate reduction to not less than the poverty line rate 
as determined by FmHA or its successor agency under Public Law 103-354 
Instruction 440.1, exhibit B (available in any FmHA or its successor 
agency under Public Law 103-354 Office). Interest rate reduction will be 
considered only in conjunction with an extension of the term of the loan 
to the remaining useful life of the facility or 40 years, whichever is 
less.
    (C) Debt writedown. Other creditors of the debtor, representing a 
substantial portion of the total debt, are expected to participate in 
the development of a restructuring plan which includes debt writedown. 
Debt writedown participation by other creditors should be on a pro rata 
basis with the FmHA or its successor agency under Public Law 103-354 
writedown. However, failure of these creditors to agree to participate 
in the plan shall not preclude the use of principal and interest 
writedown by FmHA or its successor agency under Public Law 103-354 if it 
is determined that this option results in the least cost to the Federal 
Government.
    (iii) Debtor determined ineligible. If the State Director concludes 
that the debtor is not eligible for debt restructuring consideration for 
any of the reasons listed in paragraph (c)(3)(i) of this section, then 
the debtor will be notified by a letter that includes the following 
information:
    (A) The basis for the determination;
    (B) The next step in servicing the loan: possible acceleration if 
the delinquency is not cured; and
    (C) The debtor may appeal this determination in accordance with 
subpart B of part 1900 of this chapter.
    (iv) State Director's recommendation. Upon completion of the 
determination of net recovery value and restructured debt in accordance 
with paragraph (c)(3)(ii) of this section, and prior to formal 
presentation to the borrower, the State Director will forward a 
recommendation to the National Office with the following documentation:
    (A) That all other servicing efforts have been exhausted as required 
in paragraph (b) of this section.
    (B) Financial statements including balance sheets, income and 
expense, cash-flows for the most recent actual year, and projections for 
the next 3 years. The amount of FmHA or its successor agency under 
Public Law 103-

[[Page 242]]

354's restructured debt and reserve account requirements are to be 
clearly indicated on the projected statements. Also, operating 
statistics including number of beds, patient days of care, outpatient 
visits, occupancy percentage, etc., for the same periods of time must be 
included.
    (C) Copies of the operations review, developed for the particular 
loan, and appraisal.
    (D) Calculations of the net recovery value.(E) Debt restructuring 
calculations including a listing of the various servicing combinations 
used in these calculations as contained in paragraph (c)(3)(ii) of this 
section. For example:
    (1) Interest rate reduced from the applicant's current rate on all 
loans to the poverty line rate as determined by FmHA or its successor 
agency under Public Law 103-354 instruction 440.1, exhibit B (available 
in any FmHA or its successor agency under Public Law 103-354 Office); 
and
    (2) Extension of the terms from 25 to 30 years.
    (F) Information concerning discussions with the debtor and their 
agreement or disagreement with the calculations and recommendations.
    (G) If debt restructuring is proposed:
    (1) A draft of Form RD 3560-15, if applicable, and any other 
necessary comments or requirements that may be required by OGC and Bond 
Counsel in Sec. 1951.223 (c)(3) and (4) of subpart E of part 1951 of 
this chapter.
    (2) A draft of Form FmHA or its successor agency under Public Law 
103-354 1956-1, if applicable. Complete only parts I, II, VI, and VIII. 
Part VI, ``Debtor's Offer and Certification,'' will be in a separate 
attachment and contain the adjusted unpaid principal amount for which 
FmHA or its successor agency under Public Law 103-354 approval is 
requested. In Part VI of the form, type ``see attached.''
    (H) If the proposed restructured debt will not cash-flow or is less 
than the net recovery value, omit the items in paragraph (c)(3)(iv)(G) 
of this section.
    (d) National Office processing of State Director's request. (1) 
After reviewing the recommendation to either debt restructure or 
liquidate for the net recovery value, the Administrator, after 
concurring, modifying, or not concurring in the recommendation, will 
return the submission for further processing.
    (2) If a debt writedown is used in the restructuring process, the 
amount will be included in the National Office transmittal memorandum. 
The draft Form FmHA or its successor agency under Public Law 103-354 
1956-1 will not need to be finalized and returned to the Administrator 
for signature. The State Director's signature on the final copy will be 
sufficient. However, a copy of the National Office memorandum is to be 
attached to the form when completed.
    (e) Debtor notification of debt restructuring and net recovery value 
calculations. The State Director will provide a copy of the basis for 
the debt restructuring or net recovery determination to the debtor.
    (1) If the value of the restructured loan is equal to, or greater 
than, the recovery value, the debtor will be made an offer to accept the 
restructured debt by using language similar to that provided in Guide 2 
of this subpart (available in any FmHA or its successor agency under 
Public Law 103-354 Office) and including the following paragraphs:
    (i) An introductory paragraph indicating that FmHA or its successor 
agency under Public Law 103-354 has concluded its consideration of the 
debtor's request;
    (ii) A paragraph indicating FmHA or its successor agency under 
Public Law 103-354's approval of the debt restructuring request and that 
acceptance must be received by FmHA or its successor agency under Public 
Law 103-354 within 45 days from receipt of this letter; and
    (iii) That the debtor's acceptance will require the execution of a 
Shared Appreciation Agreement similar to Guide 4 of this subpart 
(available in any FmHA or its successor agency under Public Law 103-354 
Office) and possible new debt instruments accompanied by Bond Counsel 
opinions.
    (2) If the debt analysis calculations indicate that a restructured 
debt would be less than the net recovery value of the security, a letter 
using language similar to that provided in Guide 3 of this subpart 
(available in any FmHA or

[[Page 243]]

its successor agency under Public Law 103-354 Office), will be sent to 
the debtor that includes the following paragraphs:
    (i) An introductory paragraph indicating that FmHA or its successor 
agency under Public Law 103-354 has concluded its consideration of the 
debtor's request;
    (ii) Paragraphs indicating that:
    (A) The debtor may pay FmHA or its successor agency under Public Law 
103-354 the net recovery value of the loan. The debtor will be given 30 
days from receipt of this letter to inform FmHA or its successor agency 
under Public Law 103-354 of its intent, 90 days to finalize the payoff, 
and will be notified that an election to pay off FmHA or its successor 
agency under Public Law 103-354 would require the execution of a Net 
Recovery Buy Out Recapture Agreement, similar to that provided in Guide 
5 of this subpart (available in any FmHA or its successor agency under 
Public Law 103-354 Office); or
    (B) If the debt is not paid off at the net recovery value, FmHA or 
its successor agency under Public Law 103-354 will proceed to liquidate 
the loan.
    (f) Debtor responses to debt restructuring and net recovery value 
calculations. Responses from the debtor will be handled as follows:
    (1) Acceptance of FmHA or its successor agency under Public Law 103-
354's restructured debt offer. When a debtor accepts the offer for debt 
restructuring, processing will be in accordance with Sec. 1951.223 (c) 
of subpart E of part 1951 of this chapter using the adjusted unpaid 
principal and outstanding accrued interest at the Administrator's 
approved interest rate and terms. The debtor will be required to execute 
a Shared Appreciation Agreement which will provide that, should the 
debtor sell or transfer title to the facility within the next 10 years, 
FmHA or its successor agency under Public Law 103-354 is entitled to a 
portion of any gain realized. This agreement will include language 
similar to that found in Guide 4 of this subpart (available in any FmHA 
or its successor agency under Public Law 103-354 Office). The original 
of Form FmHA or its successor agency under Public Law 103-354 1956-1, 
with appropriate attachments signed by the State Director, and a copy of 
the Shared Appreciation Agreement will be sent to the Finance Office. 
Note: All documents pertaining to this transaction will be sent to the 
Finance Office in one single complete package; and
    (2) Acceptance by debtor to pay off loan at the recovery value. 
Processing of this transaction will be in accordance with Sec. 1956.124 
of this subpart. However, the account does not need to be accelerated. 
The debtor will be required to execute a Net Recovery Buy Out Recapture 
Agreement, similar to that found in Guide 5 of this subpart (available 
in any FmHA or its successor agency under Public Law 103-354 Office). 
The original of Form FmHA or its successor agency under Public Law 103-
354 1956-1, with appropriate attachments signed by the State Director, 
and a copy of the recorded Net Recovery Buy Out Recapture Agreement will 
be sent to the Finance Office. The executed Net Recovery Buy Out 
Recapture Agreement will be recorded in the county in which the facility 
is located. The Finance Office will credit the accounts of debtors who 
entered into Net Recovery Buy Out Recapture Agreements with the amount 
paid by the debtor (net recovery value). Note: All documents pertaining 
to this transaction will be sent to the Finance Office in one single 
complete package.
    (g) Collection and processing of recapture. (1) When FmHA or its 
successor agency under Public Law 103-354 becomes aware of the sale or 
transfer of title to the facility on which there is an effective Net 
Recovery Buy Out Recapture Agreement (Guide 5 of this subpart available 
in any FmHA or its successor agency under Public Law 103-354 Office) or 
a Shared Appreciation Agreement (Guide 4 of this subpart available in 
any FmHA or its successor agency under Public Law 103-354 Office) 
outstanding and a determination is made that a recapture is appropriate, 
FmHA or its successor agency under Public Law 103-354 will notify the 
debtor of the following:
    (i) Date and amount of recapture due; and
    (ii) FmHA or its successor agency under Public Law 103-354 action to 
be taken if debtor does not respond within

[[Page 244]]

the designated timeframe with the amount of recapture due.
    (2) [Reserved]
    (3) When the amount of the recapture has been paid and credited to 
the debtor's account, the debtor will be released from liability by 
using Form FmHA or its successor agency under Public Law 103-354 1965-8, 
``Release from Personal Liability,'' modified as appropriate.
    (h) No recapture due. If FmHA or its successor agency under Public 
Law 103-354 determines there is no recapture due, the Net Recovery Buy 
Out Recapture Agreement (Guide 5 of this subpart available in any FmHA 
or its successor agency under Public Law 103-354 Office) or Shared 
Appreciation Agreement (Guide 4 of this subpart available in any FmHA or 
its successor agency under Public Law 103-354 Office) will be 
appropriately annotated, the Recapture Agreement released from the 
record, and the Agreement returned to the debtor.

[59 FR 46160, Sept. 7, 1994, as amended at 68 FR 61332, Oct. 28, 2003; 
69 FR 69106, Nov. 26, 2004]



Sec. 1956.144  [Reserved]



Sec. 1956.145  Disposition of essential FmHA or its successor agency under 

Public Law 103-354 records.

    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) identifies an ``essential FmHA or its successor agency 
under Public Law 103-354 record'' as the original of any document or 
record which provides evidence of indebtedness or obligation to FmHA or 
its successor agency under Public Law 103-354 and includes, but is not 
limited to: promissory notes, assumption agreements and valuable 
documents, such as bonds fully registered as to principal and interest.
    (a) Essential FmHA or its successor agency under Public Law 103-354 
records evidencing debts settled by compromise, completed adjustment or 
cancelled with application will be returned to the debtor or to the 
debtors' legal representative. The appropriate legend, such as 
``Satisfied by Approved Compromise,'' and the date of the final action 
will be stamped or typed on the original document. This same information 
plus the date the original document is returned to the debtor will be 
shown on a copy to be placed in the debtor's case folder.
    (b) Essential FmHA or its successor agency under Public Law 103-354 
records evidencing debts cancelled without application will be placed in 
the debtor's case folder and disposed of pursuant to 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). 
However, if the debtor requests the document(s), they must be stamped 
``Satisfied by Approved Cancellation'' and returned.
    (c) Essential FmHA or its successor agency under Public Law 103-354 
records evidencing charged off debts will be retained in the servicing 
office and will not be stamped or returned to the debtor. They will be 
destroyed six years after chargeoff pursuant to 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).

[53 FR 13100, Apr. 21, 1988, as amended at 58 FR 21346, Apr. 21, 1993]



Sec. 1956.146  [Reserved]



Sec. 1956.147  Debt settlement under the Federal Claims Collection Act.

    The U.S. Department of Justice (DOJ) and the General Accounting 
Office are charged with the responsibility for implementing the Federal 
Claims Collection Act and have promulgated the Federal Claims Collection 
Act Joint Standards (FCCAJS) (4 CFR parts 101-105) to inform Government 
Agencies on how to settle debts and claims which the Agency does not 
have independent statutory authority to settle. With the exception of 
loans and claims with outstanding balances of $20,000 or less, exclusive 
of interest, penalties, and administrative costs, settlements must be 
submitted to and approved by the United States Attorney or the DOJ. Debt 
Settlement of Economic Opportunity Cooperative loans, Claims Against 
Third Party Converters, Nonprogram loans, Industrial

[[Page 245]]

Development Grants, Rural Development Loan Fund loans, Intermediary 
Relending Program loans, Nonprofit National Corporations Loans and 
Grants, Indian Tribal Land Acquisition Loans (to the extent settlement 
cannot be effected pursuant to Sec. 1956.137), and 601 Energy Impact 
Assistance Grants are programs that must be settled under the FCCAJS.
    (a) Debt settlement of the subject loans and claims falls in the 
following categories:
    (1) Settlement of loans and claims may be approved by the 
Administrator when the outstanding balance of the indebtedness involved 
in the settlement in $20,000 or less, exclusive of interest, penalties, 
and administrative costs. These loans and claims will be submitted to 
the National Office on Form FmHA or its successor agency under Public 
Law 103-354 1956-1, ``Application for Settlement of Indebtedness,'' for 
debt settlement. Subsequent to approval, Form FmHA or its successor 
agency under Public Law 103-354 1956-1 will be distributed in accordance 
with the Forms Manual Insert (FMI).
    (2) Loans and claims with an outstanding balance of $200,000 or less 
inclusive of interest, penalties, and administrative costs, but with an 
outstanding balance greater than $20,000, exclusive of interest, 
penalties, and administrative costs, after approval by the State 
Director will be referred to your Regional Office of the General Counsel 
(OGC) for referral to the United States Attorney in whose judicial 
district the debtor can be found. The form to be used is the Claims 
Collection Litigation Report (CCLR). This form should be available 
through the U.S. Attorney. A memorandum from the State Director should 
be attached to the CCLR recommending acceptance of the debt settlement. 
If the State Director after reviewing the CCLR does not recommend 
acceptance, the State Director has the authority to reject the debt 
settlement.
    (3) Loans and claims with an outstanding balance over $200,000, 
inclusive of interest, penalties, and administrative costs, will be 
referred to the Administrator and will include the following:
    (i) The case file(s).
    (ii) A completed CCLR.
    (iii) Copies of the notes, security agreements, and mortgages.
    (iv) A current appraisal of any security owned by the debtor.
    (v) A narrative which will include:
    (A) Recommendation for the acceptance of the debt settlement.
    (B) The type of loan involved, a short history of the loan, and why 
the debtor failed.
    (C) Steps taken to collect the loan(s).
    (D) An analysis of the debtor's future repayment ability. This 
should discuss if the debtor has any other assets or has concealed or 
improperly transferred assets, if known. If the debtor is an individual, 
this should include consideration of the debtor's present and potential 
income and inheritance prospects.
    (E) Why acceptance of the debt settlement offer is in the best 
interest of the Government.
    (4) If the Administrator concurs with the recommendation for the 
debt settlement, it will be referred by the FmHA or its successor agency 
under Public Law 103-354 National Office to OGC for referral to the 
Commercial Litigation Branch, Civil Division, U.S. Department of 
Justice, Washington, DC 20530.
    (b) When a debtor has a Community Programs or Business and Industry 
loans(s) and defined in this subpart, these loan(s) will be debt settled 
under the authority of the Consolidated Farm and Rural Development Act. 
In such cases, the subject loans and claims should be listed under part 
II(B) on Form FmHA or its successor agency under Public Law 103-354 
1956-1, as other debts owed FmHA or its successor agency under Public 
Law 103-354. Normally, all the security for the subject loans and claims 
should be disposed of prior to the submission for debt settlement.
    (c) It is not necessary to obtain approval of the United States 
Attorney or the DOJ (as the case may be) in cases where FmHA or its 
successor agency under Public Law 103-354 decides not to settle a loan 
or claim.

[55 FR 30197, July 25, 1990, as amended at 59 FR 46162, Sept. 7, 1994]

[[Page 246]]



Sec. 1956.148  Exception authority.

    The Administrator may make an exception to any requirement or 
provision of this subpart which is not inconsistent with the authorizing 
statute or other applicable law if the Administrator determines that 
application of the requirement or provision would adversely affect the 
Government's interest. 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. Any settlement actions approved 
by the Administrator under this section will be documented on Form FmHA 
or its successor agency under Public Law 103-354 1956-1 and returned to 
the State Office for submission to the Finance Office.



Sec. 1956.149  [Reserved]



Sec. 1956.150  OMB control number.

    The reporting requirements contained in this regulation have been 
approved by the Office of Management and Budget and assigned OMB control 
number 0575-0124. Public reporting burden for this collection of 
information is estimated to vary from \1/2\ hour to 30 hours per 
response with an average of 8.14 hours per response, including the 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, Ag Box 7630, Washington, D.C. 20250; and to the 
Office of Information and Regulatory Affairs, Office of Management and 
Budget, Washington, DC 20503.

[59 FR 46162, Sept. 7, 1994]



PART 1957_ASSET SALES--Table of Contents




                   Subpart A_Rural Housing Asset Sales

Sec.
1957.1 General.
1957.2 Transfer with assumptions.
1957.3 [Reserved]
1957.4 Graduation.
1957.5 [Reserved]
1957.6 Appeal reviews.
1957.7-1957.50 [Reserved]

    Authority: Pub. L. 99-509, sec 2001(b)(1).

    Source: 54 FR 47958, Nov. 20, 1989, unless otherwise noted.



                   Subpart A_Rural Housing Asset Sales



Sec. 1957.1  General.

    Pursuant to the Omnibus Budget Reconciliation Act of 1986, Public 
Law 99-509, the Farmers Home Administration or its successor agency 
under Public Law 103-354 sold certain of the portfolio of loans made 
under section 502 of the Housing Act of 1949 to the Rural Housing Trust, 
1987-1. The sale was without recourse to FmHA or its successor agency 
under Public Law 103-354 except for certain provisions providing for 
FmHA or its successor agency under Public Law 103-354's payment of 
interest credit amounts and agreement to compensate the Rural Housing 
Trust 1987-1 for future cash flow changes due to revised borrowers 
rights as set forth in FmHA or its successor agency under Public Law 
103-354 regulations. The sale documents to Rural Housing Trust 1987-1 
recognize that the FmHA or its successor agency under Public Law 103-354 
loans were assigned subject to rights provided to these borrowers under 
documentation to recognize the rights of FmHA or its successor agency 
under Public Law 103-354 borrowers under regulations of FmHA or its 
successor agency under Public Law 103-354 as they may exist from time to 
time and to service the loans in accordance with then current FmHA or 
its successor agency under Public Law 103-354 regulations. In addition, 
as provided in Sec. 1957.6 of this subpart, FmHA or its successor 
agency under Public Law 103-354 has retained review, but not hearing 
authority under the FmHA or its successor agency under Public Law 103-
354 Appeal Procedure, 7 CFR part 1900, Subpart B. Failure of private 
servicers to comply with FmHA or its successor agency under Public Law 
103-354 regulations in servicing loans sold to the

[[Page 247]]

Rural Housing Trust 1987-1 may be redressed in the review process under 
the Appeal Procedure.



Sec. 1957.2  Transfer with assumptions.

    FmHA or its successor agency under Public Law 103-354 regulations 
governing transfers and assumptions will not apply to these loans. 
Individuals who what to purchase property securing a loan held by the 
Rural Housing Trust 1987-1, and who are eligible for an FmHA or its 
successor agency under Public Law 103-354 Sec. 502 loan will be given 
the same priority by FmHA or its successor agency under Public Law 103-
354 as a transferee of a Sec. 502 loan if the property is then suitable 
for the FmHA or its successor agency under Public Law 103-354 RH program 
and is located in an eligible area. The Master Servicer of the Rural 
Housing Trust, 1987-1, may permit an assumption if it is deemed by the 
Master Servicer to be in the financial interest of the Trust, but in 
such case the transferee would not be eligible for FmHA or its successor 
agency under Public Law 103-354 loan servicing benefits under FmHA or 
its successor agency under Public Law 103-354 regulations.



Sec. 1957.3  [Reserved]



Sec. 1957.4  Graduation.

    Borrowers will not be required to graduate to other credit.



Sec. 1957.5  [Reserved]



Sec. 1957.6  Appeal reviews.

    The Master Servicer, acting through its subservicer, will have the 
responsibility to conduct hearings under the appeal process. Final 
review of an adverse decision upheld under the appeal process will 
remain with FmHA or its successor agency under Public Law 103-354 and be 
conducted by the Agency's National Appeal Staff, Washington, DC, under 
the FmHA or its successor agency under Public Law 103-354 Appeal 
Procedures, 7 CFR part 1900, subpart B. This review is final and will 
conclude the appellant's administrative appeal process.



Sec. Sec. 1957.7-1957.50  [Reserved]



PART 1962_PERSONAL PROPERTY--Table of Contents