[Federal Register Volume 77, Number 72 (Friday, April 13, 2012)]
[Proposed Rules]
[Pages 22443-22462]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-8827]
[[Page 22443]]
Vol. 77
Friday,
No. 72
April 13, 2012
Part III
Department of Agriculture
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Farm Service Agency
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7 CFR Parts 761, 762, 765, et al.
Farm Loan Programs; Clarification and Improvement; Proposed Rule
Federal Register / Vol. 77 , No. 72 / Friday, April 13, 2012 /
Proposed Rules
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DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Parts 761, 762, 765, 766, and 772
RIN 0560-AI14
Farm Loan Programs; Clarification and Improvement
AGENCY: Farm Service Agency, USDA.
ACTION: Proposed rule.
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SUMMARY: The Farm Service Agency (FSA) is proposing to amend the Farm
Loan Programs (FLP) regulations for loan making and servicing,
specifically those on real estate appraisals, lease, subordination and
disposition of security, and Conservation Contract requirements. FSA is
proposing the changes to streamline the loan making and servicing
process and give the borrower greater flexibility while protecting the
financial interests of the Government.
DATES: We will consider comments that we receive by June 12, 2012.
ADDRESSES: We invite you to submit written comments on this proposed
rule. In your comment, include the Regulation Identifier Number (RIN)
and volume, date, and page number of this issue of the Federal
Register. You may submit comments by any of the following methods:
Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting
comments.
Mail: Director, Loan Servicing and Property Management
Division, FLP, FSA, U.S. Department of Agriculture, 1400 Independence
Avenue SW., Stop 0523, Washington, DC 20250-0523.
Comments will be available for inspection online at
www.regulations.gov and at the mail address listed above between 8 a.m.
and 4:30 p.m., Monday through Friday, except holidays. A copy of this
proposed rule is also available through the FSA home page at http://www.fsa.usda.gov/.
FOR FURTHER INFORMATION CONTACT: Michael C. Cumpton, telephone: (202)
690-4014. Persons with disabilities or who require alternative means
for communications should contact the USDA Target Center at (202) 720-
2600 (voice and TDD).
SUPPLEMENTARY INFORMATION:
Background
This rule proposes changes concerning certain loan making and
servicing provisions of FSA's direct and guaranteed loan programs. FSA
direct loans and loan guarantees are a means of providing credit to
farmers whose financial risk exceeds a level acceptable to commercial
lenders. Through direct and guaranteed Farm Ownership (FO), Operating
Loans (OL), and Conservation Loans (CL), as well as direct Emergency
Loans (EM), FSA assists tens of thousands of family farmers each year
in starting and maintaining profitable farm businesses. FSA loan funds
may be used to pay normal operating or family living expenses; make
capital improvements; refinance certain debts; and purchase farmland,
livestock, equipment, feed and other materials essential to farm and
ranch operations. FSA services extend beyond the typical loan by
offering customers ongoing consultation, advice, and creative ways to
make their farm successful. These programs are a temporary source of
credit. Direct borrowers generally are required to graduate to other
credit when their financial condition will allow them to do so.
FSA proposes to amend the FSA regulations for several FLP loan
making and servicing issues, including real estate appraisals, leases,
disposition, and release of security, and Conservation Contracts. FSA
is proposing the changes to streamline the loan making and servicing
process and give the borrower greater flexibility while protecting the
financial interests of the Government.
First, FSA proposes changes for various issues related to
appraisals. Section 307(d) of the Consolidated Farm and Rural
Development Act (CONACT, 7 U.S.C. 1927(d)) requires that in order for
FSA to have the rights to oil, gas, or other minerals as FO loan
collateral, the products' value must have been considered in the
appraised value of collateral securing the loan. The section only
applies to FO loans made after the date of enactment (December 23,
1985), but FSA administratively extended this requirement to any type
of FLP loan. FSA now proposes to modify its regulations to mirror the
CONACT by applying the requirement only to FO loans.
FSA also proposes to clarify its regulation on appraisal appeal
rights by specifying that the appeal of real estate appraisals used by
FSA in non-primary loan servicing contexts is limited to the question
of whether the appraisal is compliant with the Uniform Standards of
Professional Appraisal Practice (USPAP), and that the appellant must
submit a technical appraisal review of the appraisal that has been
prepared by a State Certified General Appraiser. Appeals of real estate
appraisals in the primary loan servicing context can include either a
technical appraisal review prepared by a State Certified General
Appraiser or an independent appraisal. For chattel appeal appraisals,
FSA proposes to amend the regulation to reflect current policy that the
borrower may obtain an independent appraisal to help determine the
question of whether the appraisal in question is consistent with
present market values of similar items in the area.
Furthermore, FSA proposes to not require a new appraisal for
guaranteed loans if updates can be made to an existing appraisal, or if
the guaranteed loan amount is less than $250,000.
Second, FSA proposes changes related to leases of borrowers'
property for mineral production, communication towers, and wind and
solar energy installations. The revisions and clarifications proposed
by this rule would provide flexibility for these leases while also
implementing standards for consistent treatment by FSA.
Third, for borrowers with chattel security, FSA proposes limiting
the tracking of chattel proceeds to those that will be applied to FSA
loans, instead of having detailed agreements on the use of all chattel
proceeds. FSA also proposes giving the State Executive Director (SED)
the authority to release security in certain situations if stringent
security and graduation requirements are met.
Fourth, on Conservation Contracts, in which a borrower's debt is
reduced for taking certain conservation actions, FSA proposes changes
that will reduce the costs to FSA and the time needed to administer the
program while still ensuring the conservation intent is met.
These changes are discussed in more detail below.
Appraisals
Section 307(d) of the CONACT (7 U.S.C. 1927(d)), requires that for
farm ownership loans made after December 23, 1985 (the date of
enactment), the value of oil, gas, or other minerals must be included
in the appraised value of the security collateral in order for FSA to
have a valid security interest in those products. FSA administratively
extended this requirement in the regulations to require that real
estate appraisals used by FSA for any type of FLP loan include the
value of any oil, gas, or other minerals. This has resulted in the
following issues:
In loan making, FSA's general policy is to obtain and pay
for an appraisal. This may occur even when a third party appraisal,
completed by a qualified appraiser, may already be available. Not only
does this
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substantially increase the cost to FSA, but it can also delay
application processing and increase the applicant's wait for loan
funds.
In loan servicing, this mineral appraisal requirement puts
FSA security at risk on non-FO loans because not stating the value of
minerals in an appraisal, usually because they have no known value at
the time of the appraisal, could prevent FSA from getting the mineral
security interest in special loan servicing, where the best lien
obtainable is taken on the borrower's security, or in a voluntary
conveyance or foreclosure. This could increase FSA program losses.
This rule therefore proposes to remove this mineral appraisal
requirement in 7 CFR 761.7, 765.252, and 765.351 for all future FLP
loans except direct FO loans, where it is required by law. This change
would not be retroactive. For all non-FO loans made after the effective
date of this rule, FSA will have a security interest in oil, gas, or
other minerals on or under the property regardless of whether the value
of those products were included in the appraisal value of the property.
This security interest is reflected in the FSA mortgage forms.
Appeals of Appraisals
In making direct loans, FSA obtains real estate appraisals to
ensure adequate security for the loan. If FSA makes an adverse decision
that involves the appraisal, applicants generally have the right to
appeal the decision and the appraisal under 7 CFR part 11. When an
applicant appeals the decision regarding the appraised value, it has
been FSA's policy to limit the appeal to the question of whether the
appraisal complied with USPAP, and the borrower or applicant who filed
the appeal may obtain a technical appraisal review prepared by a State
Certified General Appraiser to help determine USPAP compliance. FSA
proposes to amend 7 CFR 761.7 to reflect this policy. The change is
proposed because submission of an independent appraisal by an applicant
or borrower is not useful as two appraisals that both comply with USPAP
can still differ, but there is no basis for the appeal hearing officer
to choose one over the other, or some other value. The proposed change
will allow the borrower or applicant to submit a technical appraisal
review prepared by a State Certified General Appraiser to determine if
FSA's appraisal complies with USPAP. The proposed change would also
require that the technical appraisal review be prepared in accordance
with USPAP, and paid for by the borrower or applicant.
For appeals of real estate appraisals in primary loan servicing
cases, FSA proposes to amend 7 CFR 766.115 to clarify that the
technical appraisal reviews must be prepared by a State Certified
General Appraiser. The borrower in a primary loan servicing case may
still obtain an independent appraisal as provided for by 7 CFR
766.115(a)(2) and CONACT section 353(j) (7 U.S.C. 2001).
For appeals of chattel appraisals, FSA's current policy is to limit
the question to whether FSA's appraisal is consistent with present
market value of similar items in the area, and to allow the applicant
or borrower to submit an independent appraisal review to help determine
that question. FSA proposes amending 7 CFR 761.7 to reflect this
policy.
FSA proposes to remove 7 CFR 761.7(d) regarding FSA's internal
administrative appraisal and technical reviews since the provisions are
for internal procedures and therefore not required to be in the Code of
Federal Regulations.
Appraisal Requirements for Guaranteed Loans
FSA currently requires an appraisal of the security for all
guaranteed loans in excess of $50,000 in accordance with 7 CFR 762.127.
The $50,000 threshold has not changed since the start of the program in
the early 1980's. FSA proposes to increase the minimum guaranteed loan
amount for which a real estate appraisal will be required.
OMB Circular A-129 states, ``Agencies should ensure that a State
licensed or certified appraiser prepares an appraisal for all credit
transactions over $100,000 ($250,000 for business loans).'' The lending
industry's regulators, such as the Federal Deposit Insurance
Corporation and the Farm Credit Administration, currently allow
$250,000 as their threshold for business type (agricultural purpose)
loans. Therefore, FSA proposes to increase the minimum guaranteed loan
amount required for a real estate appraisal from $50,000 to the minimum
level of $250,000. There is no comparable proposal to raise the limit
for direct FSA loans because direct loans typically display more
serious financial stress, pose significantly more risk of loss to FSA,
and warrant stricter safeguards.
For loans of $250,000 or less, lenders may document value in the
same manner as for their unguaranteed loans, for example statement of
value, tax assessment, automated valuation model, and so on. If an
appraisal is completed voluntarily for loans of $250,000 or less, it is
not required to be USPAP compliant. The security for the loan must
still meet the requirements specified in 7 CFR 762.126 to ensure that
proper and adequate security is obtained to protect the interests of
the lender and FSA. This change will merely allow lenders to follow
industry standards to document collateral value.
Amending the appraisal regulations to increase the minimum loan
amount to $250,000 will benefit lenders, guaranteed loan applicants,
and FSA. Some of the applicants are small or family farms for whom
appraisal fees can be a significant burden. Due to the relatively small
size of these loans, FSA can expeditiously provide financial assistance
to these borrowers. Appraisal fees will be reduced, if not eliminated,
as there will be no cost for an appraisal on loans under $250,000.
Application processing times also are expected to be reduced
because of the proposed change, due to the fact that the appraisal will
not need to be conducted under the new threshold, and this will also
help make FSA's guaranteed loan program more attractive to lenders and
their applicants. Faster access to capital is expected to promote
operation viability and a higher probability of loan repayment.
Guaranteed loans greater than $250,000 still require a current
appraisal completed by a State Certified General Appraiser in
accordance with USPAP in the previous 12 months. As an alternative, FSA
also proposes to revise 7 CFR 762.127 to allow FSA to waive the
requirement for loans greater than $250,000 if there is an existing
appraisal that is more than 12 months old and:
Overall market conditions have remained stable or
improved;
The condition of the property in question is comparable to
the time of the appraisal; and
The value of the property has remained the same or
increased.
This change would relieve the applicant of the cost of a new
appraisal. Further, with stable or improving market conditions, there
would be no additional risk to FSA when collateralizing a loan with
security that has not had an updated appraisal. No appeal will be
available on FSA's decision to waive this regulatory requirement.
The proposed increase from $50,000 to $250,000 would apply to real
estate appraisals, not chattel appraisals. FSA's policy to not require
chattel appraisals for loans of $50,000 or less where a strong equity
position exists would remain.
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FSA also proposes clarifying in 7 CFR 762.127 that while a formal
appraisal is not necessary for chattel or real estate that will serve
as additional security, an estimated value is still required.
Lastly, the terms ``complete'' and ``limited appraisal'' have been
determined to be obsolete in the industry. Therefore, FSA proposes to
remove the references of ``complete'' and ``limited appraisal'' from
the regulations in 7 CFR part 762.
Leases
With the increased emphasis on wireless communication, finding
traditional energy sources, and developing alternative energy sources,
FSA is receiving more requests to allow borrowers to lease portions of
their farm for communication towers, wind energy installations, and
mineral exploration. While usually beneficial to landowners and their
lenders, these leases may create a financial burden to the borrower as
a result of unanticipated costs, such as removal of the equipment or
mitigation of damages. The installations can also make the land
difficult or impossible to farm, and FSA farm loan borrowers are
required by law to operate, not lease, the farmland they own and use as
security.
Such leases, however, can provide flexibility for farm loan
borrowers in the form of increased cash flows, reduced debt load, and
quicker debt reduction that can lead to graduation from FSA credit to
commercial credit. Each of these situations is unique, and legal
counsel is often required. Therefore, instructions to cover every
circumstance cannot be issued in this rule; however, FSA proposes
certain revisions and clarifications to 7 CFR 765.205(b), 765.252(a),
and 765.252(b) to allow consistent treatment of such lease requests.
For example, the proposed change provides that a lease must not
adversely affect FSA's security interest or the successful operation of
the farm, and requires FSA review of contracts or agreements related to
the lease.
FSA also proposes changes in 7 CFR 765.252 to allow these nonfarm
type leases be made for any term, instead of the 3- to 5-year limit in
the present regulations. FSA proposes removing the time limit in order
to allow qualified nonfarm leases to continue for longer periods since
these leases provide flexibility and cash flow to the borrower, but do
not interfere with the successful operation of the farm or adversely
affect the Government's interest. These standards are central to FSA's
mission as FSA is required to supply agricultural financing to farm
operators who cannot obtain funds elsewhere until they are in a
position to move to commercial credit.
Subordinations
In a subordination, a lender will give another entity, often
another lender, its superior lien position. FSA often executes
subordinations for its direct loans so another lender can provide
financing to an FSA borrower. This subordination of the lien on FSA
security allows the borrower to produce a crop, build a house on the
farm, or do other things that are beneficial to the family farm. These
FSA subordinations are almost always to another lender that is making a
loan to the borrower, and the present FSA regulations address this
circumstance. However, FSA proposes expanding the definition in 7 CFR
761.2(b) to allow for leases to companies who want to use the land for
purposes such as alternative energy. Subordinations of real estate to a
lessee must meet the following conditions (all of which also apply to
subordinations of real estate to creditors):
The borrower is not in default or will not be in default
on FLP loans by the time the subordination closing is complete;
The borrower can demonstrate, through a current farm
operating plan, the ability to repay all debt payments scheduled, and
to be scheduled, during the production cycle;
Except for CL, the borrower is unable to partially or
fully graduate;
The borrower must not be ineligible as a result of a
conviction for controlled substances according to 7 CFR part 718;
The borrower must not be ineligible due to
disqualification resulting from Federal crop insurance violation
according to 7 CFR part 718;
The borrower will not use loan funds in a way that will
contribute to erosion of highly erodible land or conversion of wetlands
as described in subpart G of 7 CFR part 1940;
Any planned development of real estate security will be
performed as directed by the lessor or creditor, as approved by FSA,
and will comply with the terms and conditions of 7 CFR 761.10;
Subordinations of shared appreciation agreement (SAA)
mortgages may only be approved when there is no increase in the debt
that is prior to the SAA debt; and
FSA may subordinate non-program security only when it is
also security for a program loan with the same borrower.
FSA proposes amending 7 CFR 765.205(b) to extend subordination
authority to include leases, as the contracts presented to borrowers by
companies who want to use the land for alternative energy or
communication towers often contain subordination language in addition
to the terms of the lease.
FSA also proposes amending 7 CFR 765.205(b)(1) to allow a
subordination of real estate security to creditors if the loan will be
used to refinance a loan originally made for an authorized loan purpose
by FSA or another creditor. This will allow FSA to help an existing
borrower refinance a farm loan with another loan more beneficial to the
operation. This type of financing is often used when a lower interest
rate becomes available.
Disposition of Chattel Proceeds
Section 335(f)(6) of the CONACT (7 U.S.C. 1985(f)(6)) allows FSA to
require borrowers to plan for, or report on, how proceeds from the sale
of collateral property will be used. Currently, FSA requires borrowers
with chattel security to sign detailed annual agreements on the use of
all chattel proceeds, even beyond those required for payment of FLP
loans, and to immediately report to FSA all proceeds from the sale of
chattel security. FSA proposes to limit these agreements to proceeds
from the disposition of normal income security and will be applied to
the FSA indebtedness in order to save time for both the borrower and
FSA. This change would mean that for proceeds that will not be applied
to FSA loans, borrowers who live some distance from the nearest FSA
office could save time and expense required for ``in person'' reporting
and submission of chattel proceeds. FSA personnel will also be free to
perform other duties instead of tracking proceeds used to pay other
creditors. The borrower will still be informed of their rights and
responsibilities regarding the security. FSA will continue to comply
with the statutory release requirements in Section 335(f) of the
CONACT, including release of normal income security prior to
acceleration in an amount sufficient to pay for essential household and
farm operating expenses, while not reducing the oversight of chattel
security. FSA proposes to change 7 CFR 765.302 to track only normal
income security proceeds that are planned for release or applied to FSA
FLP payments instead of attempting real time monitoring of all
proceeds. This will be accomplished with the use of an agreement for
each production cycle (with revisions as necessary) on which the
borrower and FSA agree to the use of proceeds that will be used to make
payments. With the proposed change, FSA will use an internal form that
records the proceeds of both normal income and basic security as they
are
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submitted. To reflect this change to the regulation, FSA proposes to
conform the current definition of the agreement for the use of proceeds
in 7 CFR 761.2(b).
FSA further proposes removing 7 CFR 765.302(b), which provides that
an agreement for the use of proceeds is in effect until the proper
disposition of all listed chattel security has been accomplished or a
new agreement is executed. The duration of the agreement is specified
in the agreement itself and 7 CFR 765.302(b) is unnecessary.
FSA also proposes to remove 7 CFR 765.302(h), which requires the
borrower to maintain documentation of all dispositions of chattel
proceeds, because it goes beyond the scope of the new proposed
definition of the agreement, which is limited to proceeds that will be
applied to loan payments. The recordkeeping requirement of all chattel
proceeds, regardless of whether applied to loan payments, is still
important for annual planning purposes, however, so FSA proposes to
incorporate the recordkeeping requirement into 7 CFR 765.301(a).
Release
Due the changing needs of many in the rural community, FSA is
proposing to amend 7 CFR 765.305 and 765.351(f) to expand releases of
its liens. The proposed change would allow FSA to release some security
without compensation for borrowers who have not had primary loan
servicing within the last 3 years if the loan security margin would be
150 percent or more after the release, and the borrower is:
Graduating on all chattel or all real estate debt (that
is, partial graduation);
Using the security to obtain other credit; or
Transferring a small tract of real estate to a person
related by blood or marriage.
Loans of borrowers in these circumstances have a low risk of loss
to the Government, and the partial release of security without
compensation would be acceptable when weighed against the benefits that
would accrue to the borrower. In addition, supporting this change is
the fact that at the end of fiscal year 2010, the dollar delinquency on
the FLP direct loan program as a whole was 5.9 percent and the loss
rate was 1.2 percent. These are remarkably positive statistics in light
of FSA's mission to serve those who cannot get credit elsewhere. This
success is, of course, partially due to the nature and resilience of
farmers, but beyond that, there have been several policies that have
brought the delinquencies and losses down:
The extensive servicing options originally made available
through the Agricultural Credit Act of 1987;
The Treasury Offset Program (TOP) brought about by the
Debt Collection and Improvement Act of 1996 and the continuation of
administrative offsets;
Continued financial support by the various FSA farm
programs (commodity and price support);
Stable FLP credit policies; and
Continued emphasis on looking at cash flow and not just
collateral when making credit decisions.
As the average age for farmers increases and their numbers
diminish, FSA is encountering instances where farmers with loans that
have security margins of 150 percent or more are requesting releases of
security for partial graduations (when a borrower obtains commercial
credit on all real estate or all chattel loans), to obtain financing
for non-farm businesses, to facilitate gradual generational transfers
of farm property to family members, or to manage future taxes by
transferring assets to family members. These proposed changes may allow
successful farmers to expand into businesses such as selling seed and
feed retail, trucking or welding, that while not eligible for FSA
financing, still contribute to their income and provide services to the
local community. Further, the proposed changes allow borrowers to
transfer small tracts to family members related by blood or marriage to
start a business, or build a house, or any number of things that could
spur economic activity in the area. Although these borrowers have
successful operations and their loans are better secured than most
direct borrowers, graduation requirements will still ensure that they
are unable to move entirely to commercial credit before FSA releases
security. This policy will help support the rural population while
still protecting the Government.
Conservation Contracts
The Conservation Contract Program provides debt cancellation for
FLP borrowers in exchange for them taking land out of production for
conservation purposes. The proposed changes noted below will reduce the
costs to FSA and the burden of administering the Conservation Contract
Program while still ensuring the conservation objective is met by
clarifying and revising the Conservation Contract Program regulations
in 7 CFR 766.110.
There are many instances where land proposed for a Conservation
Contract is encumbered under another conservation program for which the
borrower receives compensation. If the conservation program, whether
administered by Federal, State, or local government, compensates the
borrower for similar conservation, wildlife or recreation benefits on
the same land, FSA proposes that the land generally will not be
eligible for a Conservation Contract. The borrower, who has already
received payment for the conservation benefit, should not receive
additional payments on land in the form of a debt cancellation with a
Conservation Contract. This change would, thus, eliminate inadvertent
duplicative payments, sometimes referred to as ``double-dipping.''
However, cost-share payments from other sources for practices that
improve the property as opposed to solely conserving the property, such
as pesticide application, diking, or noxious weed removal, are not
considered a duplication of benefits as long as such practices are
consistent with with the Conservation Contract management plan.
Borrowers would be required to certify on the Conservation Contract as
to any participation in other conservation programs for the
Conservation Contract land. Any portion of the land that was already
encumbered by another conservation program would be ineligible for a
Conservation Contract.
FSA also proposes to clarify in 7 CFR 766.110(m) that FSA would not
grant subordinations of the Conservation Contract. This will ensure
that the contract is not lost through foreclosure of a lien by a holder
who obtains a superior lien through a subordination.
FSA proposes to require in 7 CFR 766.110(c) a legal right-of-way or
other legal, permanent access to the Conservation Contract property for
the life of the Conservation Contract. The current regulation is silent
on this issue. On Conservation Contract properties that are land-locked
with no legal right of access, FSA officials or the management
authority cannot verify compliance with the Conservation Contract. The
Conservation Contract form FSA-2535 includes the following statement in
paragraph 11.B: ``Grantee has a right of reasonable ingress and egress
to the contract area over the Grantor's property, whether or not the
property is adjacent to the contract area, for the exercise of any of
the rights of Grantee under this contract,'' but this does not give FSA
or the management authority the legal right to access the property
through a third party's property. In addition, if the land is
transferred to a subsequent landowner, it is possible that access may
be refused by the subsequent landowner despite the contract's language.
A legal right-of-way that is recorded, in addition to the
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Conservation Contract, will assure that FSA or the management authority
will have access to inspect the property for the life of the
Conservation Contract.
FSA is proposing to change 7 CFR 766.110 to require a minimum
parcel size of 10 contiguous acres to better manage Conservation
Contracts. Presently, there are numerous small parcels with
Conservation Contracts that are not suitable for the purposes of the
program as they are too small for conservation, recreation, or wildlife
purposes. In addition, they are difficult to identify, access, and
manage. Establishing a minimum size as a general requirement has
minimal adverse effect on the borrowers or FSA, and FSA or the
management authority will be better able to inspect the property for
contract compliance, to ensure protection of the natural resource and
recreational areas.
Further, FSA proposes to require subordinations from prior
lienholders before approval of the Conservation Contract. Under the
existing regulations, if a borrower with a Conservation Contract
defaults on a debt with another lender that is secured by the same land
as that subject to the Conservation Contract, that creditor could
foreclose on the property and effectively remove the Conservation
Contract. The intent of the program is to establish long-term
conservation, wildlife, or recreation benefits. Requiring a
subordination from a prior lienholder would ensure that the
Conservation Contract will stay with the land for the duration of the
contract.
FSA is proposing new damages for a breach of contract in this rule.
Currently a grantor who breaches the Conservation Contract by using the
land in a manner not permitted under the contract, such as building an
unauthorized structure or cutting down timber, must either restore
damaged or altered land, or repay the amount of the debt cancellation.
FSA has determined that this does not provide sufficient incentive to
ensure the grantor's compliance with the terms of the Conservation
Contract as the original debt is reinstated, but the public still loses
the benefit of the conservation of the land. The purpose of the
Conservation Contract Program is to place at-risk land under a
conservation contract for a set period of time, protect the land, and
enhance its conservation, wildlife or recreation value. The
consequences of a breach of the Conservation Contract must discourage
violations and abuse of the program. Therefore, FSA proposes to require
any violator to restore damaged or altered areas or, if the land is not
restored within 90 days, pay FSA the amount of the debt previously
cancelled, plus interest to the date of payment, plus any actual
expenses incurred by FSA in enforcing the Conservation Contract, plus a
penalty in the amount of 25 percent of the amount of the debt
cancelled. Such interest will accrue either at the note rate for a
grantor indebted to FSA or at the non-program interest rate for a
grantor who is no longer indebted to FSA or a successor-in-interest.
Also, grantors who still have an FSA loan and breach a Conservation
Contract will be considered to be in non-monetary default on their loan
if the violation is not timely cured, and FSA will take collection
actions accordingly. These changes are expected to reduce the number of
Conservation Contract breaches and help to ensure that the Conservation
Contract Program accomplishes its important purpose of protecting the
land and enhancing its conservation, wildlife, or recreation value.
Conservation Contracts executed prior to the implementation of this
rule will be enforced according to the terms and regulations in force
at the time of their execution.
Lastly, FSA proposes to clarify that uplands eligible for
Conservation Contracts include buffer areas necessary not only for the
protection of proposed Conservation Contract areas, but also for
protection of the area enrolled in other conservation programs.
Technical Amendments
FSA proposes to remove Sec. 761.103(b)(8) requiring loan
evaluation as part of the farm assessment. The farm assessment helps
determine the appropriate level of FSA oversight, credit counseling,
and training needs of the applicant. A loan evaluation is also
completed by FSA when a loan request is processed and is intended to be
a narrative to address eligibility, collateral, capacity, capital, and
loan conditions of the specific loan. Therefore, it is duplicative to
include a loan evaluation as part of the farm assessment. A loan
evaluation also should not be a burden on the applicant. Therefore, FSA
proposes to remove the requirement for a loan evaluation to be part of
the initial farm assessment.
Appendix A to Subpart C of part 766, Notice of Availability of Loan
Servicing to Borrowers who are Current, Financially Distressed, or Less
Than 90 Days Past Due, does not match the requirement established in
Sec. 766.104(a)(5). The paragraph requires borrowers who are
financially distressed or current to pay a portion of the interest due
on their loans to qualify for primary loan servicing. Appendix A
section (a)(4), paragraph entitled ``payment of interest,'' however,
implies that the borrower will always have to pay a portion of the
interest that has accrued on FLP loans when a restructuring is closed.
FSA proposes to revise Appendix A to remove this inconsistency and
reflect that the requirement to pay some interest on the account only
applies to borrowers who are not delinquent at closing.
Previously, definitions applicable to 7 CFR parts 761 through 767
were moved to 7 CFR 761.2(b); however, several conforming changes to 7
CFR part 762 were not made at that time. FSA proposes conforming
changes to 7 CFR part 762 to properly cite the location of the
definitions and remove ``or ranching'' from 7 CFR 762.146(b)(1).
Lastly, this rule proposes to remove obsolete CFR references for FLP
and to replace them with current references that were missed when FSA
published the Regulatory Streamlining regulation on November 8, 2007
(72 FR 63242-63361).
Executive Orders 12866 and 13563
Executive Order 12866, ``Regulatory Planning and Review,'' and
Executive Order 13563, ``Improving Regulation and Regulatory Review,''
direct agencies to assess all costs and benefits of available
regulatory alternatives and, if regulation is necessary, to select
regulatory approaches that maximize net benefits (including potential
economic, environmental, public health and safety effects, distributive
impacts, and equity). Executive Order 13563 emphasized the importance
of quantifying both costs and benefits, of reducing costs, of
harmonizing rules, and of promoting flexibility.
The Office of Management and Budget (OMB) designated this rule as
not significant under Executive Order 12866 and, therefore, OMB was not
required to review this proposed rule.
Clarity of the Regulation
Executive Order 12866, as supplemented by Executive Order 13563,
requires each agency to write all rules in plain language. In addition
to your substantive comments on these proposed rules, we invite your
comments on how to make them easier to understand. For example:
Are the requirements in the rule clearly stated? Are the
scope and intent of the rule clear?
Does the rule contain technical language or jargon that is
not clear?
Is the material logically organized?
Would changing the grouping or order of sections or adding
headings make the rule easier to understand?
Could we improve clarity by adding tables, lists, or
diagrams?
[[Page 22449]]
Would more, but shorter, sections be better? Are there
specific sections that are too long or confusing?
What else could we do to make the rule easier to
understand?
Regulatory Flexibility Act
In accordance with the Regulatory Flexibility Act (5 U.S.C. 601),
FSA is certifying that there would not be a significant economic impact
on a substantial number of small entities. All FSA direct loan
borrowers and all farm entities affected by this rule are small
businesses according to the North American Industry Classification
System and the U.S. Small Business Administration. There is no
diversity in size of the entities affected by this rule, and the costs
to comply with it are the same for all entities.
In this rule, FSA is proposing to revise regulations that affect
both loan making and loan servicing. FSA does not expect these changes
to impose any additional cost to the borrowers, and in fact, FSA
expects some Government, borrower, and lender costs could be saved
because:
Third party appraisals could be used in some cases in
which FSA currently has to pay for new appraisals that include the
mineral's value in real estate appraisals.
A waiver for some guaranteed loan appraisals will save
lenders and guaranteed borrowers the expense of ordering new appraisals
when it is not necessary to protect Government interests.
FSA will allow the release of security for other credit or
generational transfers when FSA is very well secured.
Planning for the disposition of chattel proceeds will be
simplified, while FSA still tracks all proceeds to be applied on FLP
loans.
Elimination of double-dipping and strengthening the
oversight of the real estate entered into the Conservation Contract
program will allow the Government to fairly compensate the owners of
the valuable natural resources without the risk of losing usage
restrictions which have been paid for by the taxpayers.
Therefore, FSA certifies that this rule will not have a significant
economic impact on a substantial number of small entities.
Environmental Review
The environmental impacts of this proposed rule have been
considered in a manner consistent with the provisions of the National
Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations
of the Council on Environmental Quality (40 CFR parts 1500-1508), and
the FSA regulations for compliance with NEPA (7 CFR part 799 and 7 CFR
part 1940, subpart G). FSA concluded that the changes to streamline the
servicing process and give the borrower greater flexibility explained
in this proposed rule are administrative in nature and will not have a
significant impact on the quality of the human environment either
individually or cumulatively. The environmental responsibilities for
each prospective applicant will not change from the current process
followed for all Farm Loan Program actions (7 CFR 1940.309). Therefore
FSA will not prepare an environmental impact statement on this proposed
rule.
Executive Order 12372
Executive Order 12372, ``Intergovernmental Review of Federal
Programs,'' requires consultation with State and local officials. The
objectives of the Executive Order are to foster an intergovernmental
partnership and a strengthened Federalism, by relying on State and
local processes for State and local government coordination and review
of proposed Federal Financial assistance and direct Federal
development. For reasons set forth in the Notice to 7 CFR part 3015,
subpart V (48 FR 29115, June 24, 1983), the programs and activities
within this rule are excluded from the scope of Executive Order 12372.
Executive Order 12988
This proposed rule has been reviewed in accordance with Executive
Order 12988, ``Civil Justice Reform.'' As proposed, this rule preempts
State and local laws and regulations that are in conflict with this
rule. Before any judicial action may be brought concerning the
provisions of this rule the administrative appeal provisions of 7 CFR
parts 11 and 780 must be exhausted.
Executive Order 13132
This rule has been reviewed under Executive Order 13132,
``Federalism.'' The policies contained in this rule do not have any
substantial direct effect on States, the relationship between the
Federal government and the States, or the distribution of power and
responsibilities among the various levels of government. Nor does this
proposed rule impose substantial direct compliance costs on State and
local governments. Therefore, consultation with the States is not
required.
Executive Order 13175
This rule has been reviewed for compliance with Executive Order
13175, ``Consultation and Coordination with Indian Tribal
Governments.'' The Executive Order imposes requirements on the
development of regulatory policies that have Tribal implications or
preempt Tribal laws. The policies contained in this rule do not impose
substantial unreimbursed direct compliance costs on Indian Tribal
governments or have Tribal implications that preempt Tribal law. USDA
will undertake, within 6 months after this rule becomes effective, a
series of regulation Tribal consultation sessions to gain input by
Tribal officials concerning the impact of this rule on Tribal
governments, communities, and individuals. These sessions will
establish a baseline of consultation for future actions, should any
become necessary, regarding this rule. Reports from these sessions for
consultation will be made part of the USDA annual reporting on Tribal
Consultation and Collaboration. USDA will respond in a timely and
meaningful manner to all Tribal government requests for consultation
concerning this rule and will provide additional venues, such as
Webinars and teleconferences, to periodically host collaborative
conversations with Tribal leaders and their representatives concerning
ways to improve this rule in Indian country.
Unfunded Mandates
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L.
1044) requires Federal agencies to assess the effects of their
regulatory actions on State, local, or Tribal governments or the
private sector. Agencies generally must prepare a written statement,
including a cost benefit analysis, for proposed and final rules with
Federal mandates that may result in expenditures of $100 million or
more in any 1 year for State, local, or Tribal governments, in the
aggregate, or to the private sector. UMRA generally requires agencies
to consider alternatives and adopt the more cost effective or least
burdensome alternative that achieves the objectives of the rule. This
rule contains no Federal mandates under the regulatory provisions of
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L.
104-4) for State, local, or Tribal governments, or private sector.
Therefore, this rule is not subject to the requirements of sections 202
and 205 of UMRA.
[[Page 22450]]
Paperwork Reduction Act
The proposed amendments are either revisions of internal operations
or modifications to existing responses that will have no net effect on
paperwork burden. For example, the proposed new requirement for
documentation to permit the use of guaranteed loan appraisals over 12
months old in certain situations is offset by waiving the requirement
for a new appraisal in every situation where the current appraisal is
more than 12 months old.
The borrower certification regarding double dipping in the
Conservation Contract is a statement on an existing form that does not
add burden.
Therefore, the amendments proposed for 7 CFR parts 761, 762, 765,
766, and 772 require no changes or new collection to the currently
approved information collections by OMB under the control numbers of
0560-0155, 0560-0233, 0560-0236, 0560-0237, 0560-0238 and 0560-0230.
E-Government Act Compliance
FSA is committed to complying with the E-Government Act, to promote
the use of the Internet and other information technologies to provide
increased opportunities for citizen access to Government information
and services and other purposes.
Federal Assistance Programs
The title and number of the Federal assistance programs, as found
in the Catalog of Federal Domestic Assistance, to which this proposed
rule would apply are:
10.099 Conservation Loans
10.404 Emergency Loans
10.406 Farm Operating Loans
10.407 Farm Ownership Loans
List of Subjects
7 CFR Part 761
Accounting, Loan programs--agriculture, Rural areas.
7 CFR Part 762
Agriculture, Banks, banking, Credit, Loan programs--agriculture.
7 CFR Part 765
Agriculture, Agricultural commodities, Credit, Livestock, Loan
programs--agriculture.
7 CFR Part 766
Agriculture, Agricultural commodities, Credit, Livestock, Loan
programs--agriculture.
7 CFR Part 772
Agriculture, Credit, Loan programs--agriculture, Rural areas.
For the reasons discussed above, FSA proposes to amend 7 CFR
chapter VII as follows:
PART 761--FARM LOAN PROGRAM; GENERAL PROGRAM ADMINISTRATION
1. The authority citation for part 761 continues to read as
follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart A--General Provisions
2. In Sec. 761.2(b) revise the definitions of ``Agreement for the
use of proceeds'' and ``Subordination'' to read as follows:
Sec. 761.2 Abbreviations and definitions.
* * * * *
(b) * * *
Agreement for the use of proceeds is an agreement between the
borrower and the Agency for each production cycle that reflects the
proceeds from the sale of normal income security that will be used to
pay scheduled FLP loan installments, including any past due
installments, during the production cycle covered by the agreement.
* * * * *
Subordination is a creditor's temporary relinquishment of all or a
portion of its lien priority to another party providing the other party
with a priority lien on the collateral.
* * * * *
3. Amend Sec. 761.7 as follows:
a. Revise paragraph (b)(1);
b. Add paragraph (b)(3); and
c. Revise paragraph (d).
The revisions and addition read as follows:
Sec. 761.7 Appraisals.
* * * * *
(b) * * *
(1) Real estate appraisals, technical appraisal reviews and their
respective forms must comply with the standards contained in USPAP, as
well as applicable Agency regulations and procedures for the specific
FLP activity involved. Applicable appraisal procedures and regulations
are available for review in each Agency State Office.
* * * * *
(3) For direct FO loans secured by real estate after December 23,
1985, the appraisal must include the value of oil, gas, and other
minerals even if the minerals have no known or nominal value.
* * * * *
(d) Appraisal appeals. Challenges to an appraisal used by the
Agency are limited as follows:
(1) When an applicant or borrower challenges a real estate
appraisal used by the Agency for any loan making or loan servicing
decision, except primary loan servicing decisions as specified in Sec.
766.115 of this chapter, the issue for review is limited to whether the
appraisal used by the Agency complies with USPAP. The applicant or
borrower must submit a technical appraisal review prepared by a State
Certified General Appraiser that will be used to determine whether the
Agency's appraisal complies with USPAP. The applicant or borrower is
responsible for obtaining and paying for the technical appraisal
review.
(2) When an applicant or borrower challenges a chattel appraisal
used by the Agency for any loan making or loan servicing decision,
except for primary loan servicing decisions as specified in Sec.
766.115 of this chapter, the issue for review is limited to whether the
appraisal used by the Agency is consistent with present market values
of similar items in the area. The applicant or borrower must submit an
independent appraisal that will be used to determine whether the
appraisal is consistent with present market values of similar items in
the area. The applicant or borrower is responsible for obtaining and
paying for the independent appraisal.
Subpart C--Supervised Credit
Sec. 761.103 [Amended]
4. Amend Sec. 761.103 by removing paragraph (b)(8) and
redesignating paragraphs (b)(9), (10), and (11) as paragraphs (b)(8),
(9), and (10), respectively.
PART 762--GUARANTEED FARM LOANS
5. The authority citation for part 762 continues to read as
follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Sec. 762.120 [Amended]
6. Amend Sec. 762.120 as follows:
a. In paragraph (a)(2) introductory text, remove the phrase ``and
ranch'';
b. In paragraphs (k)(3) and (l)(2), remove the phrase ``or
ranching''; and
c. In paragraph (m), remove the phrase ``or ranchers''.
Sec. 762.121 [Amended]
7. In Sec. 762.121(a)(1)(v), remove the words ``and ranch''.
8. Revise Sec. 762.127 to read as follows:
Sec. 762.127 Appraisal requirements.
(a) General. The general requirements for an appraisal are:
(1) Value of collateral. The lender is responsible for ensuring
that the value of chattel and real estate pledged as
[[Page 22451]]
collateral is sufficient to fully secure the guaranteed loan.
(2) Additional security. The lender is not required to complete an
appraisal of chattel or real estate that will serve as additional
security, but the lender must provide an estimated value.
(3) Appraisal cost. Except for authorized liquidation expenses, the
lender is responsible for all appraisal costs, which may be passed on
to the borrower, or transferee in the case of a transfer and
assumption.
(b) Chattel security. The requirements for chattel appraisals are:
(1) Need for chattel appraisal. A current appraisal (not more than
12 months old) of primary chattel security is required on all loans
except loans or lines of credit for annual production purposes secured
by crops, which require an appraisal only when the guarantee is
requested late in the current production year and actual yields can be
reasonably estimated. An appraisal is not required for loans of $50,000
or less if a strong equity position exists.
(2) Basis of value. The appraised value of chattel property will be
based on public sales of the same or similar property in the market
area. In the absence of such public sales, reputable publications
reflecting market values may be used.
(3) Appraisal form. Appraisal reports may be on the Agency's
appraisal of chattel property form or on any other appraisal form
containing at least the same information.
(4) Experience and training. Chattel appraisals will be performed
by appraisers who possess sufficient experience or training to
establish market (not retail) values as determined by the Agency.
(c) Real estate security. The requirements for real estate
appraisals are:
(1) Loans of $250,000 or less. The lender must document the value
of the real estate in the same manner as their non-guaranteed loans. If
an appraisal is used, it does not have to be USPAP compliant.
(2) Loans greater than $250,000. The lender must document the value
of real estate using a current appraisal (not more than 12 months old)
completed by a State Certified General Appraiser. The Agency may allow
an appraisal more than 12 months old to be used only if documentation
provided by the lender reflects each of the following:
(i) Market conditions have remained stable or improved based on
sales of similar properties,
(ii) The property in question remains in the same or better
condition, and
(iii) The value of the property has remained the same or increased.
(3) Agency determinations under paragraph (c)(2) of this section to
permit appraisals more than 12 months old are not appealable.
Sec. 762.145 [Amended]
9. In Sec. 762.145(b)(4) and (e)(1), remove the citation ``Sec.
762.102(b)'' and add in its place the citation ``Sec. 761.2(b) of this
chapter''.
Sec. 762.146 [Amended]
10. In Sec. 762.146(b)(6) and (e)(1), remove the citation ``Sec.
762.102(b)'' and add in its place the citation ``Sec. 761.2(b) of this
chapter'' and in paragraph (b)(1) by removing the text ``or ranching''.
Sec. 762.149 [Amended]
11. In Sec. 762.149(b)(1)(iii) introductory text, remove the
citation ``Sec. 762.102'' and add in its place the citation ``Sec.
761.2(b) of this chapter''.
Sec. 762.150 [Amended]
12. In Sec. 762.150(b)(5) and (d)(2), remove the text ``and
ranchers'' and remove the citation ``Sec. 762.102'' and add in its
place the citation ``Sec. 761.2(b) of this chapter''.
PART 765--DIRECT LOAN SERVICING--REGULAR
13. The authority citation for part 765 continues to read as
follows:
Authority: 5 U.S.C. 301 and 7 U.S.C. 1989.
Subpart E--Protecting the Agency's Security Interest
Sec. 765.205 Subordination of liens.
14. Revise Sec. 765.205(b), (c) introductory text, and (c)(1) to
read as follows:
* * * * *
(b) Subordination of real estate security. (1) If a lender requires
that the Agency subordinate its lien position on the borrower's
existing property in order for the borrower to acquire new property,
the Agency will obtain a valid mortgage and the required lien position
on the new property. The Agency will require title clearance and loan
closing for the property in accordance with Sec. 764.402 of this
chapter.
(2) If the borrower is an entity and the Agency has taken real
estate as additional security on property owned by a member, a
subordination for any authorized loan purpose may be approved when it
meets the requirements in paragraph (b)(3) of this section and it is
needed for the entity member to finance a separate farming operation.
The subordination must not cause the unpaid principal and interest on
the FLP loans to exceed the value of loan security or otherwise
adversely affect the security.
(3) The Agency will approve a request for subordination of real
estate to a creditor if:
(i) The loan will be used for an authorized loan purpose or is to
refinance a loan made for an authorized loan purpose by the Agency or
another creditor;
(ii) The credit is essential to the farming operation, and the
borrower cannot obtain the credit without a subordination;
(iii) The FLP loan is still adequately secured after the
subordination, or the value of the loan security will be increased by
an amount at least equal to the advance to be made under the
subordination;
(iv) Except as authorized by paragraph (c)(2) of this section,
there is no other subordination outstanding with another lender in
connection with the same security;
(v) The subordination is limited to a specific amount;
(vi) The loan made in conjunction with the subordination will be
closed within a reasonable time and has a definite maturity date;
(vii) If the loan is made in conjunction with a guaranteed loan,
the guaranteed loan meets the requirements of Sec. 762.142(c) of this
chapter;
(viii) The borrower is not in default or will not be in default on
FLP loans by the time the subordination closing is complete;
(ix) The borrower can demonstrate, through a current farm operating
plan, the ability to repay all debt payments scheduled, and to be
scheduled, during the production cycle;
(x) Except for CL, the borrower is unable to partially or fully
graduate;
(xi) The borrower must not be ineligible as a result of a
conviction for controlled substances according to part 718 of this
chapter;
(xii) The borrower must not be ineligible due to disqualification
resulting from Federal crop insurance violation according to part 718
of this chapter;
(xiii) The borrower will not use loan funds in a way that will
contribute to erosion of highly erodible land or conversion of wetlands
as described in part 1940, subpart G of this title;
(xiv) Any planned development of real estate security will be
performed as directed by the lessor or creditor, as approved by the
Agency, and will comply with the terms and conditions of Sec. 761.10
of this chapter;
(xv) If a borrower with an SAA mortgage is refinancing a loan held
by
[[Page 22452]]
a lender, subordination of the SAA mortgage may only be approved when
the refinanced loan does not increase the amount of debt; and
(xvi) In the case of a subordination of non-program loan security,
the non-program loan security also secures a program loan with the same
borrower.
(4) The Agency will approve a request for subordination of real
estate to a lessee if the conditions in paragraphs (b)(3)(viii) through
(b)(3)(xvi) of this section are met.
(c) Chattel security. The requirements for chattel subordinations
are as follows:
(1) For loans secured by chattel, the subordination must meet the
conditions contained in paragraphs (b)(3)(i) through (xiii) of this
section.
* * * * *
Subpart F--Required Use and Operation of Agency Security
15. Amend Sec. 765.252 as follows:
a. Revise paragraphs (a) heading and introductory text, (a)(1),
(a)(2), (a)(4), (b)(1), and (b)(2); and
b. Add paragraphs (a)(5) and (b)(4).
The revisions and additions read as follows:
Sec. 765.252 Lease of security.
(a) Real estate surface leases. The borrower must request prior
approval to lease the surface of real estate security. The Agency will
approve requests provided the following conditions are met:
(1) The lease will not adversely affect the Agency's security
interest;
(2) The term of consecutive leases for agricultural purposes does
not exceed 3 years, or 5 years if the borrower and the lessee are
related by blood or marriage. The term of surface leases for nonfarm
purposes, such as wind turbines, communication towers, or similar
installations can be for any term;
* * * * *
(4) The lease does not hinder the future operation or success of
the farm, or, if the borrower has ceased to operate the farm, the
requirements specified in Sec. 765.253 are met; and
(5) The lease and any contracts or agreements in connection with
the lease must be reviewed and approved by the Government.
(b) * * *
(1) For FO loans secured by real estate on or after December 23,
1985, and loans other than FO loans secured by real estate and made
from December 23, 1985, to (effective date of the final rule), the
value of the mineral rights must have been included in the original
appraisal in order for the Agency to obtain a security interest in any
oil, gas, and other mineral associated with the real estate security.
(2) For all other loans not covered by paragraph (b)(1) of this
section, the Agency will obtain a security interest in any oil, gas,
and other mineral on or under the real estate pledged as collateral in
accordance with the applicable security agreement, regardless of
whether such minerals were included in the original appraisal.
* * * * *
(4) The term of the mineral lease is not limited.
* * * * *
Sec. 765.253 [Amended]
16. Amend Sec. 765.253 by removing paragraph (d) and redesignating
paragraph (e) as paragraph (d).
Subpart G--Disposal of Chattel Security
17. Revise Sec. 765.301(a) to read as follows:
Sec. 765.301 General.
(a) The borrower must account for all chattel security, and
maintain records of dispositions of chattel security and the actual use
of proceeds. The borrower must make these records available to the
Agency upon request.
* * * * *
18. Amend Sec. 765.302 as follows:
a. Revise paragraph (a);
b. Remove paragraphs (b) and (h);
c. Redesignate paragraphs (c), (d), (e), (f), and (g) as paragraphs
(b), (c), (d), (e), and (f) respectively; and
d. Revise newly redesignated paragraphs (b) through (e).
The revisions read as follows:
Sec. 765.302 Use and maintenance of the agreement for the use of
proceeds.
(a) The borrower and the Agency will execute an agreement for the
use of proceeds.
(b) The borrower must report any disposition of basic or normal
income security to the Agency as specified in the agreement for the use
of proceeds.
(c) If a borrower wants to dispose of normal income security in a
way different than provided by the agreement for the use of proceeds,
the borrower must obtain the Agency's consent before the disposition
unless all FLP payments planned on the agreement have been paid.
(d) If the borrower sells normal income security to a purchaser not
listed in the agreement for the use of proceeds, the borrower must
immediately notify the Agency of what property has been sold and of the
name and business address of the purchaser.
(e) The borrower must provide the Agency with the necessary
information to update the agreement for the use of proceeds.
* * * * *
19. Amend Sec. 765.305 by adding paragraph (c) to read as follows:
Sec. 765.305 Release of security interest.
* * * * *
(c) The Agency will release its lien on chattel security without
compensation, upon borrower request provided:
(1) The borrower has not received primary loan servicing within the
last 3 years;
(2) The borrower will retain the security and use it as collateral
for other credit, including partial graduation as specified in Sec.
765.101;
(3) The security margin on each FLP direct loan will be 150 percent
or more after the release. The value of the retained and released
security will normally be based on appraisals obtained as specified in
Sec. 761.7 of this chapter; however, well documented recent sales of
similar properties can be used if the Agency determines a supportable
decision can be made without current appraisals; and
(4) Except for CL, the borrower is unable to fully graduate as
specified Sec. 765.101.
Subpart H--Partial Release of Real Estate Security
20. Amend Sec. 765.351 as follows:
a. Revise paragraph (a)(3);
b. Remove paragraph (a)(4) and redesignate paragraphs (a)(5)
through (10) as (a)(4) through (a)(9), respectively;
c. Revise paragraph (b)(1)(ii);
d. Remove paragraph (b)(1)(iii); and
e. Add paragraph (f).
The revisions and addition read as follows:
Sec. 765.351 Requirements to obtain Agency consent.
* * * * *
(a) * * *
(3) Except for releases in paragraph (f) of this section, the
amount received by the borrower for the security being disposed of, or
the rights being granted, is not less than the market value and will be
remitted to the lienholders in the order of lien priority;
* * * * *
(b) * * *
(1) * * *
(ii) When the Agency has a security interest in oil, gas, or other
minerals as provided by Sec. 765.252(b), the sale of such products
will be considered a disposition of a portion of the security by the
Agency.
* * * * *
[[Page 22453]]
(f) Release without compensation. Real estate security may be
released by FSA without compensation when the requirements of paragraph
(a) of this section, except paragraph (a)(3) of this section, are met,
and:
(1) The borrower has not received primary loan servicing within the
last 3 years;
(2) The security is:
(i) To be retained by the borrower and used as collateral for other
credit, including partial graduation as specified in Sec. 765.101; or
(ii) No more than 10 acres, or the minimum size that meets all
State and local requirements for a division into a separate legal lot,
whichever is greater, and is transferred without compensation to a
person who is related to the borrower by blood or marriage;
(3) The security margin on each FLP direct loan will be above 150
percent after the release. The value of the retained and released
security will normally be based on appraisals obtained as specified in
Sec. 761.7 of this chapter; however, well documented recent sales of
similar properties can be used if the Agency determines the criteria
have been met and a sound decision can be made without current
appraisals; and
(4) Except for CL, the borrower is unable to fully graduate as
specified in Sec. 765.101.
PART 766--DIRECT LOAN SERVICING--SPECIAL
21. The authority citation for part 766 continues to read as
follows:
Authority: 5 U.S.C. 301, 7 U.S.C. 1989, and 1981d(c).
Subpart C--Loan Servicing Programs
22. Amend Sec. 766.110 as follows:
a. Revise paragraphs (a)(6), (b)(2)(vi), (c) introductory text, and
(c)(3);
b. Add paragraphs (c)(4) through (7);
c. Revise paragraph (e);
d. Amend paragraph (f), second sentence, by adding the word
``best'' before the word ``interest''; and
e. Add paragraphs (m) and (n).
The revisions and additions read as follows:
Sec. 766.110 Conservation Contract.
(a) * * *
(6) Only loans secured by the real estate that will be subject to
the Conservation Contract may be considered for debt reduction under
this section.
(b) * * *
(2) * * *
(vi) Buffer areas necessary for the adequate protection of proposed
Conservation Contract areas, or other areas enrolled in other
conservation programs;
* * * * *
(c) Unsuitable acreage. Notwithstanding paragraph (b) of this
section, acreage is unsuitable for a Conservation Contract if:
* * * * *
(3) The Conservation Contract review team determines that the land
does not provide measurable conservation, wildlife, or recreational
benefits;
(4) There would be a duplication of benefits as determined by the
Conservation Contract review team because the acreage is encumbered
under another Federal, State, or local government program for which the
borrower has been or is being compensated for conservation, wildlife,
or recreation benefits;
(5) The acreage subject to the proposed Conservation Contract is
encumbered under a Federal, State, or local government cost share
program that is inconsistent with the purposes of the proposed
Conservation Contract, or the required practices of the cost share
program are not identified in the conservation management plan;
(6) The tract does not contain a legal right of way or other
permanent access for the term of the contract that can be used by the
Agency or its designee to carry out the contract; or
(7) The tract, including any buffer areas, to be included in a
Conservation Contract is less than 10 acres.
* * * * *
(e) Conservation management plan. The Agency, with the
recommendations of the Conservation Contract review team, is
responsible for developing a conservation management plan. The
conservation management plan will address the following:
(1) The acres of eligible land and the approximate boundaries, and
(2) A description of the conservation, wildlife, or recreation
benefits to be realized.
* * * * *
(m) Subordination. For real estate with a Conservation Contract:
(1) Subordination will be required for all liens that are in a
prior lien position to the Conservation Contract.
(2) The Agency will not subordinate Conservation Contracts to liens
of other lenders or other Governmental entities.
(n) Breach of Conservation Contract. If the borrower or a
subsequent owner of the land under the Conservation Contract fails to
comply with any of its provisions, the Agency will declare the
Conservation Contract breached. If the Conservation Contract is
breached, the borrower or subsequent owner of the land must restore the
land to be in compliance with the Conservation Contract and all terms
of the conservation management plan within 90 days. If this cure is not
completed, the Agency will take the following actions:
(1) For borrowers who have or had a loan in which debt was
exchanged for the Conservation Contract and breach the Conservation
Contract, the Agency may reinstate the debt that was cancelled, plus
interest to the date of payment at the rate of interest in the
promissory note, and assess liquidated damages in the amount of 25
percent of the debt cancelled, plus any actual expenses incurred by the
Agency in enforcing the terms of the Conservation Contract. The
borrower's account will be considered in non-monetary default; and
(2) Subsequent landowners who breach the Conservation Contract must
pay the Agency the amount of the debt cancelled when the contract was
executed, plus interest at the non-program interest rate to the date of
payment, plus liquidated damages in the amount of 25 percent of the
cancelled debt, plus any actual expenses incurred by the Agency in
enforcing the terms of the Conservation Contract.
23. Revise Sec. 766.115(a)(1) and (b) to read as follows:
Sec. 766.115 Challenging the Agency appraisal.
(a) * * *
(1) Obtain a USPAP compliant technical appraisal review prepared by
a State Certified General Appraiser of the Agency's appraisal and
provide it to the Agency prior to reconsideration or the appeal
hearing;
* * * * *
(b) If the appraised value of the borrower's assets change as a
result of the challenge, the Agency will reconsider its previous
primary loan servicing decision using the new appraisal value.
* * * * *
24. Revise Appendix A to read as follows:
Appendix A to Subpart C of Part 766--FSA-2512, Notice of Availability
of Loan Servicing to Borrowers Who Are Current, Financially Distressed,
or Less Than 90 Days Past Due
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PART 772--SERVICING MINOR PROGRAM LOANS
25. Revise the authority citation for part 772 continues to read as
follows:
Authority: 5 U.S.C. 301, 7 U.S.C. 1989, and 25 U.S.C. 490.
Sec. 772.5 [Amended]
26. Amend Sec. 772.5 as follows:
a. In paragraph (c)(1), remove the reference ``7 part 1962, subpart
A'' and add in its place the reference ``part 765 of this chapter'';
and
b. In paragraph (c)(3), remove the reference ``7 CFR part 1965,
subpart A'' and add in its place the reference ``part 765 of this
chapter''.
27. Revise Sec. 772.8(b) to read as follows:
Sec. 772.8 Sale or exchange of security property.
* * * * *
(b) For IMP loans, a sale or exchange of real estate or chattel
that is serving as security is governed by part 765 of this chapter.
Signed on April 5, 2012.
Bruce Nelson,
Administrator, Farm Service Agency.
[FR Doc. 2012-8827 Filed 4-12-12; 8:45 am]
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