5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.
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.
(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.
(a)
(2)
(b)
(1) Voluntary sale of security. This will be accomplished in accordance with § 1962.41 of subpart A of part 1962 of this chapter. Any necessary forms will be signed:
(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 § 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)
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)
(b)
(1)
(2)
(c)
(d)
(e)
(a) The Soldiers and Sailors Relief Act requires that the effective interest rate charged a borrower who enters active military duty after a loan is closed will not exceed 6 percent. This applies only to full-time active military duty and does not include military reserve status or National Guard participation.
(b) As soon as the County Supervisor verifies that a borrower is on active duty, the County Supervisor will send the borrower a letter which states that the interest rate on the borrower's FmHA or its successor agency under Public Law 103-354 loans will not exceed 6 percent. At the same time, the County Supervisor will send the Finance Office a memorandum which states that the borrower is on active duty and that interest of not more than 6 percent should accrue on the borrower's loans, effective as of the date of the memorandum or as of the date of the last payment, whichever is later, until further notice. If a borrower's interest rate on any loan is less than 6 percent, the loan will continue to accrue interest at the lower rate. The assistance under this section may not be retroactively applied.
(c) As soon as the County Supervisor verifies that a borrower is no longer on active duty, the County Supervisor will send the Finance Office a memorandum advising them to terminate the 6 percent interest rate. The rate will revert to the note rate (or the payment assistance rate), effective with the next scheduled payment. The 6 percent interest rate will not be cancelled retroactively.
(d) Additional directions for handling Single Family Housing Loans are contained in subpart G of part 1951 of this chapter.
5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3716; and 42 U.S.C. 1480.
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.
This subpart sets forth the policies and procedures to use in servicing Farmer Program loans (FP) which include Softwood Timber (ST), Operating Loan (OL), Farm Ownership (FO), Soil and Water (SW), Recreation Loan (RL), Emergency Loan (EM), Economic Emergency Loan (EE), Special Livestock Loan (SL), Economic Opportunity Loan (EO), and Rural Housing Loan for farm service buildings (RHF) accounts. This subpart also applies to Rural Rental Housing Loan (RRH), Rural Cooperative Housing Loan (RCH), Labor Housing Loan (LH), Rural Housing Site Loan (RHS), and Site Option Loan (SO) accounts not covered under the Predetermined Amortization Schedule System (PASS). Loans on PASS will be administered under subpart K of part 1951 of this chapter. Cases involving unauthorized assistance will be serviced under Subparts L and N of this part. Cases involving graduation of borrowers to other sources of credit will be serviced under Subpart F of this part.
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
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.
(a)
(b)
(c)
(2) Payments for FO and SW individual loans made through the County Office with Form FmHA or its successor agency under Public Law 103-354 370-46A, Expanded Direct Payment Coupon, will be handled as follows:
(i) County Supervisors may put FO and SW individual borrowers on the Expanded Direct Payment Coupon system if the borrower only needs limited credit counseling or only makes one annual installment payment per year on the loan.
(ii) For new loans, the County Supervisor will indicate by checking the appropriate block on Form FmHA or its successor agency under Public Law 103-354 1940-1, “Request For Obligation of Funds,” that for selected borrowers Expanded Direct Payment Coupons are to be mailed to the County Office.
(iii) An existing loan borrower may be put on or taken off this Expanded Direct Payment Coupon system by filling out Form FmHA or its successor agency under Public Law 103-354 1951-34, “Direct Payment Plan Change,” in accordance with the Forms Manual Insert (FMI) and entering it via the field office terminal system.
(iv) Payments must be made by check or money order payable to the Farmer Home Administration. If a field office is on concentration banking, the checks and/or money orders are deposited in the concentrator bank. The coupons are forwarded directly to the Finance Office in accordance with concentration banking procedures. If a field office is not on concentration banking, the coupons and checks and/or money orders are placed in one envelope and mailed to the Finance Office with any other items being mailed that day.
(v) The Finance Office, upon receipt of the payment coupon and check or money order, will credit the borrower's account with payment as of the date the payment is received in the field office.
(vi) When the Finance Office received payment coupon number 10, a new supply of coupons will be mailed to the County Office. All 12 payment coupons should be used before using the new supply.
(3) Direct payment for FO and SW loans mailed directly to the Finance Office by the borrower are handled as follows:
(i) The County Supervisor will select the FO and SW borrowers who, in the Supervisor's opinion, are capable of making direct payments to the Financing Office. The County Supervisor will not select borrowers who (A) will need frequent credit counseling, (B) because of the lack of education or other reasons, are not capable of assuming responsibility for making payments directly to the Finance Office, or (C) have payments directly assigned to FmHA or its successor agency under
(ii) For new loans the County Supervisor will indicate on Form FmHA or its successor agency under Public Law 103-354 1940-1 the selected borrowers by checking the appropriate box. The payment coupon packet will be forwarded to the County Office at the time the loan is obligated. It will be delivered to the borrower at loan closing, at which time the use of the payment coupons will be explained to the borrower.
(iii) For Assumption Agreements, the packet will be mailed to the borrower at the time the Assumption Agreement is processed in the Finance Office.
(iv) The payment coupons and pre-addressed envelopes, together with instructions on how to use the coupons and a record keeping card, will be asembled into an envelope in which the borrower may retain the records. The Form FmHA or its successor agency under Public Law 103-354 370-46, “Direct Payment Coupon,” will be numbered 1-12, even though the borrower may have less or more than 12 payments scheduled during the year.
(v) The Finance Office, upon receipt of Form FmHA or its successor agency under Public Law 103-354 370-46 and a check or money order, will credit the borrower's account with payment as of the date the payment is received by the Finance Office.
(vi) When the Finance Office receives Form FmHA or its successor agency under Public Law 103-354 370-46 for payment number 10, a new supply of Forms FmHA or its successor agency under Public Law 103-354 370-46 will be prepared and mailed to the borrower. All 12 copies of Form FmHA or its successor agency under Public Law 103-354 370-46 should be used before using the new supply.
(vii) If a borrower is on direct payment and receives a subsequent FO or SW loan, the Finance Office will send a set of Form FmHA or its successor agency under Public Law 103-354 370-46 with “FO” or “SW” in the loan number block. This indicates the borrower has more than one loan of the particular type. The borrower will be instructed by the County Office to send a Form FmHA or its successor agency under Public Law 103-354 370-46 showing the amount and a check or money order for the total payment.
(d)
(e)
(1) Any regular payments a borrower is to make prior to receiving the packet of payment coupons will be made through the County Office in the usual manner.
(2) All payments other than regular payments will be made through the County Office in the usual manner.
(3) The County Supervisor will counsel with borrowers concerning questions they have about their account. If assistance is needed, the County Supervisor will contact the State or Finance Office as appropriate.
(4) If an uncollectible item is received, the Finance Office will reverse the amount from the borrower's account. The uncollectible item with a transmittal memorandum will be sent to the County Office. The County Office will return the uncollectible check to the borrower after it is fully redeemed. The borrower will make payment by sending a new check and a new payment coupon to the Finance Office. There will also be a noninterest accruing administrative cost charged to the borrower's account for uncollectible items due to insufficient funds. (The amounts of any such administrative charges are available from any FmHA or its successor agency under Public Law 103-354 office.) Therefore, the borrower's payment for the uncollectible item should be for the regular payment amount plus the administrative cost.
(f)
(g)
(h)
(a)
(b)
(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
(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)
(d)
(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)
(f)
(g)
(h)
(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 promissory note showing borrower installments will constitute the loan summary statement provided to the borrower.
(a)
(b)
(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)
“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)
(i)
(ii)
(iii)
(iv)
(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)
(c)
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)
(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,
(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)
(a)
(b)
(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)
(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)
(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
(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 to the government and by the Government to a lender ordinarily will not be the same.
(a)
(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)
(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.
(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
(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.
(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 § 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.
(a)
(b)
(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)
(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)
(e)
(f)
(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.
(a)
(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 § 1951.10(a) of this Subpart.)
(2)
(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)
(c)
(a)
(b)
(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
(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 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)
(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.
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.
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.
(insert borrower's address)
Fund code
□ □
Loan number
□ □
Dear (
Effective (insert date) the interest rate on this loan will be
□ Increase in repayment ability as per Farm and Home Plan dated
□
You may appeal this action by writing to (
This subpart prescribes the policies and procedures of the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) for collection of loan payments and depositing payments through the Concentration Banking System (CBS). Under CBA, FmHA or its successor agency under Public Law 103-354 field offices select a local financial institution to maintain a Treasury Limited Account (TLA) for depositing FmHA or its successor agency under Public Law 103-354 loan collections. Deposits to these accounts are withdrawn daily by the concentrator bank for transfer to the Treasury. Under these procedures, the local FmHA or its successor agency under Public Law 103-354 office will deposit the daily office collections in a participating local financial institution and report the amount deposited to a data service facility that is under contract to the concentrator bank. The data service facility will inform the concentrator bank of the amount available in each local financial institution and the concentrator bank will use this information to transfer the funds to the concentrator bank and then to the Treasury.
The provisions of this subpart are applicable to FmHA or its successor agency under Public Law 103-354 employees who are authorized to receive collections. Employees listed in Exhibit B of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) are hereby authorized to receive, receipt for, exchange for money orders or bank drafts, and transmit collections or deposit collections in a TLA.
FmHA or its successor agency under Public Law 103-354 offices receive borrower payments either through the mail or in person in the form of checks, money orders, and cash. Payments are recorded on the appropriate accounting forms which are Form FmHA or its successor agency under Public Law 103-354 451-2, Form FmHA or its successor agency under Public Law 103-354 1944-9, Form FmHA or its successor agency under Public Law 103-354 1951-55, or a payment coupon. Forms FmHA or its successor agency under Public Law 103-354 451-2 and FmHA or its successor agency under Public Law 103-354 1944-9 are used to transmit accounting information to the Finance Office. Form FmHA or its successor agency under Public Law 103-354 1951-55 is used to assemble payment information which the
The Federal Claims Collection Act of 1966 as amended by the Debt Collection Act of 1982, the Deficit Reduction Act of 1984, and the Debt Collection Amendments Act of 1996 provides for the use of administrative, salary, and Internal Revenue Service (IRS) offsets by government agencies, including the Farm Service Agency (FSA), Rural Housing Service (RHS), Rural Utility Service (RUS) for its water and waste programs, and Rural Business-Cooperative Service (RBS), herein referred to collectively as “USDA Agency,” to collect delinquent debts. Any money that is or may become payable from the United States to a individual or entity indebted to a USDA Agency or other individual or entity indebted to a USDA Agency may be subject to offset for the collection of a debt owed to a USDA Agency. In addition, money may be collected from the debtor's retirement payments for delinquent amounts owed to the USDA Agency if the debtor is an employee or retiree of a Federal agency, the U.S. Postal Service, the Postal Rate Commission, or a member of the U.S. Armed Forces or the Reserve. Amounts collected will be processed as regular payments and credited to the borrower's account. USDA Agencies will process requests by other Federal agencies for offset in accordance with §1951.102 of this subpart. This subpart does not apply to direct single family housing loans.
Action to effect administrative offset to recover delinquent claims may be taken in accordance with the procedures in 7 CFR part 3, subpart B.
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 delinquencies or debts owed to them by employees of the USDA Agency, excluding County Committee members. Administrative offset, rather than salary offset, will be used to collect money from federal employee retirement benefits. Salary offset will not be initiated until after other servicing options available to the borrower have been utilized. In addition, for Farm Loan Programs loans, salary offset will not be instituted if the federal salary has been considered on the Farm and Home Plan, and it was determined the funds were to be used for another purpose other than payment on the USDA Agency loan. When salary offset is used, payment for the debt will be deducted from the employee's pay and sent directly to the creditor agency. Not more than 15 percent of the employee's disposable pay can be offset per pay period, unless the employee agrees to a larger amount. The debt does not have to be reduced to judgment or be undisputed, and the payment does not have to be covered by a security instrument. This section describes the procedures which must be followed before the USDA Agency can ask a Federal agency to offset any amount. Decisions made under this section are subject to the appeal procedures of 7 CFR part 11.
(a)
(1) Certifying Officials are authorized to certify to the debtor's employing
(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)
(2)
(i)
(ii)
(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)
(4)
(5)
(6)
(7)
(c)
(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)
(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)
(1) It has been determined that the debt is owed, the amount of the debt, and the facts giving rise to the debt;
(2) The cost to the Government of collecting salary offset does not exceed the amount of the debt;
(3) There are not any legal restrictions that would bar collecting the debt;
(4) The debt will be collected by means of deduction of not more than 15 percent from the employee's current disposable pay until the debt and all accumulated interest are paid in full;
(5) The amount, frequency, approximate beginning date, and duration of the intended deductions;
(6) An explanation of the requirements concerning interest, penalties and administrative costs, unless such payments are waived;
(7) The employee's right to inspect and request a copy of records relating to the debt;
(8) The employee's right to voluntarily enter into a written agreement for a repayment schedule with the agency different from that proposed by
(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)
(1) If a debtor responds to FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4 by asking to review and copy FmHA or its successor agency under Public Law 103-354's records relating to the debt, the Certifying Official will promptly respond by sending a letter which tells the debtor the location of the debtor's FmHA or its successor agency under Public Law 103-354 files and that the files may be reviewed and copied within the next 30 days. Copying costs (see subpart F of part 2018 of this Chapter) will be set out in the letter, as well as the hours the files will be available each day. If a debtor asks to have FmHA or its successor agency under Public Law 103-354 copy the records, a copy will be made within 30 days of the request.
(2) If a debtor responds to FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4 by offering to repay the debt, the offer may be accepted by the Certifying Official, if it would be in the best interest of the government. FmHA or its successor agency under Public Law 103-354 Form Letter 1951-8 will be used if a repayment offer for an FmHA or its successor agency under Public Law 103-354 loan or grant is accepted. Upon receipt of an offer to repay, the Certifying Official will delay institution of a hearing until a decision is made on the repayment offer. Within 60 days after the initial offer to repay was made, the Certifying Official must decide whether to accept or reject the offer. This decision will be documented in the running case record or the “For Official Use Only” file, as appropriate, and the debtor will be sent a letter which sets out the decision to accept or reject the offer to repay. The decision to accept or reject a repayment offer should be based upon a realistic budget or farm and home plan and according to the servicing regulations for the type of loan(s) involved.
(3) If a debtor responds to FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4 by asking for a hearing on FmHA or its successor agency under Public Law 103-354's determination that a debt exists and/or is due, or on the percentage of net pay to be deducted each pay period, the Certifying Official will notify the debtor in accordance with paragraph (g)(3) of this section and request the debtor's case file or the “For Official Use Only” file.
(4) If a debtor is willing to have more than 15 percent of the disposable pay sent to FmHA or its successor agency under Public Law 103-354, a letter prepared and signed by the debtor clearly
(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)
(2) Not later than 30 days from the date the debtor receives the Notice of Intent (FmHA or its successor agency under Public Law 103-354 Guide Letter 1951-C-4), the employee must file with the Certifying Official issuing the notice, a written petition establishing his/her desire for a hearing on the existence and amount of the debt or the proposed offset schedule. The employee's petition must fully identify and explain all the information and evidence that supports his/her position. In addition, the petition must bear the employee's original signature and be dated upon receipt by the Certifying Official.
(3) Certifying Officials are responsible for determining if the employee's petition for a hearing has been submitted in a timely fashion. Petitions received from employees after the 30-day time limitation expires will be accepted only if the employee can show the delay was because of circumstances beyond his/her control or because of failure to receive notice of the time limitation. Certifying Officials are required to provide written notification to the employee of the acceptance or non-acceptance of the employee's petition for hearing.
(4) For those petitions accepted, FmHA or its successor agency under Public Law 103-354 will arrange for a hearing officer and notify the employee of the time and place of the hearing. The hearing location should be convenient to all parties involved. The employee will also be notified that the acceptance of the petition for hearing will stay the commencement of collection proceedings. Any payments collected in error due to untimely or delayed filing beyond the employee's control will be refunded unless there are applicable contractual or statutory provisions to the contrary.
(5) The hearing will be based on written submissions and documentation provided by the debtor and FmHA or its successor agency under Public Law 103-354 unless:
(i) A statute authorizes or requires consideration of waiving the debt, the debtor requests waiver of the debt, and the waiver determination turns on an issue of credibility or truth.
(ii) The debtor requests reconsideration of the debt and the hearing officer determines that the question of the indebtedness cannot be resolved by a review of the documentary evidence; for example, when the validity of the debt turns on an issue of credibility or truth.
(iii) The hearing officer determines that an oral hearing is appropriate.
(6) Oral hearings may be conducted by conference call at the request of the debtor or at the discretion of the hearing officer. The hearing officer's determination that the offset hearing is on the written record is final and is not subject to review.
(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)
(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)
(2) Deductions will be made only from basic pay, incentive pay, retainer pay, or, in the case of an employee not entitled to basic pay, other authorized pay. If there is more than one salary offset, the maximum deduction for all salary offsets against an employee's disposable pay is 15 percent unless the employee has agreed in writing to a greater amount.
(j)
(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)
(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)
(2) If a court or agency orders FmHA or its successor agency under Public Law 103-354 to refund the amount obtained by salary offset, a refund will be requested promptly by the Certifying Official in accordance with the order by sending FmHA or its successor agency under Public Law 103-354 Form Letter 1951-5 to the Finance Office. Processing FmHA or its successor agency under Public Law 103-354 Form Letter 1951-5 in the Finance Office will cause a refund to be sent to the debtor through the county office or other appropriate FmHA or its successor agency under Public Law 103-354 office. The debtor is not entitled to any payment of interest, on the refunded amount.
(3) If a debtor does not request a hearing within the required time and it is later determined that the delay was due to circumstances beyond the debtor's control, any amount collected before the hearing decision is made will be refunded promptly by the Certifying
(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)
(n)
(o)
(p)
(2) When an employee of FmHA or its successor agency under Public Law 103-354 owes a debt to another Federal agency, salary offset may be used only when the Federal agency certifies that the person owes the debt and that the Federal agency has complied with its regulations. The request must include the creditor agency's certification as to the indebtedness, including the amount, and that the employee has been given the due process entitlements guaranteed by the Debt Collection Act of 1982. When a request for offset is received, FmHA or its successor agency under Public Law 103-354 will notify the employee and NFC and arrange for offset. (See FmHA or its successor agency under Public Law 103-354 Form Letter 1951-7).
(q)
(r)
(s)
(2) When an employee has an existing reduced repayment schedule because of financial hardship, the creditor agency may arrange for a new repayment schedule.
The IRS can reduce a taxpayer's overpayment of tax by the amount of any legally enforceable debt owed to a Federal agency. This subpart establishes procedures to implement IRS offsets. Borrowers referred to IRS for offset will continue to be serviced as required by § 1951.312 of subpart G of part 1951 of this chapter.
The FmHA or its successor agency under Public Law 103-354 Finance Office will screen the accounts of all borrowers potentially eligible for IRS Offset. FmHA or its successor agency under Public Law 103-354 field offices will further screen these accounts based on the following ineligibility criteria. The Finance Office will determine the appropriate date for this screening based on IRS deadlines.
(a)
(1) Account has been referred to OGC for foreclosure and, based on the legal opinion required by § 1951.103(c), a collection by offset would jeopardize the litigation under State law. Existence of a foreclosure action pending flag is not a determining factor.
(2) Account has been discharged in bankruptcy or is under the jurisdiction of a bankruptcy court and the debt has not been reaffirmed. Existence of a bankruptcy action pending flag is not a determining factor.
(3) Account has a suspend code.
(4) Account has been assigned to a collection agency.
(5) Account is past due by less than $25, or if the borrower has multiple loans, the net amount past due is less than $25.
(6) Borrower is a Federal employee and collection is feasible under salary offset.
(7) Borrower was indebted to FmHA or its successor agency under Public Law 103-354 prior to entering full time active duty military service and the account is being serviced in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 1950-C.
(8) Account is current under a subject to approved adjustment (SAA).
(b)
(1) Borrower has one loan and it is less than 3 monthly payments delinquent (or, if annual borrower, the
(2) Borrower has multiple loans, and the net amount past due is less than 3 monthly payments on the delinquent loans (or the equivalent of 3 monthly payments for annual payment borrowers).
(3) Account is under a moratorium.
(4) Account has an Additional Payment Agreement (APA) in effect and payments under the APA are less than 3 months past due.
(c)
(1) Borrower is a partnership or corporation and/or is identified in the accounting system by an employer Identification Number (EIN rather than a Social Security Number (SSN).
(2) Account is less than 90 days past due.
(d)
(1) Borrower has received any combination of Attachments 3 through 10 of Exhibit A of subpart S of this part; and the borrower did not request an appeal of the decision; any appeal has been concluded; or
(2) Borrower's account(s) has been accelerated.
Accounts determined by computer screening in the Finance Office to be potentially eligible will be referred to the IRS and to the appropriate FmHA or its successor agency under Public Law 103-354 County Office for review. If the County Office is aware that any account should be removed for any of the reasons set forth in § 1951.122, the County Office will remove the account in accordance with the instructions accompanying the list, “Borrowers Eligible for Offset (prior to 60-day notice).” Borrowers who are removed by the County Office will not receive an offset letter, and no further action is necessary concerning borrowers removed. The Finance Office will remove those accounts identified as ineligible by County Offices and provide this information to IRS in accordance with IRS deadlines and procedures.
The Finance Office will send FmHA or its successor agency under Public Law 103-354 Form Letter 1951-6 to each borrower who still appears to be eligible for IRS offset after County Office screening and a computer screening using the latest account information that is available. This letter must be mailed to ensure that borrowers receive their letters no later than October 15. Borrowers will have 60 days from the date of receipt to provide evidence in writing to the County Supervisor that their debt is less than 3 months delinquent or that the debt is not legally enforceable. Borrowers who reduce their debt to less than 3 months past due during this 60-day period will not be offset.
If a borrower responds to FmHA or its successor agency under Public Law 103-354 Form Letter 1951-C-6 within 60 days from the date of receipt, the County Supervisor will review the borrower's reasons for believing that the debt is either less than 3 months delinquent or is not legally enforceable. After such determination, the County Supervisor will send the borrower FmHA or its successor agency under Public Law 103-354 Form Letter 1951-C-9 advising the borrower if offset will be exercised.
All accounts not eliminated will be sent to IRS for offset and Report Code 865, Borrower Accounts Submitted to IRS for Offset Report, sent to each appropriate County Office. Each County
After IRS effects an offset, IRS will notify the Finance Office. The Finance Office may deduct an amount equal to IRS’ processing costs from the amount offset to reimburse the Agency for the cost of processing the offset, will credit the borrower's account for the amount required and will notify the appropriate County Office. The County Supervisor will review Report Code 222-C, Weekly Offset Report (Cash Collections IRS Offset), to ensure that any borrower who would have been eliminated from offset due to the provisions of § 1951.122 of this subpart was not subjected to an offset. If the offset was not correct, the County Supervisor will immediately notify the Finance Office of any such offsets using FmHA or its successor agency under Public Law 103-354 Form Letter 1951-5. This Form Letter will be processed by the Finance Office and a refund, including the processing fee, will be sent to the borrower. If the offset is correct, Finance and County Office records will be adjusted accordingly.
The Finance Office will provide a copy of the reports or listings in § 1951.129 through § 1951.135 of this subpart to each servicing county. County Supervisors are responsible for ensuring the field offices review each report and respond to the timeframes as indicated.
This listing includes borrowers eligible for offset after Finance Office screening. The field office will screen all borrowers in accordance with § 1951.122 of this subpart. Borrowers meeting any of the ineligibility criteria must be eliminated by drawing a line through the borrower's name. When all borrowers have been reviewed for offset eligibility, the original list must be sent to the Chief, Computer Resources Branch, mail code FC-353, in the Finance Office. These lists must be received no later than 1 month after the date of receipt, since the Finance Office will use the information provided to generate letters to borrowers informing them of potential IRS offset. No borrowers may be added to this list by the field office. A copy of this list should be retained by each field office. If a borrower is ineligible for IRS offset due to any of the exclusion criteria in § 1951.122 and that borrower's account does not reflect that exclusion criteria in the accounting system, the field offices must ensure that the account be updated immediately.
This listing includes those borrowers remaining eligible for offset after field office screening and who were sent notices of the intent to offset their tax refund. The notice advises the borrower that they have 60 days from the date of receipt of the letter in which to provide written information to their FmHA or its successor agency under Public Law 103-354 County Supervisor to show that offset should not be exercised. A borrower who has provided written notification and it has been determined the he/she meets the criteria under § 1951.122 of this subpart must be eliminated by drawing a line through the borrower's name on the listing. When all borrowers have been reviewed for offset eligibility, the original must be
This report lists borrowers remaining eligible for offset after the 60-day notice period and who were referred to IRS for offset. This report should be retained by the field office and referred to when decreasing an amount referred for offset or deleting a borrower from IRS offset using Form FmHA or its successor agency under Public Law 103-354 1951-43.
This report lists those borrowers who were referred to IRS for offset, but were returned by IRS as evidenced by the applicable error code. These borrowers will
This report lists those borrowers who were referred to IRS for offset, but were returned by IRS as evidenced by the applicable error code. These borrowers will
This report lists those borrowers whose income tax refund was offset by IRS and the amount offset. Except for a minimal processing fee that may be deducted, all monies collected from an offset will be applied toward the borrower's delinquent loan(s). If an offset does not repay all of the delinquent amount, the borrower is subject to additional offsets if more than one tax year return is filed.
This report should be retained by each field office and referred to if it has been determined a borrower has been erroneously offset. The field office should use the amount offset from this report when following the instructions outlined in § 1951.127 for refunding the offset to the borrower.
This report lists those borrowers whose spouses were issued a refund by IRS. These borrowers filed a joint tax return and incurred the debt separately from their spouses who had no legal responsibility for the debt and who had income and withholding and/or estimated tax payments. The report shows the actual amount offset for the borrower only. The spouses’ portion of the income tax refund was not offset. It is not necessary to prepare FmHA or its successor agency under Public Law 103-354 Form Letter 1951-5 for these borrowers since the borrower's spouse has already received a refund from IRS. Upon receipt of this report, field offices should annotate on RC 222-C (§ 1951-134)
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.
This subpart prescribes authorizations, policies, and procedures of the Farm Service Agency (FSA), Rural Housing Service (RHS), Rural Utility Service (RUS) for its water and waste programs, and Rural Business-Cooperative Service (RBS), herein referred to as “Agency,” for processing final payment on all loans. This subpart does not apply to direct single family housing customers of the RHS.
As used in this subpart:
(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 § 1951.155(c) of this subpart.
(a)
(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)
(a)
(b)
(c)
(1) If FmHA or its successor agency under Public Law 103-354 receives final payments in a form other than cash, U.S. Treasury check, cashier's check, certified check, money order, bank draft, or check issued by an institution determined by FmHA or its successor agency under Public Law 103-354 to be financially responsible, the mortgage and paid note will not be released until after a 30-day waiting period. If other indebtedness to FmHA or its successor agency under Public Law 103-354 is not secured by the mortgage, FmHA or its successor agency under Public Law 103-354 will execute the satisfaction or release. When the stamped note is delivered to the borrower, FmHA or its successor agency under Public Law 103-354 will also deliver the real estate mortgage and related title papers such as title opinions, title insurance binders, certificates of title, and abstracts which are the property of the borrower. Any water stock certificates or other securities that are the property of the borrower will be returned to the borrower. Also, any assignments of income will be terminated as provided in the assignment forms.
(2) Delivery of documents at the time of final payment will be made when payment is in the form of cash, U.S. Treasury check, cashier's check, certified check, money order, bank draft, or check issued by an institution determined by FmHA or its successor agency under Public Law 103-354 to be responsible. FmHA or its successor agency under Public Law 103-354 will not accept payment in the form of foreign currency, foreign checks or sight drafts. FmHA or its successor agency under Public Law 103-354 will execute the satisfaction or release (unless other indebtedness to FmHA or its successor agency under Public Law 103-354 is covered by the mortgage) and mark the original note with a paid-in-full legend based upon receipt of the full payment balance of the borrower's account(s), computed as of the date final payment is received. In unusual cases where an insured promissory note is held by a private holder, FmHA or its successor agency under Public Law 103-354 can release the mortgage and deliver the note when it is received.
(d)-(e) [Reserved]
(f)
(g)
(h) [Reserved]
(i)
This subpart prescribes the Rural Development mission area policies, authorizations, and procedures for servicing Water and Waste Disposal System loans and grants; Community Facility loans and grants; Rural Business Enterprise/Television Demonstration grants; loans for Grazing and other shift-in-land-use projects; Association Recreation loans; Association Irrigation and Drainage loans; Watershed loans and advances; Resource Conservation and Development loans; Direct Business loans; Economic Opportunity Cooperative loans; loans to Indian Tribes and Tribal Corporations; Rural Renewal loans; Energy Impacted Area Development Assistance Program grants; National Nonprofit Corporation grants; Water and Waste Disposal Technical Assistance and Training grants; Emergency Community Water Assistance grants; System for Delivery of Certain Rural Development Programs panel grants; section 306C WWD loans and grants; and Rural and Cooperative Development Grants in subpart F of part 4284 of this title. Rural Development State Offices act on behalf of the Rural Utilities Service, the Rural Business-Cooperative Service, and the Farm Service Agency as to loan and grant programs formerly administered by the Farmers Home Administration and the Rural Development Administration. Loans sold without insurance to the private sector will be serviced in the private sector and will not be serviced under this subpart. The provisions of this subpart are not applicable to such loans. Future changes to this subpart will not be made applicable to such loans.
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.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
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.
Servicing functions under this subpart which are specifically assigned to the State Director may be redelegated in writing to an appropriate sufficiently trained designee.
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.
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).
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.
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.
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,
Subpart C of part 1956 of this chapter prescribes policies and procedures for debt settlement actions for loans covered under this subpart when it is determined that a debt is eligible for settlement except as provided in §§ 1951.216 and 1951.231.
Property acquired by FmHA or its successor agency under Public Law 103-354 will be handled according to subparts B and C of part 1955 of this chapter.
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)
(1) Servicing actions will be carried out in accordance with the terms of Form FmHA or its successor agency under Public Law 103-354 442-31 or 1942-31, “Association Water or Sewer System Grant Agreement.” Grant agreements with a revision date on or after January 29, 1979, require that the grantee request disposition instructions from FmHA or its successor agency under Public Law 103-354 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)
(1) For water and waste disposal grants, the State Director is authorized to approve any servicing actions needed, except that prior approval of the Administrator is required when property acquired with grant funds is disposed of in accordance with §§ 1951.226, 1951.230, or 1951.232 of this subpart and the buyer or transferee refuses to assume all terms of the grant agreement.
(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.
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.
Servicing actions involving public bodies will be carried out to the extent
(a)
(1) Notify the company providing fidelity bond coverage in writing that the government no longer has an interest in the bond if the government is named co-obligee on the bond.
(2) Release FmHA or its successor agency under Public Law 103-354's interest in insurance policies according to applicable provisions of subpart A of part 1806 (FmHA or its successor agency under Public Law 103-354 Instruction 426.1).
(3) Release FmHA or its successor agency under Public Law 103-354's interest in any other security as appropriate, consulting with OGC if necessary.
(b)
(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)
(1) Community and Insured Business Programs borrowers shall continuously maintain adequate insurance coverage as required by the loan agreement and § 1942.17(j)(3) of subpart A of part 1942 of this chapter. Insurance coverage must be monitored in accordance with the above-referenced section to determine that adequate policies and bonds are in force.
(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)
(e)
(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 § 1942.17(b)(4) of subpart A of part 1942 of this chapter; and
(iii) The borrower retains significant local ties with the rural community.
(2) The State Director may approve, with prior concurrence of the Administrator, changes in a recipient's legal organization which result in a sole member type of organization, or any other change which results in a recipient's loss of control over its assets and/or the operation, management and maintenance of the facility, provided all of the following have been or will be met:
(i) The change is in the best interest of the Government;
(ii) The State Director determines and documents that other servicing options under this subpart, such as sale or transfer and assumption, have been explored and are not feasible;
(iii) The loan is classified as a nonprogram loan;
(iv) The borrower is notified that it is no longer eligible for any program benefits, but will remain responsible under the loan agreement; and
(v) Prior concurrence of the Administrator is obtained. Requests will be forwarded to the Administrator: Attention (appropriate program division), and will include the case file; Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), appropriately completed; the proposed changes; OGC comments; and any other necessary supporting information.
(f)
(g)
(h)
(i)
(1)
(2)
(3)
Collections are processed in accordance with subpart B of part 1951 of this chapter. Payments and refunds are handled in accordance with the following:
(a)
(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 § 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)
(2) Extra payments are defined in § 1951.8(b) of subpart A of part 1951 of this chapter, and are distributed according to § 1951.9(b) of that subpart.
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)
(1) The request must be for subordination of a specific amount of the FmHA or its successor agency under Public Law 103-354 indebtedness, and the amount must be within the approval official's authority as set forth in exhibits A, B, and C of subpart A of part 1901 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office).
(2) It must be determined that the borrower cannot refinance its FmHA or its successor agency under Public Law 103-354 debt in accordance with subpart F of part 1951 of this chapter.
(3) The transaction will further the purposes for which the FmHA or its successor agency under Public Law 103-354 loan was made, not adversely affect the borrower's debt-paying ability, and result in the FmHA or its successor agency under Public Law 103-354 debt being adequately secured.
(4) The terms and conditions of the prior lien will be such that the borrower can reasonably be expected to meet them as well as the requirements of all other debts.
(5) Any proposed development work will be planned and performed according to § 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.
(11) For Indian Tribes and Tribal Corporations, loan funds will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity as further explained in exhibit M of subpart G of part 1940 of this chapter. This requirement will be monitored throughout the term of the loan.
(b)
(c)
(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
(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)
(a)
(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)
(1) Current budget and cash flow prepared on Form FmHA or its successor agency under Public Law 103-354 442-2, schedules 1 and 2, or similar form;
(2) Current balance sheet and income statement;
(3) Exhibit A of this subpart, appropriately completed;
(4) Form FmHA or its successor agency under Public Law 103-354 1951-33, “Reamortization Request,” completed in accordance with § 1951.223(c)(3) of this subpart, when applicable; and
(5) Any other necessary supporting information.
(c)
(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)
(4)
(i) The procedure may consist of a new debt instrument or agreement for the total FmHA or its successor agency under Public Law 103-354 indebtedness, including the delinquency, or a new instrument or agreement whereby the borrower agrees to repay the delinquency plus interest. If a new instrument or agreement for only the delinquent amount is used, a new loan number will be assigned to the delinquent amount, and the borrower will be required to pay the amounts due under both the original and the new instruments.
(ii) When a delinquent or problem loan cannot be reamortized by issuing a new debt instrument due to State statutes, or the cost of preparation and closing is prohibitive, the rescheduling agreement provided as Exhibit H of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), may be used.
(iii) Section 1942.19 of subpart A of part 1942 of this chapter applies to any new bonds issued unless precluded by State statutes or an exception is approved by the National Office.
(iv) If State statutes do not require the release of existing bonds, they will be retained with the new bond instrument or agreement in the FmHA or its successor agency under Public Law 103-354 office authorized to store such documents. If State statutes require release of existing bonds, the exchange will be accomplished by the District Director, and the new bond and/or agreement will be retained in the appropriate office.
(5)
(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.
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)
(i) Leasing is the only feasible way to provide the service and is the customary practice as required under § 1942.17(b)(4) of subpart A of part 1942 of this chapter;
(ii) The borrower retains ultimate responsibility for operating, maintaining, and managing the facility and for its continued availability and use at reasonable rates and terms as required under § 1942.17(b)(4) of subpart A of part 1942 of this chapter. The lease agreement must clearly reflect sufficient control by the borrower over the operation, maintenance, and management of the facility to assure that the borrower maintains this responsibility;
(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 § 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 § 1951.232 of this subpart.
(2)
(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)
(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)
(d)
(e)
(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.
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.
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)
(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)
(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 § 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 § 1951.215 below for additional guidance on grant agreements.
(5) The proceeds remaining after paying any reasonable and necessary selling expenses are used for one or more of the following purposes:
(i) To pay on FmHA or its successor agency under Public Law 103-354 debts according to § 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)
(i) Except for actions approved by the District Director, Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), appropriately completed;
(ii) The appraisal report, if appropriate;
(iii) Name of purchaser, anticipated sales price, and proposed terms and conditions;
(iv) Form FmHA or its successor agency under Public Law 103-354 1965-8, “Release from Personal Liability,” including the County Committee memorandum and the State Director's recommendations;
(v) An executed Form FmHA or its successor agency under Public Law 103-354 400-4, if applicable;
(vi) An executed Form FmHA or its successor agency under Public Law 103-354 465-1, if applicable;
(vii) Form FmHA or its successor agency under Public Law 103-354 460-4, “Satisfaction,” if a debt has been paid in full or satisfied by debt settlement action. For cases involving real estate, a similar form may be used if approved by OGC; and
(viii) Written approval of the Administrator when required under § 1951.226(a)(3) of this subpart;
(2)
(ii) Subject to § 1951.226(b) of this subpart, the State Director is authorized to release part or all of an interest in real estate security by approving Form FmHA or its successor agency under Public Law 103-354 465-1. Partial release of real estate security may be made by use of Form FmHA or its successor agency under Public Law 103-354 460-1 or other form approved by OGC.
(3) FmHA or its successor agency under Public Law 103-354 liens will not be released until the sale proceeds are
(d)
(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:
The State Director is authorized to approve, without regard to any loan or total indebtedness limitation, vouchers to pay costs, including insurance and real estate taxes, to preserve and protect the security, the lien, or the priority of the lien securing the debt owed to or insured by FmHA or its successor agency under Public Law 103-354 if the debt instrument provides that FmHA or its successor agency under Public Law 103-354 may voucher the account to protect its lien or security. The State Director must determine that authorizing a protective advance is in the best interest of the government. For insurance, factors such as the amount of advance, occupancy of the structure, vulnerability to damage and present value of the structure and contents will be considered.
(a) Protective advances are considered due and payable when advanced. Advances bear interest at the rate specified in the most recent debt instrument authorizing such an advance.
(b) Protective advances are not to be used as a substitute for a loan.
(c) Vouchers are prepared in accordance with applicable procedures set forth in FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).
(a)
(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
(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 § 1951.204 of this subpart.
(8) This subpart does not preclude the transferor from receiving equity payments when the full account of the FmHA or its successor agency under Public Law 103-354 debt is assumed. However, equity payments will not be made on more favorable terms than those on which the balance of the FmHA or its successor agency under Public Law 103-354 debt will be paid.
(9) Transferees must have the ability to pay the FmHA or its successor agency under Public Law 103-354 debt as provided in the assumption agreement and the legal capacity to enter into the contract. The applicant will submit a current balanced sheet using Form FmHA or its successor agency under Public Law 103-354 442-3, “Balance Sheet,” and budget and cash flow information using Form FmHA or its successor agency under Public Law 103-354 442-2, or similar forms. For ineligible applicants, such information may be supplemented by a credit report from an independent source or verified by an independent certified public accountant.
(10) For purposes of this subpart, transfers to eligible applicants will include mergers and consolidations. Mergers occur when two or more corporations combine in such a manner that only one remains in existence. In a consolidation, two or more corporations combine to form a new, consolidated corporation, with all of the original corporations ceasing to exist. In both mergers and consolidations, the surviving or emerging corporation takes the assets and assumes the liabilities of the corporation(s) which ceased to exist. Such transactions must be distinguished from transfers and assumptions, in which a transferor will not necessarily go out of existence and the transferee will not always take all assets or assume all liabilities of the transferor.
(11) A current appraisal report to establish the present market value of the security will be completed in accordance with § 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)
(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 § 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;
(6) Proposed transfers to ineligible applicants when there is no significant downpayment and/or the repayment period is to exceed 25 years; and
(7) For Indian Tribes and Tribal Corporations, the requirements found in exhibit M of subpart G of part 1940 of this chapter are not met.
(c)
(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, § 1942.19(h)(11) will govern the preparation of any new debt instruments required.
(4) A loan may be made in connection with a transfer if the transferee meets all eligibility and other requirements for the kind of loan being made. Such a loan will be considered as a separate loan, and must be evidenced by a separate debt instrument. However, it is permissible to have one authorizing loan resolution or ordinance if permitted by State statutes.
(5) Any development funds remaining in a supervised bank account which are not to be refunded to FmHA or its successor agency under Public Law 103-354 will be transferred to a supervised bank account for the transferee simultaneously with the closing of the transfer for use in completing planned development.
(d)
(1) Ineligible applicants must pay a one-time nonrefundable transfer fee
(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 § 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)
(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 § 1951.226(d)(2)(ii) of this subpart.
(f)
(1) A transfer case file organized in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2033-A (available in any FmHA or its successor agency under Public Law 103-354 office) will be established, and will contain all documents and correspondence relating to the transfer. The forms utilized for transfers and assumptions are listed in Exhibit D (available in any FmHA or its successor agency under Public Law 103-354 office). All forms listed must be completed and included in the case file unless inappropriate for the particular situation.
(2) A letter of conditions establishing requirements to be met in connection with the transfer and assumption will be issued, and the transferee will be required to execute Form FmHA or its successor agency under Public Law 103-354 442-46, “Letter of Intent to Meet Conditions,” prior to the closing of the transfer.
(3) Both the transferee and transferor are responsible for obtaining the legal services necessary to accomplish the transfer.
(4) Transfers will be closed in accordance with instructions provided by OGC.
(5) When the transferee is a public body and Form FmHA or its successor agency under Public Law 103-354 1951-15 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 § 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)
(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 § 1951.204 of this subpart.
(13) If an insured loan being held by an investor is involved, the Finance Office will have to repurchase the note prior to processing the assumption agreement.
(14) When National Office approval is required, the transfer case file will be submitted to the Administrator, Attention: (appropriate program division), with Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), appropriately completed, and a cover memorandum which denotes any unusual circumstances.
(15) The District Director must review Form FmHA or its successor agency under Public Law 103-354 1910-11, “Applicant Certification, Federal Collection Policies for Consumer or Commercial Debts,” with the applicant, and the form must be signed by the applicant and included in the file.
(a)
(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)
(1) The State Director determines that the remaining members have sufficient need for the property, and that the withdrawal of the member will not adversely affect collection of the loan; and
(2) The remaining members obtain from the outgoing member an agreement conveying his or her interest in the cooperative property to them. They may also wish to agree to protect the outgoing member against liability on the debt owed to FmHA or its successor agency under Public Law 103-354 as well as any other debts. Exhibit C of this subpart, “Agreement for Withdrawal of Member (Without New Member),” (available in any FmHA or its successor agency under Public Law 103-354 office), may be used by the cooperative. FmHA or its successor agency under Public Law 103-354 will not be a party to the agreement.
(c)
(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 § 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
(d)
(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 § 1962.46(h) of subpart A of part 1962 will also be followed.
(e)
(f)
A water and/or waste disposal system serving an area which was formerly a rural area as defined in § 1942.17(b)(2)(iii) and (iv) of subpart A of part 1942 of this chapter, but which has become in its entirety part of an urban area, will be serviced in accordance with this section.
(a)
(b)
(2) The urban community or another entity may accept a transfer of the FmHA or its successor agency under Public Law 103-354 debt on an ineligible applicant basis.
(3) When a grant is involved, the entity will agree in writing to assume all rights and obligations of the original grantee. See § 1951.215 for additional guidance on grant agreements.
(c)
(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
(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)
(2) Transfer and assumption of a borrower's assets and indebtedness will be handled in accordance with § 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.
(a)
(1) Approve requests for permission to modify bylaws, articles of incorporation, or other rules and regulations of recipients, including changes in rate or fee schedules. Changes affecting the recipient's legal organizational structure must be approved by OGC.
(2) Consent to requests by the recipient to incur additional indebtedness, subject to applicable FmHA or its successor agency under Public Law 103-354 instructions and covenants in the loan or grant agreement.
(3) Renew existing security instruments.
(4) Approve the extension or expansion of facilities and services.
(5) Require additional security when:
(i) Existing security is inadequate and the loan or security instruments obligate the borrower to give additional security; or
(ii) The loan is in default and additional security is acceptable in lieu of other servicing actions.
(6) Release properties being sold by the borrower from mortgages securing Rural Renewal loans if the amount of the notes and mortgages given by the purchaser to the borrower equal the present market value and are assigned and pledged to FmHA or its successor agency under Public Law 103-354, and any money payable to the borrower is applied as an extra payment on the Rural Renewal loan.
(7) Approve requests for rights-of-way and easements and any subordination necessary in connection with such requests.
(b)
(c)
(a)
(b)
(2) Borrowers must notify FmHA or its successor agency under Public Law 103-354 within 90 calendar days of the date of FmHA or its successor agency under Public Law 103-354 notification indicating their election to retain the rate in effect at loan approval or to change the rate to the rate in effect at the time of loan closing. If the borrower does not respond within the 90-day period, FmHA or its successor agency under Public Law 103-354 will not consider a future request for a lower interest rate under the provisions of this subpart.
(3) The borrower is responsible for assuring that the official executing the letter requesting the change of interest rate is duly authorized and any action(s) necessary for this authorization have been taken as required. Any costs associated with a change of interest rate will be the responsibility of the borrower.
(c)
(1) All loan payments already applied to the account(s) will be reversed and reapplied by FmHA or its successor
(2) For paid-in-full accounts which meet the criteria of § 1951.241(a) of this subpart, the balance of loan payments after completion of the reversal and reapplication procedures will be returned to the borrower unless the borrower is delinquent on another FmHA or its successor agency under Public Law 103-354 loan of the same type. In those cases the amount will be applied to the delinquent amount owed, with any balance refunded to the borrower.
(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
(4) When FmHA or its successor agency under Public Law 103-354 has processed a change of interest rate for an amortized loan and a reduction in installment amounts is needed to provide for a sound operation, the borrower may request reamortization in accordance with § 1951.223 of this subpart.
(5) The borrower will be notified in writing of the new interest rate as changed.
The reporting and recordkeeping requirements contained in this regulation have been approved by the Office of Management and Budget and have been assigned OMB Control Number 0575-0066. Public reporting burden for this collection of information is estimated to vary from fifteen minutes to three hours per response including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Agriculture, Clearance Officer, OIRM, Room 404-W, Washington, DC 20250; and to the Office of Management and Budget, Washington, DC 20503.
Exhibits A through H are not published in the Code of Federal Regulations.
This subpart prescribes the policies to be followed when analyzing a direct
(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.
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.
(a)-(d) [Reserved]
(e)
(f)
(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.
(a)-(b) [Reserved]
(c)
(d) [Reserved]
(e)
(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
(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.
(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 § 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.
(a) Any borrower who appears to meet the local commercial lending standards, taking into consideration the Agency's loan guarantee program, will not be considered for a subsequent loan, subordination, or consent to additional indebtedness until the borrower's ability or inability to graduate has been confirmed. An exception may be made where the proposed action is needed to alleviate an emergency situation, such as meeting applicable health or sanitary standards which require immediate attention.
(b) If the borrower has been requested to graduate and has also been denied a request for a subsequent loan, subordination, or consent to additional indebtedness, the borrower may appeal both issues.
All requirements of subpart E of part 1965 must be met prior to graduation and acceptance of the full payment from an MFH borrower.
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.
1. Is the lender interested in making loans to refinance rural housing borrowers? Yes:
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?
If variable, how is it determined?
4. Is a risk differential used in establishing interest rates charged for new customers? Yes:
5. What can a typical loan applicant be expected to pay for:
6. Is mortgage guarantee insurance required? Yes:
7. Is there a minimum or maximum loan size policy? Yes:
8. Is there a minimum and maximum home value the lender will loan on? Yes:
9. Does the lender use a loan to market value ratio?
10. Is there a minimum net and gross income criteria? Yes:
11. Does the lender use a minimum loan or home value to income ratio? Yes:
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:
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:
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
(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.
NP credit is extended for the convenience of the Government in servicing an existing loan or to facilitate sale of inventory property. Where a borrower has both program and NP loans outstanding, servicing will be according to the regulation applicable to the particular loan(s). NP borrowers are not eligible for program entitlements or servicing actions such as subsidy, moratorium, reamortization, rescheduling, consolidation, deferral, limited resource assistance, buyout, writedown and conservation easements. Neither are NP borrowers subject to occupancy/operation requirements, graduation or other similar requirements imposed on program borrowers. NP borrowers are required to adequately maintain the security, pay real estate taxes and/or assessments when due or make scheduled escrow installments for taxes and insurance when required by FmHA or its successor agency under Public Law 103-354, and keep buildings insured according to the promissory note and mortgage or security agreement, but may lease all or a portion of the security without FmHA or its successor agency under Public Law 103-354's consent, except as provided in § 1951.460 (a) and (b) of this subpart.
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
(a)
(b)
(c)
(d) [Reserved]
(e)
(f)
(g)
(1)
(2)
(3)
(h)
(i)
(j)
(a)
(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.
Refer to subpart A of part 1925 of this chapter for servicing real estate taxes.
(a)
(b)
(c)
(a)
(b)
(c)-(d) [Reserved]
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.
When an NP borrower dies, FmHA or its successor agency under Public Law 103-354 will determine whether or not arrangements can be effected for continuation of the loan under one of the provisions of this section. If not, the loan may be liquidated according to § 1951.468 of this subpart. The servicing actions and the circumstances under which they may be considered are outlined in paragraphs (a) through (d) of this section.
(a)
(b)
(c)
(d)
(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.
When a borrower proposes to sell security property, assumption of the indebtedness may be approved on program or NP terms, as applicable, subject to the provisions of paragraphs (c) and (d) of this section. Assumptions under paragraphs (b)(2), (b)(3), (b)(4), (b)(5) and (d) of this section only are authorized on existing terms. When security property is sold (or title is otherwise conveyed), whether by full conveyance or by land contract, contract-for-deed, or other similar instrument, and the FmHA or its successor agency under Public Law 103-354 debt is not assumed by the purchaser (new owner) or paid in full, the conveyance will not be approved, except as provided in paragraphs (b)(2) and (b)(5) of this section or § 1951.462 of this subpart. If the conveyance is not approved the loan must be liquidated unless FmHA or its successor agency under Public Law 103-354 determines it is not in the Government's best interest. If FmHA or its successor agency under Public Law 103-354 decides to continue with the loan, the account will be serviced in the borrower's name and the borrower will remain liable for the loan under the terms of the security instrument.
(a) [Reserved]
(b)
(1)
(2)
(3)
(4)
(5)
(c)
(d)
(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 § 1951.462 (c) or (d) of this subpart may do so.
(e)
(f)
(g)
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)
(b)
(c)
(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)
(a) [Reserved]
(b)
(c) [Reserved]
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
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).
(a) This subpart prescribes the policies, authorizations, and procedures for implementing and servicing PASS for all of the following Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) Multiple Family Housing (MFH) loan recipients which includes Farm Labor Housing (LH) and Rural Rental Housing (RRH) including Rural Cooperative Housing (RCH) and Congregate Housing and includes:
(1) All MFH loans, credit sales, reamortizations, and transfers closed on or after May 1, 1985, and
(2) All MFH loan recipients converting from the Daily Interest Accrual System (DIAS) to PASS according to § 1951.517 of this subpart, except:
(i) Seasonal LH and LH loans to individual farmers may be closed on monthly or annual payment schedules and also may be closed on Daily Interest Accrual under subpart A of part 1951 of this chapter. Instructions for scheduling payments are according to the Forms Manual Insert (FMI) for Form FmHA or its successor agency under Public Law 103-354 1944-52, “Multiple Family Housing Promissory Note.”
(ii) Rural Housing Site (RHS) loans and Site Option (SO) loans will be closed and serviced on Daily Interest Accrual under subpart A of part 1951 of this chapter. Payment billings are subject to § 1951.506 of this subpart.
(b) All MFH loan recipients not described in paragraph (a) of this section will continue to be subject to the servicing and collection requirements of subpart A of part 1951 of this chapter. For the purposes of this subpart, all references to “County Supervisor” in subpart A of part 1951 shall be construed to mean “District Director.”
(c) All FmHA or its successor agency under Public Law 103-354 MFH loans (RRH, RCH, LH, RHS, and SO) whether DIAS or PASS, are subject to the definitions contained in § 1951.504 of this subpart, and payment application as outlined in § 1951.510 of this subpart.
(d) All MFH loan payments will be processed using Exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office).
District Directors are responsible for administering this subpart under the general guidance and supervision of the State Director. The District Office Management System will be fully used to accomplish this responsibility.
(1)
(2)
(3)
(1) Sale of basic chattel or real estate security, including rental or lease of real estate security of a depreciating or depleting nature.
(2) Refinancing of real estate debt.
(3) Mineral royalties.
(4) Cash proceeds of real property insurance as provided in subpart A of part 1806 of this chapter (FmHA or its successor agency under Public Law 103-354 Instruction 426.1).
(5) Sale of real estate not mortgaged to the Government, pursuant to a condition of loan approval.
(6) Transactions of a similar nature which reduce the value of the security for the loan(s).
(a)
(1) All payments will be based on tenants occupying the units as of the first day of the month prior to the payment
(2) The borrower must deliver all Forms FmHA or its successor agency under Public Law 103-354 1944-8, “Tenant Certification,” or for tenants receiving Section 8 assistance, the acceptable Department of Housing and Urban Development (HUD) form to the District Director according to paragraph VII F 1 of exhibit B to subpart C to part 1930 of this chapter. The District Director will date stamp each certification and will verify the information on the tenant certification also as required in paragraph VII F of exhibit B to subpart C of part 1930 of this chapter. The data from the tenant certifications must be entered into the Multi-Family Housing Tenant File System (MTFS) which will calculate the tenant's rent payment.
(i) If the calculations on the tenant certification do not agree with MTFS, the District Office will contact the borrower/management to resolve the discrepancy. MTFS calculations will be used to calculate interest credit and rental assistance due the borrower.
(ii) A copy of MTFS “Project Worksheet—Interest Credit and Rental Assistance,” an automated printout, will be generated and compared to the borrower's Form FmHA or its successor agency under Public Law 103-354 1944-29, “Project Worksheet for Interest Credit and Rental Assistance.” Only tenants with current tenant certifications shown on MTFS will be certified for interest credit or rental assistance when processing payments.
(iii) A copy of the monthly MTFS project worksheet report will be filed with Form FmHA or its successor agency under Public Law 103-354 1944-29 to document the approved subsidies.
(iv) At the borrower's request, a copy of the MTFS project worksheet report may be used as Parts I and II in lieu of Form FmHA or its successor agency under Public Law 103-354 1944-29. The District Office will provide a copy of the MTFS project worksheet report to the borrower about the 20th of the month. When using the MTFS project worksheet report as Parts I and II of Form FmHA or its successor agency under Public Law 103-354 1944-29, the borrower will verify the data, sign the MTFS project worksheet report, and return it with the monthly payment to the District Office. Borrowers using the MTFS project worksheet report as Part II, only, will complete, sign, and attach Part I of Form FmHA or its successor agency under Public Law 103-354 1944-29 to the MTFS project worksheet report, before returning it with the monthly payment. Borrowers with Section 8 units who are reporting overage payment, and/or excess HUD contract rent to the reserve account are required to complete Part I of either Form FmHA or its successor agency under Public Law 103-354 1944-29 or the MTFS project worksheet report.
(3) On or about the 11th day of each month, the Finance Office will generate and mail to each borrower that is delinquent and/or has late fees, Form FmHA or its successor agency under Public Law 103-354 1944-9A, “Multiple Family Housing Statement of Payment Due,” showing the current monthly payment due, unpaid late fees, and delinquent payments, if any, due on the first day of the following month. This payment statement will be determined from current Finance Office records but will not reflect overage due from the borrower or rental assistance (RA) due the borrower.
(4) Each borrower will submit to the District Office Form FmHA or its successor agency under Public Law 103-354 1944-29 with the required monthly payment indicated or adjusted as indicated in paragraph (a)(5) of this section regardless of whether or not Form FmHA or its successor agency under Public Law 103-354 1944-9A is received.
(5) Form FmHA or its successor agency under Public Law 103-354 1944-29, prepared by the borrower must reflect the following:
(i) Only tenants occupying units the first day of the month prior to the payment due date.
(ii) Interest credit and (RA) may be claimed only for tenants with current tenant certification as specified in paragraph VII F 2 of exhibit B to subpart F of part 1930 of this chapter.
(iii) Overage up to the market rent must be paid to FmHA or its successor
(iv) The borrower may subtract any RA due the project (supported by current tenant certifications) from the payment due and remit a “net” payment. Calculations supporting the “net” payment must be shown on Part I of Form FmHA or its successor agency under Public Law 103-354 1944-29. The Finance Office will net enough RA to bring the account status current and pay any unpaid overage, late fees, interest on delinquent principal, etc., based on the payment reception date. If the account is on or ahead of schedule on the payment reception date, enough RA will be netted to pay one full installment and any unpaid coverage, interest on delinquent principal, etc.
(6) The District Director will certify that data on current tenant certifications held in the District Office supports claims on Form FmHA or its successor agency under Public Law 103-354 1944-29. The District Director will transmit payments as directed in exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office).
(7) Payment input by FmHA or its successor agency under Public Law 103-354 will be based on correct amounts regardless of the amount remitted by the borrower.
(b)
(c)
(a)
(b)
(c)
(d)
(e)
(a)
(b)
(2) For transfers (same terms) payments on loans already on PASS will be due on the next scheduled due date.
(3) Transfers (same terms) converting from DIAS to PASS are loans retaining the same interest rate and final due date and regular amortized payments will be due 30 days form either the date of closing or the interest only installment, whichever is later.
(c)
(2) The project account will be charged a late fee when the regular payment is not received in the District Office by close of business of the tenth (10) day of the month the payment is due or when the payment is applied by the Finance Office and does not fully pay the regular payment and other charges for each project loan. Late fees collected by the Finance Office will be deposited in the Rural Housing Insurance Fund (RHIF).
(i) The project late fee is six percent of the total regular payment(s) due shown on the promissory note(s), conversion agreement(s), assumption agreement(s) or reamortization agreement(s).
(ii) A project late fee will be charged for any unpaid portion of the regular payment(s) exceeding $15.00.
(iii) A project late fee will be charged one time only, for each regular payment.
(iv) Except for cooperative housing, project late fees may not be paid from project income as specified in paragraph XIII B2a(4) of exhibit B to subpart C of part 1930 of this chapter.
(v) Exceptions may be made to late fee charges only as follows:
(A) The State Director may allow an exception for any project for three (3) monthly project late fee charges in any calendar year, based on the State Director's determination that the late fees place an unfair burden on the project. For each exception requested, the borrower must provide a written explanation of the circumstances which caused the late payment and what actions will be taken to bring the account current.
(B) The National Office may authorize exceptions to late fees for borrowers who have late fees exceeding the State Director's exception authority. When the State Director determines that the application of a late fee would place an unfair burden on the borrower, the State Director may submit a request for an exception to the late fee to the National Office. The request will include an explanation of the circumstances, a recommendation for action and all relevant case file material. The National Office will review the request and notify the State Director what action should be taken on the account.
(C) When an exception to late fees is granted, the State Director will notify the borrower on Form FmHA or its successor agency under Public Law 103-354 1951-51, “Multiple Family Housing Exception to Late Fees,” completed according to the FMI.
(D) When an application for late fee exception is denied the State Director must give the borrower appeal rights under subpart B of part 1900 of this chapter.
(3) A project is considered delinquent on the 30th day of the month when any due amount is unpaid.
(4) When a regular PASS payment continues to be delinquent on the first of the month following the delinquent payment due date, interest will be
(d)
(e)
(1) Amortized audit receivables.
(2) Unamortized audit receivables.
(3) All project late fees due.
(4) Occupancy surcharges.
(5) Amortized recoverable costs due.
(6) Unamortized recoverable costs due.
(7) Overage.
(8) All other interest due.
(9) Principal.
(10) Any remaining regular payment will be applied as an advance regular payment unless specifically designated otherwise.
(f)
(g)
(h)
(i)
(j)
District Office employees with State Director authorization according to § 1930.143 of subpart C to part 1039 of this chapter are authorized to approve reapplication of loan payments between accounts when payments have been applied in error. All authorization for reapplication of payments must conform to the policies expressed in this subpart. No change may be made if the loan is paid in full, the cancelled note or notes have been returned to the borrower, and the security instruments have been satisfied. The District Director will process the changes as prescribed in exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) by the AMAS Coordinator.
Overpayments and refunds to borrowers will be processed according to § 1951.13 of Subpart A of this part.
The District Director will service recoverable and non-recoverable cost items according to § 1951.14 of subpart A of this part and FmHA or its successor agency under Public Law 103-354 Instruction 2024-A which is available in any FmHA or its successor agency under Public Law 103-354 office. (Recoverable and non-recoverable costs are defined in § 1951.504 of this subpart.)
Promissory notes in the hands of investors when a loan is converted to PASS will be repurchased by the Finance Office and forwarded to the District Office for storage.
(a)
(b)
(2)
(i) The loan account and reserve account are current less any authorized withdrawals at the time of conversion.
(ii) Conversion does not result in a rent increase.
(iii) The conversion is effective the first day of the month.
(3)
(i) Form FmHA or its successor agency under Public Law 103-354 1951-50, “Multiple Family Housing Conversion Agreement,” will be completed according to the FMI except loans converted on Form FmHA or its successor agency under Public Law 103-354 1965-9, “Multiple Family Housing Assumption Agreement,” or FmHA or its successor agency under Public Law 103-354 1965-16, “Multiple Family Housing Reamortization Agreement.” The terms of Forms FmHA or its successor agency under Public Law 103-354 1965-9 and FmHA or its successor agency under Public Law 103-354 1965-16 convert the account to PASS.
(ii) When the borrower will continue to receive interest credit following conversion, the current interest credit plan type will be passed through to the PASS loan. However, a new Form FmHA or its successor agency under Public Law 103-354 1944-7 must be prepared to reflect the PASS payment and subsidy amount.
(iii) On the back of the original note or assumption agreement (new terms), below all signatures and endorsements, the District Director will insert the following: “A Form FmHA or its successor agency under Public Law 103-354 1951-50 dated
(4)
(i) For DIAS to PASS transactions (new terms):
(A) First of the month closings: The unpaid interest, overage and late fees accrued through the last day of the previous month will be capitalized.
(B) Other than the first of the month closing: Accrued interest, overage and late fees through the date of closing will be capitalized. An interest only installment from the date of closing through the 30th day of the month will be collected from the transferee and applied to the transferee's account. This interest only installment will be calculated on the same interest credit rate in effect for the previous borrower.
(ii) For DIAS to PASS transactions (same terms):
(A) First of the month closings: Accrued interest, overage and late fees through the last day of the previous month will be collected from the transferor at closing and credited to the transferor's account.
(B) Other than the first of the month closings: Accrued interest, overage and late fees through the date of closing will be collected from the transferor at closing and credited to the transferor's account. The date of credit is the day before closing. An interest only installment from the date of closing through the 30th day of the month will be collected from the transferee and credited to the transferee's account. This interest only installment will be calculated on the same interest credit rate in effect for the previous borrower.
(iii) Reamortizations will always be effective the first day of the month. Unpaid interest, including any unpaid overage and late fees may be capitalized as follows: DIAS to PASS transactions, through the last day of the previous month; PASS to PASS transactions, through the 30th day of the previous month.
(iv) Audit receivables may not be transferred or reamortized. They will be established as a “Collection Only” account for the transferor and must be collected or charged off.
(5)
Same terms transfers, when the transferor has been converted to PASS, must take place in a current loan status on the date of the transfer. Any delinquent principal and interest must be brought current. Overpayments and advance regular payments made on PASS accounts result in the creation of a “future paid” status account under AMAS. These advance payments must be reversed off and applied to the transferor's principal balance prior to determining the loan balance to be transferred. If the future payments have been made through rental assistance, they must be refunded to the transferor and reapplied in the form of cash on the loan balance.
The Administrator of the Farmers Home Administration or its successor agency under Public Law 103-354 may, in individual cases, make an exception to any requirements of this Subpart not required by the authorizing statute if the Administrator finds that application of such requirement would adversely affect the interest of the Government. The Administrator will exercise the authority only at the request
The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0106. Public reporting burden for this collection of information is estimated to be 15 minutes per response, with an average of 15 minutes per response including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Agriculture, Clearance Office, OIRM, Room 404-W, Washington, DC 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB #0575-0106), Washington, DC 20503.
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.
As used in this subpart, the following definitions apply:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
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.
Unauthorized assistance may be identified through audits conducted by the Office of the Inspector General (OIG), USDA; through reviews made by Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) personnel; or through other means such as information provided by a private citizen which documents that unauthorized assistance has been received by a borrower. If FmHA or its successor agency under Public Law 103-354 has reason to believe unauthorized assistance was received, but is unable to determine whether or not the assistance was in fact unauthorized, the case will be referred to the Office of the General Counsel (OGC) or the National Office, as appropriate, for review and advice. In every case where it is known or believed by FmHA or its successor agency under Public Law 103-354 that the assistance was based on false information, investigation by the OIG will be requested, as provided for in FmHA or its successor agency under Public Law 103-354 Instruction 2012-B (available in any FmHA or its successor agency under Public Law 103-354 office). If OIG conducts an investigation, the actions outlined in § 1951.557 of this subpart will be deferred until the OIG investigation is completed and the report is received. The reason(s) for the unauthorized assistance being received by the borrower will be well documented in the case file, and will specifically state whether it was due to:
(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.
(a) Collection efforts will be initiated by the County Supervisor by a letter substantially similar to Exhibit A of this Subpart (available in any FmHA or its successor agency under Public Law 103-354 office), and mailed to the borrower by “Certified Mail, Return Receipt Requested,” with a copy to the State Director; and, for a case identified in an OIG audit report, copies to the OIG office which conducted the audit and the Planning and Analysis Staff of the National Office. This letter will be sent to all borrowers who received unauthorized assistance, regardless of amount. The letter will:
(1) Specify in detail the reason(s) the assistance was determined to be unauthorized;
(2) State the amount of unauthorized assistance to be repaid according to Exhibit D of this Subpart (available in any FmHA or its successor agency under Public Law 103-354 office); and
(3) Establish an appointment for the borrower to discuss with the County Supervisor the basis for FmHA or its successor agency under Public Law 103-354's claim; and give the borrower an opportunity to provide facts, figures, written records or other information which might refute FmHA or its successor agency under Public Law 103-354's determination that the assistance received was unauthorized.
(b) If the borrower meets with the County Supervisor, the County Supervisor will outline to the borrower why the assistance was determined to be unauthorized. The borrower will be
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)
(b)
(1) The borrower did not provide false information as defined in § 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)
(1)
(ii) If the borrower wants to voluntarily convey, the County Supervisor will follow the directions in § 1955.10 or § 1955.20 as applicable, of subpart A of part 1955 of this chapter.
(iii) If the borrower does not appeal, does not repay the unauthorized assistance in full, does not voluntarily convey, voluntarily sell or refinance the entire FmHA or its successor agency under Public Law 103-354 debt, the borrower's account will be accelerated and there will be no appeal of this action. The County Supervisor and District Director will follow the directions in § 1955.15 of subpart A of part 1955 of this chapter.
(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 § 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 § 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)
When all of the conditions outlined in § 1951.558(b) of this subpart are met, servicing options outlined in this section will be considered; and accounts will be serviced according to this section and § 1951.568 of this subpart.
(a)
(i) Execution of Form FmHA or its successor agency under Public Law 103-354 1965-11, “Accelerated Repayment Agreement,” according to § 1965.26(e) of subpart A of part 1965 of this chapter, for loans secured by real estate, or rescheduling according to Subpart A of this part, for loans not secured by real estate, based on the borrower's repayment ability.
(ii) Refinancing with another type of FmHA or its successor agency under Public Law 103-354 loan to repay the unauthorized loan, if the borrower is eligible for the type loan being considered.
(iii) When the case cannot be handled according to paragraph (a)(1)(i) or (a)(1)(ii) of this section, continuance with the loan on the existing terms may be approved, and the loan will, thereafter, be serviced as an authorized loan.
(2)
(3)
(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)
(1) Have the inactive borrower execute a promissory note in the amount of the assistance determined to be unauthorized according to § 1951.557 of this subpart. This note will bear interest at the rate which was in effect for the type loan associated with the unauthorized assistance when it was approved. The term will not exceed 10 years or the term of the original loan, whichever is the shorter term.
(2) Take the best lien obtainable on any collateral having equity value to secure the note.
When a final determination has been made that unauthorized assistance has been granted, the Finance Office will be notified of necessary account adjustments as outlined in this section, depending upon whether the case of unauthorized assistance was identified by OIG in an audit report or by another means. The Finance Office will service the accounts as prescribed in this section.
(a)
(1)
(i)
(ii)
(2)
(3)
(ii)
(4)
(5)
(6)
(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
(7)
(8)
(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
(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)
(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.
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.
The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number
This subpart prescribes the policies and procedures for servicing multiple family housing (MFH) loans and/or grants made by Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) when it is determined that the borrower or grantee was not eligible for all or part of the financial assistance received in the form of a loan, grant, subsidy granted, any other direct financial assistance, or was not made subject to restrictive-use provisions required by law and/or regulation. As used in this subpart, MFH loans and grants are section 515 rural rental housing (RRH) and rural cooperative housing (RCH) loans and sections 514 and 516 labor housing (LH) loans and grants.
As used in this subpart, the following definitions apply:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
When unauthorized assistance has been received, an effort must be made to collect the sum which is determined to be unauthorized from the recipient, regardless of amount, unless any applicable statute of limitations has expired.
Unauthorized assistance includes, but is not limited to, these categories:
(a) The recipient was not eligible for the assistance.
(b) The property, as approved, does not qualify for the program. For example: An RRH or LH project which clearly is above modest in size, design and/or cost or was not located in an area designated as rural when the initial loan was made.
(c) The loan or grant was made for unauthorized purposes. For example: Purchase of an excessive amount of land.
(d) The recipient was granted unauthorized subsidy in the form of:
(1) Interest credits (IC) on an RRH loan;
(2) Rental Assistance (RA) in connection with an RRH or LH loan; or
(3) A subsidy benefit received through use of an incorrect interest rate.
(e) The recipient was not subjected to obligations required by the assistance, such as restrictive-use provisions, at the time the assistance was provided.
Unauthorized assistance may be identified through audits conducted by the Office of the Inspector General, USDA, (OIG); through reviews made by FmHA or its successor agency under Public Law 103-354 personnel; or through other means such as information provided by a private citizen which documents that unauthorized assistance has been received by a recipient of FmHA or its successor agency under Public Law 103-354 assistance. If FmHA or its successor agency under Public Law 103-354 has reason to believe unauthorized assistance was received, but is unable to determine whether or not the assistance was in fact unauthorized, the case will be referred to the Regional Office of the General Counsel (OGC) or the National Office, as appropriate, for review and advice. In every case where it is known or believed by FmHA or its successor agency under Public Law 103-354 that the assistance was based on false information, investigation by the Office of the Inspector General (OIG) will be requested as provided for in FmHA or its successor agency under Public Law 103-354 Instruction 2012-B (available in any FmHA or its successor agency under Public Law 103-354 office). If OIG conducts an investigation, the actions outlined in § 1951.657 of this subpart will be deferred until the OIG investigation is completed and the report is received. The reason(s) for the unauthorized assistance being received by the recipient will be well documented in the case file, and will specifically state whether it was due to:
(a) Submission of inaccurate information by the recipient;
(b) Submission of false information by the recipient;
(c) Submission of inaccurate or false information by another party on the recipient's behalf such as a loan packager, developer, real estate broker, or professional consultants such as engineers, architects, management agents and attorneys, when the recipient did not know the other party had submitted inaccurate or false information;
(d) Error by FmHA or its successor agency under Public Law 103-354 personnel, either in making computations or failure to follow published regulations or other agency issuances; or
(e) Error in preparation of a debt instrument which caused a loan to be closed at an interest rate lower than the correct rate in effect when the loan was approved or which was caused by omission from the instrument of language required by applicable regulation.
(a) Collection efforts will be initiated by the District Director by a letter substantially similar to exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), and mailed by the servicing official to the recipient by “Certified Mail, Return Receipt Requested,” with a copy to the State Director and, for a case identified in an OIG audit report, a copy to the OIG office which conducted the audit and the Planning and Analysis Staff of the National Office. This letter will be sent to all recipients who received unauthorized assistance, regardless of amount. The letter will:
(1) Specify in detail the reason(s) the assistance was determined to be unauthorized;
(2) State the amount of unauthorized assistance to be repaid according to exhibit C of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office); and
(3) Establish an appointment for the recipient to discuss with the District Director the basis for FmHA or its successor agency under Public Law 103-354's claim; and give the recipient an opportunity to provide facts, figures, written records or other information which might alter FmHA or its successor agency under Public Law 103-354's determination that the assistance received was unauthorized.
(b) If the recipient meets with the District Director, the District Director will outline to the recipient why the assistance was determined to be unauthorized. The recipient will be given an opportunity to provide information to refute FmHA or its successor agency under Public Law 103-354's findings. When requested by the recipient, the District Director may grant additional time for the recipient to assemble documentation. When an extension is granted, the District Director will specify a definite number of days to be allowed and establish the followup necessary to assure that servicing of the case continues without undue delay.
When the District Director is the same individual who approved the unauthorized assistance, the State Director must review the case before further actions are taken by the District Director.
(a)
(1) In the case of the loan, for application to the borrower's account as an extra payment.
(2) In the case of a grant, as a “Miscellaneous Collection for Application to the General Fund.”
(3) In the case of a loan or grant which was identified in an OIG audit, the District Director will report the repayment as outlined in § 1951.668 (a)(1)((i), (a)(3), or (a)(6) as applicable.
(4) In the case of RA, the repayment will be handled as outlined in § 1951.661 (a)(3) and exhibit E to FmHA or its successor agency under Public Law 103-354 Instruction 1930-C.
(b)
(1) The recipient did not provide false information as defined in § 1951.652 (d);
(2) It would be highly inequitable to require prompt repayment of the unauthorized assistance; and
(3) Failure to collect the unauthorized assistance in full will not adversely affect FmHA or its successor agency under Public Law 103-354's financial interests.
(c)
(1) The amount of assistance finally determined by FmHA or its successor agency under Public Law 103-354 to be unauthorized;
(2) A statement of further actions to be taken by FmHA or its successor agency under Public Law 103-354 as outlined in paragraph (e)(1) or (e)(2) of this section; and
(3) The appeal rights as prescribed in exhibit B of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office).
(d)
(e)
(1)
(A) The amount of unauthorized assistance outstanding, including principal, accrued interest, and any recoverable costs charged to the account, is less than $1,000; or
(B) It can be clearly documented that it would not be in the best financial interest of the Government to force liquidation. If the District Director wishes to make an exception to forced liquidation under paragraph (e)(1)(i)(B) of this section, a request for an exception under § 1951.669 will be made.
(ii) When all of the conditions of paragraph (a) or (b) or this section are met, but the recipient does not repay or refuses to execute documents to effect necessary account adjustments according to the provisions of § 1951.661, liquidation action will be initiated as provided in paragraph (e)(1)(i) of this section.
(iii) When forced liquidation would be initiated except that the loan is being handled under paragraph (e)(1)(i)(A) or (e)(1)(i)(B) of this section account adjustments will be made by FmHA or its successor agency under Public Law 103-354 without the signature of the recipient according to § 1951.668(a)(5). In these cases, the recipient will be notified by letter of the actions taken with a copy of Form FmHA or its successor agency under Public Law 103-354 1951-12, “Correction of Loan Account,” if applicable.
(2)
When all of the conditions outlined in § 1951.658(b) are met, an unauthorized loan or grant will be serviced according to this section and § 1951.668, provided the recipient has the legal and financial capabilities.
(a)
(ii)
(2)
(3)
(i)
(ii)
(iii)
(iv)
(A)
(
(
(
(B)
(v)
(4)
(ii) If it is determined the recipient cannot repay unauthorized grant assistance, the assistance may be left outstanding under the terms of the grant agreement. In the case of committed funds not yet disbursed, no further disbursements will be made without prior consent of the Administrator.
(5)
(b)
(1) Have the recipient execute a promissory note in the amount of the assistance determined to be unauthorized in the exhibit A (available in any FmHA or its successor agency under Public Law 103-354 office) letter according to § 1951.657. This note will bear interest at the rate which was in effect for the type loan associated with the unauthorized assistance when it was approved. The term will not exceed 10 years.
(2) Take the best mortgage obtainable to secure the note.
When a final determination has been made that unauthorized assistance has been granted, the Finance Office will be notifed of necessary account adjustments as outlined in this section, depending upon whether the case or unauthorized assistance was identified by OIG in an audit report or by another means. The Finance Office will service the accounts as prescribed in this section.
(a)
(1)
(i)
(ii)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(i) For an unauthorized loan account as provided in paragraph (a)(1) or (a)(4) of this section, reporting will be as follows:
(A) When unauthorized assistance is paid in full, this will be reported on the next scheduled report only.
(B) When continuation with the loan on existing terms is approved, the case will be reported as resolved on the next scheduled report, and no further reporting is required.
(ii) For unauthorized subsidy cases as provided in paragraph (a)(2) or (a)(3) of this section, after the unauthorized amount has been repaid or payments have been reversed and reapplied at the correct interest rate, the unauthorized subsidy will be reported as resolved on the next scheduled report. No further reporting is required.
(iii) When an account is established with liquidation action pending as provided in paragraph (a)(4) of this section, the status will be included on each scheduled report until the liquidation is completed or the account is otherwise paid in full.
(iv) When liquidation is not initiated as provided in paragraph (a)(5) of this section, this will be reported on the next scheduled report (along with collections, if any). No further reporting is required.
(v) When unauthorized grant assistance is scheduled to be repaid, the collections and status reported by the State Office to the Finance Office by memorandum according to paragraph (a)(6) of this section will be included in the OIG Report until the account is paid in full.
(vi) When an inactive borrower has agreed to repay unauthorized assistance according to paragraph (a)(7) of this section, the account will be reported initially, and collections and status will be included in each scheduled report until the account is paid in full.
(b)
(1) Account adjustments will be handled as follows:
(i) When a change in interest rate retroactive to the date of loan closing is necessary, Form FmHA or its successor agency under Public Law 103-354 1951-13, “Change in Interest Rate,” will be completed according to the FMI and executed by the borrower. Form FmHA or its successor agency under Public Law 103-354 1951-521 will be submitted to the Finance Office. Payments will be reversed and reapplied accordingly.
(ii) When an inactive borrower agrees to repay unauthorized assistance and executes documents to evidence such an obligation, the District Director will notify the Finance Office by memorandum, attaching a copy of the promissory note. The Finance Office will establish or reinstate the account according to the terms of the promissory note.
(iii) If a loan is paid in full, the remittance will be handled in the same manner as any other final payment.
(2) A delinquency created through reversal and reapplication of payments to effect corrections outlined in paragraph (b)(1)(i) of this section will be serviced according to subpart B of part 1965 of this chapter.
(c)
The Administrator may in individual cases make an exception to any requirement or provision of this subpart which is not inconsistent with any applicable law or opinion of the Comptroller General, provided the Administrator determines that application of the requirement or provision would adversely affect the Government's interest. Requests for exceptions must be made in writing by the State Director and submitted through the Assistant Administrator, Housing. Requests will be supported with documentation to explain the adverse effect on the Government's interest, proposed alternative courses of action, and show how the adverse effect will be eliminated or minimized if the exception is granted.
The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0104.
This subpart prescribes the policies and procedures for servicing Community and Business Program loans and/or grants made by Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) when it is determined that the borrower or grantee was not eligible for all or part of the financial assistance received in the form of a loan, grant, or subsidy granted, or any other direct financial assistance. It does not apply to guaranteed loans. Loans sold without insurance by the FmHA or its successor agency under Public Law 103-354 to the private sector will be serviced in the private sector and will not be serviced under this subpart. The provisions of this subpart are not applicable to such loans. Future changes to this subpart will not be made applicable to such loans.
As used in this subpart, the following definitions apply:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
When unauthorized assistance has been received, an effort must be made to collect from the recipient the sum which is determined to be unauthorized, regardless of amount, unless any applicable Statute of Limitation has expired.
Unauthorized assistance may be identified through audits conducted by the Office of the Inspector General, USDA, (OIG); through reviews made by FmHA or its successor agency under Public Law 103-354 personnel; or through other means such as information provided by a private citizen which documents that unauthorized assistance has been receive by a recipient of FmHA or its successor agency under Public Law 103-354 assistance. If the servicing official has reason to believe unauthorized assistance was received, but is unable to determine whether or not the assistance was in fact unauthorized, the case file including the advice of the Regional Office of the General Counsel (OGC) will be referred to the National Office for review and comment. In every case where it is known or believed by FmHA or its successor agency under Public Law 103-354 that the assistance was based on false information, investigation by the OIG will be requested as provided for in FmHA or its successor agency under Public Law 103-354 Instruction 2012-B (available in any FmHA or its successor agency under Public Law 103-354 office). If OIG conducts an investigation, the actions outlined in § 1951.707 will be deferred until the OIG investigation is completed and the report is received. The reason(s) for the unauthorized assistance being received by the recipient will be well documented in the case file, and will specifically state whether it was due to:
(a) Submission of inaccurate information by the recipient;
(b) Submission of false information by the recipient.
(c) Submission of inaccurate or false information by another authorized party acting on the recipient's behalf including professional consultant such as engineers, architects, and attorneys, when the recipient did not know the other part had submitted inaccurate or false information;
(d) Error by FmHA or its successor agency under Public Law 103-354 personnel, either in making computations or failure to follow published regulations or other agency issuances; or
(e) Error in preparation of a debt instrument which caused a loan to be closed at an interest rate lower than the correct rate in effect when the loan was approved.
(a) Collection efforts will be initiated by the servicing official by a letter substantially similar to exhibit A of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office), and mailed to the recipient by “Certified Mail, Return Receipt Requested,” with a copy to the State Director and, for a case identifed in an OIG audit report, a copy to the OIG office which conducted the audit and the Planning and Analysis Staff of the National Office. This letter will be sent to all recipients who received unauthorized assistance, regardless of amount. The letter will:
(1) Specify in detail the reason(s) the assistance was determined to be unauthorized;
(2) State the amount of unauthorized assistance, including any accrued interest to be repaid; and
(3) Establish an appointment for the recipient to discuss with the servicing official the basis for FmHA or its successor agency under Public Law 103-354's claim; and give the recipient an opportunity to provide facts, figures, written records or other information which might alter FmHA or its successor agency under Public Law 103-354's determination that the assistance received was unauthorized.
(b) If the recipient meets with the servicing official, the servicing official will outline to the recipient why the assistance was determined to be unauthorized. The recipient will be given an opportunity to provide information to refute FmHA or its successor agency under Public Law 103-354's findings. When requested by the recipient, the servicing official may grant additional time for the recipient to assemble documentation. When an extension is granted, the servicing official will specify a definite number of days to be allowed and establish the follow up necessary to assure that servicing of the case continues without undue delay.
When the servicing official is the same individual who approved the unauthorized assistance, the next-higher supervisory official must review the case before further actions are taken by the servicing official.
(a)
(1) In the case of a loan, for application to the borrower's account as an extra payment.
(2) In the case of a grant, as a “Miscellaneous Collection for Application to the General Fund.”
(3) In the case of a loan or grant which was identified in an OIG audit, the servicing official will report the repayment as outlined in § 1951.711(b)(2) or 1951.715 as applicable.
(b)
(1) The recipient did not provide false information as defined in §1951.702(d);
(2) It would be highly inequitable to require prompt repayment of the unauthorized assistance; and
(3) Failure to collect the unauthorized assistance in full will not adversely affect FmHA or its successor agency under Public Law 103-354's financial interests.
(c)
(1) The amount of assistance finally determined by FmHA or its successor agency under Public Law 103-354 to be unauthorized including any accrued interest.
(2) A statement of further actions to be taken by FmHA or its successor agency under Public Law 103-354 as outlined in paragraph (e)(1) or (e)(2) of this section; and
(3) The appeal rights as prescribed in exhibit B of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office).
(d)
(e)
(1)
(A) The amount of unauthorized assistance outstanding, including principal, accrued interest, and any recoverable costs charged to the account, is less than $1,000; or
(B) It can be clearly documented that it would not be in the best financial interest of the Government to force liquidation. If the servicing official wishes to make an exception to forced liquidation under paragraph (e)(1)(i)(B) of this section, a request for an exception under § 951.716 will be made.
(ii) When all of the conditions of paragraph (a) or (b) of this section are met, but the recipient does not repay or refuses to execute documents to effect necessary account adjustments according of the provisions of § 1951.711, liquidation action will be initiated as provided in paragraph (e)(1)(i) of this section.
(iii) When forced liquidation would be initiated except that the loan is being handled under paragraph (e)(1)(i)(A) or (e)(1)(i)(B) of this section, continuation with the loan on existing terms will be provided. In these cases, the recipient will be notified by letter of the actions taken.
(2)
When the conditions outlined in § 1951.708(b) are met, the servicing options outlined in this section will be
(a)
(2)
(b)
(1)
(2)
(3)
(c)
(d)
Cases of unauthorized assistance which require Finance Office notification and action, regardless of whether they were identified in an OIG audit or by other means, will be submitted to the Finance Office by memorandum from the servicing official, as provided in applicable paragraphs of § 1951.711 of this subpart. Each memorandum should include account (borrower) name, case number, audit report number (if applicable), finding number (if applicable), fund code, loan number, and an explanation of the actions to be taken. If the unauthorized assistance was identified in an OIG audit report, the memorandum should be clearly annotated “Audit Claim for OIG Report” as a part of the subject. The explanation should provide sufficient details to allow the Finance Office to properly adjust the account. The State Office will forward a consolidated report on unauthorized grant assistance identified in an OIG audit to the Finance Office by the 15th of March, June, September, and December of each year reflecting the information reported by servicing officials in accordance with § 1951.711(b)(2) for inclusion in the report to OIG.
(a)
(1)
(2)
(b)
(1)
(2)
(c)
(d)
(e)
(f)
(g)
(1) For an unauthorized loan account established as provided in paragraph (a) or (b) of this section, reporting will be as follows:
(i) When unauthorized assistance is paid in full, this will be reported on the next scheduled report only.
(ii) When continuation with the loan on existing or modified terms is approved, this will be reported on the next scheduled report, and no further reporting is required.
(2) For unauthorized subsidy cases as provided in paragraph (c) of this section, once the interest rate has been appropriately adjusted, the unauthorized subsidy will be reported as resolved on the next scheduled report. No further reporting is required.
(3) When an account is established with liquidation action pending as provided in paragraph (d) of this section, the status will be included on each scheduled report until the liquidation is completed or the account is otherwise paid in full.
(4) When liquidation is not initiated as provided in paragraph (e) of this section, this will be reported on the next scheduled report. No further reporting is required.
(5) When unauthorized grant assistance is scheduled to be repaid as provided in paragraph (f) of this section, collections and status will be included in the report to OIG until the amount is paid in full.
The Administrator may in individual cases make an exception to any requirement or provision of this subpart which is not inconsistent with any applicable law or opinion of the Comptroller General, provided the Administrator determines that application of the requirement or provision would adversely affect the Government's interest. Requests for exceptions must be made in writing by the State Director and submitted through the Assistant Administrator, Community and Business Programs. Requests will be supported with documentation to explain the adverse effect on the Government's interest, propose alternative courses of action, and show how the adverse effect
The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0103.
(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 § 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.
(a)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(a)
(b)
(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 as outlined in § 1948.116(b) of part 1948, subpart C.
(x) Aquaculture including conservation, development, and utilization of water for aquaculture. Aquaculture means the culture or husbandry of aquatic animals or plants by private
(a)
(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)
(1) For agricultural production, which means the cultivation, production (growing), harvesting, either directly or through integrated operations, of agricultural products (crops, animals, birds and marine life, either for fiber or food for human consumption, and disposal or marketing thereof, the raising, housing, feeding, breeding, hatching, control and/or management of farm and domestic animals). Exceptions to this definition are:
(i) Aquaculture as identified under eligible purposes.
(ii) Commercial nurseries primarily engaged in the production of ornamental plants and trees and other nursery products such as bulbs, florists’ greens, flowers, shrubbery, flower and vegetable seeds, sod, the growing of vegetables from seed to the transplant stage.
(iii) Forestry, which includes establishments primarily engaged in the operation of timber tracts, tree farms, forest nurseries, and related activities such as reforestation.
(iv) Financial assistance for livestock and poultry processing as identified under eligible purposes.
(v) The growing of mushrooms or hydroponics.
(2) For the transfer of ownership unless the loan will keep the business from closing, or prevent the loss of employment opportunities in the area, or provide expanded job opportunities.
(3) For community antenna television services or facilities.
(4) For any legitimate business activity when more than 10 percent of the annual gross revenue is derived from legalized gambling activity.
(5) For any illegal activity.
(6) For any otherwise eligible project that is in violation of either a Federal, State or local environmental protection law or regulation or an enforceable land use restriction unless the financial assistance required will result in curing or removing the violation.
(7) For any hotels, motels, tourist homes, or convention centers.
(8) For any tourist, recreation, or amusement centers.
(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.
(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
(b) Interest rates charged by intermediaries to the ultimate recipients shall be at rates negotiated by those parties. Intermediaries are encouraged to make loans to ultimate recipients at the lowest possible rate, taking into account the cost of the loan funds to the intermediary and the cost of administering the loan portfolio.
(a)
(b)
(c)
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.
(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
(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.
(a)
(b)
(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)
(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
(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.
(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
(e) If the scheduled payment is not made by the intermediary within 30 days after the due date of the payment, the Finance Office will send a past due notice to the intermediary. The notice will show the late charge amount, if applicable, and the interest amount past due. The late charge amount, if applicable, and the interest past due amount will be capitalized as principal due 30 days after the due date of the monthly payment unless existing loan documents prior to this regulation state otherwise. If the loan documents state when late charge amounts or interest accruals are to be capitalized, the loan documents will prevail.
(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.
(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.
(a) During or in preparation for field visits to RDLF/IRP intermediaries by FmHA or its successor agency under Public Law 103-354 personnel, the following loan servicing activities are to be performed:
(1) Review what is being done to inform eligible applicants of the program's existence.
(2) Obtain current and proper financial information and analyze for trends on all RDLF/IRP intermediaries. Also determine if there is a sufficient interest rate spread between the interest rate charged the intermediary and the interest rate charged the ultimate recipients to cover the administrative costs, including bad debts of operating the program.
(3) Include in the writeups of the field visit any issues or problems not resolved from the last visitation in the agenda.
(4) Review credit elsewhere information (has the ultimate recipient been refused funds by other sources?) to determine if this information is in the files.
(5) Observe collateral and its condition, maintenance, protection and utilization by the intermediary or ultimate recipient.
(6) Review the process for handling loan proceeds to assure they are deposited in an interest-bearing account or time deposit in a bank or other financial institution fully protected by Federal or State insurance.
(7) Review materials to determine if the purpose of the program is being fulfilled; i.e., loan funds are being used in accordance with FmHA or its successor agency under Public Law 103-354 policies, procedures, the approved work plan and the Loan Agreement.
(8) A report of the visit will be made on “RDLF/IRP Review Summary Sheet,” or otherwise documented and included in the loan file in the format of the “RDLF/IRP Review Summary Sheet.” The report should include an opinion on the financial condition of the intermediary based upon the review of the annual audited financial statement, periodic financial statements, and observations made during the visit and other sources.
(9) Determine if the ultimate recipients’ files are complete, organized, and current.
(10) Any instructions, directions, or corrective action should be confirmed by letter to the intermediaries.
(b) All intermediaries are required to provide an annual audited financial statement as well as a summary sheet of their lending program on each ultimate recipient receiving Federal funds. The summary sheet of their lending program on each ultimate recipient should include but not be limited to: the borrower's name and address, type of business, use of loan funds, loan amount, date of note, outstanding balance, date of final payment, interest rate, amount and type of collateral, insurance information, loan status, and the date of FmHA or its successor agency under Public Law 103-354 approval, if applicable.
(c) The intermediary should perform an analysis on its ultimate recipients and follow up in writing on any servicing action required. A copy of the analysis will be provided to FmHA or its successor agency under Public Law 103-354 for those ultimate recipients having Federal funds.
(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 reports for periods ending March 31, June 30, September 30, and December 31 (due 30 days after the end of the period). FmHA or its successor agency under Public Law 103-354 at its option may change this requirement to semiannual reports. These reports shall contain information only on the RDLF/IRP loan funds, or if other funds are included, the RDLF/IRP loan program portion shall be segregated from the others; and in the case where the intermediary has more than one RDLF/IRP loan, from FmHA or its successor agency under Public Law 103-354, a separate report shall be made for each of these RDLF/IRP loans. The reports will include:
(i) Form FmHA or its successor agency under Public Law 103-354 1951-4, “Report of IRP/RDLF Lending Activity” (available in the FmHA or its successor agency under Public Law 103-354 National Office). This report will include information on the intermediary's lending activity, income and expenses, and financial condition and a summary of names and characteristics of the ultimate recipients the intermediary has financed.
(ii) Project Progress Review Narrative.
(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.
Once all the FmHA or its successor agency under Public Law 103-354-derived loan funds have been utilized by the intermediary for assistance to ultimate recipients according to the provisions of these regulations and the loan agreement, assistance to new ultimate recipients financed thereafter from the intermediary's revolving loan fund shall not be considered as being derived from Federal funds and the requirements of these regulations will not be imposed on those new ultimate recipients. Ultimate recipients assisted by the intermediary with FmHA or its successor agency under Public Law 103-354-derived loan funds shall be required to comply with the provisions of these regulations and/or loan agreement.
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
(a)
(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)
(c)
(d)
(e)
(f)
(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.
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.
(a) In the event that FmHA or its successor agency under Public Law 103-354 takes over the servicing of the ultimate recipient of an intermediary, those loans will be serviced by this regulation and in accordance with the contractual arrangement between the intermediary and the ultimate recipient. Should the FmHA or its successor agency under Public Law 103-354 determine that it is necessary or desirable to take action to protect or further the interests of FmHA or its successor agency under Public Law 103-354 in connection with any default or breach of conditions under any loan made hereunder, the FmHA or its successor agency under Public Law 103-354 may:
(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
(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.
Debt settlement of all claims will be handled in accordance with the Federal Claims Collection Standards (4 CFR parts 101-105).
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.
The Administrator may, in individual cases, grant an exception to any requirement or provision of this subpart which is not inconsistent with an applicable law or opinion of the Comptroller General, provided the Administrator determines that application of the requirement or provision would adversely affect the Government's interest. The basis for this exception will be fully documented. The documentation will: demonstrate the adverse impact; identify the particular requirement involved; and show how the adverse impact will be eliminated.
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.
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. Cases involving unauthorized assistance will be serviced as described in subpart L of this part. When it has been determined that all the conditions outlined in § 1951.558(b) of subpart L of this part have been met, the loan will be treated as an authorized loan and may be serviced under this subpart. Cases involving graduation of borrowers to other sources of credit will be serviced as described in subpart F of this part. This subpart does not apply to FLP Non-Program (NP) loans. Examples of Primary Loan Servicing actions are: consolidation, rescheduling and/or reamortization, deferral of principal and interest payments, reclassifying to ST loans, reducing interest rate on the loan, writedown of debt and conservation contract, or a combination of these actions. Preservation loan servicing is the Homestead Protection program. Any processing or servicing activity conducted pursuant to this subpart involving authorized assistance to agency employees, members of their families, known close relatives, or business or close personal associates, is subject to the provisions of subpart D of part 1900 of this chapter. Applicants for this assistance are required to identify any known relationship or association with an agency employee.
(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.
(a)
(b)
(a)
(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)
(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)
(d)
(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)
(f)
As used in this subpart, the following definitions apply:
(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
(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.
(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.
(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.
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)
(b)
(c)
(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, 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)
(e)
(2) If borrowers are sent attachments 3 and 4 and do not request servicing within 60 days, the agency will proceed with liquidation in accordance with § 1955.15 of this chapter.
(3) If borrowers are sent exhibit A and attachments 1 and 2 of this subpart and do not submit a completed application within the 60-day time period, the servicing official will send attachments 9 and 10, or 9-A and 10-A of exhibit A of this subpart, as applicable. These attachments will not be sent to borrowers who are being serviced in accordance with § 1951.908. For borrowers receiving attachments 9 and 10 or 9-A and 10-A, the agency will proceed with liquidation in accordance with § 1955.15 of this chapter.
(4) If a borrower has moved and left a forwarding address, the certified mail will be forwarded. If no forwarding address is given, the mail will be returned to the county office. The servicing official will immediately send the documents from the certified mail package to the borrower's last known address, first class mail. The borrower's response date for a completed application will begin on the date of receipt of the certified mail or 3 days following the date of first class mailing, whichever is earlier.
(5) An application for loan service programs must include the following forms (available in any agency office), and data, unless the information is already in the borrower's case file and still current, as determined by the approval official:
(i) Attachment 2 or 4 of exhibit A to this subpart, response form to apply for loan servicing.
(ii) Form 410-1, “Application for FmHA Services,” including a current (within 90 days) financial statement of all individuals and entities personally liable for the FLP debt.
(iii) Form 431-2, “Farm and Home Plan,” or any other form or submission acceptable to the agency that sets forth a plan of operation and the necessary information. Commodity prices supplied by the agency will be used to complete the forms.
(iv) Form 440-32, “Request for Statement of Debts and Collateral.”
(v) Form RD 1910-5, “Request for Verification of Employment.”
(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
(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 § 1951.908. Subsequent notices as provided for in this section will not be issued until the first notice is resolved.
A borrower who is financially distressed, but is not yet delinquent on FLP payments, may request servicing at any time.
(a)
(b)
(1) The eligibility requirements of § 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 §§ 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)
(1) Current borrowers will be considered only for the Primary Loan Servicing programs described in §§ 1951.909 (e) (1), (2), and (3). The servicing official must use the Debt and Loan Restructuring System (DALR$) program, in accordance with exhibit J-1 of this subpart, to determine if a feasible plan can be developed as defined in § 1951.906.
(2) If a feasible plan can be developed, the borrower will be sent exhibit B of this subpart with attachment 1 and the printout of the DALR$ calculations as notification of the favorable decision. The borrower must accept the offer within 45 days of its receipt by returning attachment 1 to exhibit B of this subpart or the offer will expire. If the borrower accepts, loan restructuring will be processed in accordance with §§ 1951.909 (e) (1), (2), or (3), as applicable.
(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 § 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
(a)
(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 § 1951.906;
(iv) The individual withdrawing has never received debt forgiveness on another direct loan; and.
(v) The withdrawing party provides a copy of the divorce decree and property settlement, evidence of conveyance, a current financial statement, verification of income and debts, and Form 431-2 or Form RD-1944-3 as applicable.
(3) If a completed application includes a request for a waiver from the training required by paragraph (c)(5) of this section, the County Committee will, prior to any offer of Primary Loan Servicing, evaluate the borrower's knowledge and ability in production and financial management and determine the need for additional training as set out in § 1924.74 of this chapter.
(b)
(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
(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)
(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 § 1951.910 of this subpart.
(5) The borrower must agree to meet the training requirements of § 1924.74 of this chapter unless a waiver is granted in accordance with that section. The training requirement applies to all primary loan servicing programs.
(d)
(1) That the borrower will be able to develop a feasible plan.
(2) If restructured, the loan will result in a net recovery to the Government that will be equal to or greater than the net recovery value from involuntary liquidation or foreclosure as calculated in accordance with paragraph (f) of this section. A comparison with net recovery to the Government, however, will not be made when establishing conservation contracts under exhibit H of this subpart.
(e)
(1)
(i) The borrower meets the eligibility requirements in paragraph (c) of this section;
(ii) Such action is not taken to circumvent the FLP graduation requirements;
(iii) The borrower's account is not being serviced by the OGC or the U.S. Attorney and there are no plans to have the account serviced by either of these offices in the near future;
(iv) Loans may be rescheduled or reamortized, as appropriate, to bring the account current or to keep the account from becoming delinquent. A sufficient number of notes including all delinquent notes will be rescheduled to permit the development of a feasible plan of operation;
(v) The borrower will comply with the highly Erodible Land and Wetland Conservation provisions of exhibit M of subpart G of part 1940 of this chapter, if applicable;
(vi) Loans secured by real estate will not be consolidated and/or rescheduled, until the servicing official reviews the Government's real estate lien priority and value of security and decides that such an action will be in the best interest of the Government and the borrower. If there are any liens which were not in existence at the time the note was signed, the servicing official will ask the OGC for an opinion as to what lien position the Government will have if a new note is taken unless a State supplement authorizing this action has been issued on this subject;
(vii) Only loans of the same type will be consolidated;
(viii) EM actual loss loans will not be consolidated;
(ix) Loans serviced under subpart L of this part will not be consolidated with another loan;
(x) Loans that have been deferred under this section will not be consolidated and/or rescheduled during the deferral period;
(xi) Terms of consolidated and/or rescheduled loans are as follows:
(A) Consolidated and/or rescheduled loans will be repaid according to the borrower's repayment ability, but will not exceed 15 years from the date of the consolidation and/or rescheduling action, except:
(B) Repayment of loans solely for recreation and/or nonfarm enterprise purposes may not exceed seven years from the date of the consolidation and/or rescheduling action (the date the new note is signed).
(C) Repayment of EE loans may not exceed 15 years from the date of rescheduling.
(xii) Interest rates of consolidated and/or rescheduled loans will be as follows:
(A) The interest rate for consolidated and/or rescheduled loans will be the lesser of the current interest rate for that type of loan or the lowest
(B) At the time of the consolidation and/or rescheduling action, OL loans that were not assigned a limited resource rate when the loan was received, may be assigned a limited resource rate if:
(
(
(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
(xiv) For applications received before November 28, 1990, the amount of outstanding accrued interest more than 90 days overdue and any outstanding protective advances, as defined in § 1965.11(b) of subpart A of part 1965 of this chapter, made on the loan will be added to the principal at the time of consolidation and/or rescheduling (the date the new note is signed by the borrower). Protective advances are not authorized for the payment of prior or junior liens except real estate tax liens. See section II E of exhibit J of this subpart for an explanation of how to schedule payment of interest not more than 90 days overdue; and
(xv) For new applications, the amount of outstanding accrued interest and any outstanding protective advances, as defined in § 1965.11(b) subpart A of part 1965 of this chapter, made on the loan will be added to the principal at the time of consolidation and/or rescheduling (the date the new note is signed by the borrower) in accordance with the provisions of exhibit J-1 of this subpart. Protective advances are not authorized for the payment of prior or junior liens except real estate tax liens.
(2)
(i) The borrower meets the eligibility requirements of 1951.909(c) of this subpart;
(ii) Such action is not taken to circumvent the FLP graduation requirements;
(iii) The borrower's account is not being serviced by the OGC or the U.S. Attorney, and there are no plans to have the account serviced by either of these offices in the foreseeable future;
(iv) A feasible plan for the borrower cannot be developed with the existing repayment schedule. A sufficient number of notes, including all delinquent notes, will be reamortized to permit the development of a feasible plan of operation;
(v) The borrower will comply with the Highly Erodible Land and Wetland Conservation requirements of exhibit M of subpart G of part 1940 of this chapter, if applicable;
(vi) Loans that have been deferred in this supbart will not be reamortized during the deferral period unless the deferral is cancelled;
(vii) Terms of repayment of reamortized loans are as follows:
(A) Reamortized installments usually will be scheduled for repayment within the remaining time period of the note or assumption agreement being reamortized. If repayment terms are extended, the new repayment period may not exceed 40 years from the date of the original note or assumption agreement or the useful life of the security, whichever is less. 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, or the useful life of the security, whichever is less. RHF loans may not exceed 33 years from the date of the original note or assumption agreement.
(B) The Agency's lien priority may be affected if the final due date of the original loan is extended. A State supplement will be issued to provide instructions on the effect that a change in the final due date has on security instruments and the actions necessary to retain the Government's lien priority. The State supplement will also include instructions for releasing the original security instrument when a new one is obtained.
(viii) Interest:
(A) The interest rate will be the current interest rate in effect on the date of reamortization (the date the new note is signed by the borrower), or the interest rate on the
(B) At the time of the reamortization, an FO or SW loan that was not assigned a limited resource rate when the
(
(
(
(C) For applications received before November 28, 1990, the amount of accrued interest more than 90 days overdue and any protective advances, as defined in § 1965.11(b) of subpart A of part 1965 of this chapter, charged to the borrower's account, will be added to the principal at the time of the reamortization action (the date the new note is signed by the borrower).
(ix) The original (old) note(s) will be marked “Reamortized” and will be stapled to the new promissory note and filed in the operational file. Copies for the borrower(s) case file should be marked and stapled the same and filed in position 2 of the case file. If a transfer is involved, assumption agreement(s) will be marked and stapled with the note(s) and copies filed as indicated above. If a part of a note is written down, the written down note will be marked “Reamortized with Debt Writedown” and will be filed as indicated above in this paragraph.
(3)
(ii)
(A) The need for the deferral must be temporary. To be
(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)
(A) Determine that the borrower meets the eligibility requirements of § 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
(iv)
(A) A sufficient number of loans must be considered for deferral to permit the borrower to have a feasible plan.
(B) A deferral plan may include a reorganization of the farming operation, including the use of new enterprises, to overcome existing financial, economic or other limitations of the operation. If the proposed restructuring requires capital expenditures, a subordination or additional loan will be considered. Deferral of additional loan installments beyond those needed to allow the borrower to develop a feasible plan will not be used to create additional cash reserve for capital purchases. Such purchases are not considered operating expenses.
(C) A typical year during the deferral period is a year which most closely represents the borrower's average operation for the entire deferral period. There may be no typical year for farming or ranching operations undergoing a major reorganization. If there is no typical year, then it will be necessary to develop a plan of operation for each year of the deferral. The plans must be considered in DALR$ to determine if each plan is feasible.
(D) The deferral of loan installments is not intended to create a high net cash reserve where revenue substantially exceeds expenses. If the deferral of a complete note would cause a high net cash reserve during the entire deferral period, a full deferral should not be granted. In such a case, a partial deferral should be considered to obtain a feasible plan of operation. The same approach should be used for situations in which there is no typical year and debt payments must vary throughout the deferral period.
(E) The borrower must have feasible plans of operation to support any deferral request. Plans of operation in conjunction with loan deferrals must be realistic and supported by the borrower's actual records.
(v)
(vi)
(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
(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)
(4)
(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 $300,000.
(iv) A feasible plan must be developed that will result in a present value of loans to be repaid to the Government which is equal to or more than a net recovery from an involuntary liquidation or foreclosure;
(v) The borrower must comply with the Highly Erodible Land and Wetland Conservation requirements of exibibit M of subpart G of part 1940 of this chapter, if applicable;
(vi) The borrower must agree to a Shared Appreciation Agreement if the loan is secured by real estate;
(vii) Loans written down with the Primary Loan Servicing programs will be rescheduled, reamortized, or deferred in accordance with paragraph (e) of this section; and
(viii) Borrower must agree to a lien on certain assets as provided in 1951.910 of this subpart, including nonessential assets, where the net recovery value of these assets was not paid to the Agency. (The Agency's lien will be taken only at the time of closing the restructured loans); and
(ix) Debt reduction received through conservation easements or contracts will not be counted toward the limitations in paragraphs (e)(4) (ii) and (iii) of this section.
(f)
(1) The servicing official will use the computer program, DALR$, 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 subpart E of part 1922 of this chapter for real estate property, and on Form 440-21, “Appraisal of Chattel Property.” The servicing official also will determine the current market value of any bank accounts, stocks and bonds, certificates of deposit and the like pledged to and/or in the possession of the Agency. Collateral may include real estate, chattels, tangible property and property such as bank accounts, stocks and bonds, certificates of deposit, and the like. Chattels include machinery, equipment, livestock, growing crops, and crops in storage. Tangible property may include accounts receivable (including Government payments), inventories, supplies, feed, etc. From the current market value of the collateral in the borrower's possession, or pledged to and/or in the possession of the Agency (in the case of bank accounts, stock and bonds, certificates of deposit, and the like), the following adjustments will be made:
(i) Subtract the amount which would be required to pay prior liens on the collateral;
(ii) Subtract taxes and assessments, depreciation, management costs, and interest cost to the Government based on the 90-day Treasury Bills (published in a National Office issuance). Taxes and assessments, depreciation, management costs, as well as interest costs will be calculated on the current market value of the property for the average inventory holding period. The holding period for suitable inventory farm property will be established by each State as of July 1 each year using Report Code 597. The months that the 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 § 1951.906 of this subpart, add the value of any collateral that is not in the borrower's possession and that has not
(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)
(h)
(1)
(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
(ii) If the borrower does not respond to exhibit F within 45 days, or declines the Agency's offer to restructure the debt without requesting an appeal or negotiation, the servicing official will send attachments 9 and 10, or 9-A and 10-A of exhibit A of this subpart, as applicable. If the borrower requests an appeal and the Agency is upheld, attachments 9-A and 10-A will not be sent until the borrower is given the opportunity to accept the original offer within 45 days following the final appeal decision. These borrowers will not have an additional opportunity to appeal the offer in attachments 9-A and 10-A. If attachment 10 or 10-A is not returned within 30 days of the borrower's receipt of the attachments, the account will be accelerated or foreclosed in accordance with § 1955.15 of subpart A of part 1955 of this chapter.
(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)
(3)
(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
(B) In States
(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)
(i) Eligible borrowers will have 90 days after the receipt of the notification of ineligibility for Primary Loan Service programs to buy out their loans at Current Market Value, or the balance of their unpaid FLP debt, whichever is lower.
(ii) The present value of the restructured loan must be less than the net recovery value to receive buyout.
(iii) The Agency will not provide direct or guaranteed credit for a buyout.
(iv) The borrower must never have received debt forgiveness on another direct loan. (Applies if any debt will be written off.)
(v) The amount written off may not exceed $300,000.
(vi) The borrower must have acted in good faith.
(vii) Debt reduction received through conservation easements or contracts will not be counted toward the limitations in paragraphs (h)(4) (iv) and (v) of this section.
(viii) The mortgage or deed of trust will be released in accordance with paragraph (k) of this section.
(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)
(2)
(ii) If the administrative appeal process results in a determination that the borrower is
(3)
(ii) The appraisal report must conform to subpart E of part 1922 of this chapter for real estate and Form 440-21 for 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)
(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
(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)
(1) A separate Form 1940-17, “Promissory Note,” will be used for each note or assumption agreement being reamortized.
(2) A Form 1940-17 will be completed, signed, and distributed as provided in the FMI.
(3) The loan servicing action date of approval is also the date that will be inserted on the rescheduled or reamortized Form 1940-17 in accordance with the provisions in the ADPS manual when establishing an equity record.
(4) A Form 1940-17 may be processed provided the County Office has possession of the original note being reamortized. If the County Office does not have possession of the original note, the servicing official will ask the Finance Office to return the original note so that it is in the County Office before Form 1940-17 is processed.
(5) The field office will process the reamortization or consolidation via the Automated Discrepancy Processing System (ADPS) in accordance with Form 1940-17, and complete exhibit D of this subpart.
(6) The original (old) note(s) will be marked “Rescheduled or Reamortized with Writedown of Debt” and stapled to the new rescheduled or reamortized promissory note(s) and will be filed in the promissory note file in the operation 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 will be filed as indicated above.
(7) A lien will be taken on assets in accordance with § 1951.910 of this subpart.
(k)
(l)
(m)
If a delinquent borrower has other assets that are not serving as collateral for the FLP debt, the servicing official will determine whether these assets are nonessential, as defined in § 1951.906 of this subpart.
(a)
(1)
(2)
(3)
(b)
(1) The best lien obtainable will be taken on all assets owned by the borrower. When the borrower is an entity, the best lien obtainable will be taken on all assets owned by the entity, and all assets owned by all members of the entity. Different lien positions on real estate are considered separate and identifiable collateral.
(2) Security will include, but is not limited to, the following: land, buildings, structures, fixtures, machinery, equipment, livestock, livestock products, growing crops, stored crops, inventory, supplies, accounts receivable, certain cash or special cash collateral accounts, marketable securities, certificates of ownership of precious metals, and cash surrender value of life insurance.
(3) Security will also include assignments of leases or leasehold interests having mortgageable value, revenues, royalties from mineral rights, patents and copyrights, and pledges of security by third parties.
(4) The exceptions set forth in § 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.
(a)
(b)
(1)
(2)
(i)
(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)
(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)
(iv)
(3)
(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
(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 §§ 1951.911(b)(3) (iii) and (iv) of this subpart, income from farming or ranching operations will include rent paid by a lessee of agricultural land during any period in which the borrower, due to circumstances beyond his or her control, such as economic, natural disaster or health problems, was unable to actively farm that property. The borrower's records will be used in determining whether the gross farm income was reasonably commensurate with the farm size and location and local agricultural conditions. When applying for homestead protection, the borrower will give the servicing official at least 2 calendar years of records of planned and actual gross farm income for the 6-year period preceding the calendar year in which the application is made. If such records do not exist, they may be developed by the applicant and servicing official from information relating to yields, expenses and prices found in the borrower's county office case file, agency records, or other reliable sources;
(iv) The applicant and any spouse must have received, from the farming 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)
(5)
(ii) Costs for a survey, legal description or other service needed to establish, appraise, define or describe the homestead protection property as a separate tract, will be paid for by the Agency. No repairs or improvements will be paid for by the Agency except as provided for in § 1955.64 (a) of subpart A of part 1955 of this chapter.
(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)
(7)
(A) The amount of the rent will be based upon equivalent rents charged for similar residential properties in the area in which the dwelling is located.
(B) Lease payments will be retained by the Government.
(C) Failure to make lease payments as scheduled or to maintain the property in good condition shall constitute cause for the termination of all rights of the lessee to possession and occupancy of the dwelling and property under this section. If a lease default is not cured within 30 days of notice, the servicing official will notify the lessee in writing of the termination of the lease and option.
(D) Any interference by the lessee with the Government's efforts to lease or sell the remainder of farm inventory property shall constitute cause for the termination of all rights of the lessee to possession and occupancy of the dwelling and property including the right to exercise the option to purchase.
(ii) Exercising the option to purchase.
(A) The lessee may exercise the option in writing at any time prior to the expiration of the lease by delivering to the servicing official a signed, written statement notifying the Agency that the lessee is exercising the option to 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 § 1951.907 (e) to assist in determining whether or not the applicant has adequate repayment ability.
(8)
(9)
(10)
(11)
(a)
(1) FmHA or its successor agency under Public Law 103-354 shall participate in a USDA Certified Mediation Program under the same terms and conditions as other creditors. Decisions will not be binding on FmHA or its successor agency under Public Law 103-354 unless approved by the representative assigned by FmHA or its successor agency under Public Law 103-354 in accordance with paragraph (a)(4) of this section.
(2) FmHA or its successor agency under Public Law 103-354 will pay the same mediation fees to the USDA Certified State Mediation Board that are charged to all creditors that participate in mediation. The Contracting Officer (CO) will complete Form AD-838, “Purchase Order,” to establish a mediation contract and submit Form FmHA or its successor agency under Public Law 103-354 838-B, “Invoice-Receipt Certification,” for payment upon receipt of an invoice from the Mediator or the Contracting Officer's Representative (COR) recommending payment.
(3) Failure of creditors and/or borrowers to participate in mediation will not preclude FmHA or its successor agency under Public Law 103-354 from granting Primary Loan Service Programs to assist borrowers.
(4) The FmHA or its successor agency under Public Law 103-354 State Director will designate a representative to represent FmHA or its successor agency under Public Law 103-354 in the mediation process. Authorities of the representatives can vary from complete authority to act for FmHA or its successor agency under Public Law 103-354, to a requirement for review and concurrence by the State Director or designee prior to approving a mediation agreement. The State Director 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)
(1) When a mediator is available, the County Supervisor will assist the meditator in scheduling a meeting with the borrower and all of the borrower's creditors and will encourage them to participate in such a meeting. The mediator will be responsible for conducting the meeting in accordance with accepted mediation practices and to develop an Agreement to assist the farmer in resolving their financial difficulties.
(2) When a mediator is not available, the State Director will designate an FmHA or its successor agency under Public Law 103-354 representative to conduct a meeting of creditors and attempt to develop a plan with borrowers and their creditors that will assist the borrowers to resolve their financial difficulty. The State Director will designate a representative not previously involved in servicing the borrower's account. State Directors will designate a representative, or FmHA or its successor agency under Public Law 103-354 employees who have demonstrated good human relations skills and ability to resolve problems and settle disputes.
(3) The designated FmHA or its successor agency under Public Law 103-354 representative for conducting a meeting of creditors will do the following:
(i) Schedule a meeting between the borrower and the borrower's creditors and encourage them to participate in such a meeting;
(ii) State that the parties understand that the representative is neutral and does not represent any of the parties;
(iii) Inform the borrower and creditors concerning FmHA or its successor agency under Public Law 103-354 programs available to assist the borrowers;
(iv) Encourage the parties to utilize all available means to assist the borrower to overcome the financial difficulty;
(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
(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.
(a)
(b)
(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 § 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)
(d)
(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 § 1955.15 of subpart A of part 1955 of this chapter after all appeal rights have been exhausted.
(e)
(f)
(g)
(a)
(2) The borrower's account will be credited with the amount of debt written down.
(3) Six months prior to the end of the Shared Appreciation Agreement, not to exceed 10 years, the Finance Office will notify the County Supervisor of the expected final date of the recapture.
(4) The County Supervisor will establish a follow-up on Form FmHA or its successor agency under Public Law 103-354 1905-1, “Management System Card—Individual,” to review the County real estate records every 24 months starting from the date of the Shared Appreciation Agreement to determine if the borrower has sold the real estate property covered by the agreement or transferred title to such property. The results of the review will be recorded in the borrower's County office case file.
(5) If the County Supervisor determines that the borrower has sold the real estate or transferred title, an appraisal of the real estate will be completed. If the appraisal indicates that there is a positive value between the current market value at the time the Shared Appreciation Agreement was signed and the current market value at the time the borrower conveyed the real estate or transferred title, the borrower will be notified in writing, certified mail, return receipt requested, of the following:
(i) The amount of recapture due;
(ii) The date the recapture is due (not to exceed 30 days from the date the Notice of Recapture Letter is received by the borrower);
(iii) If the borrower disagrees with the FmHA or its successor agency under Public Law 103-354 appraisal, the borrower may appeal the appraisal. If the borrower appeals the current market appraisal, he/she may request an independent appraisal. If the difference between the FmHA or its successor agency under Public Law 103-354 appraisal and independent appraisal is not more than five percent, the borrower must choose the appraisal to be used to process the request. The borrower will select an appraiser from the list of FmHA or its successor agency under Public Law 103-354 approved appraisers. The selection of the appraiser
(iv) Any appeal under this section will be concluded prior to any further action by FmHA or its successor agency under Public Law 103-354; and
(v) If the borrower does not appeal within 30 days or does not pay the amount, FmHA or its successor agency under Public Law 103-354 will proceed as set forth in § 1951.907(e) of this subpart.
(b)
(1) On the conveyance of the real estate security by the borrower; however, transfer of title to the spouse of the borrower on the death of such borrower, will not be treated by FmHA or its successor agency under Public Law 103-354 as a conveyance. Recapture will take place if the surviving spouse conveys the subject property, or at the end of the term of the recapture agreement, whichever comes first;
(2) On the repayment of the loans;
(3) If the borrower/spouse ceases farming operations; or
(4) Five months prior to the end of the term of the Shared Appreciation Agreement. The County Supervisor will inform the borrower by letter of the following:
(i) The date the recapture is due;
(ii) The borrower must select an FmHA or its successor agency under Public Law 103-354 approved appraiser from the list provided to establish the current market value of the property subject to recapture;
(iii) The cost of such appraisal is to be shared equally by FmHA or its successor agency under Public Law 103-354 and the borrower; and
(iv) The borrower must inform FmHA or its successor agency under Public Law 103-354 of the appraiser selected within 15 days from the date of the letter indicated in paragraph (a)(5)(iv) of this section.
(c)
(2) 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.”
(3) When the full amount of the shared appreciation and the remaining FmHA or its successor agency under Public Law 103-354 indebtedness have been paid and credited to the borrower's account, the borrower will be released from personal liability. Notes evidencing debts and shared appreciation agreements will be marked “Paid in Full” 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 the usual manner.
(4) 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.
(a)
(b)
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 0575.0133. 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# 0575-0133), Washington, DC 20503.
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.
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.
You must notify the county office within 60 days of getting this notice if you want to be considered for these programs.
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.
(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.
The Agency will accelerate your loan if you continue to be delinquent or in nonmonetary default. Acceleration of your loan is very severe. This means the Agency will take legal action to collect all the money you owe them.
After acceleration, the Agency will start foreclosure proceedings. They will repossess or take legal action to take any real estate, personal property, crops, livestock, equipment, or any other assets in which the Agency has a security interest. The Agency will also stop allowing you to use your crop, livestock, and milk checks to pay living and operating expenses. The Agency will also take by administrative offset money which other federal agencies owe you.
Sincerely,
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:
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.
All “farm loan programs borrowers” who have one of the following loans:
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.
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.
Agency employees cannot recommend a particular attorney or organization.
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.
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
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.
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.
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.
When loans are consolidated, rescheduled, or reamortized, the interest rate on the new loan will be either the interest rate on the original loan or the current regular rate of interest for that type of loan, whichever is less. The borrower may be able to get the limited resource interest rate on OL, SW, or FO loans.
For information about current interest rates, contact the FSA county office.
Payments of principal and interest can be temporarily delayed for up to 5 years. You must show that you cannot pay essential living expenses or maintain your property and pay your debts. You must also show you will be able to pay at the end of the deferral period.
The interest rate on a deferred loan will be either the current rate of interest for loans of the same type or the original rate on the loan, whichever one is lower.
The interest that builds up during the deferral period will be added to the principal of the loan. You must pay this interest in yearly payments for the rest of the loan term.
You can only get a loan deferral if the FSA determines options 1-4 will not work for you.
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.
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.
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.
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.
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:
(2) You have acted in “good faith” to keep your agreements with FSA in that you have kept all written agreements with FSA including those for the use of proceeds and release of property used to secure the loan, and your file shows no fraud, waste, or conversion.
You must agree to give FSA a lien on certain other assets for additional security for the FSA debt. If you are offered restructuring and accept the offer, you must provide this lien at closing.
You must agree to meet, at your own cost, FSA's training requirements in production and financial management. The cost will be included in your farm plan as an operating expense. The training must be completed within 2 years from the date of restructuring. This requirement may be waived if you are able to demonstrate that you have adequate training in this area. To request a waiver of this training requirement, complete Form FmHA 1924-27, “Request for Waiver of Borrower Training Requirements,” and submit with your request for FSA servicing. This training requirement is not applicable if you have previously received a waiver or you have successfully completed the required FSA Borrower Training program.
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.
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.
You must sign a shared appreciation agreement for 10 years. Under the terms of the agreement:
• You must repay a part of the sum written down.
• The amount you must repay depends on how much your real estate collateral increases in value.
During this 10 years, FSA will ask you to repay part of the debt written down if you do one of the following:
If you do not do one of these things during the 10 years, FSA will ask you to repay part of the debt written down at the end of the 10 year period.
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 6 years, you will be asked to pay only 50 percent of the increase in value. FSA will not ask you to pay more than the amount of the debt written down.
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.
This program applies when the primary loan service programs cannot help you.
(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.
(1) You may lease your home and up to 10 acres if you pay FSA reasonable rent. The rent prices FSA charges you will be similar to comparable property in your area.
(2) You must maintain the property in good condition during the term of the lease.
(3) You may lease for up to 5 years.
(4) You cannot sublease your property.
(5) If you do not keep up your rental payments to FSA, FSA will force you to leave.
You can buy back your homestead property at current market value at any time during the lease. FSA may place an easement on your property to protect and restore any wetlands or converted wetlands. Current market value will be decided by an independent appraiser. The appraisal will be made within 6 months of your application for homestead protection. The appraised value of your property will reflect the value of the land after any placement of a wetland conservation easement.
You should be aware that any real property, located in special areas or having special characteristics, which comes into FSA's inventory, may have restrictions or easements placed on the property which prevent your use of all or a portion of the property, should you choose to lease or buy your former dwelling. These restrictions and encumbrances will be placed in leases and in deeds on properties containing wetlands, floodplains, endangered species, wild and scenic rivers, historic and cultural properties, coastal barriers, and highly erodible soils.
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. You may apply for debt settlement at any time by submitting an application for debt settlement on Form FmHA 1956-1. These programs are subject to the discretion of the agency and are not a matter of entitlement or right.
(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.
If you sell your collateral, you must apply the proceeds from the sale to your FSA account before you can be considered for debt settlement. In the case of compromise and adjustment, however, you may keep your collateral if you are unable to pay your total FSA debt and pay FSA the present fair market value of your collateral along with any additional amount you are able to pay as determined by FSA. You will be allowed to retain a reasonable equity in essential nonsecurity property to continue your normal operations and meet minimum family living expenses. FSA will not finance a compromise or adjustment offer.
All debt settlements of FLP loans must be recommended by the County Committee with a finding that the statements on your application are true. The committee must certify that you do not have assets or income in addition to what you stated in your application. You must also have not previously received any form of debt forgiveness from FSA on any other direct farm loan. If you qualify, your application must also be
The forms set out below should be included with this notice. If they are not, you can obtain them from the FSA county office or as directed below.
(1) Attachment 2 or 4 of Exhibit A Response form to apply for loan services.
(2) FmHA 410-1 Application for FSA Services (The financial statement on this form must include information no more than 90 days old. The financial statement must be for all individuals and entities personally liable for the FSA debt.
(3) FmHA 431-2 Farm and Home Plan, or other acceptable plan of operation. The commodity prices to use for this plan of operation or Farm and Home Plan are included with the form. You may request the servicing official to assist you in completing your plans.
(4) FmHA 440-32 Request for Statement of Debts and Collateral. Complete the name and address of the creditor, account number, if applicable, and your name. All parties liable to the creditor must sign and date the forms. FSA will obtain the creditor information.
(5) FmHA 1910-5 Request for Verification of Employment. Complete employer's name and address, employee's name and address, social security number, sign and date. FSA will send the form to your employer to obtain the needed information.
(6) SCS-CPA-026 Highly Erodible Land and Wetland Conservation Determination (This form must be obtained from and completed by the Natural Resources Conservation Service office, if not already on file with FSA.)
(7) AD-1026 Highly Erodible Land Conservation (HELC) and Wetland Conservation (WC) Certification (You will be required to complete this form in the FSA office if the one you have on file does not reflect all the land you own and lease.)
(8) FmHA 1960-12 Financial and Production Farm Analysis Summary (Complete the backside of the form or other similar type worksheets to provide production and expense history for crops, livestock, livestock products, etc. for each of the five years immediately preceding the year of application or the years you have been farming, whichever is less and if not already in the FSA case file. You must be able to support this information with farm or income tax records.)
(9) Copies of income tax records and any supporting documents for the last five years immediately preceding the year of application if not already on file with the FSA county office. (If you have been farming for less than 5 years, submit the tax records for the tax years immediately preceding the year of application during which you farmed. If copies of tax records are not readily available, you can obtain copies from the Internal Revenue Service (IRS).)
(10) Map or aerial photo of your farm from FSA or Natural Resources Conservation Service if you are applying for the conservation contract program. (Identify on the map 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.)
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.
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.
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.
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
(1)
(2)
(3)
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)
(5)
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.
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 at any time. 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.
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 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.
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.
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 also 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.
(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 result in payment of less than you owe, you may apply or reapply for debt settlement. You may apply or reapply for homestead protection even if you applied before and were not accepted. However, applications for homestead protection or debt settlement filed after the 60-day time period provided in this notice will not delay acceleration, offset, and foreclosure.
I have been given a notice explaining the primary and preservation loan service and debt settlement programs.
The date on the notice was
This notice explained that FSA programs are available to help me keep my property or settle my debt with FSA.
I ask FSA to consider me for all of these programs.
I understand that I will be notified of my rights to appeal after FSA decides on my request.
FSA has reviewed your loan account. Our record shows:
FSA will take legal action to collect the money you owe. They will foreclose on real estate and repossess equipment and other property used to secure your loans. They will also stop the release of money from the sale of crops or other property. They will take by administrative offset money you are owed by other Federal agencies.
You can apply for the programs described in Attachment 1. These are called Primary and Preservation Loan Service and Debt Settlement Programs. You can also ask for a meeting. At this meeting you can explain why you think FSA's records, as indicated on this Notice, are wrong. You can also suggest things you can do to correct these problems, so as to avoid acceleration and foreclosure. You can request loan servicing, debt settlement and a meeting at the same time. For example, if this Notice states that you are delinquent, and also have disposed of property without FSA's written consent, you can request servicing to deal with the delinquency problem and request a meeting on the question of unauthorized disposition of property. Please read the section on debt settlement programs for guidance in requesting
You will find:
(1) A summary of all primary loan service programs;
(2) A summary of the preservation loan servicing program;
(3) A summary of all debt settlement programs;
(4) Copies of the forms needed to apply; and
(5) Advice on how to get copies of FSA regulations.
These loan service programs are to help you repay the loan and keep your farm property.
This program is intended to help farmers who may lose their land to FSA to get their home back, either by purchase or through a lease with an option to purchase.
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 preservation loan service programs. If you no longer 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. You may apply for debt settlement at any time by requesting and submitting an application for debt settlement on Form RD 1956-1.
Complete Attachment 4 and the appropriate forms included with this notice.
You must return these within 60 days of receiving this notice.
You have the right to meet with your FSA servicing official before they decide to accelerate your loan. You must check the box on Attachment 4 saying you want a meeting. (Attachment 4 is the “Response to Notice of Intent to Accelerate and Notice of Borrower Rights.”)
You must check the box on Attachment 4 asking for a meeting within 15 days from the date of this notice. Return it to your county office. Do this as soon as possible. It is wise to call also to set up the meeting.
• You can ask for an administrative appeal even if the meeting does not resolve your problems.
• You can ask for an appeal even if you do not have a meeting.
• You have the right to appeal even if you do not want to apply for loan servicing programs or debt settlement.
Your request for appeal must be in writing and sent directly to the National Appeals Division, (NAD), <NAD Area Director's address>. Your letter must describe FSA's decision and why you believe the decision was not correct. In order for this decision to be changed, you will have to show why the decision should be reversed. Mail a copy of your request to the FSA county office. Your request for appeal must be postmarked no later than 30 days from the date you receive this notice.
If you do not check the box on the Attachment 4 to ask for primary and preservation loan service programs, you will not be considered for those programs.
If you do not ask for a meeting to try and resolve the issues, you will not get another chance later.
Federal law does not allow discrimination of any kind. You cannot be denied a loan because of your race, color, religion, national origin, sex, marital status, handicap, or age (if you can legally sign a contract). You cannot be denied a loan because all or part of your income is from a public assistance program. If you believe that you have been discriminated against for any of these reasons, you can write the Secretary of Agriculture, Washington, D.C. 20250.
You cannot be denied a loan because you exercised your rights under the Consumer Credit Protection Act. You must have exercised these rights in good faith. The Federal Agency responsible for seeing this law is obeyed is the Federal Trade Commission, Washington, DC 20580.
Sincerely,
I have read the notice informing me of FSA's intent to accelerate my loan which I received with this form.
I want to: (Check one or more of the following boxes).
[] 1. Request a meeting with the FSA servicing official.
My phone number is
I must return this form in 15 days. I understand I do not lose my right to appeal by asking for a meeting.
[] 2. Be considered for all primary and preservation loan service and debt settlement programs. I must return this form along with all applicable forms in 60 days.
I understand that if I want to appeal FSA's decision to accelerate my loan, I must send a letter requesting an appeal to the National Appeals Division. My letter must describe FSA's decision and why I believe the decision was not correct. I should also send the FSA county office a copy of my appeal request. I understand that I will be contacted by the National Appeals Division to set up the appeal hearing date and give me more information. My request for an appeal must be postmarked no later than 30 days from the date I received this notice.
Dear (Borrower's Name):
You are not eligible for debt restructuring.
I. [] FSA has reviewed your application for primary loan servicing (debt restructuring) and based upon the information available, you are not eligible.
Your Farm and Home Plan does not show you can pay all your family living expenses, farm operating expenses, and scheduled debt repayments even with FSA help.
The attached computer printout shows that in order to develop a feasible plan and receive primary loan servicing, you would need to increase your cash available to pay your debts by $
II. [] FSA has reviewed your application and your case file. You have broken your agreement with FSA. Your Farm and Home Plans shows you can pay all of your family living expenses, farm operating expenses, and scheduled debt repayments if FSA uses primary loan servicing, softwood timber, and conservation contract programs to restructure your loans.
You have broken loan agreements with FSA in the following way:
[] You are $
[] You have sold or otherwise disposed of property you used to secure the FSA loan without proper approval from FSA. This property is
[] You no longer are farming or ranching.
[] You have
III. [] You have already received your lifetime limit of at least one form of debt forgiveness on other direct loans.
FSA will accelerate your loan because you are not eligible for primary loan servicing.
FSA will take legal action to collect the money you owe.
FSA may:
(1) Repossess and sell your equipment, crops, livestock, livestock products, and other personal property used to secure your FSA loan;
(2) Foreclose and sell your real estate mortgaged to FSA;
(3) Stop any release of money from the sale of crops, livestock, livestock products, or other property you need to live and operate your farm;
(4) Take by administrative offset any money you are owed by Federal agencies;
(5) File lawsuits to collect money you owe to FSA.
Before FSA can take action against you, you can:
(1)
If you disagree with FSA's decision that you broke your loan agreement or the decision not to give you debt restructuring, you should request a meeting with the FSA servicing official. The servicing official can explain the FSA decision. You can also present changes in your Farm and Home Plan which may show that you can make the amount of payment listed above in Section I.
To ask for this meeting, check the box
(2)
You may appeal FSA's decision. On appeal, you may challenge the ways FSA says you broke your loan agreement. You may also challenge FSA's decision that you cannot present a feasible Farm and Home Plan for primary loan servicing if your notice states FSA believes you cannot present a feasible plan.
You may also ask for an independent appraisal of your property used to secure the FSA loan. This independent appraisal may be important if you think FSA has put too high or too low a value on your property when it considered you for primary loan
If you request a meeting with the FSA servicing official, you will be given another chance to appeal after that meeting. If you do not want to request the meeting but do want to appeal, you must send a letter requesting appeal directly to the National Appeals Division, (NAD), <NAD Area Director's address>. Your letter must describe FSA's decision and why you believe the decision was not correct. In order for this decision to be changed, you will have to show why the decision should be reversed. Mail a copy of your request to the FSA county office. Your request for appeal must be postmarked no later than 30 days from the date you receive this notice.
If you want to request a meeting and appeal at the same time, you must request the meeting on the “Response Form” and appeal in writing to NAD.
(3)
You have this option if you meet the eligibility requirements and the recovery value is greater than the value of the restructured loan. The recovery value is $
You [may] or [may not] buy out your FSA loans at the current market value of the property securing the loan, minus prior liens, in the amount of $
The attached computer printout summarizes FSA's calculations.
If you are eligible and pay the buyout amount, FSA will write off the rest of your debt.
If you appeal FSA's adverse decision, the 45-day period to buy out will not start until all of the appeals are completed. Check box
After all appeals are concluded, and your time to buy out, if eligible, has expired, FSA will automatically consider you for Homestead protection if your home is mortgaged to FSA. [You applied for this program when you applied for primary loan servicing (debt restructuring).] FSA will notify you that it will be considering you for this program and will request some additional information when the time comes to consider you.
If you do not cure your default or buyout, FSA will accelerate or continue with acceleration of your FSA debts. This is a very severe action. FSA will take any of the actions listed above to collect on your debt.
Federal law does not allow discrimination of any kind. You cannot be denied a loan because of your race, color, religion, national origin, sex, marital status, handicap, or age (if you can legally sign a contract.) You cannot be denied a loan because all or part of your income is from a public assistance program. If you believe you have been discriminated against for any of these reasons, you can write the Secretary of Agriculture, Washington, DC 20250.
You cannot be denied a loan because you exercised your rights under the Consumer Credit Protection Act. You must have exercised these rights in good faith. The Federal Agency responsible for seeing that this law is obeyed is the Federal Trade Commission, Washington, DC 20580.
Dear (Borrower's Name):
You are not eligible for debt restructuring.
I. [] FSA has reviewed your application for primary loan servicing (debt restructuring) and based upon the information available, you are not eligible.
Your Farm and Home Plan does not show you can pay all your family living expenses, farm operating expenses, and scheduled debt repayments even with FSA help.
The attached computer printout shows that in order to develop a feasible plan and receive primary loan servicing, you would need to increase your cash available to pay your debts by $
II. [] FSA has reviewed your application and your case file. Your Farm and Home Plans shows you can pay all of your family living expenses, farm operating expenses, and scheduled debt repayments if FSA uses primary loan servicing, softwood timber, and conservation contract programs to restructure your loans.
But you have not acted in good faith.
You have broken loan agreements with FSA in the following way:
[] You are $
[] You have sold or otherwise disposed of property you used to secure the FSA loan without proper approval from FSA.
[] You no longer are farming or ranching.
III. [] FSA has reviewed your application and case file. You have sufficient nonessential assets to bring your FSA account current. The net recovery value (NRV) of the nonessential assets is $
The NRV is the current appraised market value minus any prior liens and any costs of sale such as taxes due, commissions and advertising costs.
The amount needed to bring your FSA account current is $
If you intend to sell the nonessential assets or borrow against their value to obtain the money to pay FSA current, you must do so immediately so that you can pay FSA current within 90 days from the date you receive this letter.
If you do not pay FSA current within 90 days or appeal this adverse decision (see part VI of this notice), FSA will accelerate your account (see part V). If you appeal the decision, the 90-day period to pay FSA current will not start until all the appeals are completed. You must check the appropriate block on the response form and return it to FSA within the specified time limit. Since FSA believes you have sufficient nonessential assets to bring your FSA account current, you are not now eligible for buyout (option 3 on Attachment 6-A). If you disagree, see part VI for an explanation of your rights.
IV. [] You have already received your lifetime limit of at least one form of debt forgiveness for which you are entitled.
[] Your writedown or writeoff of debt exceeded $300,000.
FSA will accelerate your loan because you are not eligible for primary loan servicing.
FSA will take legal action to collect the money you owe.
FSA may:
(1) Repossess and sell your equipment, crops, livestock, livestock products, and other personal property used to secure your FSA loan;
(2) Foreclose and sell your real estate mortgaged to FSA. This could include your dwelling, if it was used to secure your farm loan;
(3) Stop any release of money from the sale of crops, livestock, livestock products, or other property you need to live and operate your farm;
(4) Take by administrative offset any money you are owed by Federal agencies;
(5) File lawsuits to collect money you owe to FSA.
Before FSA can take action against you, you can:
(1) Pay your FSA account current.
(2) Request a meeting with the FSA servicing official.
If you disagree with FSA's decision that you broke your loan agreement or the decision not to give you debt restructuring, you should request a meeting with the FSA servicing official. The servicing official can explain the FSA decision. You can also present changes in your Farm and Home Plan which may show that you can make the amount of payment listed above in section I.
To ask for this meeting, check the box
Time limit: You must return the “Response Form” to the county FSA office within 15 days from the date you get this letter. You should also call the county office to set up the meeting.
(3) Appeal.
You may appeal FSA's decision. On appeal, you may challenge the ways FSA says you broke your loan agreement. You may challenge FSA's decision that you cannot present a feasible Farm and Home Plan for primary loan servicing if your notice states FSA believes you cannot present a feasible plan. You may challenge FSA's decision that you are ineligible for debt restructuring because you have already received a writedown, buyout, or other form of debt forgiveness from FSA on another direct farm loan.
If you did not previously negotiate your appraisal, you may ask for an independent appraisal of your property including any nonessential assets that FSA says you own. This independent appraisal may be important if you think FSA has put too high or too low a value on your property. You will have to pay for this appraisal. The FSA servicing official will give you a list of three appraisers to choose from. Check box
If you submit an independent appraisal and it is within five percent of the value of the FSA appraisal, you must select which of the two appraisals you want FSA to use for your
If you request a meeting with the FSA servicing official, you will be given a chance to appeal after that meeting. If you do not want to request the meeting but do want to appeal, you must send a letter requesting appeal directly to the National Appeals Division, <NAD Area Director's address>. Your letter must describe FSA's decision and why you believe the decision was not correct. In order for this decision to be changed, you will have to show why the decision should be reversed. A copy of your request should be sent to the FSA county office. Your request for an appeal must be postmarked no later than 30 days from the date you received this notice.
If you want to request a meeting and appeal at the same time, you must request the meeting on the “Response Form” and appeal in writing to NAD.
You have this option if the recovery value is greater than the value of the restructured loan, you cannot repay your FSA debt due to circumstances beyond your control, and you have acted in good faith and tried to keep your loan agreements with FSA. The recovery value in this case is $
In addition, buyout is subject to certain lifetime limitations regarding the maximum amount and number of benefits that can be received. A further explanation of these limits can be found in the Primary and Preservation Loan Service and Debt Settlement Programs Purpose notice which was sent to you earlier.
You [may] or [may not] buy out your FSA debt at the current market value of the property securing the loan and any nonessential assets, minus prior liens, in the amount of $
The attached computer printout summarizes FSA's calculations.
If you are eligible and pay the buyout amount, FSA will write off the rest of your debt up to $300,000.
If you appeal FSA's adverse decision, the 90-day period to buy out will not start until all of the appeals are completed. Check box #3 on the “Response Form” if you want to buy out.
After all appeals are concluded and your time to buyout, if eligible, has expired, FSA will automatically consider you for Homestead protection if your home is mortgaged to FSA. [You applied for this program when you applied for primary loan servicing (debt restructuring).] FSA will notify you that it will be considering you for this program and will request some additional information when the time comes to consider you. If you applied for Debt Settlement by returning Form FmHA 1956-1, will also consider you for this option at this time. If you did not apply for Debt Settlement before, you can apply now. Copies of Form FmHA 1956-1 are available at your FSA County Office.
If you do not cure the default or buyout, or if you do not respond to this letter by completing and returning the enclosed Attachment 6-A, FSA will accelerate or continue with acceleration of your FSA debts. This is a very severe action. FSA will take any of the actions listed in section V above to collect on your debt.
Federal law does not allow discrimination of any kind. You cannot be denied a loan because of your race, color, religion, national origin, sex, marital status, handicap, or age (if you can legally sign a contract.) You cannot be denied a loan because all or part of your income is from a public assistance program. If you believe you have been discriminated against for any of these reasons, you can write to the Secretary of Agriculture, Washington, D.C. 20250.
You cannot be denied a loan because you exercised your rights under the Consumer Credit Protection Act. You must have exercised these rights in good faith. The Federal Agency responsible for seeing this law is obeyed is the Federal Trade Commission, Washington, DC 20580.
I have read the notice informing me of FSA's intent to accelerate or continue with acceleration of my loan which I received with this response form.
I want to:
[] (1) Request a meeting with an FSA servicing official.
My current telephone number is
I understand that I do not lose my appeal rights by asking for this meeting.
[] (2) Request an independent appraisal of my property that secures the FSA loans.
I understand that I must pay for this appraisal. I understand that the FSA servicing official will give me the names of three appraisers, from which I must choose one.
[] (3) Buy out my loan at the current market value.
I understand that I must pay FSA
I understand that if I want to appeal FSA's decision to accelerate my loan, I must send a letter requesting an appeal to the National Appeals Division. My letter must describe FSA's decision and why I believe the decision was not correct. I should also send the FSA county office a copy of my appeal request. I understand that I will be contacted by the National Appeals Division to set up the appeal hearing date and give me more information. My request for an appeal must be postmarked no later than 30 days from the date I received this notice.
I have read the notice informing me of FSA's intent to accelerate or continue with acceleration of my loan which I received with this response form.
I want to:
[] (1) Request a meeting with an FSA servicing official.
I must return this “Response Form” within 15 days to request a meeting.
My current telephone number is
I understand that I do not lose my appeal rights by asking for this meeting.
[] (2) Request an independent appraisal of my property including any nonessential assets.
I must return this “Response Form” within 30 days to request an independent appraisal.
I understand that I must pay for this appraisal. I understand that the FSA servicing official will give me names of three appraisers, from which I must choose one if I am also requesting an appeal.
[] (3) Buy out my loans at the current market value.
I understand that I must pay FSA $
[] (4) Pay my FSA account current.
I understand that I must pay FSA $
I understand that if I want to appeal FSA's decision to accelerate my loan, I must send a letter requesting an appeal to the National Appeals Division. My letter must describe FSA's decision and why I believe the decision was not correct. I should also send the FSA county office a copy of my appeal request. I understand that I will be contacted by the National Appeals Division to set up the appeal hearing date and give me more information. My request for an appeal must be postmarked no later than 30 days from the date I received this notice.
Dear (Borrower's Name):
FSA will accelerate your loan because you have not asked or have not accepted the offer for primary loan service programs.
You can:
(1) Ask for meeting with your FSA servicing official.
(2) Appeal FSA's decision.
(3) Ask to voluntarily convey to FSA the property used to secure your loan and ask to be released from your debt.
(4) Ask to keep your home if the FSA acquires ownership of it.
You are behind with your payments to FSA, and a review of your account shows:
[] You are
This is a violation of your loan agreement.
[] You have sold or otherwise disposed of property used to secure your FSA loan. You did not get written approval for this.
[] You are no longer farming or ranching.
This is a violation of your loan agreement.
FSA will take legal action to collect the money you owe. They will foreclose on real estate and other property used to secure your loans. They may also stop the release of money from the sale of crops or other property. They will take by administrative offset any money you are owed by other Federal agencies.
(1) Ask for a meeting. You can ask to meet with your FSA servicing official before they decide to accelerate or continue acceleration of your loan. You must check the box on Attachment 10 saying you want a meeting. [Attachment 10 is the “Response to Notice of Intent to Accelerate or Continue Acceleration of My Loan.”]
How Soon Must I Ask for a Meeting? You must ask for a meeting within 15 days from the date of this notice. Check the box on Attachment 10. Return it to your county office. Do this as soon as possible.
(2) Appeal. You can ask for an administrative appeal. On appeal, you can contest FSA's decision to accelerate or continue acceleration of your loan. You can ask for an independent appraisal of your land. You will have to pay for this appraisal. FSA will give you three names of approved appraisers to choose from. Check box 3 if you want an independent appraisal.
You can ask for an administrative appeal, even if you have asked for a meeting and your problems were not resolved at that meeting. However, you only have the opportunity to appeal an issue once. For example, if you previously appealed or had the opportunity to appeal a favorable debt restructuring offer and were not successful on appeal, or did not appeal within the time alloted, you cannot appeal this offer again. You can ask for an appeal even if you do not have a meeting.
Foreclosure means you lose the title to your land. But you can still apply for homestead protection to keep possession of your house. [See Exhibit A, Attachment 1 sent to you on
Federal law does not allow discrimination of any kind. You cannot be denied a loan because of your race, color, religion, national origin, sex, marital status, handicap, or age (if you can legally sign a contract). You cannot be denied a loan because all or a part of your income is from a public assistance program. If you believe you have been discriminated against for any of these reasons, you can write to the Secretary of Agriculture, Washington, D.C. 20250.
You cannot be denied a loan because you exercised your rights under the Consumer Credit Protection Act. You must have exercised these rights in good faith. The Federal Agency responsible for seeing this law is obeyed is the Federal Trade Commission, Washington, DC 20580.
Date
Dear (Borrower's Name):
FSA will accelerate your loan because you have not asked or have not accepted the offer for primary loan service programs.
You can:
(1) Ask for meeting with your FSA servicing official.
(2) Appeal FSA's decision.
(3) Ask to voluntarily sign over to FSA the property used to secure your loan and ask to be released from your debt.
(4) Ask to keep your home if the FSA acquires ownership of it.
You are behind with your payments to FSA, and a review of your account shows:
[] You are $
This is a violation of your loan agreement.
[] You have sold or otherwise disposed of property used to secure your FSA loan. You did not get written approval for this.
[] You are no longer farming or ranching.
This is a violation of your loan agreement.
(Insert reason for proposed action.)
FSA will take legal action to collect the money you owe. They will foreclose on real estate and other property used to secure your loans. They may also stop the release of money from the sale of crops or other property. They will take by administrative offset any money you are owed by other Federal agencies.
(1) Ask for a meeting. You can ask to meet with your FSA servicing official before they decide to accelerate or continue acceleration of your loan. You must check the box on Attachment 10-A saying you want a meeting. [Attachment 10-A is the “Response to Notice of Intent to Accelerate or Continue Acceleration of My Loan.”]
How Soon Must I Ask for a Meeting? You must ask for a meeting within 15 days from the date of this notice. Check the box on Attachment 10-A. Return it to your county office. Do this as soon as possible.
(2) Appeal. You can ask for an administrative appeal. On appeal, you can contest FSA's decision to accelerate or continue acceleration of your loan. You can ask for an administrative appeal, even if you have asked for a meeting and your problems were not resolved at that meeting. However, you only have the opportunity to appeal an issue once. For example, if you previously appealed or had the opportunity to appeal a favorable debt restructuring offer and were not successful on appeal, or did not appeal within the time alloted, you cannot appeal this offer again. You can ask for an appeal even if you do not have a meeting.
How to Ask for an Appeal. Your request for appeal must be in writing and sent directly to the National Appeals Division, (NAD), <NAD Area Director's address>. Your letter must describe FSA's decision and why you believe the decision was not correct. In order for this decision to be changed, you will have to show why the decision should be reversed. Mail a copy of your request to the FSA county office. Your request for appeal must be postmarked no later than 30 days from the date you receive this notice.
What Happens if You Do Not Respond? If you do not respond to this notice by filling out Attachment 10-A, or request an appeal, FSA will accelerate or continue acceleration of any loans. This means they will take legal action to collect the unpaid loan, including foreclosure as described above.
Foreclosure means you lose the title to your land. But you can still apply for homestead protection to keep possession of your house. [See Exhibit A, Attachment 1 sent to you on
Federal law does not allow discrimination of any kind. You cannot be denied a loan because of your race, color, religion, national origin, sex, marital status, handicap, or age (if you can legally sign a contract). You cannot be denied a loan because all or a part of your income is from a public assistance program. If you believe you have been discriminated against for any of these reasons, you should write to the Secretary of Agriculture, Washington, DC 20250.
You cannot be denied a loan because you exercised your rights under the Consumer Credit Protection Act. You must have exercised these rights in good faith. The Federal Agency responsible for seeing this law is obeyed is the Federal Trade Commission, Washington, DC 20580.
I want to: (Check one or more of the following boxes)
[] (1) Request a meeting with the FSA servicing official.
My telephone number is
I understand I do not lose my right to appeal if I ask for a meeting.
[] (2) Voluntarily sign over to FSA all the property used to secure my loan and settle my debt.
[] (3) Request an independent appraisal of property securing my loans. I understand I must pay for this appraisal. I understand FSA will give me names of three qualified appraisers.
[] (4) Homestead Protection.
I understand that if I want to appeal FSA's decision to accelerate my loan, I must send a letter requesting an appeal to the National Appeals Division. My letter must describe FSA's decision and why I believe the decision was not correct. I should also send the FSA county office a copy of my appeal request. I understand that I will be contacted by the National Appeals Division to set up the appeal hearing date and give me more information. My request for an appeal must be postmarked no later than 30 days from the date I received this notice.
I want to: (Check one or more of the following boxes)
[] (1) Request a meeting with the FSA servicing official.
My telephone number is
I must return this form within 15 days.
I understand I do not lose my right to appeal if I ask for a meeting.
[] (2) Voluntarily sign over to FSA all the property used to secure my loan and settle my debt.
[] (3) Homestead Protection.
I understand that if I want to appeal FSA's decision to accelerate my loan, I must send a letter requesting an appeal to the National Appeals Division. My letter must describe FSA's decision and why I believe the decision was not correct. I should also send the FSA county office a copy of my appeal request. I understand that I will be contacted by the National Appeals Division to set up the appeal hearing date and give me more information. My request for an appeal must be postmarked no later than 30 days from the date I received this notice.
Dear (Borrower's Name):
We have determined that the Farm Service Agency (FSA) can approve your request for primary loan servicing programs.
Our calculations indicate that you will be able to make the necessary annual payment on your FSA loan if your loan is restructured through the use of primary loan servicing programs. The attached computer printout indicates the primary loan servicing program that will help you overcome your financial difficulty and provide the greatest net recovery to the Government. Therefore, We are offering to restructure your FSA debt in the following fashion:
* As a condition of this restructuring, you must agree to meet, at your own cost, FSA's training requirements which provide instruction in production and financial management within 2 years of the date your loans are restructured. The cost will be included in your farm plan as an operating expense. Upon completion of the training, the instructor will assign a score according to the following criteria:
1The borrower attended classroom sessions as agreed, satisfactorily completed all assignments, and demonstrated an understanding of the course material.
2The borrower attended classroom sessions as agreed and attempted to complete all assignments; however, the borrower does not demonstrate an understanding of the course material.
3The borrower did not attend classroom sessions as agreed or did not attempt to complete assignments. In general, the borrower did not make a good faith effort to complete the training.
Attached is a list of courses you will be required to complete to fulfill the training requirement. A list of approved vendors in your area for these courses is also attached. Any denial of a request for a waiver of the training requirement is not appealable. If you fail to complete the training as agreed, you will be ineligible for future FSA benefits including future direct and guaranteed loans, Primary Loan Servicing, Interest Assistance renewals, and restructuring of guaranteed loans.
* The County Committee has waived the training requirement for the restructuring offered in this notice.
If you want FSA to use the primary servicing program identified on the computer printout, you must accept this offer in writing. Your acceptance must be received by FSA not later than
If you do not accept this offer within 45 days, and your account becomes delinquent, FSA will renotify you of all servicing options available at that time.
* Indicates optional paragraphs to fit the individual circumstances.
I have received your offer to restructure my FSA debt. I would like to accept that offer.
In consideration of the Farm Service Agency (FSA) allowing me to purchase the real estate property securing my FSA Farm Loan Programs loan obligations at the net recovery value of $
I understand that the difference between the net recovery value of the real estate securing the FSA loan obligations and the fair market value of the real estate security specified above will all be due and payable on the day of sale or conveyance if I sell or otherwise convey the real estate property within two (2) years from the date of this agreement, if I realize a gain in this transaction.
Loan Balance $
Amount of Buyout $
This agreement with FSA will allow you to buy out your loan at the net recovery value.
1. I
2. I will give FSA a lien (mortgage or deed of trust) on the FSA real estate security property I own to secure this agreement.
The lien is to secure the maximum recapture amount listed in item 6.c. of this agreement. This lien is secondary to the following liens, including any lien used to obtain the net recovery buyout amount up to the net recovery value.
3. I agree that if I do not sell or convey any portion of the real estate used as security for 10 years, the agreement and any liability you have under it will be satisfied at the end of 10 years, and then FSA will release its lien.
Convey includes, but is not limited to, any form of transfer in all or any portion of the real estate property, including sale, gift, Contract Sale or Purchase Agreement, foreclosure, and below-fair-market sale, but does not include a mortgage or deed of trust. Transfer of title to property to a spouse or child who is actively engaged in farming the property upon the death or retirement of a borrower will not be treated as a conveyance. In such a transaction, FSA will not release its lien, and the transferee will assume liability under the agreement.
4. I agree that as of the date of this agreement, the net recovery value of the real estate is $
5. I agree that as of the date of this agreement, the total amount of the FSA debt secured by real estate including principal and interest before buyout is $
6. If I do sell or convey any part or all of this real estate within 10 years of this agreement, I must pay FSA the recapture amount for that part sold or conveyed which is the smaller of a., b., or c.
a. The Fair Market Value of the real estate parcel at the time of the sale or conveyance, as determined by an FSA appraisal, minus
b. The Fair Market Value of the real estate parcel at the time of the sale or conveyance, as determined by an FSA appraisal, minus the unpaid balance of prior liens at the time of the sale or conveyance, minus the net recovery value of the real estate in item 4 if this amount has not been accounted for as a prior lien, or
c. The total amount of the FSA debt written off for loans secured by real estate.
I agree that the amount in Item 5 is the outstanding balance of principal and interest owed on the FSA Farm Loan Programs loans as of the date of this agreement, minus the net recovery value of the real estate in item 4. This amount is $
7. When I pay the recapture amount due, FSA will release its lien on the property sold or conveyed. The agreement and any liability I have under it will be satisfied at the end of 10 years if I have made all the required payments under the recapture agreement. The agreement and any liability I have under it will be satisfied before this time only if I sell or convey all of the real estate securing this agreement and make all the required payments under the agreement.
8. This agreement is subject to FSA regulations in 7 CFR part 1951, subpart S, and any future regulations which are consistent with this agreement.
9. The date of this agreement is the latest date of the dates below.
This Agreement is entered into between (FmHA or its successor agency under Public Law 103-354) and (Borrower's name) (called “Borrower”) on (Date) and expires on (Date) (maximum term of ten (10) years).
Borrower is indebted to FmHA or its successor agency under Public Law 103-354 for loan(s) as evidenced by the note(s) described below:
This Agreement is attached to the note(s) described above. As of the date of this Agreement, before write-down, the unpaid principal balance on this note was $
The note(s) described above are secured by the following real estate security instruments:
As a condition to, and in consideration of, FmHA or its successor agency under Public Law 103-354 writing down the above amounts and restructuring the loan, Borrower agrees to pay FmHA or its successor agency under Public Law 103-354 an amount according to one of the following payment schedules:
1. Seventy-five (75) percent of any positive appreciation in the market value of the property securing the loan as described in the above security instrument(s) between the date of this Agreement and either the expiration date of this Agreement or the date the Borrower pays the loan in full, ceases farming or transfers title of the security, if such event occurs four (4) years or less from the date of this Agreement.
2. Fifty (50) percent of any positive appreciation in the market value of the property securing the loan above as described in the security instruments between the date of this Agreement and either the expiration date of this Agreement or the date Borrower pays the loan in full, ceases farming or transfers title of the security, if such event occurs after four (4) years but before the expiration date of this Agreement.
The amount of recapture by FmHA or its successor agency under Public Law 103-354 will be based on the difference between the value of the security at the time of disposal or cessation by Borrower of farming and the value of the security at the time this Agreement is entered into. If the borrower violates the term of this agreement, FmHA or its successor agency under Public Law 103-354 will liquidate after the borrower has been notified of the right to appeal.
(Borrower's signature)
(Farmers Home Administration or its successor agency under Public Law 103-354)
(Borrower's Name and Address)
Dear (Borrower's Name):
The Farm Service Agency (FSA) has carefully considered your request for primary loan servicing programs. Due to your debt with lenders other than FSA, you are unable to develop a feasible plan. Your Farm and Home Plan must show that you have enough income after payment of your essential living and operating expenses and other non-FSA debts to make an annual payment to FSA of at least $
If you did not previously request a Conservation Contract, you may request this servicing action by submitting a map or FSA aerial photo indicating that portion of the farm and the appropriate acres to be considered. You must submit this information to FSA within 30 days of receiving this notice.
(To be used when Certified State Mediation is available)
We are requesting mediation under the (Name) State Certified Mediation Program. We will work with you and your creditors to determine if your debts can be adjusted sufficiently to permit you to develop a feasible plan of operation. If, with the adjustment of your debt, you are able to develop a feasible plan of operation which shows that you can make an annual payment to FSA of at least $
(To be used when Certified State Mediation is not available and undersecured creditors have a substantial part of the total borrower's debt.)
If you request, we will schedule a meeting with you and your other creditors in an effort to reach agreements with them to adjust your debts sufficiently to permit you to develop a feasible plan of operation. The FSA State Executive Director will contract for a mediator or appoint an FSA representative not previously involved in servicing of your account upon your written request to participate in the meeting with creditors. Sign the attached acknowledgement within 30 days of the date of this letter. The acknowledgment will be your written request and consent to FSA releasing information concerning your account to other creditors who participate in the meeting.
(To be used when Certified State Mediation is not available and undersecured creditors do not hold a substantial part of the total borrower's debt.)
We will not be scheduling a meeting with you and your other creditors in an effort to reach agreements with them to adjust your debts. We have determined that your other creditors do not hold a sufficient amount of your total debt to permit you to develop a feasible plan of operation even if their debts are entirely written off. You may object to our determination not to give you a voluntary meeting of creditors in any appeal you may have. You will be notified of your appeal rights in a later notice.
(The following paragraphs will be removed if the application was submitted before November 28, 1990, or the borrower does not have any nonessential assets.)
FSA has determined that you have nonessential assets that do not contribute income to pay essential family living and farm operating expenses. The net recovery value (NRV) of the nonessential assets has been added to the NRV of the FSA collateral for the calculation on the attached printout. The NRV of the nonessential assets is $
FSA encourages you to sell the nonessential assets or borrow against their value. If you pay the NRV of the nonessential assets on your FSA debt, that amount will be subtracted from your debt and FSA will reevaluate your servicing request. If you are going to pay FSA the NRV of your nonessential assets, you must do so within 45 days of the date of receiving this letter. You must check the appropriate block on the response form and return it to FSA within 45 days with $
If you wish to dispute FSA's decision that you own nonessential assets, you will be
If you object to the FSA appraisal of your property, you may ask the FSA by returning the “Response Form” to negotiate the appraisal with you. You must ask to negotiate the FSA appraisal within 30 days from the date you receive this notice. To do this you must provide FSA with a copy of your current independent appraisal or you must now obtain, at your cost, an independent appraisal of your property. The appraisal and the appraiser must meet certain standards published in FSA regulations.
If you do not have a current independent appraisal and wish FSA to assist you, check option 2 of the “Response Form” and FSA will provide you with a list of such appraisers.
You must provide FSA a copy of your independent appraisal within 30 days of requesting negotiation.
If your current independent appraisal is within five percent of the FSA appraisal, you must select which appraisal of the two you want FSA to use in processing your request. The appraisal you select will be the final appraisal. It cannot be further negotiated or appealed. If the difference is more than five percent and you have requested a negotiated appraisal, you and FSA will choose an independent appraiser to complete a third appraisal. You must pay one-half of the cost of the third appraisal. FSA will pay for the other half of the third appraisal. You, the appraiser and the servicing official must complete and sign an appraisal agreement. Following the completion of the third appraisal, the average of the two appraisals that are closest in value, as determined by FSA, shall establish the appraised value to be used. This final negotiated appraisal is not appealable. Do not select this option of the “Response Form” if you and FSA have already negotiated your appraisal.
If you choose not to negotiate and wish to dispute FSA's appraisal, you will be given the opportunity to appeal in a later notice. If you believe there are mathematical or property description errors in the appraisals, you should immediately contact the servicing official. If you and the servicing official agree, the corrections will be made and initialed by both you and the servicing official.
If you want information on the requirements of an FSA appraisal, you may request a copy of the FSA appraisal regulations from the servicing official.
I have been given a notice explaining that I am not eligible for primary loan service programs. FSA has told me that due to my debt with other lenders it does not believe I can develop a feasible plan. I request that you schedule a meeting with my undersecured creditors to assist me in developing a feasible plan of operation. I consent to FSA releasing information concerning my FSA account to these creditors to assist me in developing a feasible plan.
I have been given a notice explaining that I am not eligible for primary loan service programs.
I want to:
[Check the appropriate box or boxes.]
[] (1) Request an independent appraisal of my property including any nonessential assets.
I must return this “Response Form” within 30 days to request an independent appraisal.
I understand that I must pay for this appraisal. I understand that the FSA servicing official will give me a list of appraisers.
If the independent appraisal is within five percent of the FSA appraisal, I must select which of the two appraisals I want to be used for processing my request.
[] (2) Request Negotiation of the Appraisal.
I must return this “Response Form” within 30 days to request a negotiation of my appraisal.
I understand that I must provide FSA with a copy of my independent appraisal within 30 days of requesting negotiation. I understand that I must pay for this appraisal and one-half of a third appraisal, if necessary. I understand that FSA will not negotiate the appraisal more than once.
[] (3) I request a copy of the recent FSA appraisal of my property.
[] (4) I am paying FSA the net recovery value of any nonessential assets that FSA has said I own. I will pay this amount within 45 days.
Please recalculate the restructuring of the FSA debt.
* [] (5) Request that you schedule a meeting with my undersecured creditors to assist me in trying to develop a feasible plan of operation. I consent to FSA releasing information concerning my FSA account to these
* Optional paragraph depending on the circumstances.
Dear (Borrower's Name):
We have determined that the Farm Service Agency (FSA) can approve your request for primary loan servicing programs.
Our calculations indicate that you will be able to develop a feasible plan and make the necessary annual payment on your FSA loan if your loan is restructured in the following fashion:
The attached computer printout indicates the primary loan servicing program that will keep you on the farm and provide the greatest net recovery to the Government.
* Our calculations indicate that a feasible plan can be found with or without a writedown, as described below. However, with a writedown, your cash flow margin would be
* As a condition of this restructuring, you must agree to meet, at your own cost, FSA's training requirements which provide instruction in production and financial management within 2 years of the date your loans are restructured. The cost will be included in your farm plan as an operating expense. Upon completion of the training, the instructor will assign a score according to the following criteria:
1.The borrower attended classroom sessions as agreed, satisfactorily completed all assignments, and demonstrated an understanding of the course material.
2.The borrower attended classroom sessions as agreed and attempted to complete all assignments; however, the borrower does not demonstrate an understanding of the course material.
3.The borrower did not attend classroom sessions as agreed or did not attempt to complete assignments. In general, the borrower did not make a good faith effort to complete the training.
Attached is a list of courses you will be required to complete to fulfill the training requirement. A list of approved vendors in your area for these courses is also attached. Any denial of a request for a waiver of the training requirement is not appealable. If you fail to complete the training as agreed, you will be ineligible for future FSA benefits including future direct and guaranteed loans, Primary Loan Servicing, Interest Assistance renewals, and restructuring of guaranteed loans.
* The County Committee has waived the training requirement for the restructuring offered in this notice.
If you want FSA to use the primary servicing program identified on the computer printout to restructure your debt, you must accept this offer in writing. Your acceptance must be received by FSA no later than 45 days from your receipt of this letter. You may accept this offer in writing by signing and returning the attached form titled “Acceptance of Offer to Restructure my Debt.”
FSA has determined that you have nonessential assets that do not contribute a net income to pay essential family living expenses or maintain a sound farming operation. The net recovery value (NRV) of the nonessential assets has been added to the NRV of the FSA collateral for the calculation on the attached printout. The NRV of the nonessential assets is $
FSA encourages you to sell the nonessential assets or borrow against their value. If you pay the NRV of the nonessential assets, the amount will be subtracted from your debt and FSA will recalculate the value of your FSA debt. If you are going to pay FSA the NRV of your nonessential assets, you must do so within 45 days of the date of receiving this letter. You must check the appropriate block on the response form and return it to FSA within 45 days with your payment for the NRV of the nonessential assets of $
If you wish to dispute FSA's decision that you own nonessential assets or disagree with the offer presented, you may request a meeting and/or an appeal.
If you object to the FSA appraisal of your property, you may ask the FSA to negotiate the appraisal with you by returning the “Response Form.” You must ask to negotiate the FSA appraisal within 30 days from the date you receive this notice. To do this, you must provide FSA with a copy of your current independent appraisal or you must now obtain, at your cost, an independent appraisal of your property. The appraisal and the appraiser must meet certain standards published in FSA regulations.
If you do not have a current appraisal and wish FSA to assist you, check option 2 of the “Response Form” and FSA will provide you with a list of such appraisers.
You must provide FSA a copy of your independent appraisal within 30 days of requesting negotiation.
If your current independent appraisal is within five percent of the FSA appraisal, you must select which appraisal of the two you want FSA to use in processing your request. The appraisal you select will be the final appraisal. It cannot be further negotiated or appealed. If the difference is more than five percent and you have requested a negotiated appraisal, you and FSA will choose an independent appraiser to complete a third appraisal. You must pay one-half of the cost of the third appraisal. You, the appraiser and the servicing official must complete and sign an appraisal agreement for this appraisal. FSA will pay for the other half of the third appraisal. Following the completion of the third appraisal, the average of the two appraisals that are closest in value, as determined by FSA, shall establish the appraised value to be used. This final negotiated appraisal is not appealable. Do not select this option on the “Response Form” if you and FSA have already negotiated your appraisal.
If you wish to dispute FSA's appraisal, but do want to reach agreement with FSA by negotiating the appraisal, you may also request a meeting or appeal of other items of the decision that you do not agree with by checking the appropriate box on the attached response form. If you believe there are mathematical or property description errors in the appraisals, you should immediately contact the servicing official. If you and the servicing official agree, the corrections will be made and initialed by both you and the servicing official.
If you want information on the requirements of an FSA appraisal, you may request a copy of the FSA appraisal regulations from the servicing official.
If you do not accept the restructuring offer on page 1, FSA will deny your request for primary loan servicing and send you an additional notice stating that FSA intends to liquidate your account. You can appeal FSA's offer by sending a letter requesting appeal directly to the National Appeals Division, (NAD), <NAD Area Director's address>. Your letter must describe FSA's decision and why you believe the decision was not correct. In order for this decision to be changed, you will have to show why the decision should be reversed. A copy of your request should be sent to the FSA county office. Your request must be postmarked no later than 30 days from the date you received this notice.
YOU MAY HAVE A FEDERAL INCOME TAX LIABILITY IF FSA RESTRUCTURES YOUR FSA INDEBTEDNESS WITH A WRITEDOWN. YOU SHOULD CONTACT THE INTERNAL REVENUE SERVICE (IRS) FOR INFORMATION.
* Optional paragraphs depending on circumstance.
I have received your offer to restructure my FSA debt.
I would like to accept that offer.
I have received your offer to restructure my FSA debt.
(Check the appropriate blocks.)
* [](1) I accept FSA's offer to restructure my debt. I understand that I must accept FSA's offer within 45 days of receiving Exhibit F.
* [](1) I accept FSA's offer to restructure my debt as follows: (Put an “X” in Block (a) or (b).) I undestand I must accept FSA's offer within 45 days of receiving Exhibit F.
(a) [] With a writedown giving me a higher cash flow margin than without a writedown.
(b) [] Without a writedown giving me a lower cash flow margin than if I would take the writedown.
[](2) I request an independent appraisal of my property including any nonessential assets. If the difference between my independent appraisal and the FSA appraisal is not more than five percent, I understand that I must select which of the two appraisals I want to be used for reconsidering my request. In such a case, there will not be an appeal of the appraisal or any further negotiation of the appraisal.
I must return this “Response Form” within 30 days to request an independent appraisal.
I understand that I must pay for this appraisal. I understand that the FSA servicing official will give me a list of appraisers.
[](3) I request a copy of the FSA recent appraisal of my property.
[](4) Request Negotiation of the Appraisal.
I must return this “Response Form” within 30 days to request a negotiation of my appraisal.
I understand that I must provide FSA with a copy of my independent appraisal within 30 days of requesting negotiation. I understand that I must pay for this appraisal plus one-half of a third appraisal, if necessary. I understand that FSA will not negotiate the appraisal more than once.
[](5) I intend to pay FSA the net recovery value of any nonessential assets that FSA has said I own.
I understand that I must pay the net recovery value of the nonessential assets within 45 days of receiving Exhibit F.
I understand that if I want to appeal FSA's offer to restructure, I must send a letter requesting an appeal to the National Appeals Division. My letter must describe FSA's decision and why I believe the decision was not correct. I should also send the FSA county office a copy of my appeal request. I understand that I will be contacted by the National Appeals Division to set up the appeal hearing date and give me more information. My request for an appeal must be postmarked no later than 30 days from the date I received this notice. If possible, I should submit a copy of my independent appraisal to the FSA servicing official and the hearing officer prior to the appeal hearing if I am appealing the appraisal.
Sincerely,
* Optional paragraphs depending on the circumstance.
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)
(B)
(1)
(2)
(a) Highly erodible land as defined or classified by the SCS under § 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
(3)
(c)
(1) Have the debt repayment ability and reliability, managerial ability and industry to carry out the proposed timber production operation.
(2) Be willing to place not less than 50 acres of marginal land in softwood timber production; such land (including timber) may not have any lien against it other than a lien for ST loans.
(3) Have properly maintained chattel (i.e. movable property) and real estate security and accurately accounted for the sale of security, including crops, and livestock production.
(4) Be an FmHA or its successor agency under Public Law 103-354 FP loan borrower who owns 50 acres or more of marginal land which SCS determines to be suitable for softwood timber.
(5) Have sufficient training or farming experience to assure reasonable prospects of success in the proposed timber operation.
(6) Have one or more distressed FmHA or its successor agency under Public Law 103-354 loans as defined by this exhibit.
(7) Not have a total indebtedness of ST loan(s) that will exceed $1,000 per acre for the marginal land at closing. Example: If 50 acres of marginal land is put in softwood timber production, the total ST loan indebtedness may not exceed $50,000 at closing.
(8) Be able to obtain sufficient money through FmHA or its successor agency under Public Law 103-354 or other sources including cost-sharing programs for forestry purposes for the planting, caring, and harvesting of the softwood timber trees.
(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 § 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 § 1951.906 of this subpart, the total amount of outstanding accrued interest will be added to the principal at the time of reamortization. Payments may be deferred for up to 45 years or until the timber crop produces revenue, whichever comes first, except as required in paragraph VIII(B) of this section. If income is available, payments will be required as determined in paragraph II(B)(4) of this exhibit. Repayment of such a reamortized loan shall be made not later than 46 years after the date of the reamortization unless the borrower qualifies for a further reamortization as authorized in section IX(H) of this exhibit.
(4) If assistance is granted, an annual plan will be developed each year to determine if there is any balance available to pay interest and/or principal on ST loans before the deferral period ends. If a balance is available, the borrower will sign Form FmHA or its successor agency under Public Law 103-354 440-9, “Supplementary Payment Agreement.”
(5) Applicable requirements of subpart G of part 1940 of this chapter must be met.
(C) If a borrower has requested an ST loan that has a portion of the debt set-aside under this subpart, the set-aside will be cancelled at the time the reamortization is granted. The borrower may retain the set-aside on other loans. A borrower who requests a reamortization of a distressed set-aside loan must agree in writing to the cancellation of the set-aside. The written agreement must be placed in the borrower's case file.
(D) If the total amount of the distressed FP loan(s) exceeds $1,000 per acre of the marginal land designated for softwood timber production, the FP loan must be split. The split portion of the loan may not exceed $1,000 per acre for the marginal land. A new mortgage will be required to secure this portion of the loan unless the FmHA or its successor agency under Public Law 103-354 State supplement allows otherwise. The mortgage must ensure that FmHA or its successor agency under Public Law 103-354 has a security interest in the timber. The remaining balance of such a split loan will be secured by the remaining portion of the farm and such other security previously held as security prior to the split. Separate promissory notes will be executed for each portion of the split loan. The remaining portion of the note will be rescheduled, deferred, or reamortized, as applicable, in accordance with this subpart. The ST loan will be deferred and reamortized in accordance with this section. The ST loan(s) will be secured by the marginal land including timber.
(E) The County Supervisor will release all other liens securing FmHA or its successor agency under Public Law 103-354 loans including NP loans on such marginal land when the ST loan is closed. Only ST loans will be secured by such marginal land including timber. Releases will be processed in accordance with subpart A of part 1965 of this chapter. Such releases are authorized by this paragraph. If other lenders have liens on this marginal land, the lenders must release their liens before or simultaneously with FmHA or its successor agency under Public Law 103-354's release of liens. No additional liens can be placed on the marginal land and timber after the closing of a ST loan.
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.
(A)
(B)
(C)
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.
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
When a reamortization is disapproved, the County Supervisor will notify the borrower in writing of the action taken and the reasons for the action, and include any suggestions that could result in favorable action. The borrower will be given written notice of the opportunity to appeal as provided in § 1951.909 (i) of this subpart after the County Supervisor has determined whether the borrower is eligible for the remaining servicing programs authorized by this subpart.
(A) If the reclassified ST loan is approved, all other FmHA or its successor agency under Public Law 103-354 loans must be current on or before the date the reclassified ST notes are signed except for FmHA or its successor agency under Public Law 103-354-authorized recoverable cost items that cannot be rescheduled or reamortized. All other delinquent loans including NP loans will be rescheduled, reamortized, consolidated, deferred or paid current as applicable to bring the borrower's account current.
(B) ST loans on the dwelling. If the only liens on the borrower's dwelling are the reclassified ST loans, the borrower must make payments on the loan(s):
(1) The total of which will be at least equal to the market value rent for the dwelling as determined by the County Supervisor, or
(2) The minimum equally amortized installment for the term of the loan, whichever is less. Such payments cannot be deferred and will be shown in the promissory note as a regular scheduled payment for the reclassified ST loan.
(C) Form FmHA or its successor agency under Public Law 103-354 1940-18, “Promissory Note for ST Loans,” will be used for ST loans. Form FmHA or its successor agency 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 § 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
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.
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
(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.
(F) The Timber Management Plan will be updated and revised, as needed, every five years or more often if necessary.
(G) Harvesting softwood timber for Christmas trees is prohibited.
(H) An ST loan will only be reamortized if:
(1) The timber is not harvested in the year stated in the initial promissory note, and
(2) The borrower is unable to pay the note as agreed.
Interest charges more than 90 days overdue will be capitalized at the time of the reamortization. The term of the reamortized note will not exceed 50 years from the date of the initial ST note. The total years of deferred payments will not exceed 45 years, including the payments deferred in the initial note. The note should be scheduled for payment when the timber is expected to be harvested, or when income will be available to pay on the note, whichever comes first. However, partial payments must be scheduled for those years that exceed the deferral period.
(3) For applications received before November 28, 1990, the interest less than 90 days 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 will be issued immediately and updated as necessary to implement this section.
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,
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
(1)
(a)
(i)
(ii)
(
(
(b)
(c)
(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)
(2)
(3)
(4)
(5)
(6)
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.
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.
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.
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
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.
(A)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(B) Calculate the amount of debt to be canceled for a current borrower as follows:
(1)
(2)
(3)
(4)
(5)
(6)
(C)
(D)
(E)
(F)
(G) [Reserved]
(H)
If the borrower violates any of the terms or conditions of the contract, the violations will be handled in accordance with the provisions outlined in the contract.
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.
This exhibit provides guidance to State Directors and County Supervisors for determination of the factors to be used in adjusting current market value.
The State Director's analysis to County Supervisors will specify costs which are determined to be consistent statewide, and provide specific guidance on the determination of costs which are somewhat consistent within the State, but may vary on a county to county or property to property basis. All studies or surveys should be conducted so that all necessary information can be distributed at the same time.
The analysis for liquidation and disposition costs should, as a minimum, address the following items and considerations:
(1)
(2)
(3)
(4)
The FLMAC will meet at least each July, and will consider the following information:
(a) The actual change in farm land values in the State during the previous year, as indicated in the most recent “Agricultural
(b) Current conditions in the State and national agricultural economics.
(c) Availability and cost of credit to purchase farm land.
(d) The amount of repossessed farm land held by FmHA or its successor agency under Public Law 103-354, the Farm Credit System, and other private sector lenders.
(e) Any special conditions which would effect farm land values in the State.
(f) Any studies or research conducted by the State Agricultural University or similar scholarly source.
The FLMAC should, if possible, determine anticipated value changes on a regional basis with the State, if the State has agricultural regions with discernable differences.
The committee's meetings and decisions, including the basis for those decisions, will be documented, retained in the State Office as part of the State supplement file and provided to interested parties upon request.
Prior to providing the FLMAC determinations to FmHA or its successor agency under Public Law 103-354 field offices, the State Director will contact the FmHA or its successor agency under Public Law 103-354 State Directors in surrounding States to determine if the committee's findings are fairly consistent with those of surrounding States. If there are significant differences, the State Director may reconvene the committee to reconsider its findings.
(5)
(1)
(2)
(3)
(4)
(1)
(RMS standard for loan type in minutes divided by 60) x hourly pay rate for GS-11/1-Administrative cost of liquidation for the loan type.
(2)
(3)
(average actions per property per month x average holding period) x (RMS standard for property management for FO loans divided by 60) x (GS-11/1 hourly pay rate) + (RMS standard for FO property sale actions divided
The County Supervisor will use the statewide costs and give careful consideration to the cost and other guidance provided by the State Director. The County Supervisor will determine certain localized liquidation costs based upon guidance in the State supplement at least annually. These figures will be documented and provided to borrowers upon request.
A.
B.
C.
D.
E.
F.
Income will be added to net recovery value only when it is relatively certain that the income will be realized. Lease income will not be planned unless a lease is already in effect at the time the calculations are being made, and it appears that the lease will continue after FmHA or its successor agency under Public Law 103-354 acquires title. The amount of mineral or other lease or royalty income will be based upon the historical record of such income generated by the property. Chattels will not generate income unless they have a holding period.
The amount of depreciation anticipated for buildings and other improvements will be based upon the summation value and estimated remaining life of the improvement as reflected in the real estate appraisal. For example, a dwelling with a summation value of $40,000 and a remaining life of 20 years will depreciate at a rate of $2,000 per year. The depreciation calculations will be documented in the borrower's case file and provided to the borrower upon request. Chattels will not be depreciated unless they have a holding period.
Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) primary loan service programs provide a large number of alternatives for restructuring an FmHA or its successor agency under Public Law 103-354 loan. The number of loans a borrower has increases the number of combinations of possible alternatives. It is difficult and extremely time consuming to manually calculate all the potential combinations of servicing actions. To assure that the various combinations of programs are considered, FmHA or its successor agency under Public Law 103-354 has developed the Debt and Loan Restructuring System (DALR$) for operation of the County Office computer system. FmHA or its successor agency under Public Law 103-354 personnel will not manually perform the calculations in this exhibit. This exhibit is provided as a benefit to those who may want to perform manual calculations, or understand the procedures DALR$ goes through.
DALR$ is a computerized decision support tool. This means that the computer assists the FmHA or its successor agency under Public Law 103-354 loan officer in making a decision. For example, FmHA or its successor agency under Public Law 103-354 regulations specify criteria for determining the interest rate when loans are restructured. DALR$ will select an interest rate using the criteria in the regulations. Judgement decisions are made by the FmHA or its successor agency under Public Law 103-354 loan officer in evaluating the Farm and Home Plan and other information entered into the DALR$ system.
DALR$ operates on the AT&T 3B2 computer system in FmHA or its successor agency under Public Law 103-354 field offices. It runs under the UNIX (registered tm, AT&T) computer operating system. DALR$ also utilizes Prelude (registered tm, Venturcom) for data entry and storage functions. To operate DALR$, UNIX System V, version 2.0.5 and Prelude version 2.1 are required.
FmHA or its successor agency under Public Law 103-354 developed DALR$ to run under UNIX and Prelude because those systems have the capabilities necessary to allow for relatively rapid development, and are available in all FmHA or its successor agency under Public Law 103-354 offices. DALR$ will not run under DOS on personal computers. Due to lack of resources, FmHA or its successor agency under Public Law 103-354 does not plan to develop duplicate computing capabilities on personal computers. FmHA or its successor agency under Public Law 103-354 will provide copies of program diskettes and/or source code to interested parties upon request.
The DALR$ system provides several benefits to FmHA or its successor agency under Public Law 103-354 borrowers:
1. Speed of calculation. Calculations which would take hours or days are reduced to minutes. This not only speeds the processing of servicing requests, but provides the flexibility to consider several alternative plans of operation within the same time constraints.
2. Consistency. The use of DALR$ assures that all calculations will be performed in the same way, and that the feasibility of all requests will be evaluated on the same calculation methods.
3. Full consideration. DALR$ considers primary loan service programs and combinations of those programs for every borrower entered into the system. Thus, borrowers can be assured that they will be considered for as many of these actions as necessary to develop a feasible plan, if a feasible plan is possible.
4. Reduction of errors. Use of DALR$ greatly reduces the potential for errors and inadvertent denial of assistance due to those errors. DALR$ eliminates errors in the calculations. The only potential errors related to the calculations are input errors, which are much easier to detect and correct than calculation errors. It is important to note, however, that DALR$ results are only as reliable as the input data.
DALR$ performs a series of mathematical calculations based upon predetermined critera. These same calculations and procedures would be followed when calculations are performed manually. DALR$ also generates a printed summary of its computations for FmHA or its successor agency under Public Law 103-354 and the borrower.
In arriving at a debt restructuring plan, DALR$ will take advantage of all primary loan service programs to maximize the borrower's ability to repay debt and remain on the farm and avoid loss to the government.
Several combinations of primary loan service programs may be necessary to keep the borrower on the farm and avoid losses to FmHA or its successor agency under Public Law 103-354. DALR$ will examine each combination until a feasible plan is reached or it is determined a feasible plan is not possible with full utilization of primary service programs.
DALR$ considers each primary serving option in the order described below until an appropriate solution is found. Each step increases FmHA or its successor agency under Public Law 103-354's level of assistance to the Borrower and, when applicable, includes the primary loan service programs provided by previous steps.
1. Apply payments, including proceeds from the sale of non-essential assets, which the borrower plans to apply to outstanding FmHA or its successor agency under Public Law 103-354 debt.
2. Reschedule/reamortize loans at maximum terms with interest rates at the minimum or original note interest rate or regular loan program rate. Loans may be considered for consolidation in accordance with § 1951.909 of this subpart prior to being entered into the DALR$ system.
3. Reschedule/reamortize loans at maximum terms with interest rates at the minimum of original note interest rate or applicable limited resource loan program rate.
4. Defer loans at the maximum term and minimum interest rate permitted by program regulation until a feasible plan is obtained in the first year. Loans are selected for deferral so as to minimize debt repayments in the years after the deferral period. If deferral of a loan will result in an excess cash flow margin in the first year then a partial deferral of the loan is used to eliminate the excess cash flow margin. A partial deferral has the added benefit of reducing the payment amount in the years after the deferral period.
5. Provide Softwood Timber loan deferral, when requested by borrower, to the maximum limits permitted by program regulations. Loan deferrals will be recalculated selecting Softwood Timber loans first so as to:
a. Minimize any decrease in present value caused by conversion to Softwood Timber loans, and
b. If regular deferrals are still needed to facilitate a feasible plan in the first year, minimize the increase in payments in the year after the expiration of deferral period.
A Softwood Timber loan deferral has the same effect on existing FmHA or its successor agency under Public Law 103-354 debt repayment as a full write down of the same amount of debt. A Softwood Timber loan deferral, however, will always have a greater
6. Write Down—
Write down loans in the order, at the interest rates, and in combination with other primary loan service programs to maximize the ability of the borrower to remain on the farm and avoid FmHA or its successor agency under Public Law 103-354 loan losses.
Conservation Easement write-down (when requested by the borrower) will be considered over debt write-down whenever such FmHA or its successor agency under Public Law 103-354 Instruction 1951-S consideration will not prevent development of a debt restructuring plan which will keep the borrower on the farm.
The FmHA or its successor agency under Public Law 103-354 County Supervisor will evaluate each loan and determine its write-down priority considering the degree of collateralization. Loans which are secured but have no collateral value will generally be selected for write down before loans which are at least somewhat collateralized. There are three write-down security/collateral categories.
(1) Low: These loans may be secured or unsecured and have no collateral value.
(2) Medium: These loans are secured but do not have sufficient collateral value to fully protect the Government's interest.
(3) High: These loans are secured and fully collateralized; the Government's interest is fully protected.
(1) Method 1 (See Section VI B of this exhibit) will be used first to develop an acceptable restructuring plan which will keep the borrower on the farm. If a restructuring plan is not found which will keep the borrower on the farm then Method 2 (See Section VI C of this exhibit for a full description) will be used to develop a restructuring plan.
(2) For both Method 1 and Method 2 loan terms will be the maximum permitted by program regulations. Also, write down amounts will be calculated so that the “Balance Available” to repay debt is equal to or as close as possible to the “Debt Repayment”.
(3) Loans selected for regular deferral will remain deferred, but will be fully or partial written down if needed to obtain positive cash flow margins. Loans converted to Softwood Timber loans (if requested) will remain Softwood Timber loans and will not be written down because writing down Softwood Timber loans decreases present value.
7. If a restructuring plan is not found to keep the borrower on the farm, the borrower, FmHA or its successor agency under Public Law 103-354 County Supervisor, and other Lenders may reevaluate/rework the borrower's farm plan to increase income, reduce other debt, sell non-essential assets, improve security on FmHA or its successor agency under Public Law 103-354 debt, and consider Softwood Timber loans and Conservation Easements (if not originally requested by the Borrower and is permitted by program regulation).
Each of these measures will increase the computed present value. DALR$ will use the new/revised information provided by the borrower and the FmHA or its successor agency under Public Law 103-354 County Supervisor to assure that the restructuring of existing FmHA or its successor agency under Public Law 103-354 debt will maximize the potential for the borrower to repay debt and remain on the farm and avoid FmHA or its successor agency under Public Law 103-354 loan losses.
A. Obtain status information on each loan.
The status information date (accrual date) must be a date after the last payment or other transaction on the loan.
1. Principal balance.
2. Accrued interest balance.
3. Non-capitalizable interest balance.
B. For each loan compute the interest accrual to the proposed effective date for servicing actions.
Interest Accrual=P × Iex × N-DAYS.
Where:
1. “P” is the outstanding principal balance on the date on which loan status information was obtained.
2. “Iex” is the daily interest accrual (decimal equivalent) based on the existing interest rate for the loan. Daily interest accrual is equal to the existing annual interest rate divided by 365.
3. “NDAYS” is the number of days between the effective date and the status information date. If February 29 occurs between these two days it is not added to the number of days.
C. Determine the amount of Non-capitalizable accrued interest.
1. Deferred loans.
All accrued interest is non-capitalizable interest.
2. Other loans:
Interest less than 90 days past due is non-capitalizable interest.
A. Determine balance of funds available for debt repayment in the next planning year. This is the “Balance Available in Year 1”. If loan deferrals are anticipated or are needed,
B. Determine total debt repayment in the next planning year. This is the “Debt Repayment in year 1.” If loan deferrals are anticipated or are needed, also determine the debt repayment in the year after the end of the specified deferral period. Included in this amount are:
1. New loans:
New loans planned may affect repayment in the first planning year and/or the year after the end of the specified deferral period, depending on when the loan will be made and the repayment term. The equal annual payments on these new loans are included in the debt repayment calculations. Regular program interest rates (not limited resource rates) are used for all new loans.
In subsequent steps the regular loan program interest rate is changed to limited resource rates, if it is determined that it is not possible to develop a feasible plan at regular program rates.
2. FmHA or its successor agency under Public Law 103-354 Loan for annual operating expenses.
Repayment of FmHA or its successor agency under Public Law 103-354 loans for annual operating expenses are based on regular loan program interest rates.
Included in this amount is the annual operating expense loan principal which is due in the applicable planning year.
Interest accrual on this loan may be estimated by multiplying the principal to be paid in the applicable planning year by the regular loan program interest rate (monthly decimal equivalent) and then by the average number of months the principal will be outstanding. See Attachment 1, Formulas, for details.
If some of the principal will be carried over to future years then that portion is either:
a. Included with the new loan payments computed using the amortization factor over the applicable loan term at regular loan program interest rates, or
b. If the amount to be carried over is already included in an existing loan, it is rescheduled with the existing loan over the maximum term permitted by program regulation.
In subsequent steps the regular loan program interest rate is changed to limited resource rates, if it is determined that a feasible plan is not possible with regular program rates.
3. Existing FmHA or its successor agency under Public Law 103-354 loans:
Also included are all repayments on existing FmHA or its successor agency under Public Law 103-354 debt as it stands now without servicing actions. As DALR$ steps through the debt restructuring process this repayment amount will change.
Some existing loans may include in whole or in part an FmHA or its successor agency under Public Law 103-354 loan for annual operating expenses which is expected to be repaid in the current year. Since the debt repayment on FmHA or its successor agency under Public Law 103-354 annual operating expense loans is estimated in the previous step, the repayment of this debt should not be included with the repayment of existing loans. Only the repayment of long term debt should be included.
C. Apply loan payments which are planned to be made on the effective date of the servicing actions.
1. Payments are first applied to reduce/eliminate delinquent interest, then non-delinquent interest and then remaining principal balance.
2. If any loan is paid off in full because of these payments, recompute the debt repayment in year 1.
3. If the balance available is greater than or equal to the debt repayment in year 1 and there are no delinquent loans then no further servicing actions in DALR$ are required.
D. Reschedule/reamortize loans as needed to eliminate any delinquency.
1. Criteria:
a. Loans will be rescheduled/reamortized over the maximum term permitted by program regulation.
b. The interest rate will be the minimum of:
(1) The original note the interest rate.
(2) The regular loan program interest rate which will be in effect on the date the servicing actions are calculated.
c. Interest payments which are 90 days or more past due will be added to the principal balance to form a new principal balance to be rescheduled/reamortized.
d. Interest less than 90 days past due will be spread equally over the new loan term and will be added to the repayment amount of the new rescheduled/reamortized debt.
e. The transaction records from the last payment date and last due date may be used to assist in determining the dollar amount of interest less than 90 days past due.
2. The Process.
a. Identify delinquent loans. All of these loans will be rescheduled/reamortized.
b. Recompute debt repayment in year 1.
c. If the balance available is greater than or equal to the debt repayment in year 1 then no further servicing actions are required.
E. Reschedule/reamortize the remaining non-delinquent loans.
1. Criteria.
a. Loans will be rescheduled/reamortized over the maximum term permitted by program regulation.
b. The interest rate will be the minimum of:
(1) The original note interest rate.
(2) The regular loan program interest rate which will be in effect on the date the servicing actions are calculated.
c. Interest payments which are 90 days or more past due will be added to the principal balance to form a new principal balance to be rescheduled/reamortized.
d. Interest less than 90 days past due will be spread equally over the new loan term and will be added to the repayment amount of the new rescheduled/reamortized debt.
NOTE: Interest is not due until the loan installment is due. The date the servicing action takes place relative to the due date will effect how much interest can be capitalized. For example:
(i) A borrower is current January 1, 1988. An analysis in December 1988 indicates the borrower cannot pay installments due January 1, 1989. Based on the 1989 farm plan, the debts can be restructured. The loans will be restructured on January 10, 1989. None of the accrued interest is 90 days past due and no interest will be capitalized.
(ii) Same situations (i) , except the restructuring occurs on April 2, 1989. The interest which accrued prior to January 1, 1989, will be capitalized. Interest which accrued after January 1, 1989, will not be capitalized.
2. Loan Selection.
a. In selecting the loans for rescheduling/reamortizing, the loans will be ordered so that the loan having the greatest reduction in interest rate will be rescheduled/reamortized first.
b. If the change in interest rate is equal for two or more loans then this subgroup will be ordered so that the loans having the smallest new principal balance will be rescheduled/reamortized first.
c. If the repayment on any rescheduled/reamortized loan exceeds the current repayment amount for that loan then that loan will not be rescheduled/reamortized unless the County Supervisor indicates that rescheduling should be carried out to eliminate unequal payment schedules or balloon payments.
3. The Process.
a. After each rescheduling/reamortization recompute debt repayment in year 1.
b. If the balance available is greater than or equal to the debt repayment in year 1 then no further servicing actions are required.
A. Recompute debt repayment in year 1.
1. Criteria.
a. New loans will have the maximum term permitted by program regulation, using the limited resource interest rates (when applicable) which will be effective on the date of the servicing actions.
b. Interest accrual on the FmHA or its successor agency under Public Law 103-354 loan(s) for annual operating expenses will be at the limited resource rate (when applicable).
2. The Process.
a. Recompute debt repayment in year 1.
b. If the balance available is greater than or equal to the debt repayment in year 1, no further servicing actions are required.
B. Reschedule/Reamortize existing loans eligible for limited resource rates to obtain a positive cash flow margin in the 1st planning year.
1. Criteria.
a. Loans will be rescheduled/reamortized over the maximum term permitted by program regulation.
b. The interest rate will be the minimum of:
(1) The original note interest rate.
(2) The loan program limited resource interest rate in effect on the date the servicing actions are calculated.
c. Interest payments which are 90 days or more past due will be added to the principal balance to form a new principal balance to be rescheduled/reamortized.
d. Interest less than 90 days past due will be spread equally over the new loan term and will be added to the repayment amount of the new rescheduled/reamortized debt.
2. Loan Selection.
a. In selecting the loans for rescheduling/reamortizing, the loans will be ordered so that the loan having the greatest reduction in interest rate will be rescheduled/reamortized first.
b. If the change in interest rate is equal for two or more loans then this subgroup will be ordered so that the loans having the smallest new principal balance will be rescheduled/reamortized first unless it is deliquent.
c. If the repayment on any rescheduled/reamortized loan exceeds the current repayment amount for that loan then that loan will not be rescheduled/reamortized.
3. The Process.
a. After each rescheduling/reamortization recompute debt repayment in year 1.
b. If the balance available is greater than or equal to Debt Repayment then no further servicing actions are required.
A. Deferrals Period.
1. Deferral will only be beneficial if the cash flow margin will improve after the deferral period. This improvement must begin no later than six years after the current planning year, since the maximum deferral period is 5 years.
2. To determine the appropriate deferral period the County Supervisor and borrower will review the farm operation over the next five years. Loans should be deferred to the year when the improvement from the first
3. It is not necessary that deferrals provide a positive cash flow margin after the deferral period because it is still possible to obtain a positive cash flow margin with a combination of deferrals, debt write down and the other primary loan service programs. However, to maximize the potential for the borrower to remain on the farm and avoid losses on FmHA or its successor agency under Public Law 103-354 loans, a new farm plan must be prepared by the FmHA or its successor agency under Public Law 103-354 County Supervisor and borrower for the year after the end of the selected deferral period.
4. If there is no anticipated improvement in cash flow margin, then a deferral year plan need not be prepared since other combinations of primary service programs will maximize the potential for the borrower to remain on the farm and avoid losses on FmHA or its successor agency under Public Law 103-354 loans.
B. Deferrals.
1. Criteria.
a. Loans which have been rescheduled/reamortized previously in DALR$ will be rescheduled/reamortized at the same interest and term.
b. Other loans which have not been previously rescheduled/reamortized in DALR$ will be rescheduled/reamortized as follows:
(1) Loans will be rescheduled/reamortized over the maximum term permitted by program regulation.
(2) The interest rate will be the minimum of:
(a) The original note interest rate.
(b) The loan program interest rate (limited resource, if applicable) in effect on the date of the servicing action calculations.
(3) Interest payments which are 90 days or more past due will be added to the principal balance to form a new principal balance to be rescheduled/reamortized.
(4) Interest less than 90 days past due will be spread equally over the new loan term and will be added to the repayment amount of the new rescheduled/reamortized debt.
2. Loan Selection.
This selection process will assure that after a positive cash flow margin is achieved in the 1st year, the cash flow margin in the year after the deferral period will be the greatest.
a. Calculate the payment after the deferral period for each loan eligible for deferral. This is only a side calculation to determine the best order of selection. A deferral will decrease the payments in the 1st planning year and increase the payments in the year after the deferral expires.
b. For each loan compute the ratio of the increase in “after deferral period” payment to the decrease in 1st year payment.
c. The loan with the smallest ratio is deferred first and so on until the balance available is greater than or equal to debt repayment in year 1.
3. The Process.
a. Taking one loan at a time, defer the selected loan, recompute the debt repayment in year 1. Also compute the debt repayment in the year after the end of the deferral period.
b. If the balance available is equal to debt repayment in year 1 and the balance available is greater than or equal to debt repayment in the year after the end of the deferral period then no further servicing actions are required.
c. If the balance available is greater than the debt repayment in year 1, then this implies that the last loan deferred did not require a full deferral.
(1) Compute amount of deferral of the last loan necessary to achieve equality between balance available and debt repayment in year 1.
(2) Recompute payments for this loan during the deferral period and the years after the expiration of the deferral period.
(3) If the balance available in the year after the deferral period is greater than or equal to the debt repayment then no further servicing actions are required.
4. Partial Deferrals.
a. Whenever deferral of a loan results in an excess cash flow margin in the first year, a partial deferral of that loan will result in a higher present value and will also decrease future payments on that loan. See Attachment 1 to this exhibit for applicable formulas for partial deferrals.
b. Examples:
Case 1: Partial Deferral without Write Down.
Situation: A full deferral is more than is needed to achieve a positive cash flow margin in year 1. A full payment on the loan will produce a negative cash flow margin in year 1.
The Process.
1. Determine amount of deferral of necessary to achieve a feasible plan in the first year.
“d” is the fraction of the loan which must be deferred. This fraction is applied to both the principal (P) and the non-capitalizable interest (N).
“r” is the amount of cash flow margin in the first year with a full deferral. “R” is the debt repayment on the loan in the first year without deferral.
d—1—(r/R).
2. Calculate Portion of debt to be deferred and portion of non-deferred debt to meet cash flow margin criteria in the first year.
Non-deferred portion.
P
N
Deferred Portion
P
N
Case 2: Partial Deferral with Write Down.
Write down is required for a feasible plan. In this situation the write down and partial deferral must yield a payment which exactly meets the borrower's ability to repay debt. This will maximize the “Present Value” and the borrower's ability to remain on the farm.
Situation: The loan is partially deferred to achieve a feasible plan in the 1st year. The payments in the year after the end of the deferral period exceed the borrower's ability to pay even with a partial deferral. Write down is necessary to achieve a feasible plan. The loan which is partially deferred has been selected as the next loan to write down based upon write down selection criteria.
Write down sequence:
1. The non-capitalizable interest (of the deferred portion of the loan) will be written down first until a feasible plan is achieved or the non-capitalized interest (of the deferred portion of the loan) is fully written down.
2. The remaining principal (on the deferred portion of the loan) is then written down until a feasible plan is achieved or the principal is fully written down.
3. At the point the deferred portion of the loan has been fully written down, but a feasible plan has not yet been found. The subject loan is now a non-deferred loan with reduced principal and reduced non-capitalizable interest. This new loan must now compete for selection for write down with all remaining loans based on the write down selection criteria.
A. Criteria.
1. Loan terms will be the maximum permitted by program regulation.
2. The interest rate will be the minimum of:
a. The original note interest rate, or
b. The Softwood Timber program interest rate which will be in effect on the date of the servicing action calculations.
3. 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.
4. Interest less than 90 days past due will not be capitalized and accrue interest, and will be payable at the end of the Softwood Timber deferral period.
5. The rescheduled/reamortized principal amount plus any non-capitalized interest of Softwood Timber loans will not exceed the maximum amount permitted by program regulation or the amount needed to develop a feasible plan, whichever is less.
B. Loan Selection.
Loans will be selected for the Softwood Timber loan program to maximize the present value after conversion to Softwood Timber, thus avoiding loan losses.
1. Cancel all previously calculated deferrals.
2. For each loan compute the present value before and after conversion to a Softwood Timber loan. Then compute the decrease in present value (note: for loans in which the present value increases this will be negative number).
3. For each loan compute the ratio of the decrease in present value to the decrease in first year repayment after conversion to a Softwood Timber loan.
4. Select the loan with the smallest (or most negative) ratio first.
5. If loans have equal ratios select the loan having the least security among these loans first, Softwood Timber loans will have new security instruments. This will improve the FmHA or its successor agency under Public Law 103-354 security and could increase present value if write down is required for other loans.
C. The Process.
1. Starting with the first loan in the list of loans ordered to minimize decrease in present value convert the loan to Softwood Timber.
2. Continue this process until the maximum limit for Softwood Timber conversion is reached or a feasible plan is possible in the first year.
3. If a loan is only partially converted then create a new loan identity for the partially converted loan. The portion not converted retains the same interest rate and term prior to the conversion to Softwood Timber.
4. If fully utilizing Softwood Timber loan conversion authorities do not result in a feasible plan in the first year rework the loan deferral calculation described in Section IV of this exhibit (if applicable). Do not include the loans selected for Softwood Timber loans in the reworking of the deferral calculations.
5. If conversion to a Softwood Timber loan will permit a feasible plan to be developed (with or without deferrals) no further servicing actions are required.
Write-down of loans will proceed with Method 1 (contained in VI B) first. If a debt restructuring plan which will keep the borrower on the farm cannot be found using Method 1, then write-down will be recalculated using Method 2.
A. Status.
Debt repayments are at their absolute minimum, a feasible plan is still not possible in the first year and/or the year after the end of the deferral period (if applicable).
1. At this point consideration of primary loan service programs has had the following result:
a. All delinquent loans have been rescheduled/reamortized.
b. If the borrower plans to make payments prior to the servicing actions, these payments have been applied to loans to reduce indebtedness.
c. All existing FmHA or its successor agency under Public Law 103-354 loans have been considered for rescheduling/reamortization.
d. Deferrals have been computed for borrowers when the cash flow margin in the year after the deferral period was higher than the cash flow margin in the first year.
e. Loans have been converted to Softwood Timber loans (when requested by the Borrower) to the maximum extent permitted by program regulations.
2. FmHA or its successor agency under Public Law 103-354 loans for annual operating expenses and all proposed new loans have been computed at limited resource rates (when applicable).
3. All loans are at the lowest interest rate and maximum term permitted by program regulations.
B. Method 1.
Provide Conservation Easement write down on eligible loans, when requested by the borrower, to the maximum limits permitted by program regulations. Conservation Easements will be the first write down considered in this method. If a feasible plan is not obtained using conservation easements then the remaining loans will be written down using debt write-down authority.
1. Criteria.
a. Only loans secured by real estate are eligible for conservation easement write-down.
b. Interest rates, loan terms, loans selected for deferral (if applicable) do not change from the status described in Section VI A of this exhibit. That is, debt repayment is at the absolute minimum.
c. Loans converted to Softwood Timber loans will not be written down.
2. Loan Selection.
Loans will be selected in the following order for full or partial write-down as necessary:
a. Place all loans eligible for conservation easements in a single group. Of these loans order them for selection as follows:
(1) Least collateralized loans first.
(2) For loans with equivalent collateralization, loans with the largest “Amortization Factor” first. (See Amortization Factors in Attachment 1 to this exhibit.)
b. If a feasible plan is not obtained using conservation easements or conservation easement write-down had not been requested order the remaining loans as follows:
(1) Unsecured and/or least collateralized loans first.
(2) For loans with equivalent security, loans with the largest “Amortization Factor” first. (See Amortization Factors in attachment to this exhibit.)
3. The Process.
Each time a new loan is selected for write-down, deferrals (if applicable) must be recalculated as described in Section IV of this exhibit.
a. Conservation Easement write-down.
(1) Starting with the first loan selected for conservation easement write-down, determine whether a full write-down will permit a feasible plan in the applicable year. The applicable year is the first planning year if deferrals have not been considered. If deferrals have been considered it is the year after the end of the deferral period.
(2) If a full conservation easement write-down will achieve positive cash flow compute the amount of conservation easement write-down so that the balance available equals debt repayment. Reschedule/reamortize the loan for the new principal amount. No further servicing actions are required.
(3) If a full conservation easement write-down does not achieve a positive cash flow margin in the applicable year, recompute the debt repayment in the first planning year and the debt repayment in the year after the end of the deferral period (if applicable). Deferrals will have to be recalculated using the methods described in Section IV of this part.
(4) Continue selecting loans for conservation easement write-down and repeat this process until an acceptable cash flow margin is obtained in the applicable year or the maximum conservation easement write-down permitted by program regulation is obtained.
b. Debt Write-Down.
(1) Conservation easement write-down (if applicable) did not attain a positive cash flow margin in the applicable planning year. With the remaining loans, reprioritize their selection without regard to eligibility for conservation easements using the criteria described in section VI B 3 of this exhibit.
(2) Using debt write-down authority write down each of these loans until a positive cash flow margin is obtained in the applicable year. Compute the amount of write-down for that loan so that the balance available is equal to the debt repayment.
(3) If the present value of the future payment stream on remaining debt equals or exceeds the net recovery value of the collateral for FmHA or its successor agency under Public Law 103-354 loans then no further servicing actions are required.
C. Method 2.
Use this method only if Method 1 does not find a debt restructuring plan which will allow FmHA or its successor agency under Public Law 103-354 to continue with the borrower.
1. Criteria.
a. Loan terms are the maximum permitted by program regulation.
b. All other loans (except Softwood Timber loans), including the loan selected for write down will be at the minimum of the original
2. Loan Selection.
Loans will be selected in the following order for full or partial write-down as required.
a. Unsecured and/or least collateralized loans first.
b. For loans with equivalent security, loans with the smallest present value factor first. (See Present Value Factor in Attachment 1 of this exhibit.) Note the Present Value Factor is independent of loan interest rate.
c. For loans with equal present value factor, loans with highest interest rate first.
3. The Process
Each time a new loan is selected for write-down all loans whose interest rates change according to the criteria in Section VI C1b of this exhibit will be rescheduled/reamortized using the new interest rate. Deferrals (if applicable) must also be recalculated as described in Section IV of this part.
a. Starting with the first loan selected for debt write-down, determine whether a full write-down will result in a positive cash flow margin in the applicable year. The applicable year is the first planning year if deferrals have not been used. If deferrals have been used, it is the year after the deferral period.
b. If a full debt write-down results in a positive cash flow compute the amount of write-down so that the balance available equals debt repayment. Reschedule/reamortize the loan for the new principal amount and test present value with net recovery value.
D. Net Recovery Value Test
1. Conservation Easements have been requested. The Net Recovery Value test is not applicable and no further servicing actions are required if all of the following are applicable:
a. The loan is eligible for conservation easement.
b. The write-down amount does not exceed the conservation easement write-down limit specified by program regulations.
c. All other loans written down were based on conservation easement authority.
2. If the present value of the repayment on remaining FmHA or its successor agency under Public Law 103-354 debt equals or exceeds the net recovery value of collateral a debt restructuring plan has been found which will keep the borrower on the farm and no further serving actions are required.
3. If a full write-down of a loan does not achieve a positive cash flow margin in the applicable year continue selecting loans for write-down and repeat this process until a positive cash flow margin is obtained in the applicable year or there are no other loans left to write-down.
DALR$ computes the net recovery value of collateral to obtain a value to use for the net recovery value test outlined in section VI C3b of this exhibit, as required in § 1951.909(f) of this subpart. See exhibit I, “Guidelines for Determining Adjustments for Net Recovery Value of Collateral,” for guidance in determining the value of specific items in the net recovery alue calculations outlined have.
Net recovery value is computed for all FmHA or its successor agency under Public Law 103-354 Farmer Program loan security. If FmHA or its successor agency under Public Law 103-354's lien position or the amount of prior liens vary from item to item, separate net recovery values will be computed for each item which has a different lien structure. Example: FmHA or its successor agency under Public Law 103-354 has a first lien on a borrower's equipment, except for two tractors. One tractor was financed by non-FmHA or its successor agency under Public Law 103-354 credit, and FmHA or its successor agency under Public Law 103-354 has a junior lien subject to the purchase money financing. In the case of the second tractor, FmHA or its successor agency under Public Law 103-354 subordinated its lien to another lender to finance repairs, thus, FmHA or its successor agency under Public Law 103-354 has a junior lien subject to the amount subordinated. In this example there would be three net recovery calculations, one for each tractor and one for the remaining equipment. The sum of the three calculations would be the net recovery value. The same logic applies to real estate security. Thus, the sum of all individual calculations will be the total net recovery value.
The general formula for net recovery value is as follows:
The individual items in the net recovery value formula are computed as follows:
1. Market value of security—the market value of the security based upon a current appraisal.
2. Prior liens—the total of all liens proceeding FmHA or its successor agency under Public Law 103-354's security interest, including past due taxes and assessments and subordinates.
3. Property taxes and assessments while in inventory—(annual tax and assessments due divided by 12) × average holding period in months.
4. Depreciation on property—Annual amount of depreciation determined by the County Supervisor, divided by 12) × average holding period in months.
5. Management charges—based upon methods of management used (acres under management × annual rate per acre) divided by 12 × average holding period in months, or (net income on a monthly basis × percentage fee charged) × average holding period in months, or the anticipated monthly management and maintenance expense × average holding period in months, or the total of the appropriate combination of these.
6. Repairs—as determined necessary by County Supervisor.
7. Legal fees—determined with guidance from the State Director.
8. Sales costs—commission rate × market value of security.
9. Advertising—cost of three-week advertisement 1 time × (average holding period in months divided by 6, rounded to the nearest whole number).
10. Value increase/decrease—annual percentage divided by 12 × average holding period in months × market value.
11. Interest cost during inventory period—(interest rate on 90-day T-Bills × current market value) divided by 12 × average holding period, in months.
12. Average holding period for inventory, in months—determined by the State Director in accordance with FmHA or its successor agency under Public Law 103-354 Instructions.
13. Miscellaneous—any unusual or other expenses associated with acquiring, holding, or selling the property which are not covered by itemized expense items, such as hazardous waste cleanup and surveys.
14. Income—income received every month × average holding period in months + (total of non-monthly income received for the year divided by 12) × average holding period in months.
At this point, DALR$ has finished its calculations. DALR$ will consider service programs to the point where a feasible plan has been achieved, or all farmer program loans have been written down completely. DALR$ will provide a report of the results of the calculations performed, including the present value test.
If DALR$ does not find a solution that will provide a feasible plan, FmHA or its successor agency under Public Law 103-354 will proceed with the other actions authorized in this subpart, including mediation, offer the opportunity to purchase collateral for net recovery value, and consideration for Preservation Service Programs.
There are two amortization factors used to compute equal annual installment debt repayments: (1) The amortization factor for interest bearing debt and, (2) The AF for non-interest bearing debt. The first AF is a function of both loan term and interest. The second AF is a function of loan term only.
A. Amortization factor for interest bearing debt
1. Notation: [AF](i,t) (AF=amortization factor)
2. [AF](i,t)=[i×(1+i)
3. Calculation of the amortization factor for interest bearing debt
example: loan terms are 5% interest, 15 years (i=.05, t=15)
B. AF for non-interest bearing debt
1. Notation: [AF](0,t)
The notation is similar to the notation used for the AF of interest bearing debt except the interest rate is set equal to zero (0).
2. Formula
[AF](0,t)=1/t
Where
“t” is the term of the loan (Years)
This factor is used to determine annual repayment of Non-capitalized debt. Accrued interest less than 90 days past due is one type of non-capitalized debt. Note: The AF formula for interest bearing debt reduces to this formula when interest is zero.
3. Calculation of the amortization factor non-interest bearing
example: loan term is 15 years
Present value is calculated when debt writedown is used. The present value of restructured loans is the sum of the present values of individual loans computed using these formulas.
There are two present value factors used to compute the present value of future payments. (1) The present value factor for single payments and (2) the present value factor for uniform series payments.
A. PVF for single repayments
1. Notation: [PV1] (id,t) (PV1=Present value 1 payment)
2. Formula
example: a payment will be received 45 years from the present date.
B. PVF for uniform series of payments (equally amortized installments)
1. Notation: [PVS] (id,t) (PVS=Present value of series of equal payments)
2. Formula
example: a series of equal annual installments will be received annually for 30 years.
This factor is used in the selection of loans for deferral and for write down. It is the weighted average of the amortization factors for interest bearing debt and non-interest bearing debt. When this factor is multiplied by the remaining balance on the loan it yields the equal annual installments for the loan.
A. Calculations
1. Notation: [JAF] (i,t)
2. Formula
example: P=5,886 P
(FmHA or its successor agency under Public Law 103-354 Annual Operating Expense Loan):
This is the average number of months an FmHA or its successor agency under Public Law 103-354 loan of annual operating expenses will be outstanding. It may be estimated or calculated from the projected advance and payment schedule for the loan.
For example, loan(s) for annual operating expenses are estimated to be $15,000 and the projected advance and repayment schedule is planned as follows:
Whenever deferral of a loan results in an excess cash flow margin in the first year, a partial deferral of that loan will result in a higher present value and will also decrease future payment on that loan. Calculation of the partial deferral proceeds as follows:
1. Determine the order in which loans will be deferred based upon the JAF (section III of this attachment.
2. Determine amount of deferral necessary to achieve a feasible plan in the first year (compute variable d).
3. Calculate Portion of debt to be deferred and portion of non-deferred debt to meet cash flow margin criteria in the first year.
Farm Service Agency (FSA) primary loan service programs provide a large number of alternatives for restructuring an agency loan. Additionally, borrowers may request consideration for the Softwood Timber (ST) and Conservation Contract (CC) Programs. The number of loans a borrower has increases the number of combinations of possible servicing alternatives. It is difficult and virtually impossible to manually calculate all the potential combinations of servicing actions. To assure that all the various possible combinations of programs are considered, FSA has developed the Debt and Loan Restructuring System (DALR$) for operation on the county office computer system.
DALR$ is a menu driven computerized support tool that assists FSA field offices in determining and evaluating the effects of primary loan servicing in accordance with 7 CFR part 1951, subpart S. DALR$ will complete a series of mathematical calculations based on information regarding the borrower's cash flow and loan status obtained from the borrower's case file. This information is used in attempting to restructure the borrower's debt and maximize their repayment ability, while avoiding or minimizing loss to the Government. DALR$ will provide a printed summary of the computations and outcome of the calculations.
FSA personnel will not manually perform the calculations in this exhibit. This exhibit is provided as a benefit to those who may want to perform manual calculations, or understand the procedures DALR$ utilizes during the execution of the program.
The DALR$ system provides the following benefits to FSA borrowers:
A. Speed of Calculation—Calculations which would take hours or days are reduced to minutes. This not only speeds the processing of servicing requests, but provides the flexibility to consider several alternative plans of operation within the same time constraints.
B. Consistency—The use of DALR$ assures that the feasibility of all requests for primary loan servicing will be evaluated on using the same calculation methods.
C. Full Consideration—DALR$ considers primary loan service programs and combinations of those programs for every borrower entered into the system. Thus, borrowers can be assured that they will be considered for as many of these actions as necessary to develop a feasible plan, if a feasible plan is possible.
D. Reduction of Errors—Use of DALR$ greatly reduces the potential for errors and inadvertent denial of assistance due to those errors. DALR$ eliminates errors in the calculations. The only potential errors related to the calculations are input errors, which are much easier to detect and correct than calculation errors. However, DALR$ results are only as reliable as the input data.
When computing debt restructuring, DALR$ will consider all primary loan service programs, if necessary in attempting to develop a feasible plan. A combination of loan service programs may be necessary. DALR$ will consider each combination until a feasible plan is developed, or it is determined that a feasible plan is not possible with full utilization of primary loan servicing, ST and CC.
DALR$ will attempt to provide the maximum margin available up to ten percent above the total amount needed for payment of farm operating, family living expenses and debt repayment after restructuring. If a feasible plan cannot be developed, DALR$ will determine if the writeoff with market value
The DALR$ calculations proceed in the following general order:
A. DALR$ calculates the net recovery value (NRV) for FSA security and nonessential assets.
B. DALR$ computes new loan and annual operating expense payments at regular interest rates.
C. DALR$ applies loan payments that will pay loans in full on the proposed restructure date.
D. DALR$ considers conservation contract, if requested, to the maximum extent permitted under the regulations. Conservation contract (CC) will not be provided unless a feasible plan is developed after considering CC and other loan servicing options.
E. DALR$ reschedules or reamortizes all delinquent loans at the maximum term with an interest rate at the lower of the original note rate or current loan program rate. Limited resource rate loans will be rescheduled or reamortized at the lower of the original note rate or the current limited resource loan rate. After rescheduling or reamortizing all delinquent loans, DALR$ will determine if a feasible plan has been developed with the appropriate debt service margin.
F. DALR$ reschedules or reamortizes non-delinquent loans at the maximum term and with an interest rate at the lower of the original note rate or the current loan program rate. Limited resource rate loans will be rescheduled or reamortized at the lower of the original note rate or the current limited resource rate. Non-delinquent loans are rescheduled or reamortized one loan at a time until a feasible plan is developed with the appropriate debt service margin, or until all non-delinquent loans have been processed.
G. DALR$ reschedules or reamortizes limited resource eligible loans at the maximum term and with an interest rate at the lower of the original note rate or the current limited resource program interest rate. Limited resource eligible loans are rescheduled or reamortized one at a time until a feasible plan has been developed with the appropriate debt service margin, or all limited resource eligible loans have been processed.
H. DALR$ reschedules or reamortizes unequal payment loans at the maximum term and with an interest rate at the lower of the original note rate or the current loan program rate (limited resource, if applicable). Unequal payment loans are rescheduled or reamortized one at a time until a feasible plan has been developed with the appropriate debt service margin, or all unequal payment loans have been processed.
I. DALR$ determines the cash available to repay the FSA debt for the first year and the year after the deferral period by subtracting non-FSA payments, farm operating expenses, excluding interest, and family living expenses from the adjusted balance available. If the first year cash available is negative, DALR$ will proceed with paragraph M of this section. If the first year cash available is positive and less than the cash available for the year after the deferral period, DALR$ will consider loan deferral. Loans will be selected for deferral so as to minimize the debt repayment in the year after the deferral period. If the full deferral of a loan will result in a cash flow for the first year that exceeds the appropriate debt service margin, a partial deferral of the loan is used to eliminate the excess cash flow margin. A partial deferral has the added benefit of reducing the payment amount in the years after the deferral period.
J. DALR$ considers ST loan deferral, when requested by the borrower, to the maximum limits permitted. Previously calculated regular deferrals will be cancelled prior to DALR$ considering ST loan deferral. If the cash available after the deferral period is greater than the first year cash available, and ST loan deferral fails to produce a feasible plan at the applicable debt service margin, non-ST deferred loans will be reconsidered. Regular loan deferrals are recalculated after selecting loans for ST to:
1. Minimize any decrease in present value caused by the conversion to ST, and
2. Minimize the increase in payments in the year after the deferral period.
A ST loan deferral has the same effect on the debt repayment ability as a writedown of the same amount. However, a ST loan deferral will always have a greater present value. Therefore, after a loan is selected for ST loan deferral, it will not be considered for writedown since this will always decrease the present value of restructured loans.
K. DALR$ considers writedown of FSA debt for those borrowers who have not received their lifetime limit for writedown and writeoff (with market value buyout).
1. If the cash available for the first year is greater than the cash available for the year after the deferral period, DALR$ considers writedown, in combination with other primary loan service programs (except ST deferrals as noted in paragraph K of this section). When considering a borrower for writedown, DALR$ will attempt to maximize the borrower's repayment ability and minimize losses to the Government.
The amount of writedown cannot exceed the $300,000 limitation. In addition, the present value of the restructured loan plus the amount of the CC cannot be less than the
2. If the cash available after the deferral period is greater than the cash available in the first year, DALR$ will consider a combination of deferral and writedown.
Loans are selected for deferral to achieve a cash flow in the first year. If deferral of loans will result in a cash flow in the first year that exceeds the applicable debt service margin, DALR$ partially defers the loan to reduce the excess cash flow. If there is a negative cash flow after the expiration of the deferral period, DALR$ provides writedown of one loan to attempt to develop a feasible plan in the year after the deferral period. This process is repeated until a feasible plan is developed for both the first year and the year after the deferral period, or until all loans have been processed. The amount of the writedown cannot exceed the $300,000 limitation and the present value of the restructured loans plus the value of the CC cannot be less than the total NRV of the FmHA security and non-essential assets.
L. DALR$ considers market value buyout when a feasible plan cannot be developed after considering the borrower for all combinations of the above servicing options and the borrower has not received the lifetime limitation for writedown and writeoff. The amount of FSA debt to be written off must be less than or equal to the $300,000 limitation, otherwise the borrower is not eligible for primary loan servicing or market value buyout.
M. DALR$ determines the amount of cash improvement needed in the first year Balance Available to cash flow with a zero percent debt service margin when a feasible plan cannot be developed.
N. DALR$ offers to print a servicing report which provides a summary of the computations and the outcome of the calculations.
The following information will be entered in DALR$ prior to beginning the calculations.
A. Borrower Case Number and Name—The borrower's case number is a concatenation of the State Code, County Code, and Borrower ID (usually the borrower's social security number or tax identification number). Borrowers are entered as either an individual or entity.
B. Date Servicing Actions Requested—This is the date that the borrower submitted a complete application for primary loan servicing. The discount rate used in the calculations of the present value of restructured loans and the NRV will be the rate in effect on this date.
C. Proposed Restructure Date—This is the projected effective date of the restructuring. The interest rate used for restructuring loans and the net recovery constants used in the calculation of the NRV will be those in effect on this date as of the date DALR$ was prepared.
D. Eligibility for Writedown or Writeoff—This field determines if writedown or writeoff (with buyout) should be considered when attempting to restructure the borrower's debt. Borrowers that are not delinquent, or that have met the lifetime limitation regarding writedown and writeoff are not eligible for writedown or writeoff. If the borrower is not eligible, DALR$ will consider the borrower for all primary loan servicing except writedown and market value buyout.
E. Period of Deferral—DALR$ will default to the maximum deferral period of 5 years. The field can be cleared and a lessor period entered if applicable.
F. Adjusted Balance Available—The adjusted balance available for the first year is obtained from Form FmHA 431-2, “Farm and Home Plan” developed for the current production cycle or the typical plan, if applicable. Adjusted balance available is the sum of total planned family living expenses from Table F, total planned cash farm operating expenses, less interest from Table G, and line 16, “Balance Available,” from Table J of the Farm and Home Plan. If loan deferral or debt writedown is anticipated or needed, the balance available for the year after the deferral period must also be calculated and entered.
G. Non-Agency Debts, Family Living Expenses and Adjusted Operating Expenses—This is the sum of total planned family living expenses from Table F, total planned cash farm operating expenses, less interest, from table G, and total non-Agency debt repayment (principal and interest) from Table K of Form FmHA 431-2, “Farm and Home Plan”. If future non-agency loans are planned that will affect the first year or the year after the deferral, the annual debt repayment for these loans should be included. Debt repayment on FSA nonprogram loans should be included when determining this amount. FSA nonprogram debts must be entered here to assure that these loans are not included in the present value calculations or when determining if the $300,000 writedown or writeoff limitation was exceeded.
H. FSA Loan for Annual Operating Expense—The amount of FSA loan for annual operating expenses is the amount of annual operating expense loan principal which is due in the applicable planning year. The estimated average number of months the annual operating loan will be outstanding is also entered.
If some of the principal will be carried over to future years, then that amount is either:
1. Included in the new loan payments computed using the amortization factor over the applicable loan term at the regular loan program interest rate, or
2. If the amount to be carried over was entered as an existing loan, it is rescheduled
I. New FSA Loans and Scheduled Advances—The amount of the loan, loan type, regular program interest rate, and year that the cash flow will be affected will be entered. DALR$ will consider a reduction from the regular program interest rate to the limited resource interest rate (if applicable) during the rescheduling or reamortizing process if necessary to develop a feasible plan.
J. NRV Data—Information pertaining to FSA security and nonessential assets owned by the borrower will be entered in accordance with Exhibit I of part 1951, subpart S. Prior liens will include other creditors debts that hold a prior lien to FSA on the security property. Prior liens may also include FSA nonprogram loans if the same security is cross-collateralized with the program loans and they hold a prior lien to the program loans.
K. Existing Loan Data—Loan information will be obtained from the borrower's case file and Finance Office status inquiry screens. The date of status screens must be after the date of the last payment or other transaction on the loan. The loan information includes the consideration for servicing actions, unpaid principal and interest, amount of next payment, maximum term, original and existing interest rate, security priority, information regarding any portion of the loan not to be rescheduled, and proposed payment in full on the restructure date.
1. If the interest accrual date of the status screen precedes the proposed restructure date, DALR$ will calculate the additional interest accrual. Interest accrual is calculated in accordance with section I of attachment 1 to this exhibit.
2. Loan selection for many of the calculation processes is based partly on the security priority identified for each loan. There are three priorities:
a. Low—These loans are unsecured. If FSA loan security was liquidated, the proceeds would not be sufficient to result in a payment on this loan.
b. Medium—These loans are undersecured. If FSA security was liquidated, the proceeds would be sufficient to result in a partial payment on this loan.
c. High—These loans are fully secured. If FSA security was liquidated, the proceeds would be sufficient to pay this loan in full.
L. Conservation Contract Data—If the borrower requested a conservation contract, the total acreage of the farm, acres to be included in the conservation contract, unpaid debt secured by the farm, and the current market value of the farm must be entered.
M. Softwood Timber (ST) Loan Data—If ST deferral was requested by the borrower, the acreage eligible for ST must be entered.
N. Interest Rate Tables—Interest rates and the effective date provided in Exhibit B of FmHA Instruction 440.1 will be entered.
O. Discount Rate Tables—The discount rate and the effective date provided in Exhibit B of FmHA Instruction 440.1 will be entered.
P. Net Recovery Constants Tables—Net Recovery Constants and the effective date determined in accordance with exhibit I of part 1951, subpart S will be entered.
As described in section IV of this exhibit, the DALR$ calculations are a repetitive process. During the first phase of the calculations, DALR$ will attempt to restructure the borrower's debt utilizing all necessary combinations of loan servicing and provide a ten percent debt service margin. Debt service margin is calculated in accordance with section II of attachment A of this exhibit. If a feasible plan cannot be developed after considering all combinations of loan servicing, the debt service margin will be reduced to nine percent and all combinations of servicing will again be considered. DALR$ will continue to reduce the debt service margin by one percent until a feasible plan is developed or the debt service margin falls below zero and a feasible plan is not possible with any combination of servicing options.
The calculation process proceeds as follows:
As required by §§ 1951.909 and 1951.910 of title 7, DALR$ computes total NRV of agency loan security and non-essential assets. Exhibit I of part 1951, subpart S, “Guidelines for Determining Adjustments for Net Recovery Value”, provides guidance in determining the value of specific items utilized in the net recovery calculations outlined below.
NRV is computed for all Farm Loan Programs loan security, other non-essential assets owned by the borrower, and assets not in the borrower's possession. If the agency's lien position, or the amount of prior liens vary from item to item, separate NRV will be computed for each item which has a different lien structure.
The general formula for calculating NRV is as follows:
* Current market value of the security
* Minus prior liens
* Minus property taxes while in inventory
* Minus depreciation on buildings and improvements
* Minus management charges
* Minus repairs necessary for resale
* Minus legal and administrative costs
* Minus sales cost
* Minus advertising cost
* Minus miscellaneous expenses
* Minus interest cost while in inventory
* Plus or minus the increase or decrease, as applicable, in value while in inventory
* Plus anticipated income while in inventory
* Equals NRV of the individual property items
The sum of the NRV of individual property items minus:
* Real estate property management costs
* Real estate or real estate and chattel costs, and
* Chattel only costs as applicable, equals the total NRV of FSA security, non-essential assets, and assets not in possession.
The factors listed above do not apply to the calculation of NRV for non-essential assets and assets not in possession.
DALR$ calculates debt repayment for new FSA term loans and FSA loans for annual operating expenses as follows:
1. Repayment for new term loans will be calculated based on the regular loan program interest rate and the term of the loan. The payment will be calculated in accordance with section III A of attachment 1 to this exhibit.
2. Repayment of loans for annual operating expenses will be calculated based on the regular interest rate and the projected number of months the loan will be outstanding determined in accordance with section III B of attachment 1 to this Exhibit. DALR$ will calculate interest accrual for the annual operating loan by multiplying the amount of principal to be repaid during the period of the plan by the monthly decimal equivalent for the regular program interest rate. This amount is then multiplied by the average number of months that the loan will be outstanding. The amount of debt repayment due on annual operating expense will be the total of interest accrual plus the principal amount of the loan.
DALR$ will initially calculate payments for new FSA loans and FSA loans for annual operating expenses at the regular program interest rate. If a feasible plan cannot be developed, DALR$ will reduce the interest rate to limited resource rates (if applicable) during the calculations completed in paragraph F of this section.
DALR$ will apply loan payments to be made on the effective date of loan servicing. DALR$ can only consider a full payoff of a loan. If a payment for less than the full amount of the loan is expected or received, the payment must be applied to the loan prior to completing the DALR$ calculations.
If after the application of payments to pay loans in full, there is a debt repayment margin of ten percent or more and none of the borrowers remaining loans are delinquent, no further servicing action in DALR$ is required.
DALR$ will consider Conservation Contract (CC), if requested by the borrower, prior any other loan servicing option. CC can be requested by both current and delinquent borrowers. Only FLP loans secured by real estate are eligible. A borrower will not be offered CC unless, the CC or CC in combination with other loan servicing options results in a feasible plan. Debt cancellation as a result of CC will be applied against the borrowers loans as a noncash credit and will not affect the borrowers debt repayment unless the loan is fully written down.
CC eligible loans will be selected in the order of lowest security priority first. For loans with equal security priority, the secondary selection will be the loan with the largest amortization factor determined in accordance with section IV of attachment 1 to this Exhibit.
The calculations completed during this process are as follows:
1. Determine the maximum amount of CC in accordance with attachment 1 of exhibit H of part 1951, subpart S.
2. Deduct the lessor of the unpaid loan balance or the maximum CC from the first loan selected. Repeat this step until the maximum CC debt cancellation has been deducted, or all CC eligible loans have been written down in full.
3. If a feasible plan was developed with a debt service margin greater than or equal to ten percent, and the borrower does not have any remaining delinquent loans, no further servicing is required. DALR$ will offer the user the opportunity to print the servicing report.
4. If the borrower has delinquent loans, or the debt service margin is less than five percent after consideration of CC, DALR$ will proceed with paragraph E of this section.
DALR$ will reschedule or reamortize existing loans to eliminate any delinquency. All delinquent loans will be restructured. Loans with regular interest rates will be restructured at the lower of the original note rate or the current program rate. Loans that currently have a limited resource rate will be restructured at the lower of the original note rate or the current limited resource rate.
Only loans that are delinquent will be restructured during this process. Loans will be selected in the order of lowest security priority first. For loans with equal security priorities, the secondary selection will be based on the loan with the lowest amortization factor. For loans with an equal amortization factor, the final selection will be based on the loan with the lowest present value calculated in accordance with section V of attachment 1 of this Exhibit.
The calculations completed during this process are as follows:
1. Combine recoverable cost items with parent loans.
2. Reschedule or reamortize the delinquent loan over the maximum term entered for the loan.
3. Calculate debt repayment for the first year for the rescheduled or reamortized loan based on the new interest rate and term.
4. Repeat steps 2 and 3 until all delinquent loans have been processed.
5. Determine if a feasible plan was developed with the appropriate debt service margin by rescheduling or reamortizing all delinquent loans.
6. If a feasible plan was developed, no further servicing is required. The combination of a recoverable cost item with the parent loan will be reversed if the combined loans did not require servicing. DALR$ will provide the user with the opportunity to print the servicing report.
7. If a feasible plan was not found, DALR$ will reschedule or reamortize non-delinquent loans in accordance with paragraph F of this section.
DALR$ will reschedule or reamortize non-delinquent loans one at a time to attempt to develop a feasible plan. Loans with regular interest rates will be restructured at the lower of the original note rate, or the current program rate. Loans that currently have a limited resource rate will be restructured at the lower of the original note rate or current limited resource rate.
Loans will be selected in the order of lowest security priority first. For loans with equal security priorities, the secondary selection will be based on the loan with the lowest amortization factor. For loans with equal amortization factors, the final selection will be based on the loan with the lowest present value.
After each non-delinquent loan has been rescheduled or reamortized, DALR$ will determine if a feasible plan was developed with the appropriate debt service margin prior to proceeding to the next loan.
The calculations completed during this process are as follows:
1. Reschedule or reamortize the non-delinquent loan over the maximum term entered for the loan.
2. Calculate debt repayment for the first year for the restructured loan based on the new interest rate and term.
3. Determine if a feasible plan was developed with the appropriate debt repayment margin.
4. If a feasible plan was developed, no further servicing is required. The combination of a recoverable cost item with the parent loan will be reversed if the combined loans did not require servicing. DALR$ will provide the user with the opportunity to print the servicing report.
5. If a feasible plan is not found, repeat steps 1 through 3 until a feasible plan is found with the appropriate debt service margin, or all non-delinquent loans have been rescheduled.
6. If a feasible plan was not found, DALR$ will reschedule or reamortize delinquent and non-delinquent loans at limited resource rates (if applicable), in accordance with paragraph G of this section.
DALR$ will attempt to reschedule or reamortize limited resource eligible loans at the limited resource rate to develop a feasible plan. Debt repayment for new FSA term loans and for annual operating expenses will be recalculated at limited resource rates (if applicable). The interest rate for existing loans will be the lessor of the original note rate or the current limited resource rate.
Loans will be selected in the order of lowest security priority first. For loans with equal security priorities, the secondary selection will be based on the loan with the lowest amortization factor. For loans with equal amortization factors, the final selection will be based on the loan with the lowest present value.
After each limited resource eligible loan has been rescheduled or reamortized at the limited resource rate, DALR$ will determine if a feasible plan was developed with the appropriate debt service margin prior to proceeding to the next loan.
The calculations completed during this process are as follows:
1. Recalculate repayment for new FSA term loans and annual operating loans at the limited resource rate.
2. Determine if a feasible plan was found with the appropriate debt service margin after reducing the interest rate on new loans.
3. If a feasible plan was developed, no further servicing is required. Proceed to step 7.
4. Reschedule or reamortize an existing limited resource eligible loan at the limited resource interest rate.
5. Calculate debt repayment for the first year for the rescheduled or reamortized loan at the maximum term entered for the loan with limited resource rates.
6. Determine if a feasible plan was found with the appropriate debt service margin.
7. If a feasible plan was developed, no further servicing is required. The combination of a recoverable cost item with the parent loan will be reversed if the combined loans did not require servicing. DALR$ will provide the user with the opportunity to print the servicing report.
8. If a feasible plan was not found, repeat steps 4 through 6 until a feasible plan is found with the appropriate debt service margin, or until all limited resource eligible loans have been processed.
9. If a feasible plan was not found, DALR$ will reschedule or reamortize loans with unequal payment schedules in accordance with paragraph H of this section.
DALR$ will reschedule or reamortize loans with unequal payment schedules. These loans were not previously restructured in sections F or G as rescheduling or reamortization would have resulted in an increase in debt repayment in the first year. However, if the loan was delinquent, the loan would have been rescheduled or reamortized under section E regardless of the impact on the first year debt repayment. Loans will be restructured at the lower of the original note rate or the current loan program rate (limited resource if applicable).
Loans selected for rescheduling or reamortization in this process will not have been restructured during any of the earlier calculations and cannot be a ST loan.
Loans will be selected in the order of lowest security priority first. For loans with equal security priorities, the secondary selection will be based on the loan with the lowest amortization factor. For loans with equal amortization factors, the final selection will be based on the loan with the lowest present value.
After each loan with an unequal payment schedule has been rescheduled or reamortized, DALR$ will determine if a feasible plan was developed with the appropriate debt service margin prior to proceeding to the next loan.
The calculations completed during this process are as follows:
1. Reschedule or reamortize an unequal payment loan over the maximum term.
2. Calculate the debt repayment for the first year for the restructured loan based on the new term and interest rate.
3. Determine if a feasible plan was developed with the appropriate debt service margin.
4. If a feasible plan was developed, no further servicing is required. The combination of a recoverable cost item with the parent loan will be reversed if the combined loans did not require servicing. DALR$ will offer the user the opportunity to print the servicing report.
5. If a feasible plan is not developed, repeat steps 1 through 3 until a feasible plan is developed with the appropriate debt service margin, or until all unequal payment schedule loans have been processed.
6. If a feasible plan is not developed, calculate the necessary cash improvement required to cash flow in the first year using the rescheduling or reamortization process. Retain this amount for later use in the cash improvement process.
7. If a feasible plan was not developed, DALR$ will consider deferrals in accordance with paragraph I of this section.
If a feasible plan cannot be developed by utilization of rescheduling or reamortizing delinquent and non-delinquent loans with the maximum terms and lowest interest rates available under the regulations with a ten percent margin, deferral data must be entered in DALR$. DALR$ will not consider the borrower for writedown (discussed in paragraph J of this section) unless deferral data has been entered.
DALR$ will attempt to develop a feasible plan for the first year by deferring payments on FSA loans until the end of the deferral period (1-5 years). A deferral will decrease the payment during the period of the deferral, and increase the payment for the remaining term after the deferral period. Deferrals will only be beneficial if the debt repayment margin increases in the year after the deferral period. This improvement must be no later than six years after the current planning year, since the maximum deferral period is five years.
To determine the appropriate deferral period, the servicing official and borrower will review the farm operation over the next five years. Loans should be deferred to the year when the improvement from the first planning year is the greatest and the improvement in the following years are at least as good.
Loans will be deferred at the lower of the original note rate, or current program interest rate (limited resource, if applicable). ST will not be considered for regular deferral.
To select loans for deferral, DALR$ will calculate the payment after the deferral period for each loan as if the loan had been fully deferred. (This is only a side calculation to determine the best order of selection.) The ratio of the difference between the post deferral year payment and first year payment will be calculated as follows:
The loan with the smallest ratio will be deferred first and so forth.
The calculations completed during this process are as follows:
1. Defer the selected loan and calculate debt repayment in the first year and the year after the deferral period.
2. Determine if a feasible plan was developed for the first year with the appropriate debt service margin. If a feasible plan was developed proceed with step three, otherwise, repeat step one until a feasible plan for the first year is developed or all loans have been deferred.
3. If the applicable debt service margin for the first year was exceeded (this indicates that the last loan deferred did not require a full deferral), the following will occur:
a. DALR$ will determine the amount of the partial deferral needed on the last loan selected to maintain the feasible plan developed for the first year. See section VI of attachment 1 of this Exhibit for formulas used in calculating partial deferral.
b. DALR$ will calculate the debt repayment for this loan for the first year and the year after the deferral period.
4. Calculate total debt repayment for the year after the deferral period.
5. If a feasible plan exists for the year after the deferral period, then no further servicing actions are required. DALR$ will offer the user the opportunity to print the servicing report.
6. If the deferral of loans will not permit the borrower to cash flow in the first year, DALR$ will calculate the cash improvement required to cash flow in the first year using deferral. This amount will be retained for later use in the cash improvement process.
7. If a feasible plan does not exist for the year after the deferral period, DALR$ will consider the borrower for ST, if requested in accordance with paragraph J of this section. Otherwise, DALR$ will consider the borrower for debt writedown in accordance with paragraph K of this section.
DALR$ will consider ST, if requested by the borrower, to the maximum limit permitted under the regulations. Deferral of payment on ST until the end of the ST deferral period must improve the borrowers debt repayment ability during the first year and the year after the deferral period. All previously calculated regular deferrals will be cancelled. Only loans eligible for ST will be considered. If the entire unpaid balance of a loan is not converted to a ST loan, the loan will be split into two loans. The interest rate for the ST portion will be the lessor of the original note rate or the current ST loan program interest rate. The non ST portion of the loan will retain the interest rate and term determined prior to ST consideration.
Loans will be selected to maximize the present value of the loan after ST deferral. This will minimize or eliminate loss to the Government. DALR$ will calculate the present value for each eligible loan before and after ST and compute the decrease in present value using the following formula:
Note: For loans in which the present value increases, this will be a negative number.
The ratio of the decrease in present value to the first year payment will be calculated. The loan with the smallest (or most negative) ratio will be selected first. For loans with equal ratios, the secondary selection will be based on the loan with the lowest security priority.
The calculations completed during this process are as follows:
1. Starting with the first loan selected for ST, defer the loan. The amount of ST deferral cannot exceed the maximum limit permitted under the regulations.
2. Determine if a feasible plan was developed for the first year with the appropriate debt service margin. If a feasible plan was found, proceed with step three, otherwise, repeat step one until a feasible plan is found or the maximum for ST deferral has been reached.
3. If the full deferral of a loan results in the applicable debt service margin being exceeded, DALR$ will determine the amount of partial deferral required for a feasible plan. If a loan is only partially deferred, DALR$ will create a new loan identity for the partially deferred portion of the loan. The portion not deferred will maintain the interest rate and term prior to the deferral.
4. If full utilization of the ST program does not result in a positive cash flow in the first year, repeat the regular deferral process (see paragraph J of this section. Loans selected
5. If the deferral of loans under the ST program results in a positive cash flow with the applicable debt service margin for the first year, no further servicing is required. DALR$ will provide the user with the opportunity to print the servicing report.
6. If the deferral of loans under the ST program will not permit the borrower to cash flow in the first year, DALR$ will calculate the cash improvement required to cash flow in the first year using the ST program. This amount will be retained for later use in the cash improvement process.
7. If a feasible plan is not found, DALR$ will consider the borrower for writedown in accordance with paragraph K of this section.
If a feasible plan could not be developed utilizing CC, rescheduling or reamortization, limited resource rates, regular deferral and ST deferral, and the borrower is eligible for writedown or writeoff, DALR$ will attempt to develop a feasible plan by writing down the borrower's FSA debt. Borrowers who have met the lifetime limitation for writedown or writeoff will not be considered for writedown. The amount of the writedown necessary to develop a feasible plan must be less than or equal to $300,000 in accordance with section 1951.909 of part 1951, subpart S.
DALR$ will prioritize the loans for writedown and attempt to develop a feasible plan (pass one). If a feasible plan is not found, DALR$ will re-order the loans based on different criteria and again attempt to develop a feasible plan with writedown (pass two). Loans deferred under the ST program will not be considered for writedown.
For the first attempt to writedown (pass one), loan selection will be based on an attempt to maximize the amount of writedown. The loan with the lowest security priority will be selected first. For loans with an equal security priority, the secondary selection will be based on the loan with the largest amortization factor.
If a feasible plan was not developed, DALR$ will re-order the loans based on new criteria, and will again attempt writedown (pass two). Loan selection will be based on lowest security priority. For loans with equal security priority, the secondary selection will be based on the loan with the smallest present value factor. For loans with an equal present value factor, the final selection will be based on the loan with the highest amortization factor.
The calculations completed during this process are as follows:
1. From the list of loans for the first method of loan prioritization (pass one), select the first from the list ordered and apply writedown. This step will be repeated until the borrower cash flows in the first year, or until all selected loans have been written down. The writedown amount for each loan will be retained and added to the total writedown amount.
2. If a cash flow for the first year was achieved and the full writedown of the last loan selected results in the applicable debt service margin being exceeded, this implies that a full writedown was not required. DALR$ will compute the amount of partial writedown on the last loan selected necessary to achieve a cash flow in the first year at the appropriate debt service margin and reschedule or reamortize the remaining unpaid balance.
3. If the present value of all FSA remaining debt plus the total CC equals or exceeds the NRV, and the total writedown amount is less than or equal to $300,000, no further serving is required. DALR$ will offer the user the opportunity to print the servicing report.
If this step fails, the process will be repeated from step one using the second method for ordering loans for writedown.
4. If step three fails after repeating the writedown calculations based on the second method of prioritizing loans for writedown, DALR$ will consider the borrower for a combination of deferral and writedown in accordance with paragraph L of this section.
This process will defer payment on FSA loans in combination with debt writedown in an effort to develop a feasible plan for the first year and the year after the deferral period. Regular and ST deferrals did not result in a feasible plan for the first year and the year after the deferral period.
The deferral period will be 1-5 years as entered by the user.
To select loans for deferral, DALR$ will calculate the payment for each loan as if it had been fully deferred. (This is a side calculation used only to prioritize the loans.) The ratio between the post deferral year payment and the first year payment will be calculated as follows:
The loan with the smallest ratio is deferred first and so on until the borrower cash flows in the first year with the appropriate debt service margin or all loans have been deferred.
Loans will be selected for writedown based on the selection criteria established in paragraph J of this section. The deferred portion of the loan is considered a separate loan in this process and must be prioritized for selection with the remaining loans.
The calculations completed during this process are as follows:
1. Loans are deferred to obtain a positive cash flow in the first year as described in paragraph J of this section.
2. DALR$ will create a new loan identity for the partially deferred portion of any loan.
3. If the borrower cash flows with the appropriate debt service margin in both the first year and the year after the deferral period, no further servicing is required. DALR$ will offer the user the opportunity to print the servicing report.
Otherwise, using the first method of loan selection (pass one) described in paragraph L of this section, DALR$ will select one loan at a time and attempt to develop a feasible plan by utilization of full or partial writedown.
4. If the borrower does not cash flow in the year after the deferral period, or the cash flow in the first year exceeds the appropriate debt service margin, DALR$ retains the writedown amount, all loans not completely written down are converted to non-deferred status, and the process will begin again at step one.
5. If the present value of all FSA remaining debt plus the total CC equals or exceeds the NRV, and if the writedown amount is less than or equal to $300,000, a feasible plan has been found and no further servicing is required. Otherwise, repeat this process beginning from step one using the second method of prioritizing loans for writedown described in paragraph L of this section.
6. If step three fails after repeating the writedown calculations based on the second method of prioritizing loans for writedown, DALR$ will determine if the borrower will be offered buyout at the current market value. If the writeoff amount (total principal and interest minus the total market value) is less than or equal to $300,000, DALR$ will compute an offer to the borrower for buyout at the current maket value. Otherwise, the borrower is not eligible for debt forgiveness. DALR$ will offer the user the opportunity to print the servicing report.
If a feasible plan could not be developed after considering all available primary loan servicing, DALR$ will provide the user with the opportunity to determine the amount of cash improvement in the first year balance available to produce a feasible plan.
The calculations completed during this process are as follows:
1. Collect cash improvement solutions from the reschedule or reamortize debt process, the regular deferral process, and the softwood timber deferral process.
2. Determine the cash improvement required in the first year to cash flow using conservation contract, if applicable.
3. Determine the cash improvement required in the first year to cash flow using writedown, if applicable.
4. Determine the cash improvement required in the first year to cash flow using writedown with deferrals, if applicable.
5. Select the lowest of all the cash improvements and display it to the screen. DALR$ will offer the user the opportunity to print the servicing report.
At this point, DALR$ has finished its calculations. A feasible plan has been developed, or all possible combinations of servicing actions has been considered. DALR$ will provide a report of the results of the calculations performed.
If DALR$ does not find a solution that will provide a feasible plan, FSA will proceed with the other actions authorized in this subpart, including mediation, offer the opportunity to purchase collateral for market value, and consideration for Homestead Protection.
If the interest accrual date for an existing loan precedes the proposed restructure date, DALR$ will determine the amount of additional interest which will accrue between these dates. This amount will be added to the unpaid interest that was outstanding as of the accrual date. The calculations used are as follows:
DALR$ will attempt to develop a feasible plan that provides the borrower with a ten percent margin above the amount needed for family living expenses, farm operating expenses and debt service obligations. If a feasible plan cannot be found with a ten percent debt service margin, DALR$ will reduce the margin in increments of one percent until a feasible plan is found, or the debt service margin falls below zero. DALR$ will consider all loan servicing options prior to reducing the debt service margin.
The debt service margin is applicable in both the first year and the post deferral year calculations if deferral is being considered. The debt service margin is used to calculate the cash available restructure FSA debt and is calculated as follows:
Cash Available = ((balance available + family living expenses + farm operating expenses−interest expense) / applicable debt service margin)−—family living expenses−farm operating expenses (excluding interest)−non-agency debt repayment
The debt service margin used in the above calculations is set initially at 1.10. If a feasible plan is not found after consideration of all loan servicing options, the margin is reduced incrementally by .01. After the reduction is completed, DALR$ will reconsider the borrower for all loan servicing requested. DALR$ will continue to reduce the debt service margin until a feasible plan is developed, or until it has been determined that a feasible plan is not possible with a debt service margin of 1.00.
Loan payments are calculated using amortization factors rounded to the nearest five places. All payments are rounded up to the next dollar. The equations used to calculate loan payments are as follows:
1. Determine the average number of months that the loan for annual operating expenses will be outstanding. It may be estimated or calculated from the projected advance and payment schedule for the loan.
For example, the loan for annual operating expenses is estimated to be $15,000 and the projected advance and repayment schedule is planned as follows:
2. Determine interest accrual on annual operating expense loan.
3. Determine total payment.
1. Determine interest accrual if loan status date precedes the proposed restructure date in accordance with section I of this attachment.
2. Determine unpaid loan balance.
3. Determine payment amount.
1. Determine term of loan entered in DALR$.
2. Determine remaining term after deferral period.
Remaining Term = Term—Deferral Period
Amortization factor is based on the full term of the loan.
4. Determine payment after deferral.
a. Determine interest accrual on deferred principal.
b. Determine payment on interest accrual.
c. Determine payment on deferred principal.
Amortization factor is based on the remaining term after the expiration of the deferral period.
d. Determine total payment after deferral.
Loan amortization factors are calculated using the following equations:
A. The net present value factors for each loan are calculated using the following equations:
Whenever full deferral of a loan results in excess cash flow (above the applicable debt service margin) in the first year, a partial deferral of that loan will decrease future payments on that loan and eliminate the excess cash flow in the first year. A partial loan is created by apportioning the loan balance into two distinct parts (nondeferred and deferred).
Partial deferrals are calculated as follows:
DALR$ will attempt to develop a feasible plan with a ten percent margin. All loan servicing, including writedown will be considered prior to reducing the debt service margin. However, DALR$ will only consider writedown for those borrowers that have not received the lifetime limitations for writedown or writeoff (with buyout). If a feasible plan is found with writedown, DALR$ will:
1. Determine the amount of writedown that was necessary for the borrower to have a positive cash flow.
2. If the amount of the writedown is less than or equal to $300,000, a feasible plan has been found.
3. If the amount of the writedown is greater than $300,000, and the debt service margin exceeds 1.00, reduce the debt service margin by .01 and repeat from step 1.
4. If the amount of writedown is greater than $300,000, and the debt service margin equals 1.00, or a feasible plan cannot be developed, determine the amount of writeoff (with buyout at the current market value).
5. If the amount of writeoff (with buyout at the current market value) is less than or equal to $300,000, the borrower will be offered buyout.
6. If the amount of writeoff (with buyout at the current market value) is greater than $300,000, the borrower is not eligible for loan servicing or buyout.
Purpose: To notify borrowers of preacquisition homestead protection consideration when there is a dwelling on the security property and a complete application was submitted for primary and preservation loan servicing or requested from the notice of intent to accelerate notice.
Dear (Borrower's Name)
This notice is to inform you that, per your request, you are being considered for Homestead Protection.
We will need the following additional information to complete our processing of your request:
1.
2.
3.
Please provide the above information within 30 days from the date of this letter. If we do not receive the above requested information within 30 days, we will deny your request for Homestead Protection.
If you wish to withdraw your request for Homestead Protection, please complete and return the enclosed Attachment 1, “Response to Notification of Consideration for Homestead Protection,” within 15 days of the date of this letter.
Sincerely,
I have read the Notification of Consideration for Homestead Protection which I received with this response form.
I want to withdraw my request for Homestead Protection.
This agreement is entered into this
Concurrently, with the execution of the pre-acquisition Homestead Protection Program Agreement, the borrower will deliver a completed Form FmHA 1955-1 to FSA. The Homestead Protection Program Agreement is subject to the provisions of 7 CFR part 1955, subpart A.
A. Borrower has received a loan or loans from FSA secured by real property which includes the Borrower's dwelling, and adjoining land that is used to maintain the Borrower and the Borrower's family (the Homestead Protection property). In some cases the FSA loans may also have been included one or more outbuildings that are useful to the Borrower and the Borrower's family and in such cases these outbuildings are included in the definition of Homestead Protection property.
B. Borrower's FSA loan is in default which could result in the loss of the borrower's Homestead Protection property.
C. Borrower wants to continue to occupy the Homestead Protection property after FSA acquires title to it.
D. FSA has already determined that Borrower has satisfied the requirements for its Homestead Protection Program.
E. FSA agrees to permit Borrower to retain occupancy of the Homestead Protection property on the following terms and conditions:
1. Subject to the terms and conditions set forth below FSA agrees to lease the Homestead Protection property, as more particularly described in attachment 1 hereto, to Borrower on the terms and conditions set forth in the lease as attachment 2 (the “lease”). Borrower agrees to enter into the lease of the Homestead Protection property.
2. FSA's obligation to enter into the lease of the Homestead Protection property is subject to the occurrence of the following conditions:
a. FSA acquires fee title to the Homestead Protection property in connection with the liquidation of the farm property of which the Homestead Protection property is a portion.
b. All State and local governmental laws, ordinances and regulations concerning the creation of the Homestead Protection property as a separate legal parcel which can be leased and sold have been satisfied.
3. The term of the lease will begin on the date the later of the conditions set forth in paragraph 2 is satisfied and such date will be inserted into the lease.
4. The term of the lease will be
5. The rent to be charged during the term of the lease will be determined by FSA as of the commencement date of the lease and will be in an amount substantially equivalent to rents charged for similar residential properties in the area. The borrower will be notified by letter of the amount of the rent and the amount of the rent will be inserted in the lease form, Form FmHA 1955-20.
6. Borrower agrees to cooperate with FSA in applying for and securing whatever local governmental approvals are necessary in order for the Homestead Protection property to be a separate legal parcel. FSA will bear the cost and expense of obtaining such approvals.
7. If the term of the lease has not begun on or before 2 years from the date of this agreement, the agreement shall end and be of no further force or effect.
Attachment 1, Legal Description of the Property.
Attachment 2, Lease Form, Form FmHA 1955-20.
On [acquisition date], FSA acquired the property which was security for your FSA loan. FSA has a program called the Homestead Protection Program under which you may be allowed to lease (with an option to purchase) the house which you owned and used as your principal residence, a reasonable number of farm buildings located near the house that are useful to the occupants of the house, and not more than 10 acres of land adjoining the house. If you would like to be considered for the Homestead Protection Program, you must notify this office, in writing, by [date 30 days from acquisition date] of the buildings and land you wish to retain.
If you would like more information about the Homestead Protection Program, you should contact the FSA servicing official at [insert county office telephone number].
Failure to respond by the above date will terminate any rights that you have to lease and purchase the property under the Homestead Protection Program.
Sincerely,
This subpart sets forth the policies and procedures for the Disaster Set-Aside (DSA) Program. The DSA program is available to Farm Credit (FC) Programs borrowers, as defined in subpart S of this part, who suffered losses as a result of a natural disaster. FC 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 FC loans.
DSA is a program whereby borrowers who are current or not more than one installment behind on any and all FC loans may be permitted to move one scheduled annual installment for each eligible FC 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 the disaster and avoid foreclosure by the Government. DSA is not intended to circumvent the servicing available under subpart S of this part.
(a) [Reserved]
(b)
(c)
(2) Actual production, income, and expense records for the production and marketing period in which the disaster occurred. Other information may be requested by the servicing official when needed to make an eligibility determination.
(a)
(1) The borrower must have operated a farm or ranch in a county designated a disaster area or a county contiguous to such an area. The borrower must have been a borrower and operated the farm or ranch at the time of the disaster. If the borrower is applying for a second installment to be set-aside, the disaster area operated must have been in a county declared a major disaster
(2) The borrower must have acted in good faith as defined in § 1951.906 of subpart S of this part.
(3) All nonmonetary defaults must have been resolved. This means that even though the borrower has acted in good faith, the borrower may still be in default for reasons, such as, but not limited to: no longer farming, prior lienholder foreclosure, bankruptcy or under court jurisdiction, not properly maintaining chattel and real estate security, not properly accounting for the sale of security, or not carrying out any other agreement made with the Agency.
(4) The borrower must be current or not more than one installment behind on any and all FC loans at the time the scheduled installment will be set-aside. Borrowers paying under a debt settlement adjustment agreement in accordance with subpart B of part 1956 are not eligible.
(5) As a direct result of the disaster, sufficient income was not available to pay all family living and operating expenses, debts to other creditors, and FSA. This determination will be based on the borrower's actual production and income and expense records for the disaster 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. Consideration will also be given to insufficient income for the next production and marketing period following the disaster if the borrower establishes that production will be reduced or expenses increased as a result of the disaster.
(6) After the scheduled installments are set-aside, all FC and NP farm type loans must be current.
(7) The borrower's FC loan has not been accelerated nor has the borrower's debt been restructured under subpart S of this part since the disaster occurred.
(b)
(2) Only one unpaid installment for each farm loan may be set-aside. Except for Presidential disaster declarations between January 1, 1997 and August 1, 1997, if there is an installment still set-aside from a previous disaster, the loan is not eligible for DSA. For Presidential declarations between January 1, 1997 and August 1, 1997, borrowers who already have one installment set-aside from a previous disaster may set-aside a second installment. If the set-aside is later paid in full, or cancelled through restructuring under subpart S of this part, the set-aside will no longer exist and, therefore, the loan may be considered for Disaster Set-Aside (DSA) in the future.
(3) The term remaining on the loan receiving DSA equals or exceeds 2 years from the due date of the installment being set-aside.
(4) The amount set-aside shall be limited to the amount the borrower is unable to pay Farm Service Agency (FSA) from the production and marketing period in which the disaster occurred. However, if the installment due immediately after the disaster was paid, but other creditors and expenses were not, the amount set-aside will be the lesser of the amount the borrower is unable to pay other creditors and expenses, rounded up to the nearest whole installment, or the next installment due. Expenses which the borrower is unable to pay may include the following year's operating and family living expenses if the income or commodities lost from the disaster year would have been used for these purposes, or if normal income security from the disaster year is approved for release under subpart A of 7 CFR part 1962 or otherwise authorized under subpart B of 7 CFR part 1924 for these purposes. Under no circumstances will a portion of the installment be set-aside leaving a balance still due. The portion not set-aside must be paid by the borrower on or before the date Exhibit A of FmHA Instruction 1951-T (available in any FSA office) is signed.
(5) The installment that may be set-aside is limited to the first scheduled annual installment due immediately after the disaster occurred, unless that installment is paid, then the next scheduled annual installment after that may be set-aside. For borrowers affected by a 1994 disaster who already paid both of these installments, the
(6) The amount set-aside will be the unpaid balance remaining on the installment at the time the borrower signs exhibit A of FmHA Instruction 1951-T (available in any FSA office.) This amount will include the unpaid interest and any principal that would be credited to the account as if the installment were paid on the due date taking into consideration any payments applied to principal and interest since the due date. Recoverable cost items charged to FO, SW, and RHF loans may be set-aside with the annual installment. Cost items identified with a loan number different from the parent loan cannot be set-aside.
(a)
(1) The borrower has up to 30 days to sign exhibit A of FmHA Instruction 1951-T (available in any FSA office), for each loan installment set-aside. The County Supervisor may provide for a longer period of time not to exceed 90 days under extenuating circumstances, including but not limited to situations where the Agency's approval is contingent upon the borrower doing something to be eligible, such as paying a portion of the FC payments from proceeds that may not be available until after the 30 day period.
(2) Pending requests for primary loan servicing will continue to be considered in accordance with subpart S of this part. However, borrowers are not eligible for servicing under both programs. The application for the program not received will automatically be withdrawn at the time the installment is set-aside or the loan restructured, whichever is applicable. The automatic withdrawal is not appealable because the borrower is no longer delinquent. If the borrower again becomes delinquent or in financial distress, or requests primary loan servicing, the borrower will be notified or the request processed in accordance with subpart S of this part.
(b)
(1) [Reserved]
(2) Interest will accrue on any principal amount set-aside at the same rate charged the non-set-aside portion. Interest will not accrue on the interest portion set-aside. Limited resource interest rate changes will affect the principal set-aside.
(3) The amount set-aside, including interest accrual on any principal set-aside, will be due on or before the final due date of the loan.
(4) There are no additional security requirements attached to the DSA program. All existing security instruments will remain in effect.
(5)-(6) [Reserved]
(7) Payments applied to the amount set-aside will be applied first to interest and then to principal. If more than one installment is set-aside on the loan, payments will be applied to the oldest installment set-aside until paid in full, before applying payments to the second installment set-aside.
(c)
(a)
(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
(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]
The Administrator may, in individual cases, make an exception to any requirement or provision of this subpart which is not inconsistent with the authorizing statute or other applicable law if it is determined that application of the requirement or provision would adversely affect the Government's interest. The Administrator will exercise this authority upon the request of the State Director with the recommendation of the Deputy Administrator for Farm Credit Programs, or upon request initiated by the Deputy Administrator for Farm Credit Programs.
The collection of information requirements in this regulation have been approved by the Office of Management and Budget and assigned OMB control number 0575-0163. Public reporting burden for this collection of information is estimated to be 15 minutes per response, including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Department of Agriculture, Clearance Office OIRM, Room 404-W, Washington DC 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB
5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Exhibits A, C, D, and E referenced in this part are not published in the Code of Federal Regulations.
This subpart delegates authority and prescribes procedures for the liquidation of loans to individuals and to organizations as identified in § 1955.3. It pertains to the Farm Credit programs of the Farm Service Agency (FSA), 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.
When it has been determined in accordance with applicable loan servicing regulations that further servicing will not achieve loan objectives and that voluntary sale of the property by the borrower (except for Multiple Family Housing (MFH) loans subject to prepayment restrictions) cannot be accomplished, the loan(s) will be liquidated through voluntary conveyance of the property to FmHA or its successor agency under Public Law 103-354 or by foreclosure as outlined in this subpart. For MFH loans subject to the prepayment restrictions, voluntary liquidation may be accomplished only through voluntary conveyance to FmHA or its successor agency under Public Law 103-354 in accordance with applicable portions of § 1955.10 of this subpart. Nonprogram (NP) loans, except for Community and Business Programs, will be liquidated as provided in subpart J of part 1951 of this chapter, unless specifically referenced in this subpart.
As used in this subpart, the following definitions apply:
Authorities will be redelegated to the extent possible, consistent with program requirements and available resources.
(a) Except as provided in § 1900.6(c) of this chapter, any authority in this subpart which is specifically delegated to the Administrator or to an Deputy Administrator may only be delegated to a State Director. The State Director cannot redelegate such authority.
(b) Except as provided in paragraph (a) of this section, the State Director is authorized to redelegate, in writing, any authority delegated to the State Director in this subpart to a Program Chief, Program Specialist or Property Management Specialist on the State Office staff; except the authority to approve or disapprove foreclosure as outlined in § 1955.115(a)(2) of this subpart may not be redelegated. However, a duly-designated Acting State Director may approve or disapprove foreclosure.
(c) The District Director is authorized to redelegate, in writing, any authority delegated to the District Director in this subpart to an Assistant District Director or District Loan Specialist determined by the District Director to be qualified; except the authority to approve or disapprove foreclosure as outlined in § 1955.15(a)(1) of this subpart may not be redelegated. However, a duly designated Acting District Director may approve or disapprove foreclosure. Authority of District Directors in this subpart applies to Area Loan Specialists in Alaska and the Director for the Western Pacific Territories.
(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 § 1955.10(a) of this subpart may
(a)
(b)
(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)
(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)
(e)
(a) The borrower-owner is a member of the tribe that has jurisdiction over the reservation in which the real property is located. An Indian tribe may also meet the borrower-owner criterion if it is indebted for Farm Credit Programs loans.
(b) A voluntary conveyance will be accepted only after all preacquisition primary and preservation servicing actions have been considered in accordance with subpart S of part 1951 of this chapter.
(c) When all servicing actions have been considered under subpart S of part 1951 of this chapter and a positive outcome cannot be achieved, the following additional actions are to be taken:
(1) The county official will notify the Native American borrower-owner and the tribe by certified mail, return receipt requested, and by regular mail if the certified mail is not received, that:
(i) The borrower-owner may convey the real estate security to FSA and FSA will consider acceptance of the property into inventory in accordance with paragraph (d) of this section.
(ii) The borrower-owner must inform FSA within 60 days from receipt of this notice of the borrower and owner's decision to deed the property to FSA;
(iii) The borrower-owner has the opportunity to consult with the Indian tribe that has jurisdiction over the reservation in which the real property is located, or counsel, to determine if State or tribal law provides rights and protections that are more beneficial than those provided the borrower-owner under Agency regulations;
(2) If the borrower-owner does not voluntarily deed the property to FSA, not later than 30 days before the foreclosure sale, FSA will provide the Native American borrower-owner with the following options:
(i) The Native American borrower-owner may require FSA to assign the loan and security instruments to the Secretary of the Interior. If the Secretary of the Interior agrees to such an assignment, FSA will be released from all further responsibility for collection of any amounts with regard to the loans secured by the real property.
(ii) The Native American borrower-owner may require FSA to complete a transfer and assumption of the loan to the tribe having jurisdiction over the reservation in which the real property is located if the tribe agrees to the assumption. If the tribe assumes the loans, the following actions shall occur:
(A) FSA shall not foreclose the loan because of any default that occurred before the date of the assumption.
(B) The assumed loan shall be for the lesser of the outstanding principal and interest of the loan or the fair market value of the property as determined by an appraisal.
(C) The assumed loan shall be treated as though it is a regular Indian Land Acquisition Loan made in accordance with subpart N of part 1823 of this chapter.
(3) If a Native American borrower-owner does not voluntarily convey the real property to FSA, not less than 30 days before a foreclosure sale of the property, FSA will provide written notice to the Indian tribe that has jurisdiction over the reservation in which the real property is located of the following:
(i) The sale;
(ii) The fair market value of the property; and
(iii) The ability of the Native American borrower-owner to require the assignment of the loan and security instruments either to the Secretary of the Interior or the tribe (and the consequences of either action) as provided in § 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.
Voluntary conveyance is a method of liquidation by which title to security is transferred to the Government. FmHA or its successor agency under Public Law 103-354 will not make a demand on a borrower to voluntarily convey. If there is equity in the property. FmHA or its successor agency underPublic Law 103-354 should advise the borrower, in writing, that there is equity in the property before accepting an offer to voluntarily convey. If FmHA or its successor agency underPublic Law 103-354 receives an offer of voluntary conveyance, acceptance should only be considered when the Government will likely receive a recovery on its investment. In cases where there are outstanding liens, a full assessment should be made of the debts against the property compared to the current market value. FmHA or its successor agency under Public Law 103-354 should refuse the voluntary conveyance, if the FmHA or its successor agency under Public Law 103-354 lien has neither present nor prospective value or recovery of the value would be unlikely or uneconomical. Instead, for loans to individuals, FmHA or its successor agency under Public Law 103-354 should release its lien as valueless in accordance with § 1965.25(d) of subpart A of part 1965 of this chapter or § 1965.118(c) of subpart C of this chapter, as appropriate. For non-FP borrowers, a voluntary conveyance should only beconsidered after all available servicing actions outlined in the respective servicing regulations have been used or considered and it is determined that the borrower will not be successful. For FP borrowers, if the borrower has not received exhibit A with attachments 1 and 2 of subpart S of part 1951 of this chapter, a voluntary conveyance should be accepted only after the borrower has been sent exhibit A with attachments 1 and 2 of subpart S of 1951 of this chapter; all available servicing actions outlined in the respective program servicing regulations have been used or considered; and it will be in the Government's best financial interest to accept the FP voluntary conveyance. Exhibit G of this subpart will be used to determine whether or not to accept an FP voluntary conveyance. In determining if the acceptance of the FP voluntary conveyance is in the best financial interest of the Government, the County Supervisor will determine if the borrower has exhausted all possibilities of restructuring the loan to where a feasible plan of operation may be developed, the borrower has acted in good faith in trying to servicethe debt and FmHA or its successor agency under Public Law 103-354 may recover its investment in return for the acceptance
(a)
(ii)
(2)
(ii) The State Director is authorized to approve voluntary conveyance of property securing MFH loans if the total indebtedness against the property, including prior and junior liens, does not exceed his/her approval authority for the type loan involved. Loan approval authorities are outlined in exhibits A through E of FmHA or its successor agency under Public Law 103-354 Instruction 1901-A (available in any FmHA or its successor agency under Public Law 103-354 office).
(iii) Offers to convey property securing loans other than those outlined in paragraphs (a)(2)(i) and (ii) of this section will be submitted to the Administrator for approval prior to acceptance of the conveyance offer. Submissions will include the case file; OGC's opinion on settling any other liens involved; a statement of essential facts; and recommendations of the State Director and Program Chief. Submissions are to be addressed to the Administrator, ATTN: (appropriate program division.)
(b)
(c)
(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 § 1955.67 of subpart B of part 1955 of this chapter.
(2)
(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)
(d)
(1) Form FmHA or its successor agency under Public Law 103-354 1955-1, “Offer to Convey Security.”
(2) Warranty deed, or other deed approved by OGC to comply with State Laws. The deed will not be recorded until it is determined the voluntary conveyance will be accepted. At the time of the offer, the borrowers will be informed that the conveyance will not be accepted until the property has been appraised and a lien search has been obtained. If the voluntary conveyance is not accepted, the deed and Form FmHA or its successor agency under Public Law 103-354 1955-1, properly executed, will be returned to the borrower along with a memorandum stating the reason(s) for nonacceptance.
(3) A current financial statement containing information similar to that required to complete Forms FmHA or its successor agency under Public Law 103-354 410-1, “Application for FmHA or its successor agency under Public Law 103-354 Services” or FmHA or its successor agency under Public Law 103-354 442-3, “Balance Sheet,” and information on present income and potential earning ability. Exception for SFH loans: FmHA or its successor agency under Public Law 103-354 requires a budget and/or financial statement and, if necessary to discover suspected undisclosed assets, a search of public records, only when the value of the security property may be less than the debt.
(4) For organization borrowers, a duly-adopted Resolution by the governing body authorizing the conveyance and certified by the attesting official with the corporate seal affixed. The Resolution will indicate which officials
(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 Payment (HAP) Contracts will be obtained. Rental Assistance will be retained until the State Director is advised by OGC that FmHA or its successor agency under Public Law 103-354 has title to the property, but may be suspended while the conveyance is pending according to exhibit E of subpart C of part 1930 of this chapter.
(e)
(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)
(1)
(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 § 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 § 1955.10(c)(2) of this subpart. If agreement has been reached with the lienholder(s) for settling the junior lien(s) in order to accept the conveyance, the deed will be returned to the closing agent for a title update and recording.
(iii) The closing agent will be requested to provide a certification of title to FmHA or its successor agency under Public Law 103-354 after recordation of the deed. A certification of title in a statement that fee title is vested in the Government subject only to the FmHA or its successor agency under Public Law 103-354 lien(s) and prior liens previously approved by FmHA or its successor agency under Public Law 103-354. After receipt of the certification of title, the County Supervisor will notify the borrower that the conveyance has been accepted in accordance with § 1955.10(g) of this subpart.
(2)
(i)
(ii)
(iii)
(A) The borrower-owner is a member of a tribe or the tribe.
(B) The property is located within the confines of a federally recognized Indian reservation.
(iv)
(A) The market value of the property to be conveyed is less than the total of FmHA or its successor agency under Public Law 103-354 indebtedness and prior lien(s), if any, and the County Committee has
(B) The borrower has made a new offer agreeing to accept a credit in the amount of the market value of the security property less prior lien(s), if any, in which case the conveyance will be accepted for the market value of the property conveyed to FmHA or its successor agency under Public Law 103-354 less prior lien(s), if any.
(v)
(A) When an offer to convey is received from the borrower, the County Supervisor will request a closing agent, selected in accordance with paragraph (f)(l)(i) of this section, to make a title search covering the period of time since the latest title opinion in the case file. The case file containing the following will be forwarded to the appropriate approval official:
(
(
(
(
(
(
(B) If the approval official determines the conveyance should be accepted, the file will be returned to the County Supervisor with a memorandum of conditional approval. The same conditions for release of liability apply an in paragraph (f)(2)(i) of this section. If the approval official does not concur in acceptance of the conveyance, the file will be returned with a memorandum stating the reasons for rejecting the offer and giving instructions to the
(C) After the approval official has conditionally approved the conveyance, the County Supervisor will forward the deed to a closing agent with instructions to record it provided no liens have been recorded since the recent title search. The closing agent will be requested to provide a certification of title to FmHA or its successor agency under Public Law 103-354 after recordation of the deed. After receipt of the certification of title, the County Supervisor will notify the borrower that the conveyance has been accepted in accordance with paragraph (h) of this section.
(3)
(i)
(A) Report on Multiple-Family Housing Problem Case, (exhibit A to this subpart available in any FmHA or its successor agency under Public Law 103-354 office);
(B) Liquidation and management plan with specific recommendations of the District Director;
(C) Form FmHA or its successor agency under Public Law 103-354 1955-1;
(D) Resolution authorizing the conveyance, if applicable;
(E) Report of title search from an approved closing agent covering the period of time since the latest title opinion is the case file;
(F) Form FmHA or its successor agency under Public Law 103-354 1930-7, “Statement of Budget and Cash Flow,” (operating budget for first year and typical year);
(G) Form FmHA or its successor agency under Public Law 103-354 1930-8, “Year End Report and Analysis for Fiscal Year Ending
(H) Current appraisal prepared by a MFH designated appraiser;
(I) Balance on FmHA or its successor agency under Public Law 103-354 account(s) and other liens, if any;
(J) Assignment of Housing Assistance Payment (HAP) contracts, if applicable, along with evidence of contract with HUD;
(K) Current statement of account from the Finance Office;
(L) Development plan with breakdown of costs, if applicable; and
(M) Form FmHA or its successor agency under Public Law 103-354 440-2, executed in accordance with the FMI, when applicable.
(ii)
(A) Report on Servicing Action (exhibit A to subpart E of part 1951 of this Chapter, available in any FmHA or its successor agency under Public Law 103-354 office);
(B) Liquidation and management plan;
(C) Form FmHA or its successor agency under Public Law 103-354 1955-1;
(D) Organization's Resolution authorizing the conveyance;
(E) Report of title search from an approved closing agent covering the period of time since the latest title opinion in the case file;
(F) Form FmHA or its successor agency under Public Law 103-354 442-3;
(G) Current appraisal;
(H) Statement showing income and expenses due but unpaid;
(I) Balance on FmHA or its successor agency under Public Law 103-354 account(s) and other liens, if any; and
(J) Form FmHA or its successor agency under Public Law 103-354 440-2, executed in accordance with the FMI concerning release from liability if property value is less than the FmHA or its successor agency under Public Law 103-354 indebtedness plus prior liens, if any.
(g)
(2) When costs incident to the completion of the transaction are to be paid by the Government, the servicing official will prepare and process the necessary documents as outlined in § 1955.5(d) of this subpart and the costs will be charged to the borrower's account as recoverable costs. This includes taxes and assessments, water charges which protect the right to receive water, other liens, closing agent's fee, and any other costs related to the conveyance.
(h)
(2) When the FmHA or its successor agency under Public Law 103-354 account is not satisfied and the borrower is not released from liability, the note(s) will be retained by FmHA or its successor agency under Public Law 103-354.
(3) The servicing official will release the lien(s) of record, indicating that the debt was satisfied by surrender of security or that the lien is released but the debt not satisfied, whichever is applicable. If the lien is to be released but the debt not satisfied, OGC will provide the type of instrument required to comply with applicable State laws.
(4) After release of the lien(s), the servicing official will return the following to the borrower:
(i) If borrower is released from liability, the satisfied note(s) and a copy of Form FmHA or its successor agency under Public Law 103-354 1955-1 showing acceptance by the Government; or
(ii) If borrower is not released from liability, a copy of Form FmHA or its successor agency under Public Law 103-354 1955-1 showing acceptance by the Government.
(5) When the FmHA or its successor agency under Public Law 103-354 account is not satisfied and the borrower not released from liability, the account balance, after deducting the “as is” market value and prior liens, if any, will be accelerated utilizing exhibit F of this subpart (available in any
(6) For MFH loans, the State Director will cancel any interest credit and suspend any rental assistance. These actions will be accomplished by notifying the Finance Office unit which handles MFH accounts. In the interm the tenants will continue rental payments in accordance with their lease. Tenants will be informed of the pending liquidation action and the possible consequences of the action. FmHA or its successor agency under Public Law 103-354 Guide Letters 1965-E-2, 1965-E-3, and 1965-E-5 (available in any FmHA or its successor agency under Public Law 103-354 office) may be used to inform tenants, but should be modified to reflect the specific action and circumstances. If the project is to be removed from the FmHA or its successor agency under Public Law 103-354 program, a minimum of 180 days’ notice to
(7) Actions outlined in § 1955.18 of this subpart will be taken, as applicable.
(a)
(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)
(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)
(d)
When the servicing regulations for the type of loan(s) involved permit FmHA or its successor agency under Public Law 103-354 to acquire property by one of these methods, the acquisition will be reported in accordance with § 1955.18(a) of this subpart.
When the Government did not protect its interest in security property in a foreclosure by another lienholder, and if the Government has redemption rights, the State Director will determine whether to redeem the property. This determination will be based on all pertinent factors including the value of the property after the sale, and costs which may be incurred in acquiring and reselling the property. For Farmer Program loans, the County Supervisor will document the determination on exhibit G of this subpart. The decision must be made far enough in advance of expiration of the redemption period to permit exercise of the Government's rights. If the property is to be redeemed, complete information documenting the basis for not acquiring the property at the sale and factors which justify redemption of the property will be included in the case file. The assistance of OGC will be obtained in effecting the redemption. If the State Director decides not to redeem the property, the Government's right of redemption
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 § 1955.9 (c)(1) of this subpart.
(a)
(2)
(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)
(1)
(2)
(3)
(c)
(1)
(2)
(d)
(1)
(2)
(i) Where monetary default is involved, the account may be accelerated immediately after approval of foreclosure.
(ii) Where monetary default is
(iii) If borrower obtained the loan while a civilian, entered military service after the loan was closed, the FmHA or its successor agency under Public Law 103-354 has not obtained a waiver of rights under the Soldiers and Sailors Relief Act, the account will not be accelerated until OGC has reviewed the case and given instructions.
(iv) If the decision is made to liquidate the farm loan(s) of a borrower who also has a SFH loan(s), and the dwelling was used as security for the farm loan(s) it will not be necessary to meet the requirements of subpart G of part 1951 of this chapter prior to accelerating the account. Except that, if the borrower is in default on his/her farm loan(s), the SFH account must have been considered for interest credit and/or moratorium at the time servicing options are being considered for the FP loan(s) prior to acceleration. If it is later determined the FP loan(s) are to receive additional servicing in lieu of liquidation, the RH loan will be reinstated simultaneously with the FP servicing actions and may be reamortized in accordance with §1951.315 of subpart G of part 1951 of this chapter. Accounts of a borrower who has both Farmer Program and SFH loan(s) may be accelerated as follows:
(A) When the borrower's dwelling is financed with an SFH loan(s) is secured by and located on the same farm real estate as the Farmer Program loan(s) (dwelling located on the farm), the
(B) When the borrower's dwelling is financed with an SFH loan(s) and is located on a nonfarm tract which also serves as additional security for the Farmer Program loan(s), the loans(s) will be serviced in accordance with § 1965.26 (c)(2) of subpart A of part 1965 of this chapter.
(C) When the borrower's dwelling is financed with an SFH loan(s) and is on a non-farm tract which does not serve as additional security for the Farmer Program loan(s), it will NOT be accelerated simultaneously with sending out attachments 5 and 6, or 5-A and 6-A, or attachment 9 and 10, or 9-A and 10-A, of exhibit A of subpart S of part 1951 of this chapter, as applicable, unless it is subject to liquidation based on provisions of § 1965.125 of subpart C of part 1965 of this chapter, taking into consideration the prospects for success that may evolve when the borrower's livelihood is from a source other than the farming operation. If the SFH loan is in default and subject to liquidation based on provisions of § 1965.125 of subpart C of part 1965 of this chapter, the SFH loan(s) must be accelerated at the same time the borrower is sent attachment 5 and 6, or 5-A and 6-A, or attachments 9 and 10, or 9-A and 10-A, to exhibit A of subpart S of part 1951 of this chapter, as applicable. For those borrowers who are in non-monetary default on their Farmer Programs loans and fail to return attachment 4 of exhibit A of subpart S of part 1951 of this chapter, the Farmer Programs loans and SFH loans will be accelerated at the same time. If the borrower appeals, one appeal hearing and one review will be held for both adverse actions.
(D) If a borrower's FP loan(s) were accelerated prior to May 7, 1987, and the SFH loan(s) is not accelerated, the SFH loan will be accelerated at the same time the borrower is sent attachments 5 and 6, or 5-A and 6-A, or attachments 7 and 8 to exhibit A of subpart S of 1951 of this chapter, as applicable, unless the requirements of § 1965.26 of subpart A of part 1965 of this chapter are met or the liquidation of the SFH loan is based on provisions of § 1965.125 of subpart C of part 1965 of this chapter. If the borrower is sent attachments 5 and 6, or 5-A and 6-A to exhibit A of subpart S of 1951 of this chapter, as applicable, and requests an appeal, one hearing and one review will be held for both the adverse action on the FP loan restructuring request and SFH acceleration notices. If the borrower is sent attachments 7 and 8 to exhibit A of subpart S of 1951 of this chapter, there are no further appeals on the FP loans; but, the borrower is entitled to a hearing and a review on the SFH acceleration notice.
(v) For MFH loans, the acceleration notice will advise the borrower of all applicable prepayment requirements, in accordance with subpart E of part 1965 of this chapter. The requirements include the application of restrictive-use provisions to loans made on or after December 21, 1979, prepaid in response to acceleration notices and all tenant and agency notifications. The acceleration notice will also remind borrowers that rent levels cannot be raised during the acceleration without FmHA or its successor agency under Public Law 103-354 approval, even after subsidies are canceled or suspended. Tenants are to be notified of the status of the project and of possible consequences of these actions. FmHA or its successor agency under Public Law 103-354 Form Letters 1965-E-2, 1965-E-3 and 1965-E-5 may be used as guides, but modified appropriately. If the borrower wishes to prepay the project in response to the acceleration and FmHA or its successor agency under Public Law 103-354 makes a determination that the housing is no longer needed, a minimum of 180 days’ notice to tenants is required before the project can be removed from the FmHA or its successor agency under Public Law 103-354 program. Letters of Priority Entitlement must be made available in accordance with § 1965.215(e)(4) or subpart E of part 1965 of this chapter.
(3)
(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.
(
(
(
(
(B) Payments which do not pay the account in full can be accepted subject to the following requirements:
(
(
(
(
(ii)
(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)
(5)
(6)
(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
(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
(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)
(1) If the District Director is the approval official, he/she will forward the case file with all pertinent documents and information concerning the foreclosure action and appeal, if any, to the State Director for completion of the foreclosure.
(2) If the State Director is the approval official, or in cases referred by the District Director under paragraph (e)(1) of this section, the State Director will forward to OGC the case file and all documents needed by OGC to process the foreclosure. A State Supplement will be issued, with the advice and assistanced of OGC, to reflect the make-up of the foreclosure docket. Since foreclosure processing varies widely from State to State, each State Supplement will be explicit in outlining step-by-step procedures. At the time indicated by OGC in the foreclosure instructions, Form FmHA or its successor agency under Public Law 103-354 1951-6, “Borrower Account Description Flag,” will be processed in accordance with the FMI. After referral to OGC, further actions will be in accordance with OGC's instructions for completion of the foreclosure. If prior approval of the Administrator is obtained, nonjudicial foreclosure for monetary default may be handled as outlined in a State Supplement approved by OGC without referral to OGC before foreclosure.
(f)
(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)
(3)
(4)
(5)
(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)
(7)
(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
(g)
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
(a)-(d) [Reserved]
(e)
(1)
(i) In a voluntary conveyance case where the debt exceeds the market value of the property and the borrower is
(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)
(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
(ii) In a foreclosure, the account credit will be the amount of FmHA or its successor agency under Public Law 103-354's bid
(3)
(4)
(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)
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)
(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
(b)
(1)
(2)
(3)
(4)
(c)
(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)
(e)
(f)
(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 other lienholders’ debts in connection with voluntary conveyance of chattels is not authorized.
(h)
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.
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
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.
Refer to Exhibit I in FmHA Instruction 1951-S for guidance in estimating the incomes and expenses to be used in this exhibit. The holding period to be used is 105 days (3.5 months).
Refer to Exhibit I in FmHA Instruction
This subpart delegates authority and prescribes policies and procedures for the Rural Housing Service (RHS), Rural Business-Cooperative Service (RBS), the Water and Waste programs of the Rural Utilities Service (RUS), and Farm Service Agency (FSA), herein referred to as “Agency,” and references contained in this subpart to the Farmers Home Administration (FmHA) are synonymous with “Agency.” This subpart does not apply to RHS single family housing loans or community program loans sold without insurance to the private sector. These community program loans will be serviced by the private sector and future revisions to this subpart no longer apply to such loans. This subpart covers:
(a) Management of real property which has been taken into custody by the respective Agency after abandonment by the borrower;
(b) Management of real and chattel property which is in Agency inventory; and
(c) Management of real and chattel property which is security for a guaranteed loan liquidated by an Agency (or which the Agency is in the process of liquidating).
Inventory and custodial real property will be effectively managed to preserve its value and protect the Government's financial interests. Properties owned or controlled by FmHA or its successor agency under Public Law 103-354 will be maintained so that they are not a detriment to the surrounding area and they comply with State and local codes. Generally, FmHA or its successor agency under Public Law 103-354 will continue operation of Multiple Family Housing (MFH) projects which are acquired or taken into custody. Servicing of repossessed or abandoned chattel property is covered in subpart A of part 1962 of this chapter, and management of inventory chattel property is covered in § 1955.80 of this subpart.
As used in this subpart, the following definitions apply:
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.
(a)
(b)
(1) For loans to individuals (except those with Farmer Program loans), if there are no prior liens, or if a prior lienholder will not take the measures necessary to protect the property, the County Supervisor shall take custody of the property, and a problem case report will be prepared recommending foreclosure in accordance with § 1955.15 of Subpart A of this part, unless the borrower can be located and voluntary liquidation accomplished. Farmer Program loan borrowers will be sent the
(2) For MFH loans, if there are no prior liens, the District Director will immediately notify the State Director, who will request guidance from OGC and may also request advice from the National Office. The State Director, with the advice of OGC, will advise the borrower by writing a letter, certified mail, return receipt requested, at the address currently used by Finance Office, outlining proposed actions by FmHA or its successor agency under Public Law 103-354 to secure, maintain, and operate the project.
(i) If the unpaid loan balance plus recoverable costs do not exceed the State Director's loan approval authority, the State Director will authorize the District Director to take custody of the property, make emergency repairs if necessary to protect the Government's interest, and will advise how the property is to be managed in accordance with Subpart C of Part 1930 of this chapter.
(ii) If the unpaid loan balance plus recoverable costs exceeds the State Director's loan approval authority, the State Director will refer the case to the National Office for advice on emergency actions to be taken. The docket will be forwarded to the National Office with detailed recommendations for immediate review and authorization for further action, if requested by the MFH staff.
(iii) Costs incurred in connection with procurement of such things as management services will be handled in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).
(iv) The District Director will prepare a problem case report to initiate foreclosure in accordance with § 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 § 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)
(1)
Actions by FmHA or its successor agency under Public Law 103-354 must not damage or jeopardize livestock, growing crops, stored agricultural
(2)
(d)
(e)
(f)
(1)
(i) A determination is made that failure to procure work would likely result in a property loss greater than the expenditure;
(ii) There are no other feasible means (including cooperative agreements) to accomplish the same result;
(iii) The recovery of such advance(s) is not authorized by security instruments in the case of security or custodial property (no such limitation exists for inventory property);
(iv) Written documentation supporting subparagraphs (i), (ii) and (iii) has been obtained from the authorized program official;
(v) Approval has been obtained from the appropriate Assistant Administrator.
(2)
(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)
(4)
(a)
(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)
(c)
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
(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
(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.
If inventory property is subject to redemption rights, the State Director, with prior approval of OGC, will issue a State Supplement giving guidance concerning the former borrower's rights, whether or not the property may be leased or sold by the Government, payment of taxes, maintenance, and any other items OGC deems necessary to comply with State laws. Routine care and maintenance will be provided according to § 1955.64 of this subpart to preserve and protect the property. Repairs are limited to those essential to prevent further deterioration of the property or to remove a health or safety hazard to the community in accordance with § 1955.64(a) of this subpart unless State law permits full recovery of cost of repairs in which case usual policy on repairs is applicable. If the former borrower with redemption
Advice and assistance will be obtained from OGC where eviction from realty or dispossession of chattel property is necessary. Where OGC has given written authorization, eviction may be effected through State courts rather than Federal courts when the former borrower is involved, or through local courts instead of Federal/State courts when the party occupying/possessing the FmHA or its successor agency under Public Law 103-354 property is not the former borrower. In those cases, a State Supplement will be issued to provide explicit instructions. For MFH, eviction of tenants will be handled in accordance with Subpart L of Part 1944 of this chapter and with the terms of the tenant's lease. If no written lease exists, the State Director will obtain advice from OGC.
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)
(1) If there is a lien(s) of record, the servicing official will notify the lienholder(s) by certified mail, return receipt requested, that the personal property will be disposed of by FmHA or its successor agency under Public Law 103-354 unless it is removed from the premises within 7 days from the date of the letter.
(2) If there are no liens of record, or if a lienholder notified in accordance with paragraph (a)(1) of this section fails to remove the property within the time specified, the servicing official will notify the former borrower at the last known address by certified mail, return receipt requested, that the personal property remaining on the premises will be disposed of by FmHA or its successor agency under Public Law 103-354 unless it is removed within 7 days from the date of the letter. If no address can be determined, a copy of the letter should be posted on the front door of the property and documentation entered in the running record of the FmHA or its successor agency under Public Law 103-354 file.
(b)
(1) If a reasonable amount can likely be realized by FmHA or its successor agency under Public Law 103-354 from sale of the personal property, it may be sold at public sale. Items under lien will be sold first and the proceeds up to the amount of the lien paid to the lienholder(s) less a pro rata share of the sale expenses. Proceeds from sale of items not under lien and proceeds in excess of the amount due a lienholder will be remitted according to FmHA or its successor agency under Public Law 103-354 Instruction 1951-B (available in any FmHA or its successor agency under Public Law 103-354 office) and applied in the following order:
(i) To the inventory account up to the amount of expenses incurred by the Government in connection with sale of the personal property (such as advertising and auctioneer, if used).
(ii) To an unsatisfied balance on the FmHA or its successor agency under Public Law 103-354 loan account, if any.
(iii) To the borrower, if whereabouts are known.
(2) If personal property is not sold, a mover or hauler may be authorized to take the items for moving costs. Refer to FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office) for guidance.
(c)
(d)
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)
(b)
(c)
(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]
(a)
(2)
(b)
(c)
(1)
(2)
(ii) A District Director may enter into a management contract for basic maintenance and management services for an MFH project within the contracting authority outlined in FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office). The aggregate amount of any contract may not exceed that contracting authority.
(iii) A CO in the State Office may enter into a management contract for basic services involving more than 25 single-family dwellings, a more complex management contract for SFH property, or an appropriate contract for management or operation of farm or organization-type property. The aggregate amount paid under a contract may not exceed the contracting authority limitation for State Office staff outlined in FmHA or its successor agency under Public Law 103-354 Instruction 2024-A (available in any FmHA or its successor agency under Public Law 103-354 office).
(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)
(4)
(d)
When inventory real property, except for FSA and MFH properties, cannot be sold promptly, or when custodial property is subject to lengthy liquidation proceedings, leasing may be used as a management tool when it is clearly in the best interest of the Government. Leasing will not be used as a means of deferring other actions which should be taken, such as liquidation of loans in abandonment cases or repair and sale of inventory property. Leases will provide for cancellation by the lessee or the Agency on 30-day written notice unless Special Stipulations in an individual lease for good reason provide otherwise. If extensive repairs are needed to render a custodial property suitable for occupancy, this will preclude its being leased since repairs must be limited to those essential to prevent further deterioration of the security in accordance with § 1955.55(c) of this subpart. The requirements of subpart G of part 1940 of this chapter will be met for all leases.
(a)
(2)
(i)
(ii)
(iii)
(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 §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)
(b)
(c)
(d)
(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 §§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)
(1)
(2)
(3)
(f)
(g)
(h)
(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 subpart E of part 1922 of this chapter.
(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)
(j)
(k)
(l)
(1)
(2)
(a) If real estate was acquired subject to a lien, the servicing official may authorize payment of installments that may include escrow payments to the prior lienholder for taxes, if the property is taxable. Payment will be made 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). The payment will be charged to the inventory account as a nonrecoverable cost. If it is later determined that continuing to make payments on prior liens is no longer in the best interest of the Government for reasons such as, but not limited to, declining property values or uninsured property losses, the State Director may:
(1) Convey the property to the prior lienholder if the lienholder will agree to accept the conveyance in full satisfaction of the prior lien; or
(2) Discontinue payments to the lienholder, and allow the lien to be foreclosed.
(b) If the State Director determines that paying a lien in full would be in the best interest of the Government, he/she will obtain the advice of OGC with respect to the procedures for paying the lien in full and having the mortgage released or assigned to the Government. The County Supervisor or District Director will obtain from the lienholder a statement of the amount owed and request payment to the lienholder 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) which will be charged to the inventory account as a nonrecoverable cost.
Property acquired by FmHA or its successor agency under Public Law 103-354 is subject to taxation by State and local political jurisdictions in the same manner and to the same extent as other property of the same kind, unless State law specifically exempts property owned by the Government from taxation. Where jurisdictions change their law or codes to begin taxing Government-owned property, only taxes accruing after the effective date of the change may be paid. A state supplement may be issued with the advice of OGC to cover individual State laws. The servicing official shall notify the appropriate taxing authority(ies) in writing when title to real estate is acquired by the Government and shall advise that claims for taxes, if applicable, during the Government's ownership should be billed to FmHA or its successor agency under Public Law 103-354 at the County Office or District Office address. When inventory property is taxable, payment will be as follows:
(a)
(b)
(c)
Insurance in force at the time property is acquired will not be cancelled; however, no additonal premiums will be paid, except as follows:
(a) If organization-type property is operated by the Government after acquisition, workman's compensation coverage will be obtained. If the property is located in a flood-hazard area
(b) If there is an outstanding claim at the time of acquisition, it will be handled in accordance with Subpart A or B of Part 1806 of this chapter (FmHA or its successor agency under Public Law 103-354 Instruction 426.1 or 426.2). If property was acquired subject to a prior lien, the servicing official shall advise the prior lienholder that the Government does not intend to carry insurance, except as provided in paragraph (a) of this section. If, however, the prior lienholders mortgage requires the borrower to carry insurance, FmHA or its successor agency under Public Law 103-354 may provide the required insurance, if necessary, to prevent foreclosure by the prior lienholder.
The servicing official shall inspect property as necessary to protect the Government's interest. Farm property will be inspected at least annually to determine if adequate measures are in effect to conserve the soil, maintain its fertility, and control erosion. Inspection will be made in connection with travel for other purposes, wherever possible, and documented in the inventory file.
(a)
(b)
(c)
(a)
(b)
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.
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.
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.
All exhibits are available in any FmHA or its successor agency under Public Law 103-354 County Office. Exhibit B is also published in the Code of Federal Regulations.
Recently the Farm Service Agency (FSA) acquired title to
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
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.
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.
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.
As used in this subpart, the following apply:
(1) Is an eligible applicant for FO loan assistance in accordance with § 1943.12 of subpart A of part 1943 of this chapter or § 1980.180 of subpart B of part 1980 of this chapter.
(2) Has not operated a farm or ranch, or who has operated a farm or ranch for not more than 10 years. This requirement applies to all members of an entity.
(3) Will materially and substantially participate in the operation of the farm or ranch.
(i) In the case of a loan made to an individual, individually or with the immediate family, material and substantial participation requires that the individual provide substantial day-to-day labor and management of the farm or ranch, consistent with the practices in the county or State where the farm is located.
(ii) In the case of a loan made to an entity, all members must materially and substantially participate in the operation of the farm or ranch. Material and substantial participation requires that the individual provides some amount of the management, or labor and management necessary for day-to-day activities, such that if the individual did not provide these inputs, operation of the farm or ranch would be seriously impaired.
(4) Agrees to participate in any loan assessment, borrower training, and financial management programs required by FmHA or its successor agency under Public Law 103-354 regulations.
(5) Does not own real farm or ranch property or who, directly or through interests in family farm entities, owns real farm or ranch property, the aggregate acreage of which does not exceed 25 percent of the average farm or ranch acreage of the farms or ranches in the county where the property is located. If the farm is located in more than one county, the average farm acreage of the county where the applicant's residence is located will be used in the calculation. If the applicant's residence is not located on the farm or if the applicant is an entity, the average farm acreage of the county where the major portion of the farm is located will be used. The average county farm or ranch acreage will be determined from the most recent Census of Agriculture developed by the U.S. Department of Commerce, Bureau of the Census. State Directors will publish State supplements containing the average farm or ranch acreage by county.
(6) Demonstrates that the available resources of the applicant and spouse (if any) are not sufficient to enable the applicant to enter or continue farming or ranching on a viable scale.
(7) In the case of an entity:
(i) All the members are related by blood or marriage.
(ii) All the stockholders in a corporation are qualified beginning farmers or ranchers.
(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.
(a)
(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 Pacific Territories, and Area Supervisors in the Western Pacific Territories and American Samoa.
(b)
(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.
(c)
(a)
(b)
(c)
(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)
(a)
(b)
(c)
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)
(1)
(2)
(i)
(ii)
(iii)
(3)
(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 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)
(1)
(2)
(3)
(4)
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.
(a)
(b) [Reserved]
(c)
(d)-(e) [Reserved]
(f)
(g)
(h)
(i) [Reserved]
(j)
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 §§ 1955.112 through 1955.118 of this subpart, § 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.
(a)
(b)
(c)
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 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)
(1)
(2)
(b)
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 § 1955.112(c) of this subpart.
(a)
(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
(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
(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)
Listings will provide for sales on program and NP terms, as appropriate.
(3)
(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 (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
(iv) Offers with requests for credit on NP terms for the sale price.
(4)
(5)
(6)
(b)
(c)
(1) The price provisions of § 1955.113 and the processing provisions for MFH in § 1955.117 of this subpart apply to such a conversion.
(2) The provisions of § 1955.130 of this subpart pertaining to real estate brokers apply, as applicable, and a commission will be due in the normal manner on units which were listed with the broker(s).
(3) Prior approval of the National Office is required before issuance of Form AD-622, “Notice of Preapplication Review Action.” A preapplication with the information outlined in Exhibit A-7 of subpart E of part 1944 of this chapter, along with the State Director's recommendation, will be forwarded to the National Office, Attention: Assistant Administrator, Housing, for a determination and further guidance.
(4) A credit sale for this purpose will be made according to the provisions of subpart E of part 1944 of this chapter, as modified by § 1955.117 of this subpart, except the units need not be contiguous, but they must be located in close enough proximity so that management costs are not increased nor management capabilities diminished because of distance.
(5) An additional loan may be made simultaneously with the credit sale, or later, only when the property involved meets the definition of “project” set forth in subpart E of part 1944 of this chapter.
(d)
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 § 1955.116 of this subpart apply if the property does not meet FmHA or its successor agency under Public Law 103-354 DSS standards.
(a)
(1)
(2)
(3)
(b)
For real property (exclusive of improvements) which is unsafe, refer to § 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)
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)
(c)
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)
The following provisions apply to all credit sales on program terms:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(1) The property will be conveyed in accordance with § 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)
(a)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(i) The property will be conveyed in accordance with § 1955.141(a) of this subpart.
(ii) The purchaser will pay his/her own closing costs. Earnest money, if any, will be used to pay purchaser's closing costs with any balance of closing costs being paid by the purchaser. Any closing costs which are legally or customarily paid by the seller will be paid by FmHA or its successor agency under Public Law 103-354 from the downpayment.
(iii) The County Supervisor or District Director will provide the closing agent with the necessary information for closing the sale. The assistance of OGC will be requested to provide closing instructions for all MFH sales.
(iv) When more than one property is bought by the same buyer and the transactions are closed at the same time, a separate promissory note will be prepared for each property, but one mortgage will cover all the properties.
(9)
(10)
(11)
Notwithstanding the provisions of § 1955.111 through § 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)
(b)
(c)
(d)
(1)
(2)
(3)
To effect regular sale of inventory SFH property to a purchaser who is financing the purchase of the property with a non-FmHA or its successor agency under Public Law 103-354 loan, the County Supervisor may authorize the payment by FmHA or its successor agency under Public Law 103-354 of not more than three points. The payment must be a customary requirement of the lender for the seller within the community where the property is located. Terms of payment will be incorporated in Form FmHA or its successor agency under Public Law 103-354 1955-45 and will be fixed as of the date the form is signed by the appropriate FmHA or its successor agency under Public Law 103-354 official. Points will
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.
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 § 1955.143 of this subpart.
(a)
(b)
(c)
(1)
(2)
(d)
[* 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)
(f)
(a)
(b)
(c)
(d)
(e)
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.
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.
(a)
(b)
(1) Certification by a National or State appraisal society.
(2) If the contractor is not a certified appraiser and a certified appraiser is not available, the contractor may qualify or may use other qualified appraisers, if the contractor can establish that he/she or that the appraiser meets the criteria for a certification in a National or State appraisal society.
(3) The appraiser has recent, relevant, documented appraisal experience or training, or other factors clearly establish the appraiser's qualifications.
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.
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)
(1)
(2)
(b)
(c)
(1)
(2)
(3)
(4)
(5)
(6)
(d)
(e)
(1)
(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
(2)
(f)
(ii)
(2)
(3)
(g)
The services of licensed auctioneers, if required, may be used to conduct auction sales as described in § 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)
(b)
(c)
FmHA or its successor agency under Public Law 103-354 may conduct pilot projects to test policies and procedures for the management and disposition of inventory property which deviate from the provisions of this subpart, but are not inconsistent with the provisions of the authorizing statute or other applicable Acts. A pilot project may be conducted by FmHA or its successor agency under Public Law 103-354 employees or by contract with individuals, organizations or other entities. Prior to initiation of a pilot project, FmHA or its successor agency under Public Law 103-354 will publish notice in the
(a)
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)
(c)
(a)
(b)
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
(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.
(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 § 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.
(a)
(2)
(3)
(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)
(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
(3) The following steps should be taken in determining if conservation easements are necessary for the protection of wetlands or converted wetland on inventory property:
(i) NRCS will be contacted first to identify the wetlands or converted wetlands and wetland boundaries of each wetland or converted wetland on inventory property.
(ii) After receiving the wetland determination from NRCS, the FSA county committee will review the determination for each inventory property and determine if any of the wetlands or converted wetlands identified by NRCS were considered cropland on the date the property was acquired or were used for farming at any time during the period beginning on the date 5 years before the property was acquired and ending on the date the property was acquired. Property will be considered to have been used for farming if it was primarily used for agricultural purposes including but not limited to such uses as cropland, pasture, hayland, orchards, vineyards and tree farming.
(iii) After the county committee has completed their determination of whether the wetlands or converted wetlands located on an inventory property were used for cropland or farming, the U.S. Fish and Wildlife Service (FWS) will be contacted. Based on the technical considerations of the potential functions and values of the wetlands on the property, FWS will identify those wetlands or converted wetlands that require protection with a wetland conservation easement along with the boundaries of the required wetland conservation easement. FWS may also make other recommendations if needed for the protection of important resources such as threatened or endangered species during this review.
(4) The wetland conservation easement will provide for access to other 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)
(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
(3) If a property is listed on the National Register or is determined eligible for listing by the Secretary of Interior, the Agency official responsible for the conveyance must consult with the SHPO in order to develop any necessary restrictions on the use of the property so that the future use will be compatible with preservation objectives and which does not result in an unreasonable economic burden to public or private interest. The Advisory Council on Historic Preservation must be consulted by the State Director or State Executive Director after the discussions with the SHPO are concluded regardless of whether or not an agreement is reached.
(4) Any restrictions that are developed on the use of the property as a result of the above consultations must be made known to a potential bidder or purchaser through a notice procedure similar to that in §1955.13(a)(2) of this subpart.
(d)
(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)
(f)
(g)
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
(b) Each purchaser will sign a statement acknowledging that:
(1) The property is subject to redemption rights according to State law, and
(2) If the property is redeemed, ownership and possession of the property would revert to the previous owner and likely result in loss of any additional investment in the property not recoverable under the State's provisions of redemption.
(c) The signed original statement will be filed in the purchaser's County or District Office case file.
(d) If real estate brokers or auctioneers are engaged to sell the property, the County Supervisor or District Director will inform them of the redemption rights of the borrower and the conditions under which the property may be sold.
(e) The State Director, with prior approval of OGC, will issue a State supplement incorporating the requirements of this section and providing additional guidance appropriate for the State.
(a)
(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. Sale proceeds will be handled in accordance with Subpart B of Part 1951 of this chapter.
(3) For FSA properties only, easements, restrictions, development rights or similar legal rights may be granted or sold separately from the underlying fee or sum of all other rights possessed by the Government if such conveyances are for conservation purposes and are transferred to a State, a political subdivision of a State, or a private nonprofit organization. Easements may be granted or sold to a Federal agency for conservation purposes as long as the requirements of §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 §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
(iv) Property interests under this paragraph may be conveyed by negotiation with any eligible recipient without giving public notice if the conveyance would not change program/suitable property to NP or surplus. Sales proceeds will be handled in accordance with Subpart B of Part 1951 of this chapter. Conveyances shall include terms and conditions which clearly specify the property interest(s) being conveyed as well as all appropriate restrictions and allowable uses. The conveyances shall also require the owner of such interest to permit the FmHA or its successor agency under Public Law 103-354, and any person or government entity designated by the FmHA or its successor agency under Public Law 103-354, to have access to the affected property for the purpose of monitoring compliance with terms and conditions of the conveyance. To the maximum 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 § 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)
(2) Lease or royalty interests not passing by deed will be assigned to the purchaser when property is sold. The County Supervisor or District Director, as applicable, will notify the lessee or payor of the assignment. A copy of this notice will be furnished to the purchaser.
(3) The value of such rights, interests or leases will be considered when the property is appraised.
(c)
(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 (
(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
(ii) If requested, at least one public meeting must be held to discuss the request. A representative of the requesting agency should be present at the meeting in order to answer questions concerning the proposed conservation use of the property. The date and time for a public meeting should be advertised.
(iii) Written notice must be provided to the Governor of the State in which the property is located as well as at least one elected official of the county in which the property is located. The notification should provide information on the request and solicit any comments regarding the proposed transfer. All procedural requirements in paragraph (c) (3) of this section must be completed in 75 days.
(5) Determining priorities for transfer or inventory lands.
(i) A Federal entity will be selected over a State entity.
(ii) If two Federal agencies request the same land tract, priority will be given to the Federal agency that owns or controls property adjacent to the property in question or if this is not the case, to the Federal agency whose mission or expertise best matches the conservation purposes for which the transfer would be established.
(iii) In selecting between State agencies, priority will be given to the State agency that owns or controls property adjacent to the property in question or if that is not the case, to the State agency whose mission or expertise best matches the conservation purpose(s) for which the transfer would be established.
(6) In cases where land transfer is requested for conservation purposes that would contribute directly to the furtherance of International Treaties or Plans (
(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.
(a)
(b)
(a)-(c) [Reserved]
(d)
(e)
(a)
(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.
At 60 FR 34455, July 3, 1995, § 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.
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
(a)
(b)
(c)
(a)
(b)
(c)
(d)
(e)
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 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 ofcashier'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 § 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:
(a)
(b)
(c)
(d)
(e)
(f)
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 §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
(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 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.
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.
This is to notify you that the real property located at
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.
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.]
5 U.S.C. 301; 7 U.S.C. 1989; 31 U.S.C. 3711; 42 U.S.C. 1480.
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 or RHS NP loans secured by SFH property.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(i) If the matter has been referred either to the Office of the Inspector General (OIG) under § 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
(h)
(i)
(j)
(1) Separate and individual adjustment offers from joint debtors must be accepted and processed only as a joint offer. Joint debtors must be advised 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)
(l)
Nonjudgment debts which the debtor is unable to pay may be compromised
(a)
(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:
(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)
(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)
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.
(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.
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.
Nonjudgment debts may be canceled in the following instances:
(a)
(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)
(1)
(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
(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)
(3)
(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
(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)
(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.
The settlement of uncollectible recapture receivables will be fully documented on a debt settlement form and retained in the case file.
(a)
(1) The United States Attorney's file is closed, and
(2) The requirements of § 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)
(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 § 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
(a)—(d)[Reserved].
(e)
(a)
(2) Except as provided in paragraph (a)(3) of this section, payments offered by debtors in settlement of debts will be deposited and transmitted as required in subpart B, C, and K of part 1951 of this chapter.
(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)
(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.
The employee in charge of the account should notify debtors in advance of the due dates of payments on debt settlement agreements. The employee in charge of the account should also
(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.
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 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.
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
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 Indian Tribal Land Acquisition 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 § 1956.147 of this subpart.
(a)
(b)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(a)
(b)
(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 § 1956.109(b)(1) of this subpart are met.
(3) Security can be retained under the compromise and adjustment offers as specified in § 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)
(d)
(e)
(f)
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.
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 and conditions of the bankruptcy reorganization plan, including any adjustment of the debt.
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
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.
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)
(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)
(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.
(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,
(c)
(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)
(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,
(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,
(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.
Nonjudgment debts, regardless of the amount, may be cancelled with or without application by the debtor.
(a)
(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)
(1)
(2)
(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)
(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,
(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 an reasonable prospect of recovery by the Government.
(4)
(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.
(a)
(1) The United States Attorney's file is closed, and
(2) The requirements of § 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)
(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 § 1956.136(b)(2) of this subpart are met.
This section pertains exclusively to the reduction of unpaid principal on Indian Tribal Land Acquisition loans. (Pub. L. 101-82.)
(a)
(1) The current fair market value of the land has declined by at least 25 percent since the land was purchased by the borrower with FmHA or its successor agency under Public Law 103-354 loan funds. Current fair market value shall be determined through an appraisal by an independent qualified fee appraiser, as defined in § 1956.105(j) of this subpart and selected by mutual agreement between the borrower and FmHA or its successor agency under Public Law 103-354. The borrower will submit its selection of an appraiser, together with the appraiser's qualifications, in writing, to FmHA or its successor agency under Public Law 103-354 for acceptance or rejection. The cost of the appraisal shall be paid by the borrower.
(2) The land has been held by the borrower for at least 5 years.
(3) The Secretary of Interior or designee finds, and states in writing to FmHA or its successor agency under Public Law 103-354, that the borrower has insufficient income to both repay the loan or loans and provide normal tribal governmental services.
(b)
(c)
(d)
(1) Form FmHA or its successor agency under Public Law 103-354 1956-1. Complete only parts I, II, VI, and VIII. Part VI, Debtors Offer and Certification, will be made 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.”
(2) Letter from the Secretary of Interior or Designee. Reference to this letter should be made in part VIII of Form FmHA or its successor agency under Public Law 103-354 1956-1.
(3) For first time requests, the State Director's determination of the appraised value of the land when the loan (or loans) was made and the current fair market value appraisal as determined by an independent qualified fee appraiser.
(4) For subsequent requests, the current and previous fair market value appraisal as determined by an independent qualified fee appraiser.
(5) Draft of Form FmHA or its successor agency under Public Law 103-354 1951-33, “Reamortization Request,” if applicable. Upon concurrence by the National Office, the adjusted unpaid
(a)
(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 § 1956.124 and cancellations with application under § 1956.130(a) of this subpart.
(3) Not be required to notify debtors of settlement approval when debts are cancelled without application under § 1956.130(b) or charged off under § 1956.136 of this subpart.
(b)
(c)
(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 § 1956.124 and cancellations with application under § 1956.130(a) of this subpart.
(d)
(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) Except as provided in paragraph (c) of this section, debt settlement payments will be deposited and transmitted as required in Subpart B of Part 1951 of this chapter.
(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
(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 § 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.
(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 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.
This section pertains exclusively to delinquent Community Facility hospital and health care facility loans. Those facilities which are nonprogram (NP) loans as defined in § 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)
(b)
(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)
(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 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
(ii)
(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)
(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)
(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 103-354'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:
(
(
(F) Information concerning discussions with the debtor and their agreement or disagreement with the calculations and recommendations.
(G) If debt restructuring is proposed:
(
(
(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)
(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)
(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 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)
(1)
(2)
(g)
(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 the designated timeframe with the amount of recapture due.
(2) When the recapture is received, the payment will be processed on Form FmHA or its successor agency under Public Law 103-354 451-2 as a miscellaneous collection in accordance with subpart B of part 1951 of this chapter. The Form FmHA or its successor agency under Public Law 103-354 451-2 along with a copy of 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), as appropriate, will be forwarded to the Finance Office.
(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)
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).
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 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 § 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
(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.
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
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
Pub. L. 99-509, sec 2001(b)(1).
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 theseborrowers 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 § 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 Rural Housing Trust 1987-1 may be redressed in the review process under the Appeal Procedure.
FmHA or its successor agency under Public Law 103-354 regulations governing transfers and assumptions will not
Borrowers will not be required to graduate to other credit.
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.
5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
This subpart delegates authorities and gives procedures for servicing, care, and liquidation of Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) chattel security, Economic Opportunity (EO) loan property, and note only loans. Security servicing for Nonprogram (NP) loans on farm property will be according to subpart J of part 1951 of this chapter.
Chattel security, EO property and note only loans will be serviced to accomplish the loan objectives and protect FmHA or its successor agency under Public Law 103-354's financial interest. To accomplish these objectives, security will be serviced in accordance with the security instruments and related agreements, including any authorized modifications, provided the borrower has reasonable prospects of accomplishing the loan objectives, properly maintains and accounts for the security, and otherwise satisfactorily meets the loan obligations including repayment.
(a)
(b)
(2)
(c)
(d)
As used in this subpart, the following definitions apply:
Unauthorized sale of security.
Purchase of security with intent to defraud and without payment of the purchase price to FmHA or its successor agency under Public Law 103-354;
Falsification of assets or liabilities in loan applications;
Application for a loan for an authorized purpose with intent to use and use of loan funds for an unauthorized purpose;
Decision after obtaining a loan to use and using the funds for an unauthorized purpose and then making false statements regarding their use;
By scheme, trick, or other device, covering up or concealing misuse of funds or authorized dispositions of security or EO property or other illegal action; or
Any other false statements or representations relating to FmHA or its successor agency under Public Law 103-354 matters. To establish that a criminal act was committed by selling EO property, it is necessary to show that the borrower, at the time the loan agreement or the check on the supervised bank account was signed, intended to sell the property in violation of the loan agreement. The Federal criminal statute of limitations bars institution of criminal action 5 years after the date the act was committed. Unauthorized disposition of even minor items by the borrower will be considered criminal violations.
Is delinquent, and the borrower's refusal or inability to pay on schedule, or as agreed upon, is due to lack of diligence, lack of sound farming or other operation, or other circumstances within the borrower's control.
Ceases to conduct farming or other operations for which the loan was made or to carry out approved changed operations.
Has disposed of security or EO property without FmHA or its successor agency under Public Law 103-354 approval, has not cared properly for such property, has not accounted properly for such property or the proceeds from its sale, or taken some action which resulted in bad faith or other violations in connection with the loan.
Has progressed to the point to be able to obtain credit from other sources, and has agreed in the note or other instrument to do so but refuses to comply with that agreement.
(a)
(i) A lien on such property.
(ii) An assignment of the proceeds from the sale of agricultural products when such products are not covered by the lien instruments.
(iii) An assignment of other income, including FSA Farm Programs (formerly ASCS) payments.
(2) When a current loan is not being made to a borrower, a crop lien will be taken as additional security when the County Supervisor determines in individual cases that it is needed to protect the Government's interests. However, a crop lien will not be taken as additional security for Farm Ownership (FO), Rural Housing (RH), Labor Housing (LH), and Soil and Water (SW) loans. When a new security agreement or chattel mortgage is taken, all existing security items will be described on it.
(b) [Reserved]
(c)
(1)
(i) Only when it appears necessary to collect operating-type loans.
(ii) Only for the crop year for which operating-type loans are made, and
(iii) For only the amount anticipated for payments as indicated on Form FmHA 1962-1, “Agreement for the Use of Proceeds/Release of Chattel Security,” of the applicable upland cotton, rice, wheat and feed grain programs.
(2)
(i) Determine, at the time of loan processing for indebted borrowers and new applicants, who must give assignments and obtain them no later than loan closing. Special efforts will be made to obtain the bulk of assignments before the sign-up period for enrolling in the annual Feed Grain and Wheat set aside programs.
(ii) Obtain assignments from selected borrowers on Form ASCS-36, “Assignments of Payment,” which will be obtained from FSA Farm Programs.
(3)
(ii) Checks obtained as a result of an assignment will be made only to the Agency, and the proceeds used as indicated on Form FmHA 1962-1.
The County Supervisor will take a lien on a borrower's chattel property in accordance with § 1962.6 of this subpart if it is necessary to rely on such property for the collection of the borrower's unsecured indebtedness, or if it will assist in accomplishing loan objectives.
The County Supervisor may take the best lien obtainable on any real estate
(a)-(b) [Reserved]
(a) In States without a Central Filing System (CFS), all Farm Credit Programs borrowers prior to loan closing or prior to any servicing actions which require taking a lien on farm products, such as crops or livestock, must provide the names and addresses of potential purchasers. A written notice will be sent by the Agency, certified mail, return receipt requested, to these potential purchasers to protect the Government's security interest.
(1) The name and address of the debtor.
(2) The name and address of any secured party.
(3) The Social Security number or tax ID number of the debtor.
(4) A description of the farm products given as security by the debtor, including the amount of such products where applicable, the crop year, the county in which the products are located, and a reasonable description of the farm products.
(5) Any payment obligation imposed on the potential purchaser by the secured party as a condition for waiver or release of lien. The original or a copy of the written notice also must be sent to the purchaser within 1 year before the sale of the farm products. The written notice will lapse on either the expiration period of the Financing Statement or the transmission of a letter signed by the County Supervisor and showing that the statement has lapsed or the borrower has performed all obligations to the Agency.
(b) Lists of borrowers whose chattels or crops are subject to an Agency lien may be made available, upon request, to business firms in a trade area, such as sale barns and warehouses, that buy chattels or crops or sell them for a commission. These lists will exclude those borrowers whose only crops for sale require FSA Farm Programs (formerly ASCS) marketing cards. The list is furnished only as a convenience and may be incomplete or inaccurate as of any particular date.
(1)-(2) [Reserved]
Within 2 weeks after receipt of a written request from the borrower, the Agency must inform the borrower of the security and the total unpaid balance of the the Agency indebtedness covered by the Financing Statement.
(a) If the Agency fails to provide the information, it may be liable for any loss caused the borrower and, in some States, other parties, and also may lose some of its security rights. The UCC provides that the borrower is entitled to such information once every 6 months without charge, and the the Agency may charge up to $10 for each additional statement. However, the Agency provides them without charge.
(b) Although the UCC only requires the Agency to give information pursuant to the borrower's written request, the Agency will also answer oral requests. Furthermore, the UCC does not prohibit giving this information to others who have a proper need for it, such as a bank or another creditor contemplating advancing additional credit to the borrower.
The Agency will maintain a current record of each borrower's security.
(a)
(1) Verify that the borrower possesses all the security,
(2) Determine security is properly maintained, and
(3) Supplement security instruments.
(b)
(c)
(a)
(2) Section 1924.56 requires that there must always be a current Form FmHA 1962-1 in the file of a borrower with a loan secured by chattels. If a borrower asks the Agency to release proceeds from the sale of chattels and there is a current Form FmHA 1962-1 in the file, the request will be approved or disapproved in accordance with paragraph (b) of this section. If the borrower's request for release is denied, the borrower must be given attachment 1 of exhibit A of subpart S of part 1951 of this chapter, a written explanation of the reasons for the denial, and the opportunity for an appeal in accordance with 7 CFR part 780. Immediately upon determining that the borrower does not have a current Form FmHA 1962-1 in the file, the County Supervisor will immediately contact the borrower to develop one.
(3) If the borrower requests a change(s) to Form FmHA 1962-1, and the County Supervisor can approve the change(s), the borrower and the County Supervisor will initial and date each change in accordance with item (6) in
(b)
(2) Under all circumstances, sales proceeds must be remitted to creditors with liens on the proceeds, in order of priority of those liens. Proceeds which are released by a prior lienholder or which are in excess of the amount due to prior lienholder and which come to the Agency can be used as follows:
(i) The Form FmHA 1962-1 must provide for releases of normal income security so that the borrower can pay essential family living and farm operating expenses. However, proceeds from the sale of basic security will not be used to pay essential family living or farm operating expenses.
(ii) Essential expenses are those which are basic, crucial or indispensable. The following items are guidelines of what normally may be considered essential family living and farm operating expenses:
(iii) All of the items in paragraph (b)(2)(ii) of this section may not always be considered essential for every family and farming operation. County Supervisors must consider the individual borrower's operation, what is typical for that type of operation in the area administered by the County Supervisor, and what would be an efficient method of production considering the borrower's resources. County Supervisors will refer to exhibit E of this
(iv) Proceeds can be applied to the Agency debt.
(v) Proceeds can be used to purchase property better suited to the borrower's need if the Agency will acquire a lien on the new property. The new property, together with any proceeds applied to the the Agency indebtedness, will have a value to the Agency at least equal to the value of the lien formerly held by the Agency on the old security.
(vi) Proceeds can be used to preserve the security because of a natural disaster or other severe catastrophe, when the need for funds cannot be met by other means or with an Agency loan or an Agency loan cannot be made in time to prevent the borrower and Agency from suffering a substantial loss.
(vii) Property can be exchanged, with prior Agency approval and in accordance with paragraph (b)(5) of this section, for property which is better suited to the borrower's needs if the Agency will acquire a lien on the new property, at least equal in value to the lien held on the property exchanged.
(viii) Property can be consumed by the borrower as follows:
(A) Livestock can be used by the borrower's family for subsistence.
(B) If crops serve as security and usually would be marketed, the County Supervisor can allow such crops to be fed to livestock, provided, this is preferable to direct marketing and also provided that the Agency obtains a lien (or assignment) on the livestock and livestock products at least equal to the lien on the crops.
(3) The borrower must maintain records of dispositions of property and the actual use of proceeds and must make these records available to the Agency at the end of the period covered by the Form FmHA 1962-1, or when requested by the Agency. The County Supervisor will complete the “Actual” columns on that form, indicating approval or disapproval, making sure that the dispositions of property and uses of proceeds were as agreed upon. If they were not, the County Supervisor will take the actions required by § 1962.18 of this subpart. On the form, the County Supervisor will note approval or disapproval of each disposition.
(4) If, for any sale, the amount of proceeds actually received is above or below the amount of proceeds planned to be received as shown on Form FmHA 1962-1, the borrower will immediately notify the County Supervisor. If the borrower sells security to a purchaser not listed on the Form FmHA 1962-1, the borrower must immediately notify the County Supervisor of what property has been sold and of the name and business address of the purchaser. Such notification may be by telephone to the County Office, by letter, by visit to the County Office, or any other method the borrower chooses.
(5) If a borrower wants to dispose of chattel security which is not listed on Form FmHA 1962-1 or wants to dispose of chattel security in a way not listed in the “How” section or wants to use proceeds in a way not listed in the “Use of Proceeds” section on Form FmHA 1962-1, the borrower must obtain the Agency consent before the disposition or before the proceeds are used. The Agency
(c)
(2) Junior Agency liens on chattels and crops serving as security for Agency loans can be released when such property has no present or prospective security value or enforcement of the Agency lien would be ineffectual or uneconomical. The following information will be documented in the running case record:
(i) The present market value of the chattels or crops, as determined by the County Supervisor, on which the Agency has a valueless junior lien.
(ii) The names of the prior lienholders, amount secured by each prior lien, and the present market value of any property which serves as security for the amount. The value of all property which serves as security for amounts owed to prior lienholders must be considered to determine whether the junior Agency lien has any present or prospective value.
(3) Liens obtained through a mutual mistake can be released. The reasons for the release must be documented in the running case record.
(4) Liens can be released when there is no evidence of an existing indebtedness secured by the lien in the records of the Agency, County, State, or Finance Office.
(5) Liens on separate items of chattels can be released to another creditor for any authorized Farm Credit Programs loan purpose when it has been determined by a current appraisal that the value of the remaining security is substantially greater than the remaining Agency debt.
(d)
(2) Assignments and consent to payment of proceeds will be processed under subpart A of part 1941 of this chapter and recorded on Form FmHA 1962-1.
(i) When it is necessary to temporarily amend Form FmHA 441-18, “Consent to Payment of Proceeds From Sale of Farm Products,” or Form FmHA 441-25, “Assignment of Proceeds From the Sale of Dairy Products and Release of Security Interest,” Form FmHA 462-9, “Temporary Amendment of Consent to Payment of Proceeds From Sale of Farm Products,” will be used. All amendments of assignment agreements will be made on forms approved by OGC. The State Director will issue a State Supplement with the advice of OGC and prior approval of the National Office on the use of other forms. The original form after completion will be forwarded directly to the person or firm making the payment
(ii) When the Agency is not expecting payment from the proceeds of a product on which it has a lien but the purchaser of the product inquires about payment, a letter should be written to the purchaser as follows:
The FmHA has a security interest in the (name of product) being sold to you by (name and address of borrower), but at the present time is not looking to the proceeds from the sale of that product for payment on the debt owned to this agency. Therefore, until further notice, it will not be necessary for you to make payment to the Agency for such product.
(e)
(i) The producer assigns to the Agency the proceeds of any advances made, or to be made, on the wool or mohair by the broker, less shipping, handling, processing, and marketing costs.
(ii) The producer assigns to the Agency the proceeds of the sale of the wool or mohair, less any remaining costs in shipping, handling, processing, and marketing, and less the amount of any advance (including any interest which may have accrued on the advance) made by the broker against the wool or mohair.
(iii) The producer and broker agree that the net proceeds of any advances on, or sale of, the wool or mohair will be paid by checks made payable jointly to the producer and the Agency.
(2)
(f)
(g)
(a)
(b)
(1) If the borrower makes restitution or provides suffficient information to enable the County Supervisor to post-approve the transaction on Form
(2) If the borrower does not make restitution, if the County Supervisor cannot post-approve the transaction, or if the borrower makes a second unauthorized disposition of security or a misuse of proceeds after settling the first offense as provided in paragraphs (a) and (b) of this section, the County Supervisor will proceed in accordance with § 1962.49 of this subpart.
This section is based on a Memorandum of Understanding between CCC and FmHA or its successor agency under Public Law 103-354 (see Exhibit A of this subpart). The memorandum sets forth the procedure to follow when producers sell or pledge to CCC as loan collateral under the Price Support Program, commodities on which FmHA or its successor agency under Public Law 103-354 holds a prior lien, and when the proceeds, or an agreed amount from them, are not remitted to FmHA or its successor agency under Public Law 103-354 to apply against the producer's indebtedness to FmHA or its successor agency under Public Law 103-354. In addition to the procedures outlined in Exhibit A, the following apply:
(a)
(i) If payment is not made, the County Supervisor will determine whether or not the case should be liquidated in accordance with § 1962.40 of this subpart. Any liquidation action will be taken immediately. If the borrower has no property from which recovery can be made through liquidation or, if after liquidation, an unpaid balance remains on the indebtedness secured by the commodity pledged or sold to CCC, the County Supervisor will make a full report to the State Director on Form FmHA or its successor agency under Public Law 103-354 455-1, “Request for Legal Action,” with a recommendation that a claim be filed againt CCC. However, if the indebtedness is paid through liquidation action, the State Director will be notified by memorandum.
(ii) If the facts do not warrant liquidation action, the State Director will be notified, and a recommendation will be made that no claim be filed against CCC.
(2) On receiving information from the State Director that CCC has called the borrower's loan, the County Supervisor will act to protect FmHA or its successor agency under Public Law 103-354's interest with respect to the commodity if CCC is repaid.
(b)
(i) If in agreement with the County Supervisor's recommendation not to file a claim against CCC or if notice is received that the indebtedness has been paid, forward notice to CCC.
(ii) If in agreement with the County Supervisor's recommendation to file a claim against CCC, refer the case to OGC with a statement of facts.
(iii) If OGC determines that FmHA or its successor agency under Public Law 103-354 holds a prior lien on the commodity and the amount due on its loan is not collectible from the borrower, send CCC a copy of the OGC memorandum with a complete statement of facts supporting the claim through the applicable ASCS office or notify CCC if
(2) The State Director will notify the County Supervisor promptly on receiving information from CCC that the borrower's loan is being called.
(3) If collection cannot be made from the borrower or other party (see paragraph 5 of Exhibit A of this Subpart), the State Director will give CCC the reasons, FmHA or its successor agency under Public Law 103-354 will then be paid by CCC through the applicable ASCS office.
The County Supervisor may use Form FMHA 462-12, to correct minor errors in a financing statement when the errors are not serious (i.e., a slightly misspelled name). OGC will be asked to determine whether or not such errors are in fact minor. The County Supervisor may also use Form FmHA or its successor agency under Public Law 103-354 462-12 to add chattel property to the financing statement (i.e., a new type or item of chattel or crops on land not previously described).
(a)
(1) Payment in full of all debts secured by collateral covered by the security instruments has been received; or
(2) All security has been liquidated or released and the proceeds properly accounted for, including collection or settlement of all claims against third party converters of security, even though the secured debts are not paid in full. This includes collection-only and debt settlement cases; or
(3) The U.S. Attorney has accepted a compromise offer in full settlement of the indebtedness and has asked that action be taken to satisfy or terminate such instruments; or
(4) FmHA or its successor agency under Public Law 103-354 has a financing statement or other lien instrument which describes the real estate upon which crops are located but neither the borrower non FmHA or its successor agency under Public Law 103-354 has an interest in the crops because the borrower no longer occupies or farms the premises described in the lien instrument. Such action will only relate to the crops.
(b)
(2) When the final payment is tendered in a form other than those mentioned above, the security instruments will not be satisfied until 15 days after the date of the final payment. However, in UCC States the termination statement will be signed and sent to the borrower within 10 days after receipt of the borrower's written request but not until the 10th day unless it previously has been ascertained that the payment check or other instrument has been paid by the bank on which it was drawn. (See subsection (c) of this section for the reason for the 10-day requirement.)
(c)
(2) However, if FmHA or its successor agency under Public Law 103-354 has
(d)
(e)
(a)
(2) Satisfactions. The borrower must pay fees for filing or recording satisfactions or termination statements unless a State supplement based on State law requires FmHA or its successor agency under Public Law 103-354 to pay them.
(3) Notary fees.
(b)
(1) A borrower cannot pay the premiums from the borrower's own resources at the time due;
(2) Anticipated crop income does not materialize which would normally be released for the payment of crop insurance.
(3) It is not pratical to process a loan for that purpose;
(4) It is necessary to protect FmHA or its successor agency under Public Law 103-354's interests; and
(5) The amount advanced can be charged to the borrower under the provisions of the security instrument.
(a)
(b)
(2) When an obligation secured by a lien prior to that of FmHA or its successor agency under Public Law 103-354 is about to mature or has matured and the prior lienholder desires to extend or renew the obligation, or the obligation can be refinanced, the FmHA or its successor agency under Public Law 103-354 lien may be subordinated. However, the relative lien position of FmHA or its successor agency under Public Law 103-354 must be maintained.
(3) The subordination will be limited to a specific amount.
(4) A subordination in favor of only one creditor will be outstanding at any one time in connection with the same security.
(5) A subordination may also be executed to enable a borrower to obtain necessary crop insurance if the creditor to whom a subordination has been given on that crop consents in writing to payment of the insurance premiums from the crop or insurance proceeds. When a subordination is executed to enable the borrower to obtain crop insurance on crops under lien to FmHA or its successor agency under Public Law 103-354, the borrower will assign the insurance proceeds to FmHA or its successor agency under Public Law 103-354 or name FmHA or its successor
(6) Waivers of FmHA or its successor agency under Public Law 103-354 lien priority, instead of subordinations, may be executed in favor of a creditor who has made or will make advances for any authorized Farmer Programs loan purpose.
(7) 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 of 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 the issuance of the subordination in any crop year the individual or entity shall be ineligible for a subordination 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. A decision to reject a subordination request for this reason is not appealable.
(8) The loan funds will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity as further explained in Exhibit M to Subpart G of Part 1940 of this chapter. This requirement will be monitored throughout the term of the loan.
(c)
(d)
(2)
(3) Items 1, 22, 23 and 24 will be completed on Form FmHA or its successor agency under Public Law 103-354 410-1.
(e)
(1) When the ASCS County Office makes CCC loans to the borrower, FmHA or its successor agency under Public Law 103-354 will not execute a form of subordination or lien waiver.
(2) When the full value of a CCC loan on cotton is to be advanced to the borrower by a bank, ginner, or warehouseman whom the County Supervisor considers financially responsible, and when a check or draft issued by the bank, ginner, or warehouseman is made payable to FmHA or its successor agency under Public Law 103-354, or jointly to FmHA or its successor agency under Public Law 103-354 and the borrower, and is delivered to the County Supervisor, the County Supervisor may then execute the lienholder's waiver on Form CCC Cotton A even though item 2 of that form shows that the CCC loan will be distributed to such a bank, ginner, or warehouseman. Loan approval officials may approve waivers of crop liens in accordance with subsection (c) of this section.
(3) If the commodity covered by the CCC loan is released by CCC or redeemed by the borrower, the FmHA or its successor agency under Public Law 103-354 lien will be restored to the priority it held before the CCC loan was made.
(4) When the borrower wishes to rotate or exchange a new crop for an old crop that is stored under the CCC Grain Reserve Program, the County Supervisor and the ASCS official will proceed as set out in Exhibit C of this subpart.
Chattel and EO property may be transferred to eligible or ineligible transferees who agree to assume the outstanding loan, subject to the provisions set out in this section. A transfer and assumption may also be made when one or more of the borrowers or the former spouse and co-obligor of a divorced borrower withdraws from the operation or dies. The transfer of accounts secured by real estate or both real estate and chattels will be processed under Subpart A of Part 1965 of this chapter. The transferor (borrower) must be sent Attachment 1 of exhibit A of subpart S of part 1951 of this chapter as soon as the borrower contacts the County Supervisor inquiring about a transfer. In accordance with the Food Security Act of 1985 (Pub. L. 99-198) after December 23, 1985, if a loan is being transferred and assumed by an eligible or ineligible transferee, and if an individual or any member, stockholder, partner, or joint operator of an entity transferee 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 of Subpart A of Part 1941of 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 the approval of the transfer and assumption in any crop year, the individual or entity shall be ineligible for a transfer and assumption of a loan 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. Transferee 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. A decision to reject an application for transfer and assumption for this reason is not appealable.
(a)
(1) The transferee assumes the total outstanding balance of the FmHA or its successor agency under Public Law 103-354 debts or that portion of the outstanding balance equal to the present market value of the chattel security or EO property, less any prior liens, if the property is worth less than the entire debt.
(2) Generally the debts assumed will be paid in accordance with the rates and terms of the existing notes or assumption agreements. Form FmHA or
(3) The transfer of EM actual loss loans, or EM loans made before September 12, 1975, will be made as provided under paragraph (b) of this section. However, when one or more of the borrowers or jointly obligated partners or joint operators withdraw from the operation and those remaining desire to assume the total indebtedness and continue the operation, a transfer to the remaining borrowers, partners, or joint operators may be made as an eligible transferee.
(4) The requirements found in Exhibit M to Subpart G of Part 1940 of this chapter are met.
(b)
(1) It is in the Agency's financial interest to approve the transfer of security or EO property and assumption of the debts rather than to liquidate the security or EO property immediately.
(2) The transferee assumes the total outstanding balance of the Agency debt, or an amount equal to the present market value of the security or EO property as determined by the County Supervisor, less any prior liens, if the value is less than the entire debts.
(3) Agency debts assumed will be repaid in amortized installments not to exceed 5 years using Form FmHA 1965-13. The Farm Credit Programs NP interest rate for chattel property set forth in a National Office issuance, in effect at the time of loan approval, will be charged. Any deferred interest not paid by the time the transfer takes place must be added to the principal balance. The transferred property, including EO property, will be subject to any existing Agency lien. In the absence of an existing Agency lien, new lien instruments will be executed.
(4) The transferee can repay the Agency in accordance with the assumption agreement and can legally enter into the contract.
(5) The requirements found in Exhibit M to Subpart G of Part 1940 of this chapter are met.
(6) The transferee has never been liable for a previous Farm Loan Programs (FLP) loan or loan guarantee which was reduced or terminated in a manner that resulted in a loss to the Government.
(c)
(d)
(e)
(2)
(i) The transferor and any cosigner do not have reasonable ability to pay all or a substantial part of the balance of the debt not assumed after considering their assets and income at the time of transfer,
(ii) The transferor and any cosigner have cooperated in good faith, used due diligence to maintain the security against loss, and have otherwise fulfilled the covenants incident to the loan to the best of their ability, and
(iii) The transferee will assume a portion of the indebtedness at least equal to the present market value of the security.
(a)
(i) Selling the security under § 1962.41 of this subpart,
(ii) Transferring the security under § 1962.34 of this subpart,
(iii) Conveying the security to the agency under Subpart A of Part 1955 of this chapter, or
(iv) Refinancing the debt with another lender.
(2)
(b)
(2)
(i) The District Director will accelerate all unmatured installments by using exhibits D, E, or E-1 of subpart A of part 1955 of this chapter except in cases referred to OGC for civil action, if the notice has previously been given.
(ii) Exhibits D, E, or E-1 of subpart A of part 1955 of this chapter will be sent to the last known address of each obligor, with a copy to the Finance Office in those cases referred to OGC for civil action. County Office and Finance Office loan records will be adjusted to mature the entire indebtedness only.
(3)
(c)
(d)
(e)
(i) Delinquent taxes or assessments that constitute prior liens which would
(ii) Premiums on insurance essential to protect FmHA or its successor agency under Public Law 103-354's interest, and
(iii) Other costs including transportation necessary to protect or preserve the security.
(2) However, such advances may not be made unless the amount advanced becomes a part of the debt secured by the Agency's lien, or is for expenses of administration of estates or for litigation. If a case is in the hands of the U.S. Attorney, such advances may not be made without the U.S. Attorney's concurrence. Moreover, such advances may not be made in any case to pay expenses incurred by a U.S. Marshal or other similar official such as a local sheriff. However, if the official seizes the property and delivers it to the Agency for sale by the Agency, costs incurred by the Agency after delivery to the Agency will be paid.
(3) The County Supervisor will submit a report on the need for such advances to the State Director, including:
(i) Borrower's County Office case file;
(ii) Current lien search report;
(iii) Statement of the type and value of the property and of the circumstances which may result in the loss or deterioration of such property; and
(iv) A recommendation as to whether or not the advance should be approved.
(4) [Reserved]
(f) When a borrower's security property is liquidated voluntarily or involuntarily and there is an unpaid balance on the account, the County Supervisor will meet with the borrower within 30 days to assist the borrower in developing a debt settlement offer in accordance with subpart B of part 1956 of this chapter.
Borrowers who are liquidating voluntarily and who have not been sent exhibit A and attachments 1 and 2 or 1, 3 and 4 of subpart S of part 1951 of this chapter will be processed in accordance with paragraph (a)(1) of § 1962.40 of this subpart before any sale occurs.
(a)
(b)
(1)(i) The borrower has ready purchasers and can sell
(ii) The property is perishable; or
(iii) The property is of a type customarily sold on a recognized market; or
(iv) The property consists of items of small value or a limited number of items which do not justify public sale.
(2) Form FmHA or its successor agency under Public Law 103-354 1962-1 may be used to approve liquidation of such security. The County Supervisor will document in the running case record the reasons that a public sale was not justified.
(3) Form FmHA or its successor agency under Public Law 103-354 455-3 is completed before the sale.
(c)
(d)
(e)
(f)
In our opinion (name of borrower and any co-signer) does not have reasonable ability to pay all or a substantial part of the balance of the debt owed after the cash sale, taking into consideration his or her assets and income at the time of the conveyance. The borrower has cooperated in good faith, used due diligence to maintain property against loss, and has otherwise fulfilled the convenants incident to the loan to the best of his or her ability. (Name of borrower and any cosigner) has not been liable for a previous Farm Loan Programs (FLP) loan which was reduced or terminated in a manner that resulted in a loss to the Government. Therefore, we recommend that the borrower and any cosigner be released from personal liability for any balance due on the indebtedness upon completion of the transaction.
Form RD 1965-8, “Release From Personal Liability” will be given to the borrower to release him/her from liability. If a release from liability cannot be granted, the borrower will be sent a letter similar to exhibit F of subpart A of part 1955 of this chapter (available in any agency office). The account will then be considered for debt settlement.
(a)
(1)
(i) When RD 455-4 has been executed. For EO property this form will be revised by placing a period after “interest” in the first sentence beginning “The Debtor” and deleting the remainder of that clause; deleting the words “collateral covered by the security instruments” in the second part of the sentence and inserting instead “property covered by the debtor's loan agreement which is referred to as the collateral.”
(ii) When the borrower has abandoned the property.
(iii) When peaceable possession can be obtained, but the borrower has not executed RD 455-4.
(iv) When the property is delivered to the agency as a result of court action.
(v) When Form RD 455-5, “Agreement of Secured Parties to Sale of SecurityProperty,” is executed by all prior lienholders. If prior lienholders will not agree to liquidate the property, their liens may be paid if their notes and liens are assigned to the agency on forms prepared or approved by OGC. When prior liens are paid, the payment will be made in accordance with RD Instruction 2024-A (available in any agency office) and charged to the borrower's account.
(vi) When arrangements cannot be made with the borrower or a member of the borrower's family to sell EO property in accordance with the loan agreement.
(2)
(b)
(1)
(2)
(3)
(c)
(1)
(2)
(3)
(4)
(i) The sale will be made within 60 days, unless a shorter period is indicated by a State supplement because of State law. Crops will be sold when the maximum return can be realized but not later than 60 days after harvesting, or the normal marketing time for such crops. The State Director may extend the sale time within State law limits.
(ii) These requirements do not apply to irrigation or other equipment and fixtures which, together with real estate, serve as security for FmHA or its successor agency under Public Law 103-354 real state loans and will be sold or transferred with the real estate. However, a State Supplement will be issued for any State having a time limit within which such items must be sold along with or as a part of the real estate.
(5)
(A) Notice of the borrower or lienholder is not required when the property is sold under Form FmHA or its successor agency under Public Law 103-354 455-4 because the parties are placed on notice when they execute the form. When the sale involves only collateral which is perishable, will decline quickly in value, or is a type customarily sold on a recognized market, notice is not required but may be given if time permits to maintain good public relations.
(B) Notice only to lienholder is required when repossessed property is sold at private sale and the borrower executes Form FmHA or its successor agency under Public Law 103-354 455-11.
(C) If the property is to be sold under a chattel mortgage, the manner of notice will be set forth in a State supplement or on an individual case basis.
(ii) Notice of Internal Revenue Service (IRS). If a Federal tax lien notice has been filed in the local records more than 30 days before the sale of the repossessed security, notice to the District Director of IRS must be given at least 25 days before the sale. It should be given by sending a copy of Form FmHA or its successor agency under Public Law 103-354 1955-41 and a copy of the filed Notice of Federal Tax Lien (Form IRS 668). If the security is perishable, the full 25 days’ notice must be given to the District Director by registered or certified mail or by personal service before the sale. Also, the sale proceeds must be held for 30 days after the sale so that they may be claimed by IRS on the basis of its tax lien priority. In such perishable property cases, the proceeds or an amount large enough to pay the IRS tax lien will be forwarded to the Finance Office with a notation “Hold in suspense 30 days because of Federal Tax Lien.” OGC will advise the Finance Office about disposing of the funds.
(6)
(ii) Other public sales, whether under power of sale in the lien instrument or under Form FmHA or its successor agency under Public Law 103-354 455-4, will be widely publicized to assure large attendance and a fair sale by one or more of the following methods customarily used in the area.
(A) The sale may be advertised by posting or distributing handbills, posting Form FmHA or its successor agency under Public Law 103-354 1955-41, or a revision of it approved by OGC to meet State law requirements, or by a combination of these methods. The length of time and place of giving notice will be covered by a State supplement.
(B) Advertising in newspapers or spot advertisting on local radio or TV stations may be used depending on the amount of property to be sold and the cost in relation to the value of the property, the customs in the area, and State law requirements. When newspaper advertising is required, a State supplement will indicate the types of newspapers to be used, the number and times of insertions of the advertisement, and the form of notice of sale. All advertising must contain non-discrimination clauses.
(7)
(8)
(d)
This section applies to proceeds of nonjudicial liquidation sales conducted under the power of sale in lien instruments or under Form FmHA or its successor agency under Public Law 103-354 455-4, Form FmHA or its successor agency under Public Law 103-354 455-3, or Form FmHA or its successor agency under Public Law 103-354 462-2.
(a) [Reserved]
(b)
(1) To pay expenses of sale including advertising, lien searches, tests and inspection of livestock, and transportation, custody, care, storage, harvesting, marketing, and other expenses chargeable to the borrower, including reimbursement of amounts already paid by the Agency and charged to the borrower's account. Bills can be paid, after liquidation has been approved, for essential repairs and parts for machinery and equipment to place it in reasonable condition for sale, provided written agreements from any holders of liens which are prior to those of the Agency state that such bills may be paid from the sales proceeds ahead of their liens.
(i) However, any such expenses incurred by the U.S. Marshal or other similar official such as a local sheriff may not be paid from sale proceeds turned over to the Agency.
(ii) On the other hand, if the U.S. Marshal or other similar official such as a local sheriff has taken possession of the property and delivered it to the Agency for sale, such costs incurred by the Agency after delivery of the property to it may be paid from the proceeds of the sale.
(2) To pay liens which are prior to the Agency liens provided that:
(i) State and local tax liens on security or EO property which are prior to the liens of the Agency will be paid only when demand is made by tax collecting officials before distributing the sale proceeds. The sale proceeds will not be used to pay real estate, income, or other taxes which are not a lien against the security, or to pay substantial amounts of personal property taxes on nonsecurity personal property.
(ii) If action is threatened or taken by the sheriff or other official to collect taxes not authorized in suparagraph (b)(2)(i) of this section to be paid out of the security or the sale proceeds, the sale will be postponed unless an arrangement can be made to deposit in escrow with a responsible, disinterested party an amount equal to the tax claim, pending determination of priority rights. When the sale is postponed, or an escrow arrangement is made, the matter will be reported promptly to the State Director for referral to OGC.
(iii) If the Agency subordinations have been approved, their intent will be recognized in the use of sale proceeds even though the creditor in whose favor the the Agency lien was subordinated did not obtain a lien. If there are other third party liens on the property, however, the lien-holders must agree to the use of the sale proceeds to pay such creditor first.
(3) To pay rent for the current crop year from the sale proceeds of other than basic security or EO property. However, there must be no liens junior to the Agency other than the landlord's lien, if any, and the borrower must consent in writing to the payment.
(4) To pay debts owed the Agency which are secured by liens on the property sold.
(5) To pay liens junior to those of the Agency in accordance with their priorities on the property sold, including any landlord's liens for rent unless such liens already have been paid. Junior liens will not be paid unless, on request, the lienholder gives proof of the existence and the amount of his or her lien.
(6) To pay on any EO unsecured debt.
(7) To pay rent for the current crop year if the borrower consents in writing to payment and if such rent has not already been paid as provided in paragraph (b) (2), (3), or (5) of this section.
(8) To pay on any other the Agency debts, either unsecured or secured by liens on property which is not being sold. However, in justifiable circumstances, the State Director may approve the use of a part or all of the remainder of such sale proceeds by the borrower for other purposes, provided the other the Agency debts are adequately secured, or the borrower arranges to pay the other debts from income or other sources and these payments can be depended upon.
(9) To pay the remainder to the borrower.
(c) [Reserved]
Form FmHA or its successor agency under Public Law 103-354 1955-3, “Advice of Property Acquired,” will be prepared and distributed according to the FMI when property is acquired by FmHA or its successor agency under Public Law 103-354.
Immediately on learning of the death of any person liable to the Agency, the County Supervisor will prepare Form FmHA 455-17, “Report on Deceased Borrower,” to determine whether any special servicing action is necessary unless the County Supervisor recommends settlement of the indebtedness under Subpart B of Part 1956 of this chapter. If a survivor will not continue with the loan, it may be necessary to make immediate arrangements with a survivor, executor, administrator, or other interested parties to complete the year's operations or to otherwise protect or preserve the security.
(a)
(1) Probate or other administration proceedings have been started or are contemplated.
(2) The debts owed to the Agency are inadequately secured and the state has other assets from which collection could be made.
(3) The Agency's security has a value in excess of the indebtedness it secures and the deceased obligor owes other debts to the Agency which are unsecured or inadequately secured.
(4) The County Supervisor recommends continuation with a survivor who is not liable for the indebtedness or recommends transfer to, and assumption by, another party.
(5) The County Supervisor recommends, but does not have authority to approve liquidation.
(6) The County Supervisor wants advice on servicing the case.
(b)
(1) Such proceedings will not be started by other parties;
(2) The Agency's interests could best be protected by filing a proof of claim in such proceedings, and
(3) Public administrators or other similar officials or private parties, including banks and trust companies, are eligible to, and will serve as administrator or other similar official and will provide the required bond.
(c)
(1) After considering liens and priority rights of the Agency and other parties, costs of administration, and charges against the estate, the Agency cannot reach the assets in the estate except for the Agency's own security
(2) Continuation with an individual or transfer to and assumption by another party is approved, and either the debt owed to the Agency is fully secured, or the amount of the debt in excess of the value of the security which could be collected by filing a claim is obtained in cash or additional security, or
(3) The debt owed to the Agency by the estate is settled under Subpart B of Part 1956 of this chapter, well ahead of the deadline for filing proof of claim.
(d)
(2) Unsecured claims will be handled as follows:
(i) The remaining assets of the estate, including any value of security for more than the amount of the secured claims against it, are to be applied first to payment of administration costs and charges against the estate and second to unsecured debts of the deceased.
(ii) If the total of the remaining assets in the estate being administered is not enough to pay all administration costs, charges against the estate, and unsecured debts of the deceased, the Government's unsecured claims against the remaining assets will have priority over all other unsecured claims, except the costs of administration and charges against the estate. Under such circumstances unsecured claims are payable in the following order of priority:
(A) Costs of administration and charges against the estate unless under State law they are payable after the Government's unsecured claims. Such costs and charges include costs of administration of the estate, allowable funeral expenses, allowances of minor children and surviving spouse, and dower and curtesy rights.
(B) The Government's unsecured claims.
(3) A State supplement will be issued as needed taking into consideration 31 U.S.C. § 3713 lien waivers and subordinations, and notice and other statutory provisions which affect lien priorities.
(e)
(f)
(g)
(1) Any individual who is liable for the indebtedness of the deceased borrower may continue with the loan provided that individual can comply with the obligations of the notes or other evidence of debt and chattel or real estate security instruments and so long as liquidation is not necessary to protect the interest of the Agency. When an individual who is liable for the indebtedness is to continue with the account, Form 450-10, “Advice of Borrower's Change of Address or Name,” will be sent to the Finance Office to change the account to that individual's name. A new case number will be assigned or, if the continuing individual already has a case number, that number will be used regardless of whether that individual assumed all or a portion of the amount of the debt owed by the estate of the deceased.
(2) When a surviving member of a deceased borrower's family, a relative or other individual who is not liable for the indebtedness desires to continue with the farming or other operations and the loan, the State Director may approve the transfer of chattel or real estate security or both to the individual and the assumption of the debt secured by such property without regard to whether the transferee is eligible for the type of loan being assumed, subject to the following conditions:
(i) The transferee will continue the farming or other operations for the benefit of all or a part of the deceased borrower's family who were directly dependent on the borrower for their support at the time of death.
(ii) The amount to be assumed and the repayment rates and terms will be the same as provided in § 1962.34(a) of this Subpart.
(iii) The State Director determines that the continuation will not adversely affect repayment of the loan.
(iv) The transferee has never been liable for a previous Farm Loan Programs direct farm loan or loan guarantee which was reduced or terminated in a manner that resulted in a loss to the Government.
(3) In determining whether to continue with individuals, whether they are already liable or assume the indebtedness, all pertinent factors will be considered including whether:
(i) Probate or administration proceedings have been or will be started and, with OGC's advice, whether the filing of a claim on the debt owed to the Agency in such proceedings is necessary to protect the Agency's interests.
(ii) Arrangements can be made with the heirs, creditors, executors, administrators, and other interested parties to transfer title to the security to the continuing individual and to avoid liquidating the assets so that the individual can continue with the loan on a feasible basis.
(4) If continuation is approved, all reasonable and practical steps, short of foreclosure or other litigation, will be
(5) The deceased borrower's estate may be released from liability for the the Agency indebtedness if title to the security is vested in the joint debtor or transferee, and:
(i) The full amount of the debt is assumed, or
(ii) If only a portion of the debt is assumed, the amount assumed equals the amount as determined by OGC which could be collected from the assets of the estate of the deceased borrower, including the value of any security or EO property, and the County Committee recommends release of liability.
(h)
(1) An individual who is liable for the indebtedness of the deceased borrower and wishes to continue with the EO debt and the EO property, may do so in accordance with paragraph (g)(1) of this section.
(2) A surviving member of the deceased borrower's family, a joint operator with the deceased borrower, a relative, or other individual who is not liable for the EO debt who desires to continue with the farming or other operation may do so in accordance with paragraph (g)(2) of this section. This individual must execute a loan agreement in addition to the assumption agreement and secure the EO debt with a lien on the remaining EO property when title to the property is vested in the individual and the County Supervisor determines that security is necessary to protect the interests of the deceased borrower's family or the Agency.
(3) If no individual listed in paragraphs (h) (1) and (2) of this section wishes to continue, but a member of the borrower's family turns over to the Agency the EO property in which the estate has an interest and which is not essential for minimum family living needs, the County Supervisor will take possession of EO property and sell it in accordance with § 1962.42 of this Subpart. If this cannot be done, or if real property is involved, the case will be referred to OGC. If the property is sold, notice will be delivered to any of the borrower's heirs who are in possession of the property and to any administrator or executor of the borrower's estate.
(a)
(2) If the borrower has no attorney, the County Supervisor will mention this in the report sent to the State Director. The State Director will ask OGC's advice on how to handle such a case to make sure that the borrower is given any required notice of loan servicing alternatives.
(3)
(ii) If, after consultation with OGC, it is determined that the borrower is under the jurisdiction of the bankruptcy court, and the borrower wants to be considered for loan servicing, the following conditions must be met. The borrower must complete and return attachment 2 of exhibit A of subpart S of part 1951 of this chapter and the required preliminary application forms within 60 days from the attorney's receipt of the notices required by this section. The borrower's attorney, in writing, must also request servicing on behalf of the borrower within the 60-day time period. FmHA or its successor agency under Public Law 103-354 will connsider this request to be an acknowledgment that FmHA or its successor agency under Public Law 103-354 will not be interfering with any rights or protections under the Bankruptcy Code and its automatic stay provisions. FmHA or its successor agency under Public Law 103-354's processing of the application may include consideration of primary and preservation loan servicing options and notification of FmHA or its successor agency under Public Law 103-354's decision on the application in accordance with subpart S of part 1951 of this chapter, and holding any mediation, meetings or appeals requested by the borrower. However, the account will not be accelerated until FmHA or its successor agency under Public Law 103-354 has obtained any necessary relief from the automatic stay as determined by OGC.
(iii) In chapters 11, 12, and 13 cases, if the borrower files a bankruptcy plan covering the FmHA or its successor agency under Public Law 103-354 debt, FmHA or its successor agency under Public Law 103-354 will evaluate the merits of the plan and inform OGC of its recommendation for voting on or objecting to the plan. A plan will not be rejected by FmHA or its successor agency under Public Law 103-354 simply because it is not consistent with FmHA or its successor agency under Public Law 103-354's loan servicing regulations. The Government's Attorney (who represents FmHA or its successor agency under Public Law 103-354's interest in bankruptcy court) is free to object to the plan in accordance with the provisions of the Bankruptcy Code. If a borrower is operating under a confirmed bankruptcy plan, desires to apply for loan servicing and qualifies for servicing under FmHA or its successor agency under Public Law 103-354's regulations, the borrower must also comply with provisions of the Bankruptcy Code practiced in that jurisdiction concerning modification of the plan. If a plan is confirmed before servicing and any appeal is completed under FmHA or its successor agency under Public Law 103-354 regulations, FmHA or its successor agency under Public Law 103-354 will complete the servicing or appeals process, and may consent to a post-confirmation modification of the plan if it is consistent with the Bankruptcy Code and FmHA or its successor agency under Public Law 103-354 regulations as appropriate.
(iv) In chapter 7 cases, the Agency will not provide Primary Loan Servicing to a borrower discharged in bankruptcy before or after January 6, 1988, unless the borrower has reaffirmed the entire the Agency debt. If the chapter 7 debtor wants to reaffirm the debt, the Agency must accept the reaffirmation if permitted under bankruptcy law. If the the Agency debt is reaffirmed, the loan application will be processed in accordance with subpart S of part 1951 of this chapter. If the borrower reaffirms the the Agency debt in order to be considered for restructuring but is later denied restructuring, the borrower may revoke the reaffirmation. No reaffirmation is necessary for any discharged chapter 7 borrower to be eligible for Preservation Loan Service Programs in accordance with § 1951.911 of subpart S of part 1951 of this chapter.
(b)
(1) In Chapter 7 cases only, if there is no security and no other asset from which a substantial recovery could be made, the file and related material will be returned to the County Office with a memorandum indicating the State Director's determination and advising that a proof of claim will not be filed unless the County Supervisor learns that the debtor has assets not previously known to exist. If assets are found before the time for filing claims has expired (90 days from the first date set for the first meeting of creditors), the County Supervisor will resubmit the case to the State Director.
(2) In all Chapter 11, 12 and 13 cases and in Chapter 7 cases where a substantial recovery can be made, the State Director will take the following actions:
(i) Form FmHA “Proof of Claim of the United States of America,” or other form approved by OGC will be executed. The proof of claim will cover all indebtedness to the Agency, except any judgments obtained by a U.S. Attorney. Proofs of Claim will be handled according to a State Supplement approved by OGC. If the proof of claim is submitted to OGC, the State Director will identify for OGC in memorandum (not on the proof of claim) the security which was taken for each loan.
(ii) If the State Director knows that a judgment has been obtained by a U.S. Attorney, the State Director will notify OGC even though that judgment has been charged off.
(iii) The State Director, on OGC's advice, will instruct the County Supervisor about actions to take with respect to meetings of creditors.
(iv) If a direct loan is not held by the Agency and has not been assigned to the Agency the State Director will arrange to have the note repurchased. If there is a problem accomplishing this, the State Director will ask OGC for advice.
(v) The State Director will take no other action without OGC's approval.
(c)
(1) Plans submitted by debtors under chapters 11, 12, and 13 must be sent to the State Director who will refer them to the United States Attorney through the Regional Attorney. 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 provide the Regional Attorney with a recommendation on acceptance or rejection of the plan.
(2) The U.S. Attorney will advise the FmHA or its successor agency under Public Law 103-354 State Director through the Regional Attorney as to approval or rejection of the debtor's reorganization plan. Upon notification of an approval, the State Director will notify the Finance Office by memorandum of the terms and conditions of the bankruptcy reorganization plan including any adjustment of the debtor's debt.
(d)
(2) If a bankruptcy is dismissed and liquidation of the account is necessary, liquidation will be accomplished in accordance with § 1962.40 of this subpart and § 1965.26 of subpart A of part 1965 of this chapter as appropriate. The borrower will be notified of FmHA or its successor agency under Public Law 103-354's servicing options by the notices required by subpart S of part 1951 of this chapter. The borrower's attorney of record will be sent a courtesy copy of the notices when they are sent to the borrower.
(3) Except as provided in this paragraph, in chapter 11, 12, or 13 cases, if liquidation is necessary while the bankruptcy is pending, the borrower's attorney will be sent exhibit D and attachments 1 and 2 of exhibit A of subpart S of part 1951 of this chapter and
(4) Except as provided in this paragraph, in chapter 11, 12 or 13 cases if liquidation is necessary after the case is closed, the borrower will be sent exhibit D-1 of this subpart and attachments 1 and 2 of subpart S of part 1951 of this chapter and any additional attachments required by subpart S of part 1951 of this chapter. The borrower's attorney of record will be sent a courtesy copy of exhibit D-1, and OGC will be sent a dated copy. No notices will be sent under this paragraph to the borrower or the borrower's attorney if OGC advises that such act is inconsistent with the provisions of a confirmed bankruptcy plan or other provisions of the Bankruptcy Code. If an application for servicing is received under this paragraph, it will be processed in accordance with subpart S of part 1951 of this chapter and in accordance with advice from OGC if required before FmHA or its successor agency under Public Law 103-354 can approve loan servicing. If an amendment to the confirmed plan is required, the provisions of § 1962.47(a)(3)(iii) of this subpart apply. If the borrower does not qualify for loan servicing and any appeal has been resolved in favor of FmHA or its successor agency under Public Law 103-354, the account will be accelerated in accordance with subpart A of part 1955 of this chapter and the advice of OGC concerning the appropriate notice of acceleration.
(5) In chapter 7 farmer program loan cases, if liquidation is necessary either while the bankruptcy is pending or after the case is closed (see paragraph (c)(2) of this section if the case is dismissed), it will be handled as follows: After discharge, loans can be liquidated if the borrower has not reaffirmed the debt and the property is no longer part of the estate. Liquidation can proceed prior to discharge if the court approves an abandonment order and lifts the automatic stay. Exhibit D-1 of this subpart and attachments 1 and 2 of exhibit A of subpart S of part 1951 of this chapter will be sent to the borrower if the borrower's attorney was not previously notified under subpart S of part 1951 of this chapter during the course of the bankruptcy proceeding. If the notices are sent, the borrower's attorney of record will be sent a courtesy copy of exhibit D-1, and a dated copy of exhibit D-1 will be sent to OGC. If these notices are not required, the borrower will be sent an acceleration notice (exhibit E of subpart A of part 1955 of this chapter), and there will be no appeal of the acceleration. Then the account will be liquidated.
(e) After prior review and approval by OGC, a State Supplement will be issued to explain any rules or practices of local bankruptcy judges or trustees which affect the provisions of this section.
All cases in which court actions to effect collection or to enforce FmHA or its successor agency under Public Law 103-354 rights are recommended, as well as actions relating to apparent violations of Federal criminal statutes, will be handled under this section.
(a)
(b)
(1) Civil action will be recommended when one or more of the following conditions exists:
(i) There is a need to repossess security or EO property or to foreclose a lien and such action cannot be accomplished by other means authorized in this subpart.
(ii) There is a need for filing claims against third parties because of a conversion of security or other action.
(iii) Payment due on debts are not made in accordance with the borrower's ability to pay, and the borrower has assets or income from which collection can be made.
(iv) The borrower has progressed to the point that credit can be obtained from other sources, has agreed in the note or other instrument to do so, but refuses to comply with that agreement.
(v) FmHA or its successor agency under Public Law 103-354 or its security becomes involved in court action through foreclosure by a third-party lienholder or through some other action.
(vi) Other conditions exist which indicate that court action may be necessary to protect FmHA or its successor agency under Public Law 103-354's interests.
(2) Claims of less than $600 principal will not be referred to OGC for court action unless:
(i) A statement of facts is submitted as to the exact manner in which the interest of FmHA or its successor agency under Public Law 103-354, other than recovery of the amount involved, would be adversely affected if suit were not filed; and
(ii) Collection of a substantial part of the claim can be made from assets and income that are not exempt under State or Federal law. A State supplement will be issued to set forth such exemptions or a summary of those exemptions with respect to property to which FmHA or its successor agency under Public Law 103-354 normally would look for payment such as real estate, livestock, equipment, and income.
(3) When a borrower has not properly accounted for the proceeds of the sale of security, it is the general policy to
(i) When the County Supervisor determines that full collection cannot be made from the borrower and that it will be necessary to collect the full value of the security purchased by a converter, a demand (see Guide Letter 1962-A-1, a copy of which is available in any FmHA or its successor agency under Public Law 103-354 county office) will be sent to the purchaser at the same time that Exhibit D or E of Subpart A of Part 1955 of this chapter, is sent to the borrower.
(ii) When the County Supervisor determines that it is likely that action will have to be taken to collect from third-party pruchasers, the County Supervisor will notify such purchasers by letter (see Guide Letter 1962-A-2, a copy of which is available in any FmHA or its successor agency under Public Law 103-354 county office) that FmHA or its successor agency under Public Law 103-354 security has been purchased by them and that they may be called upon to return the property or pay the value thereof in the event restitution is not made by the borrower. If it later becomes necessary to make demand on such third-party purchasers, FmHA or its successor agency under Public Law 103-354 will do so unless the case already has been referred to OGC or the U.S. Attorney, in which event the demand will be made by one of those offices.
(iii) When restitution is made by the borrower, or a determination is made, with the advice of OGC, that the facts in the case do not support the claim against the third-party purchaser, the third-party purchaser will be informed by the County Supervisor that FmHA or its successor agency under Public Law 103-354 will take no adverse action (see Guide Letter 1962-A-3, a copy of which is available in any FmHA or its successor agency under Public Law 103-354 county office). Ordinarily, it will not be necessary to inform the third-party purchaser of OGC's decision when OGC determines that the facts support the claim against the third-party purchaser but no substantial part of the claim can be collected. If OGC makes such a determination and the third-party purchaser asks what determination has been made, the County Supervisor will say that no further action is to be taken on the claim “at this time.”
(iv) In addition, unless personal contacts with the third-party purchaser, or other efforts to collect demonstrate that further demand would be futile, and a satisfactory compromise offer has not been received, a follow-up letter (see Guide Letter 1962-A-4, a copy of which is available in any FmHA or its successor agency under Public Law 103-354 county office) will be sent by the State Director as soon as possible after the 15-day period set forth in the demand letter has expired. Unless response to the State Director's followup letter or personal contacts or other efforts indicate that further demand would be futile, an additional follow-up letter will be sent to the third-party purchaser by OGC after the case has been referred to that office.
(c)
(1)
(2)
(3)
(ii) After all of the pertinent information available has been obtained, the State Director will refer the case to OGC for civil action, if referral is required under the policy expressed in this section. If such referral is not required, the State Director will set forth in Item 19 of Form FmHA or its successor agency under Public Law 103-354 455-1 the basis for the determination not to refer the case and instructions for follow-up servicing action. The State Director will not recommend a third-party conversion claim to the OGC if more than one year has run from the date of the annual accounting following the disposition of security, unless the Administrator or delegate determines a longer period of time should be applied either because of compelling circumstances such as the case has been referred to and accepted by OIG for criminal or civil investigation. The period of time during which a suit may be filed is set by federal statute and is not changed by this section. Demands on third-party purchasers will be made in accordance with paragraph (b) of this section. In cases referred to OGC, the State Director will make comments and recommendations regarding the civil aspects of the case on Form FmHA or its successor agency under Public Law 103-354 455-1.
(A) When cases are referred to OGC, the County Office case file, Form FmHA or its successor agency under Public Law 103-354 455-1, and, when appropriate, Form FmHA or its successor agency under Public Law 103-354 455-2 will be transmitted. In addition, when the institution of civil court proceedings by FmHA or its successor agency under Public Law 103-354 is recommended, the notes, financing statements, security agreements, loan agreements, other legal instruments and copies thereof, as required by OGC, and Form FmHA or its successor agency under Public Law 103-354 451-11, “Statement of Account,” and Form FmHA or its successor agency under Public Law 103-354 455-22 will be submitted to OGC. The State Director, with the advice of OGC, will determine the number of copies of such instruments needed and the information required on the certified statement of account. Each request for a certified statement of account will specify the type of information needed.
(B) Notes, statements of account, files, or other documents and copies thereof needed in referring cases to
(d)
(e)
(1) When the County Supervisor receives notice from OGC that a judgment (including third-party) has been obtained, the County Supervisor will establish a judgment account by completing Form FmHA or its successor agency under Public Law 103-354 1962-20, “Notice of Judgment,” in accordance with the FMI. 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.
(2) After notice has been received that a case has been referred to the U.S. Attorney or a judgment has been obtained and has not been returned to FmHA or its successor agency under Public Law 103-354 5by the U.S. Attorney, no action will be taken by the County Supervisor except upon specific instructions from the State Director, OGC, or the U.S. Attorney. However, the County Supervisor will keep the State Director informed of any developments which may affect the FmHA or its successor agency under Public Law 103-354 security interest or any pending court action to enforce collection. If information is obtained indicating that such debtors have assets or income not previously reported by the County Supervisor to the State Director from which collection of such judgment accounts can be obtained, the facts will be reported to the State Director. The State Director immediately will notify OGC of any developments which might have a bearing on cases referred to the U.S. Attorney, including such judgment cases.
(i) If the debtor proposes to make a payment, FmHA or its successor agency under Public Law 103-354 employees will not accept such payment but will offer to assist in preparing a letter for the debtor's signature to be used in transmitting the payment to the U.S. Attorney. In such case, the debtor will
(ii) Collection items received through the mail from the debtor or from other sources by the County Office to be applied to such accounts will be forwarded by the County Supervisor through OGC to the appropriate U.S. Attorney. Likewise, collections received by the District Director or the State Office will be forwarded through OGC to the appropriate U.S. Attorney. Such items will be forwarded in the form received except that cash will be converted into money orders made payable to the Treasurer of the United States. The money order receipts will remain attached to the money orders. Form FmHA or its successor agency under Public Law 103-354 451-1 will not be issued in any such case. The debtor will be informed in writing by the County Supervisor of the disposition of the amount received.
(3) When the U.S. Attorney has returned a judgment case to FmHA or its successor agency under Public Law 103-354, the County Supervisor is responsible for servicing it as follows:
(i) When the judgment debtor has the ability to make periodic payments, action will be taken by the County Supervisor to make arrangements for the judgment debtor to do so.
(ii) Any payments received from such debtor by FmHA or its successor agency under Public Law 103-354 will be handled by issuing Form FmHA or its successor agency under Public Law 103-354 451-1 and converting and transmitting such payments as provided in Subpart B of Part 1951 of this chapter. The U.S. Attorney will be informed through OGC of payments received only when the debtor pays a judgment in full.
(iii) At the time of the annual review of collection-only or delinquent and problem cases, the County Supervisor will determine whether such judgment debtors, whose judgments have not been charged off and who are not making regular and satisfactory payments, have assets or income from which the judgment can be collected. If such debtors have either assets or income from which collection can be made and they have declined to make satisfactory arrangements for payment, the facts will be reported by the County Supervisor to the State Director. The State Director will notify OGC of developments when it appears that collections can be enforced out of income or assets.
(iv) Such judgments will not be renewed or revived unless there is a reason to believe that substantial assets have or may become subject thereto.
(v) Such judgments may be released only by the U.S. Attorney when they are paid in full or compromised.
(4) In all judgment cases, any proposed compromise or adjustment will be handled in accordance with Subpart B of Part 1956 of this chapter.
(5) If the debtor requests information as to the amount of outstanding indebtedness, such information, including court costs, should be obtained from the Finance Office if the County Supervisor does not have that information. If questions arise as to the payment of court costs, information as to such costs will be obtained through the State Office from OGC.
IT IS HEREBY AGREED by and between the Farmers Home Administration or its successor agency under Public Law 103-354 (hereinafter referred to as “FHA”) and the Commodity Credit Corporation (hereinafter referred to as “CCC”) that the following procedure will be observed in those cases where producers sell to CCC or pledge to CCC as loan collateral under the Price Support Program, agricultural commodities such as, but not limited to, cotton, tobacco, peanuts, rice, soybeans, grains, on which FHA holds a prior lien and the proceeds from such sales or loans are not remitted to FHA for application against the loan(s) secured by such lien:
1. When an FHA County Supervisor learns that an FHA borrower has obtained a loan from CCC on a commodity or sold a commodity to CCC under such circumstances, he
2. When CCC receives such a notice from FHA, CCC shall take steps to prevent the making of any further loans on or purchases of the commodity of the borrower. If the CCC loan is still outstanding and CCC calls the loan, CCC shall notify the FHA State director of the demand.
3. If the CCC loan is repaid, whether prior to or after the receipt by CCC of the notice from FHA, the FHA State Director shall be notified immediately, at which time CCC will have discharged its responsibility under this agreement.
4. FHA shall, in each case in which the CCC loan is not repaid or the commodity has been sold to CCC, endeavor to collect from the borrower the amount due on the FHA loan. Such collection efforts shall include the making of demand on the borrower and the following of FHA's normal administrative policies with respect to the collection of debts, but shall not include the making of demand for payment upon the area peanut producer cooperative marketing associations through which CCC makes price support available to producers. If collection efforts are not successful, the FHA County Supervisor shall make a complete report on the matter to his State Director. If the State Director determines that the amount due on the FHA lien is not collectable by administrative action, he shall refer the matter to the appropriate local office of the General Counsel, with a full statement of the facts, for a determination of the validity of the FHA lien. If it is determined by the General Counsel's Office that FHA holds a valid prior lien on the commodity, the State Director shall furnish CCC with a copy of such determination, together with all other pertinent information, and shall request payment to FHA of the lesser of (1) the amount due on its loan, or (2) the value of the commodity at the time the CCC loan or purchase was made (based on the market value of the commodity on the local market nearest to the place where the commodity was stored). The information to be furnished CCC shall include (a) the principal balance plus interest due FHA on the date of the request, (b) the amount due on the FHA loan at the time the CCC loan or purchase was made, and (c) the amount of the CCC loan or purchase proceeds, if any, applied by the producer against the FHA loan. FHA shall continue to make collection efforts and shall notify CCC of any amount collected from the producer or any other party.
5. Upon receipt of evidence, including a copy of the determination of the Office of the General Counsel, from the State Director of FHA that the proceeds from the CCC loan or purchase have not been received by FHA from the borrower, and that collection cannot be made by FHA, CCC will if the CCC loan has not been repaid or if CCC has purchased the commodity, pay FHA the amount specified in paragraph 4 above or deliver the commodity (or warehouse receipts representing the commodity) to FHA:
6. It is the desire of both FHA and CCC that claims to be processed under this agreement receive prompt attention by both parties and be disposed of as soon as possible. Instructions for the implementation of these procedures at the field office level will be developed and issued by the Washington offices of FHA and CCC.
7. Any question with regard to the handling of any claim hereunder shall be reported by the applicable ASCS office to ASCS in Washington and by the FHA State Director to the National Office of FHA.
This Memorandum of Understanding supersedes the agreement entered into between FmHA or its successor agency under Public Law 103-354 and CCC on November 5, 1951.
Entered into as of this 29th day of May, 1973.
The Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public
Now, therefore, it is agreed as follows:
(1) Upon request of an official of a State ASCS office, the FmHA or its successor agency under Public Law 103-354 State Director in such State shall furnish designated county ASCS offices with the names of producers in the trade area from whom FmHA or its successor agency under Public Law 103-354 holds currently effective liens on commodities with respect to which CCC conducts price support programs. FmHA or its successor agency under Public Law 103-354 will try to furnish a complete and current list of the names of such producers; however, FmHA or its successor agency under Public Law 103-354's liens with respect to any commodity will not be affected by an error in or omission from such lists.
(2) For a loan disbursed by a county ASCS office, CCC will issue a draft in the amount (Iess fees and charges due under CCC program regulations) of the loan on, or purchase price of, the commodity payable jointly to FmHA or its successor agency under Public Law 103-354 and the producer if (a) his name is on the Iist furnished by FmHA or its successor agency under Public Law 103-354, or (b) he names FmHA or its successor agency under Public Law 103-354 as lienholder. The draft will indicate the commodity covered by the loan or purchase.
(3) On issuance of the draft, the security interest of FmHA or its successor agency under Public Law 103-354 shall be subordinated to the rights of CCC in the commodity with respect to which the loan or purchase is made. The word “subordinated” means that, in the case of a loan, CCC's security interest in the commodity shall be superior and prior in right to that of FmHA or its successor agency under Public Law 103-354 and that, on purchase of a commodity by CCC or its acquisition by CCC in satisfaction of a loan, the security interest of FmHA or its successor agency under Public Law 103-354 in such commodity shall terminate.
(4) Nothing contained in this Memorandum of Understanding shall be construed to affect the rights and obligations of the parties except as specifically provided herein.
(5) This agreement may be terminated by either party on 30 days’ written notice to the other party.
Dated: July 20, 1980.
Dated: July 14, 1980.
Under the Commodity Credit Corporation (CCC) Farmer-Owned Grain Reserve Program, a producer may request to rotate or exchange new crop grain for the original crop grain that is in the Farmer-Owned Grain Reserve Program and already encumbered by CCC. The Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) may have subordinated their first lien position to CCC on the original grain placed in reserve and/or may have a first lien on the new crop. FmHA or its successor agency under Public Law 103-354 and CCC desire to devise a mechanism whereby the CCC can relinquish its first lien position on the original grain reserve crop to FmHA or its successor agency under Public Law 103-354 and in turn the FmHA or its successor agency under Public Law 103-354 can relinquish its first lien position to CCC on the replacement grain reserve crop.
Now, therefore, it is agreed as follows:
(1) Upon receipt of a memorandum from an Agricultural Stabilization and Conservation Service (ASCS) County Executive Director or other designated county office official requesting the rotation of a grain reserve crop for a producer borrower(s), the FmHA or its successor agency under Public Law 103-354 County Supervisor and the ASCS county office official will jointly indicate approval or rejection of the request on the bottom of the original and a copy of the memorandum (Approval Memorandum) as follows:
“We hereby agree to and authorize the rotation of the subject producer's grain crops in accordance with the provisions of the Memorandum of Understanding between Farmers Home Administration or its successor agency under Public Law 103-354 and Commodity Credit Corporation dated
In the memorandum, ASCS will include the name(s) of the producer(s) desiring to rotate the grain crops, the approximate number of bushels being rotated, the type of crop, years’ crop being rotated and the location of the original grain reserve crop (approximate land and facility description).
(2) Upon execution of the Approval Memorandum by both ASCS and FmHA or its successor agency under Public Law 103-354, the security interest of FmHA or its successor agency under Public Law 103-354 in the new crop grain shall be subordinated to the security interest of CCC in such grain and the security interest of CCC in the original crop grain shall be subordinated to the security interest of FmHA or its successor agency under Public Law 103-354 in such grain. At that point in time it will be the responsibility of each agency and the borrower to account for their respective interests in the grain crops and/or proceeds from the sale of the grain. The crop rotation and subordination of liens will only involve the amount of grain that has been specifically provided for in the memorandum from ASCS.
(3) If there is an intervening third party lien and it is impossible for FmHA or its successor agency under Public Law 103-354 or CCC to have a first lien on their respective grain crops, the request of the producer to rotate crops will not be granted.
(4) Nothing contained in this Memorandum of Understanding shall be construed to affect the rights and obligations of the parties except as specifically provided herein.
(5) This agreement may be terminated by either party on 30 days written notice to the other party.
Dear : This letter provides important information which the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) requests you to provide to your client
[] Loan payments are $
[] Your client has disposed of some of the property used to secure the FmHA or its successor agency under Public Law 103-354 loan(s). Your client did not get written approval for this action. This property is
[] Your client has breached the agreement(s) contained in the security instrument executed by your client in favor of FmHA or its successor agency under Public Law 103-354 by taking the following action(s)
[] Your client has failed to make the required payments under a confirmed bankruptcy plan.
[] Your client has
Before the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) can act to enforce its security instruments, its regulations require FmHA or its successor agency under Public Law 103-354 to provide borrowers with notice of servicing options. The enclosed forms explain some of the loan servicing options that FmHA or its successor agency under Public Law 103-354 has available. In order for FmHA or its successor agency under Public Law 103-354 to ascertain whether your client is eligible for these options, it is necessary for FmHA or its successor agency under Public Law 103-354 personnel to work closely with
If your client wants to apply for primary and/or preservation loan servicing relief from FmHA or its successor agency under Public Law 103-354, you must provide FmHA or its successor agency under Public Law 103-354 with a letter evidencing a request for servicing on behalf of your client within 60 days from your receipt of this letter. To apply for servicing, your client must also submit a signed copy of Attachment 2 and complete and return the preliminary application forms within this 60-day period. By this response, you will be acknowledging that when FmHA or its successor agency under Public Law 103-354 processes your client's application for loan servicing it is not interfering with any rights or protections your client may have under the Bankruptcy Code and its automatic stay provisions. FmHA or its successor agency under Public Law 103-354's processing of the application may include considering the borrower for primary and preservation loan servicing options, notifying the borrower of FmHA or its successor agency under Public Law 103-354's decision on the application in accordance with subpart S of part 1951-S of this chapter, and holding any mediation, meetings or appeals requested by your client. If your client fails to complete and return the required information within the 60-day period, FmHA or its successor agency under Public Law 103-354 will proceed to enforce its security instrument as allowed under the Bankruptcy Code and FmHA or its successor agency under Public Law 103-354 regulations.
If your client has recently filed under chapter 7, in order for FmHA or its successor agency under Public Law 103-354 to provide primary loan servicing to your client after discharge, your client must reaffirm the FmHA or its successor agency under Public Law 103-354 debt in accordance with the provisions of the Bankruptcy Code. No reaffirmation is necessary for your client to be eligible for preservation loan service programs.
If your client is operating under a confirmed bankruptcy plan, and desires to apply for loan servicing and qualifies for servicing under FmHA or its successor agency under Public Law 103-354's regulations, you must also comply with provisions of the Bankruptcy Code practiced in your jurisdiction concerning modification of the plan. If your client's plan has not yet been confirmed by the Bankruptcy Court, you may choose to file a proposed plan which may or may not contain restructuring features similar to those available under FmHA or its successor agency under Public Law 103-354 regulations. The Government, of course, is free to object to the proposed plan in accordance with provisions of the Bankruptcy Code. If a plan is confirmed before servicing and any appeal is completed under FmHA or its successor agency under Public Law 103-354 regulations, FmHA or its successor agency under Public Law 103-354 will complete the servicing or appeals process, and may consent to a post-confirmation modification of the plan, if appropriate, in accordance with the advice from OGC.
FmHA or its successor agency under Public Law 103-354's farmer program debt servicing regulation is found at 7 CFR, part 1951, subpart S. We cannot promise you or your client that a request for debt servicing will be approved. However, we can promise that a request will be fully and fairly considered by FmHA or its successor agency under Public Law 103-354.
Expenses for household operating, food, clothing, medical care, house repair, transportation, insurance and household appliances, i.e., stove, refrigerator, etc., are essential family living expenses. We do not expect there will be any disagreements over this. However, when proceeds are less than expenses, there might be disagreements about the amounts FmHA or its successor agency under Public Law 103-354 should release to pay for particular items within these broad categories. For example, FmHA or its successor agency under Public Law 103-354 has to release for transportation expenses, but should FmHA or its successor agency under Public Law 103-354 release so that a borrower can buy a new car? If at planning time or during the crop year it appears that there will be sales proceeds available to pay for the borrower's operating and living expenses, including the expense of a new car, the Form FmHA or its successor agency under Public Law 103-354 1962-1 can be completed to show that FmHA or its successor agency under Public Law 103-354 plans to release for a new car. On the other hand, it would also be proper to complete the Form FmHA or its successor agency under Public Law 103-354 1962-1 to release for a used car or for gas and repairs to the borrower's present
We would expect farm operating expenses to present more of a problem than family living expenses. There will probably be a few disagreements over whether an expense is an operating expense (as opposed to a capital expense), but it is more likely that there will be disagreements over the amount FmHA or its successor agency under Public Law 103-354 should release for operating expenses and whether a particular farm operating expense is “essential.” As is the case with family living expenses, disagreements will most likely arise when proceeds are less than expenses.
To resolve disputes over the amount to be released, remember that we must be reasonable and release enough to pay for essential farm operating expenses. Although a borrower might not always agree that enough money is being released, if the borrower's essential farm operating expenses are being paid, we are fulfilling the requirements of the statute. We must provide the borrower with an opportunity to appeal when there is a disagreement over the use of proceeds or when we reject a request for a release.
Section 1962.17 of this subpart states that essential expenses are those which are “basic, crucial or indispensable.” Whether an expense is basic, crucial or indispensable depends on the circumstances. For example, feed is a farm operating expense, but it is not always an essential expense. If adequate pasture is available to meet the needs of the borrower's animals, feed is not essential. Feed is essential if animals are confined in lots. Hiring a custom harvester is a farm operating expense, but is not an essential expense if the farmer has the equipment and labor to harvest the crop just as well as a custom harvester. Hired labor is an operating expense which might be essential in a dairy operation but not in a beef cattle operation. Payments to creditors are essential if the creditor is unable to restructure the debt or to carry the debt delinquent. Renting land is not essential if the borrower plans to use it to grow corn which can be purchased for less than the cost of production. Paying outstanding bills is essential if a supplier is refusing to provide additional credit but not if the supplier is willing to carry a balance due. Of course, the long term goal of any farming operation is to pay all of its expenses, but when this is not possible, FmHA or its successor agency under Public Law 103-354 and the borrower must work together to decide which farm operating expenses are essential and demand immediate attention and cannot be neglected. These are the essential expenses.
We absolutely must release to pay for essential family living and farm operating expenses; there are no exceptions to this. When deciding whether an expense is essential and when deciding how much to release, the choices we make must be rational, reasonable, fair and not extreme. They must be based on sound judgment, supported by facts, and explained to the borrower. Following these rules will help us avoid disagreements with borrowers.
5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
This subpart delegates authority and prescribes policies and procedures for servicing real estate, leasehold interests, and certain note-only cases for Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) Farmer Program (FP) loans. Security servicing for borrowers who have
(a) The terms “nonprogram (NP)” and “ineligible” may be used interchangeably throughout this subpart but are identical in their meaning.
(b) FmHA or its successor agency under Public Law 103-354 will service real estate security in a manner that best accomplishes the loan objectives and protects the Government's financial interest. To accomplish this, FmHA or its successor agency under Public Law 103-354 will service the real estate security in accordance with the security instruments and related agreements, including any authorized modifications and the provisions of this subpart.
(c) The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided that the applicant has the capacity to enter into a binding contract); because all or part of the applicant's income is derived from any public assistance, program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The Federal agency that administers compliance with this law is the Federal Trade Commission, Equal Credit Opportunity, Washington, DC 20580.
(d) If the farm is situated in more than one State, county or parish, the loan will be serviced by the County Office servicing the county in which the borrower's residence is located. If the borrower is a corporaton, cooperative, partnership or joint operation or if the borrower's residence is not on the farm, the loan will be serviced by the County Office servicing the county in which the farm or a major portion of the farm is located.
Each borrower is responsible for repaying principal and interest on a timely basis pursuant to the loan documents, paying real estate taxes in accordance with subpart A of part 1925 of this chapter, providing adequate property insurance in accordance with subpart A of part 1806 of this chapter (FmHA or its successor agency under Public Law 103-354 Instruction 426.1), maintaining, protecting, and accounting to the FmHA or its successor agency under Public Law 103-354 for all real estate security, and complying with other loan requirements.
The County Supervisor, District Director or other servicing official is responsible for informing borrowers of their responsibilities in connection with the loan, seeing that the security is being properly maintained and accounted for, and servicing the account and security in accordance with this subpart. When a borrower fails to maintain, protect, or account for the security, as required by the loan documents, or makes unauthorized disposition or use of any security, FmHA or its successor agency under Public Law 103-354 will institute prompt action to protect FmHA or its successor agency under Public Law 103-354's interest. The County Supervisor, District Director or other servicing official will obtain any needed legal advice from the Office of the General Counsel (OGC) through the State Director. Once a case has been referred to the OGC for legal action, no further action will be taken by the County Supervisor, District Director or other servicing official without prior clearance from OGC. If the case has been referred to the U.S. Attorney, clearance with the U.S. Attorney will be obtained through the OGC. All FmHA or its successor agency under Public Law 103-354 employees will document actions taken to service a loan in the running case record in the borrower's FmHA or its successor agency under Public Law 103-354 file(s). When a servicing action affects a borrower's account (e.g., a foreclosure action is pending), the appropriate FmHA or its successor agency under Public Law 103-354 servicing official will notify the Finance Office.
(a)
(b)
(1) “United States of America,” when the mortgage names the United States as mortgagee, or when a mortgage running to the lender is not under a trust or declaration of trust and the note is held by the insurance fund.
(2) “United States of America, for Itself and as Trustee,” when an FO mortgage is held by the FmHA or its successor agency under Public Law 103-354 under a trust assignment or declaration of trust, regardless of whether the note is held by a lender or by the insurance fund.
When this subpart requires the consent of other lienholders, consent will be obtained and furnished in writing to the FmHA or its successor agency under Public Law 103-354 by the borrower before the FmHA or its successor agency under Public Law 103-354 enters into a transaction which affects its security or its lien. This consent will, unless otherwise provided in a State Supplement, include an agreement as to the disposition of any funds involved in the transaction.
As used in this subpart, the following definitions apply:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(a)
(1) Liquidation action is likely to be taken;
(2) The property has been abandoned;
(3) Necessary to protect the interest of the Government; or
(4) Requested by the borrower.
(b)
(1)
(2)
(3)
(4)
(c)
(i)
(ii)
(A) The requirements for the primary servicing program(s), a subsequent loan, guaranteed loan or subordination are met, and such assistance is necessary to enable the borrower to retain the property, and
(B) The borrower has the ability and resources necessary to overcome the problems that caused the foreclosure or other action, and
(C) The third party agrees to postpone further action pending the processing of the primary servicing programs, a subsequent loan, guaranteed loan or subordination.
(iii)
(2)
(i)
(A) The Government will obtain a greater recovery of the secured debt (not an inventory profit) than it could by bidding at the foreclosure sale, and
(B) After acquisition of the prior lien and completion of any appeals in favor of FmHA or its successor agency under Public Law 103-354, the account will be accelerated and liquidated in accordance with § 1965.26(b) of this subpart. No exception will be made to this provision.
(ii)
(A)
(B)
(iii)
(3)
(d)
In accordance with the Food Security Act of 1985 (Public Law 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 the issuance of the subordination in any crop year, the individual or entity shall be ineligible for a subordination 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 for subordinations will attest on Form FmHA or its successor agency under Public Law 103-354 465-1, “Application for Partial Release, Subordination, or Consent,” that as individuals or that its members, if an entity, have not been convicted of such crime after December 23, 1985. A decision to reject an application for subordination for this reason is not appealable. Softwood timber (ST) loans will not be subordinated.
(a)
(1) The FmHA or its successor agency under Public Law 103-354 debt cannot be refinanced on terms which the borrower can reasonably be expected to meet;
(2) The transaction will further the objectives for which the FmHA or its successor agency under Public Law 103-354 loan or loans were made;
(3) The terms and conditions of the prior lien will be such that the borrower can reasonably be expected to meet them, as well as all other debts;
(4) An assignment of the beneficial interest in any stock required in connection with a loan will be obtained as security, when possible and when needed;
(5) The FmHA or its successor agency under Public Law 103-354 indebtedness after the subordination will be adequately secured or will not be adversely affected by the transaction;
(6) When the FmHA or its successor agency under Public Law 103-354 indebtedness was not fully secured by the market value of the security before the transaction, a subordination may be granted only if the market value of the total real estate security will be increased through improvement or acquisition by an amount at least equal to the additional advance. For Section 502 SFH loans subject to recapture, FmHA or its successor agency under Public Law 103-354 indebtedness will be determined in accordance with subpart I of part 1951 of this chapter.
(7) The funds obtained will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity as further explained in exhibit M to subpart G of part 1940 of this chapter. This requirement will be monitored throughout the term of the loan.
(8) When a non-farm tract secures an SFH loan, the other lender's funds will only be used for the same purposes and with the same limitations that would be applicable if an SFH loan were made.
(9) When additional land is to be acquired with proceeds from the subordination, Form FmHA or its successor agency under Public Law 103-354 440-2, “County Committee Certification or Recommendation,” will be completed before the subordination is approved. A subordination for purchase of additional land will not be approved without favorable recommendation of the County Committee.
(10) Any proposed development will be planned and performed in accordance with subpart A of part 1924 of this chapter, or in a manner directed by the creditor and agreed to by FmHA or its successor agency under Public Law 103-354 which reasonably attains the objectives of subpart A of part 1924 of this chapter.
(11) Funds used to develop or to acquire land will be handled as prescribed in subpart A of part 1902 of this chapter. If the creditor will not permit the use of a supervised bank account, FmHA or its successor agency under Public Law 103-354 and the creditor may agree to another arrangements which will assure that funds will be spent for the planned purposes.
(12) In cases of land purchase or exchange of property, the FmHA or its successor agency under Public Law 103-354 will obtain a valid mortgage on the acquired land. Title clearance and loan closing will be required as for an initial or subsequent FO loan, as appropriate. The mortgage will be recorded when the subordination is delivered to the other lender.
(13) When FmHA or its successor agency under Public Law 103-354 subordinates its lien to that of another lender when the primary purpose of the new loan funds is not to reduce the existing FmHA or its successor agency under Public Law 103-354 loan, written justification for allowing the subordination must be prepared and made a part of the borrower's case file. The approval official will decide whether or not to allow the subordination based on the following factors, which should be addressed in the written justification:
(i) The new loan funds must be needed to accomplish the objectives in § 1965.2 of this subpart;
(ii) The conditions in paragraph (a)(1) through (a)(7) of this section must be met.
(b)
(c)
(d)
(e)
(2)
(f)
(g)
See subpart S of part 1951 of this chapter when a combination of NP, ST and other FP loans are involved. If a FP loan is being deferred and reamortized as an ST loan, partial releases are authorized as provided in Subpart S of Part 1951 of this chapter. However, there is no authority for FmHA or its successor agency under Public Law 103-354 employees to consent to partial release or sale, exchange or other disposition of a portion of the security for an existing ST loan.
(a)
(b)
(1) The transaction will further the objectives for which the FmHA or its successor agency under Public Law 103-354 loan or loans were made;
(2) The proposed use of the funds including the payment of reasonable costs and expenses incident to the transaction will improve the borrower's ability to repay the FmHA or its successor agency under Public Law 103-354 loan(s) or is necessary to place the borrower's operation on a sound basis;
(3) The consideration is adequate for the security being disposed of or the rights granted (see paragraph (c) of this section);
(4) Orderly repayment of the FmHA or its successor agency under Public Law 103-354 indebtedness will not be impaired (does not apply in condemnation cases after final judgment or award which is not appealed);
(5) The transaction will not interfere with successful operation of any farming or other enterprise providing the borrower with repayment ability (does not apply in condemntation cases after final judgment or award which is not appealed);
(6) The market value of the remaining security is adequate to secure the unpaid balance of the FmHA or its successor agency under Public Law 103-354 debts, or if the market value of the security before the transaction was inadequate to fully secure the FmHA or its successor agency under Public Law 103-354 debts, the FmHA or its successor agency under Public Law 103-354's security interest is not adversely affected;
(7) The requirements of § 1965.6 of this subpart are met; and
(8) The borrower cannot graduate to other credit.
(c)
(d)
(1)
(2)
(e)
(2)
(i) The harvest or sale is not in accordance with strict provisions of the initially approval forestry plan,
(ii) Future repayments on the 3 percent advance are scheduled on any basis other than equal annual installments,
(iii) There is a lien on the forest land prior to the lien of the FmHA or its successor agency under Public Law 103-354, or
(iv) There is a delinquency on any FmHA or its successor agency under Public Law 103-354 real estate loan.
(3)
(i) Sale of a portion of the security for its market value on the following terms:
(A) For SFH loans, refer to § 1965.110 of subpart C of part 1965 of this chapter.
(B) For all other loans, not less than 10 percent (of the purchase price) down and payments not to exceed ten annual installments of principal plus interest at not less than the current rate being charged on regular FO loans plus 1 percent or the rate on the borrower's note(s), whichever is greater. Payments may be in equal or unequal installments with a balloon final installment. For farmer program loans approved after December 23, 1985, the sale of mining products gravel, oil, gas, coal, or other minerals will be considered a sale of security
(ii) In each case it must be determined that:
(A) The government's security rights, including the right to foreclose on either the portion being sold or retained, are not impaired,
(B) The down payment and any subsequent payments are applied to the FmHA or its successor agency under Public Law 103-354 debt(s), prior lien(s), or otherwise used as authorized in this section under paragraph (f) of this section, and
(C) If applicable, the requirements of subpart G of part 1940 of this chapter must be met.
(iii) In each case the following conditions must be met:
(A) Any amount to be paid FmHA or its successor agency under Public Law 103-354 from the down payment and subsequent payments must be assigned to FmHA or its successor agency under Public Law 103-354,
(B) The property sold will not be released prior to either full payment of the borrower's account or receipt of full amount of sale proceeds with proper application or release of the proceeds, and
(C) The borrower must agree in writing that the sale proceeds will not affect the borrower's primary and continued obligation for making payments under terms of the note or any other agreements approved by FmHA or its successor agency under Public Law 103-354.
(f)
(1) Proceeds may be applied on liens in order of priority. Written consent of any prior or junior lienholder will be obtained by the borrower and delivered to the FmHA or its successor agency under Public Law 103-354 if any proceeds are not to be applied in accordance with lien priorities.
(2) The borrower may use a portion of any proceeds to pay customary incidental costs appropriate to the transaction and reasonable in amount which the borrower cannot arrange to pay for personal funds or cannot have the purchaser pay. The costs may, for example include real estate taxes which must be paid to consummate the transaction; cost of title examination, surveys, abstracts, title insurance, reasonable attorney's fees, real estate broker's commissions and judgment liens. In any State in which it is necessary to obtain the insured note from the lender to present to the recorder before a release of 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 County Supervisor will advise the borrower when requesting a partial release that the borrower must pay the cost. If the borrower is unable to pay the costs from personal funds, they may be deducted from the sale proceeds. The amount of the charge will be based on the statement of actual cost furnished by the payee.
(3) Proceeds may be used for development of land owned by the borrower or for enlargement, if development or enlargement is necessary to improve the borrower's debt-payment ability and to place the borrower's operation on a sound basis, or to otherwise further the objectives of the loan. The use of proceeds for these purposes will not conflict with the loan purposes, restrictions or requirements of the type loan(s) involved. Any proposed development work will be in accordance with subpart A of part 1924 of this chapter. Funds to be used for development or enlargement will be handled under subpart A of part 1902 of this chapter.
(4) When FmHA or its successor agency under Public Law 103-354 loans secured by a lien on real estate will be adequately secured after a transaction affecting the real estate takes place, proceeds may, with the consent of the State Director and other lienholders on the real estate, be used as follows:
(i) Applied to delinquent or unmatured FmHA or its successor agency under Public Law 103-354 loan installments when the borrower is otherwise unable to meet the installments.
(ii) For other than SFH loans, applied on debts owed creditors other than FSA Farm Credit Programs to the extent needed to establish a basis for continuation of the other creditor's account, if the following requirements are met:
(A) A feasible farm and home plan will be developed in accordance with § 1924.56 of subpart B of part 1924 of this chapter. Voluntary debt adjustment will be utilized, as appropriate, in accordance with subpart A of part 1903 of this chapter.
(B) Proceeds will not be used to pay current crop/operating year family living and/or operating expenses, as developed in the Annual Plan in accordance with § 1924.56 of subpart B of part 1924 of this chapter.
(iii) Develop land not owned by the borrower which is essential to the borrower's operation in an amount not to exceed $10,000, provided: the improvements are needed to improve the borrower's repayment ability and the borrower has tenure arrangements which justify the use of the proceeds on the land not owned by the borrower. Development work performed will be in accordance with subpart A of part 1924 of this chapter. Funds will be handled under subpart A of part 1902 of this chapter.
(5) When liquidation action is pending in accordance with § 1965.26 of this subpart, the County Supervisor or District Director is authorized to approve transactions only when all the proceeds (other than costs authorized in paragraph (f)(2) of this section) will be applied to the liens against the security in the order of their priority.
(g)
(h)
(i)
(1) The spouse or children of the borrower become the owner of the property.
(2) The sale results from a divorce or legal separation and the spouse of the borrower becomes the owner of the property.
(3) An intervivos trust becomes the owner of the property so long as the borrower is a beneficiary of the trust and there is no change in occupancy of the property.
Exhibit A (available in any FmHA or its successor agency under Public Law 103-354 office) of this subpart, “Memorandum of Understanding between Bureau of Sport Fisheries and Wildlife (now the U.S. Fish and Wildlife Service) and the Farmers Home Administration or its successor agency under Public Law 103-354,” outlines the procedure to follow in processing a subordination of an FmHA or its successor agency under Public Law 103-354 mortgage on wetlands on which the Bureau of Sport Fisheries and Wildlife requests an easement for waterfowl habitats. The County Supervisor will handle the request in accordance with the steps outlined in Exhibit A and applicable processing portions of § 1965.12 of this subpart.
The CCC makes loans under its Farm Storage and Drying Equipment Loan Program for the purchase, construction, erection, remodeling, or installment of either farm storage or drying equipment or both and requires that any loan at the discretion of the approving committee, be secured by a lien on the real estate. When the CCC proposes to make a loan to an FmHA or its successor agency under Public Law 103-354 borrower and requests a subordination of the FmHA or its successor agency under Public Law 103-354
As a general policy, FmHA or its successor agency under Public Law 103-354 borrowers will be discouraged from giving other creditors junior liens on real estate securing an FmHA or its successor agency under Public Law 103-354 loan. (For Sections 502 and 504 loans, see § 1965.111 of Subpart C of Part 1965 of this chapter).
(a)
(1) The terms of the junior lien debt are such that repayment is not likely to jeopardize payment of the FmHA or its successor agency under Public Law 103-354 loan;
(2) Operating plans made with the junior lienholder are consistent with plans made with FmHA or its successor agency under Public Law 103-354;
(3) Total debt against the security will not exceed its market value; and
(4) The junior lienholder agrees in writing not to foreclose the mortgage before a discussion with the County Supervisor and after giving a reasonable specified period of written notice to FmHA or its successor agency under Public Law 103-354.
(b)
(a)
(b)
(1) Enters into a lease for a term of more than 3 years; or
(2) Enters into a lease for any term containing an option to purchase.
(c)
(a)
(b)
(c)
(d)
(e)
Form FmHA or its successor agency under Public Law 103-354 440-26, “Consent and Subordination Agreement,” will be completed when a borrower requests FmHA or its successor agency under Public Law 103-354's consent to a severance agreement, or other instrument of similar effect, so that items to be acquired by the borrower through other credit and subject to a chattel lien will not become a part of the real estate securing the FmHA or its successor agency under Public Law 103-354 debt. Some examples of items which may be acquired subject to a chattel lien are silos, storage bins, bulk milk tanks, irrigation or income producing facilities, non-farm enterprise facilities, and recreational equipment. County Supervisors are authorized to give FmHA or its successor agency under Public Law 103-354 consent by executing Form FmHA or its successor agency under Public Law 103-354 440-26 and any necessary severance agreements, provided that the following determinations are made:
(a) The financing arrangements are in the best interest of the Government and the borrower.
(b) The transaction will not adversely affect FmHA or its successor agency under Public Law 103-354's security position and will be within the borrower's debt-paying ability, and
(c) The facility does not exceed the borrower's needs, is modest in cost and design; and is otherwise in line with FmHA or its successor agency under Public Law 103-354 financing policies. OGC will be requested to approve any severance agreement submitted by a borrower that is of a type not previously approved for use in the State and, when necessary, to issue closing instructions. The State Director may request the OGC to prepare a severance agreement instrument for use in the State.
The County Supervisor may take an assignment on income to be received under USDA Programs or similar contracts to protect the financial interest of the Government or to facilitate loan servicing. The assignments of all or a portion of the income from the assignment may be released to the borrower by the County Supervisor when not to the financial detriment of the Government, and when payments due on all FmHA or its successor agency under Public Law 103-354 loans have been made from other income or the assigned income is needed for family living and farm operating expenses. This income will
Deceased borrower cases will be handled under § 1962.46 of subpart A of part 1962 of this chapter.
Bankruptcy and insolvency cases will be handled under § 1962.47 of subpart A of part 1962 of this chapter. For SFH loans, refer to subpart C of part 1965 of this chapter.
Each loan made on a note-only basis without real estate security will be serviced in a manner consistent with the best interests of the FmHA or its successor agency under Public Law 103-354.
(a) Sale of real property on which improvements were made with note-only FmHA or its successor agency under Public Law 103-354 funds. Any loan evidenced only by an unsecured note will be collected by voluntary means at the time of the sale of the property, if possible. If collection is not possible, the loan may be assumed by the purchaser of the property on the terms of the note if the assumption is determined to be in the FmHA or its successor agency under Public Law 103-354's best financial interest. If collection or assumption cannot be effected, consideration should be given to settling the account in accordance with Subpart B of Part 1956 of this chapter, if it is eligible, obtaining judgment, or classifying it as collection-only. In case of a judgment sale, the State Director with the advice of OGC and the U.S. Attorney, will authorize an employee to attend the sale and if appropriate, enter a bid on behalf of the Government under Subpart A of Part 1955 of this chapter.
(b) Assumption of note-only when real property securing another FmHA or its successor agency under Public Law 103-354 loan is involved. When a borrower has an FmHA or its successor agency under Public Law 103-354 loan secured by real estate and another FmHA or its successor agency under Public Law 103-354 loan evidenced only by a note and the real estate is to be transferred and the entire secured real estate debt is to be assumed, all or a part of the unsecured note up to the present market value of the property in excess of existing liens must also be assumed.
(a)
(b)
(c)
(d)
(1)
(2)
(a)
(i) Selling the security under paragraph (f) of this section.
(ii) Transferring the security under § 1965.27 of this subpart.
(iii) Conveying all security to FmHA or its successor agency under Public Law 103-354 as outlined in subpart A of part 1955 of this chapter.
(iv) Refinancing the Farm Loan Programs debt with another lender. The servicing official will explain the provisions of these regulations to the borrower.
(2)
(b)
(2)
(3) [Reserved]
(4) Acceleration of account. When foreclosure is approved, acceleration of the account and demand for payment will be accomplished according to the applicable paragraphs of § 1955.15 of subpart A of part 1955 of this chapter.
(c)
(1) When a borrower is indebted to the agency for more than one type of FLP loan, a thorough study should be made of each loan and the effect liquidation of one or more of the loans would have on any and all other loans. When liquidation of one or more FLP loans secured by real estate and chattels is necessary, and it will jeopardize the repayment of or the accomplishment of the purpose of the other loans, liquidation of all real estate and all chattel security for all loans will be started at the same time. Chattel security will be liquidated under subpart A of part 1962 of this chapter, except when real estate is transferred in accordance with § 1965.27 of this subpart.
(2) SFH loans on nonfarm tracts should not be routinely liquidated because the borrower could not be successful in the farming operation. If the nonfarm property secures only a SFH loan(s), it will not be liquidated unless the appropriate provisions of subpart G of part 1951 of this chapter have been met, including the offering of payment assistance and/or moratorium, if eligible. When the nonfarm security is also additional security for a farmer program loan(s), consideration will be given to continuing with the SFH loan after the other security for the farmer program loan is liquidated provided:
(i) The borrower has acted in good faith, has satisfactorily accounted for all security, and has met loan obligations to the best of the borrower's ability;
(ii) All security for loans other than the SFH nonfarm security is liquidated either voluntarily or through foreclosure;
(iii) The borrower wishes to retain the dwelling and will likely have repayment ability to continue repaying the housing loan;
(iv) Provided the County Committee agrees to the compromise or adjustment offer in accordance with § 1956.57(f) of subpart B of part 1956 of this chapter, the borrower will further agree to compromise or adjust the farmer program debt as follows:
(A) When the market value of the nonfarm SFH property is greater than the amount of the SFH debt (including total subsidy granted if subject to recapture of subsidy), the borrower will make a cash payment equal to his/her equity in the SFH property, and any additional amount he/she is able to pay, on the farmer program debt.
(B) When the market value of the nonfarm SFH property is less than the amount of the SFH total debt, the borrower will make a cash payment of any amount he/she is able to pay, and the lien to secure the FP debt will be released as a valueless lien.
(C) If the borrower cannot make a cash payment as outlined in paragraph (c)(2)(iv)(A) of this section, the County Supervisor will have the borrower execute an Equity Recapture Agreement similar to exhibit D of this subpart, (available in any RHS office), pledging to pay to RHS an amount equal to the difference between the SFH debt and the market value of the SFH security as of the date of acceleration of the FP loan(s). The amount will be based on a current appraisal of the SFH security property. The County Supervisor will notify the Finance Office in accordance with the Automated Data Processing Systems (ADPS) Manual when an Equity Recapture Agreement is executed. The original signed Agreement will be attached to the original SFH promissory note and a copy to the borrower's RHS County Office file. The borrower's file will be retained in the RHS County Office until the equity is paid pursuant to the Agreement. The noncash credit will be applied as of the date the Agreement was executed. Under such an Agreement, the payment will be due when the borrower sells the SFH property, ceases to occupy it, or graduates to another lender. After the borrower executes the Agreement, the remaining FP debt may be settled as appropriate. An equity receivable account will be established by the Finance Office in the amount of the Equity Recapture Agreement, and the County Office will remit collection under the Agreement, in the same manner as an SFH subsidy recapture receivable. In addition, the following statement should be recorded in the body of Form RHS 451-2, “Schedule of Remittance:” Equity Receivable Payment.
(v) In some States FmHA or its successor agency under Public Law 103-354
(3) RHS SFH loans on farm tracts must be considered for payment assistance and/or moratorium at the time servicing options are being considered for the FLP loan(s) prior to acceleration. The RHS county office file will be documented to show that payment assistance and moratorium were considered. When the Notice of Intent notices, set forth in subpart S of part 1951 of this chapter are sent to a borrower who also has an RHS loan, and the dwelling is security for the farm loan(s) and is located on the farm tract, it will not be necessary for RHS to meet the additional requirements of subpart G of part 1951 of this chapter prior to accelerating the RHS loan accounts. The RHS accounts will be accelerated at the same time the Notice of Intent notices, set forth in subpart S of part 1951 of this chapter are sent to the borrower. If it is later determined that the FLP loan(s) is to receive additional servicing in lieu of liquidation, the RHS loan will be reinstated simultaneously with the FLP servicing actions and may be reamortized in accordance with § 1951.315 of subpart G of part 1951 of this chapter.
(d)
(1) If the borrower is not the farm operator, but is involved in the farming operation, i.e., management (Example: sharing in day-to-day activities and management decisions as well as the costs and returns of the operation), and will continue to occupy the security, the County Supervisor can give consent with concurrence of the District Director. For inoperative entities, at least one partner of the partnership, one joint operator of the joint operation, one stockholder of the corporation or one member of the cooperative must meet the involvement/occupancy criteria.
(2) If the failure to operate the security is due to old age, poor health, or death in the family and the borrower or the borrower's family will continue to occupy the security, the District Director can give consent. For inoperative entities, at least one partner (or family) of the partnership, one joint operator (or family) of the joint operation, one stockholder (or family) of a corporation or one member (or family) of a cooperative must meet the occupancy criteria.
(3) If the failure to operate the security will be compounded by the borrower or the borrower's family not occupying the security and the failure to occupy is due to conditions beyond the borrower's control, the State Director can give consent if it is determined that the borrower will reoccupy the property within a reasonable period of time, not to exceed five years, and the conditions of paragraph (d)(1) or (d)(2) could then be met.
(4) If consent cannot be given after complying with the requirements of § 1965.26(b) of this section pertaining to notice and appeals, such a borrower's accounts will be accelerated immediately in accordance with § 1955.15(d)(2) of subpart A of part 1955 of this chapter, based on the failure to operate.
(5) When liquidation of an account is necessary because of failure to operate, the State Director may, in lieu of foreclosure, permit the borrower to pay the account under an accelerated repayment agreement, in accordance with § 1965.26(e) of this subpart.
(e)
(1) Authorization for repayment of the debt under an accelerated repayment agreement is necessary to protect the Government's financial interest,
(2) The borrower can reasonably be expected to meet the accelerated payments, and
(3) The borrower will continue to comply with other requirements of the loans and security instruments.
(4) When an understanding is reached with the borrower, Form FmHA or its successor agency under Public Law 103-354 1965-11, “Accelerated Repayment Agreement,” will be prepared and executed in accordance with the Forms Manual Insert (FMI) for each note accelerated. Accounts rescheduled under Form FmHA or its successor agency under Public Law 103-354 1965-11 will be reclassified as NP loans. The balance of the debt will be scheduled for repayment in annual or monthly amortized installments. If the borrower has monthly income, monthly payments will be scheduled. If annual payments are scheduled, the first installment may be less than an equal amortized installment if it is due less than a full year after the date the agreement is executed and the borrower will not be able to pay the first full amortized installment. If the borrower fails to meet any installment when due as provided in the agreement, foreclosure action will be initiated. Rates and terms authorized are:
(i) For real estate purpose loans secured by real estate when the remaining repayment period exceeds 10 years, the term generally will not exceed 10 years. In justified cases, the term may be up to 15 years. In no case may the term exceed the final due date of the note. An amortization factor for 20 to 25 years may be used, with a balloon installment due on the final due date. The interest rate will be that in effect for regular FO loans on the date the agreement is executed plus 1 percent or the interest rate of the note, whichever is greater.
(ii) For loans for operating purposes secured by real estate when the remaining repayment period exceeds 2 years, the term may not exceed 5 years and in no case may the term exceed the final due date of the note. The interest rate will be that in effect for regular OL loans on the date the agreement is executed plus 1 percent or the interest rate of the note, whichever is greater.
(iii) For loans for either real estate or operating purposes when the remaining repayment period is less than 10 years or 2 years, respectively, the State Director may authorize a shorter term. For loans made for a combination of loan purposes, the State Director may authorize an accelerated repayment term of up to 10 years, not to exceed the final due date of the note. The interest rate will be as specified in (e)(4)(i) or (ii) of this section.
(f)
(1) A substantial recovery can be made on the FmHA or its successor agency under Public Law 103-354 secured indebtedness based on the recent appraisal report required by paragraph (a)(2) of this section.
(2) All the proceeds are applied on the mortgage debts in accordance with their respective priorities except authorized costs as specified in § 1965.13(f)(2) of this subpart.
(3) Any applicable requirements of subpart G of part 1940 of this chapter must be met.
(4) The agency's liens against the security property are not released until the appropriate sale proceeds for application on the Government's claim are received. The release will be made on forms approved or prepared by OGC.
(5) When the debt is not paid in full and a deficiency judgment is not to be obtained, a release of liability of the borrower can be processed:
(i) The County Committee has recommended release of liability by determining that the borrower(s) and any cosigner do not have reasonable ability
(ii) 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 Executive 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 agency office).
(iii) The borrower has never been liable for any direct FLP loan or loan guarantee which was reduced or terminated in a manner resulting in a loss to the Government.
(6) If a release from liability cannot be granted, the borrowers will be sent a letter similar to exhibit F of subpart A of part 1955 of this chapter (available in any agency office). The servicing official will meet with the borrower within 30 days to assist the borrower in the development of a debt settlement offer in accordance with subpart B of part 1956 of this chapter. (available in any agency office).
(g)
(1) When the seller or transferor (and cosigner, if any) is not released from liability, the account balance after the assumption is processed, or cash proceeds are applied, will be settled according to subpart B of part 1956 of this chapter or reclassified to collection only.
(2) When the transferor will be released of liability Form FmHA or its successor agency under Public Law 103-354 1965-8 “Release from Personal Liability” will be given to the borrower and otherwise distributed in accordance with the Forms Manual Insert.
(3) In the case of a sale outside the program for less than the debt owed, Form FmHA or its successor agency under Public Law 103-354 1965-8 will be given to the borrower and otherwise distributed in accordance with the Forms Manual Insert.
When the mortgage requires the consent of the Agency to any proposed sale or other transfer of real estate security, the borrower should be reminded that before firm agreements have been reached with a purchaser of all or a portion of the security, the borrower and purchaser should contact the County Supervisor concerning the proposed sale. Farm Loan Programs (FLP) loan borrowers must be sent attachment 1 of exhibit A of subpart S of part 1951 of this chapter within 3 working days after the borrower contacts the County Supervisor inquiring about a transfer. If a proposed sale would not result in the FLP accounts being paid in full at the time of sale, the County Supervisor should explain thoroughly the requirements of this section and § 1965.13 or § 1965.26 of this subpart, as appropriate. When the transferor is receiving a substantial down payment from the sale of the property, the purchaser must be required to contact other sources of credit in an effort to secure a loan for repayment of the FLP loan(s) in full. Transfer with assumption of real estate security on NP terms will be in accordance with subpart J of part 1951 of this chapter.
(a)
(b)
(1)
(2)
(3)
(4)
(i) Cash equity due the transferor (if any) is applied first to payment of costs and the transferor will not be receiving any cash payment above costs.
(ii) Payment of any junior liens by the transferee does not exceed $5,000.
(iii) Real estate commission does not exceed the customary rate for the type of property for the area.
(iv) The transferee's personal funds equal to the transferee's costs, including the transferor's costs to be paid by the transferee, and transferor's equity (if any) will be held in escrow by an FmHA or its successor agency under Public Law 103-354 designated closing agent for disbursing at closing of the transfer.
(v) The payment of the costs by the transferee is advantageous to the government. The probability of foreclosure, voluntary conveyance, maintenance and disposal of the security will be considered in making the determination.
(5)
(i) EM actual loss loans may be assumed on the same terms by those who were actually involved in the operation at time of the loss and meet one of the following requirements:
(A) If an individual received the actual loss loan, the transferee must be either an individual who is an immediate family member of the borrower or an entity which is made up of only immediate family members of the borrower. Such a transferee can assume the entire amount of the actual loss loan on the same terms.
(B) If a partnership on a joint operation received the actual loss loan, the transferee must be either a partner or a joint operator who was a partner or joint operator in the partnership or joint operation at the time the actual loss loan was made, or an entity which is made up of only those who were
(C) If a corporation/cooperative received the actual loss loan, the transferee must be either a stockholder/member who was a stockholder/member of the corporation/cooperative at the time the actual loss loan was made or an entity which is made up of only stockholders/members who were stockholders/members of the corporation/cooperative at the time the actual loss loan was made. Such transferees can assume on the same terms only that portion of the actual loss loan equal to the transferee's percentage of ownership in the corporation/cooperative (or, in the case of an entity transferee, the combined percentages of the individual stockholders/members).
(ii) A deceased borrower's spouse, other relative or joint tenant who did not sign the note but who acquires title to the property will be allowed to assume the loan on the same terms. Form FmHA or its successor agency under Public Law 103-354 465-5 will not be completed.
(iii) When one of the jointly liable individual borrowers withdraws from the operation and conveys his/her interest in the security to the remaining borrower, who will repay the total indebtedness, and assumption agreement is not required. This paragraph does not apply to partners in a partnership, joint operators in a joint operation, stockholders in a corporation or members of a cooperative. The previous joint owner will be released from liability for the indebtedness by completing Parts 1 and 3 of Form FmHA or its successor agency under Public Law 103-354 1965-8, “Release from Personal Liability,” provided:
(A) A divorce decree or property settlement document did not make the withdrawing party responsible for loan payments;
(B) The withdrawing party's interest in the security is conveyed to the person with whom the loan will be continued; and
(C) The person with whom the loan will be continued has adequate repayment ability.
(iv) As immediate family member of an individual borrower who wants to assume a debt with the existing borrower(s) may do so on the same terms. After the transfer, the assuming family member may own the property jointly with the existing borrower(s) or subject to a life estate of the existing borrower. Also, an entity which is made up of only the individual borrower and the borrower's immediate family members may assume on the same terms the entire amount of a loan received by the individual borrower. Title to the real estate security would have to be transferred to the entity.
(v) If there is only one stockholder/member/partner/joint operator of a corporation/cooperative/partnership/joint operation who is personally liable on the note, and that stockholder/member/partner/joint operator withdraws from the operation or dies,
(vi) If a stockholder/member/partner/joint operator or another corporation/cooperative/partnership/joint operation buy out the ownership interest of the other stockholders/members/partners/joint operators and continues to operate the farm; and if the remaining stockholder(s)/member(s)/partner(s)/joint operator(s) is not personally liable on the note(s), that stockholder(s)/member(s)/partner(s)/joint operator(s) will be required to assume personal liability on the loan(s) or else the transfer will not be approved. A Form FmHA or its successor agency under Public Law 103-354 465-5 does not have to be processed unless title to the real estate is transferred.
(vii) New stockholders/members/partners/joint operators entering the corporation/cooperative/partnership/joint operation will be required to assume personal liability on the loan or else the transfer will not be approved. A Form FmHA or its successor agency under Public Law 103-354 465-5 does not
(6)
(7)
(i) The portion of the FmHA or its successor agency under Public Law 103-354 security transferred has a present market value at least equal to the total indebtedness owed by the borrower or such indebtedness is reduced by a cash payment to the present market value of the property;
(ii) The transaction is advantageous to the Government; and
(iii) In cases of SFH loans, the portion of the property improved with SFH funds is conveyed to the person assuming the SFH loan.
(iv) The security retained by the transferor will be released from the Government's lien. The transferor will be released from liability if the conditions of paragraph (f) of this section are met.
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21) Form FmHA or its successor agency under Public Law 103-354 1910-11,
(c)
(i)
(ii)
(iii)
(A) Subject to the FO loan limitations and rates and terms set forth in subpart A of part 1943 of this chapter by an immediate family member of an individual borrower, an immediate family member of any partner of a partnership, joint operator of a joint operation, stockholder of a corporation or member of a cooperative, an entity which is made up of only immediate family members of an individual borrower, or an entity which is made up of only immediate family members of any partner(s), joint operator(s) stockholder(s) or member(s).
(B) Subject to the FO loan limitations and rates and terms set forth in subpart A of part 1943 of this chapter by an applicant who is determined eligible for an FO loan if the property has a suitable farm tract, or by an applicant eligible for an SFH loan if the property has a suitable dwelling on a farm or non-farm tract. When closing an assumption under this paragraph or paragraph (A) above, the loan will be reclassified as “FO” or “SFH,” as applicable.
(C) On ineligible rates and terms in accordance with paragraph (d) of this section for all other transferees. The ineligible term assumption(s) will be serviced in accordance with § 1965.34 of this subpart.
(iv)
(v)
(B)
(C)
(2)
(d)
(e)
(f)
(g)
(1)
(2)
(i)
(ii)
(iii)
(iv)
(v)
(3)
(i)
(ii)
(iii)
(4)
(5)
(6)
(i) The transfer will be contingent upon the County Committee certification on Form FmHA or its successor agency under Public Law 103-354 440-2 for an eligible applicant. This action will be documented by checking the appropriate block on Form FmHA or its successor agency under Public Law 103-354 440-2, as specified in the Forms Manual Insert.
(ii) When the County Committee recommends a release of the transferor and any cosigner from liability when real estate security is being transferred under paragraph (c) or (d) of this section with an assumption of less than the total debt, the provisions of paragraph (f) of this section will be followed.
(iii) When the total outstanding debt is not assumed, a farmer program loan borrower who is not being released from liability must be sent a letter similar to exhibit F of subpart A of part 1955 of this chapter.
(7)
(8)
(9)
(h)
(1) The County Supervisor will advise the State Director of the transfer or proposed transfer of the security and reasons why FmHA or its successor agency under Public Law 103-354 cannot approve the transferee as eligible or ineligible. Complete details of the transfer conditions, terms and consideration will be submitted to the State Director with the borrower (transferor) file. Current information on status of the loan(s) owed FmHA or its successor agency under Public Law 103-354 and of any debts owed other lenders on the property will be included with a current appraisal of the FmHA or its successor agency under Public Law 103-354 security and security equity position. The appraisal will be completed in accordance with subpart E of part 1922 of this chapter. Recommendations of the County Committee, County Supervisor, and District Director will be included on the following:)
(i) Reasons why continuation of the loan would be in the best interest of the Government.
(ii) The effect continuation of the account will have on the FmHA or its successor agency under Public Law 103-354 program in the area.
(iii) Comments and opinion on adequacy of security and ability of transferor to pay the FmHA or its successor agency under Public Law 103-354 debt.
(2) The State Director will review all information submitted and request additional information needed to reach a decision. This includes advice of OGC. After deciding, the State Director will either:
(i) Return the file to the County Supervisor with instructions to proceed with liquidation of the account in accordance with § 1965.26(b) of this subpart and state reasons for the decision; or
(ii) Return the file to the County Supervisor stating reasons for the decision and giving consent to continue the account as an NP loan with instructions for obtaining liability of the transferee, maintaining security position and future servicing. If FmHA or its successor agency under Public Law 103-354 is adequately secured and the entire FmHA or its successor agency under Public Law 103-354 debt will be paid in 5 years or less from date of the transfer, the borrower-transferor can be released of liability under paragraph (f) of this section and the account serviced in the name of the transferee. If the entire FmHA or its successor agency under Public Law 103-354 debt will not be paid within 5 years from date of the transfer, the borrower will not be released of liability, the account will continue to be serviced in the borrower's name and the borrower will remain liable for the debt under the terms of the security instruments. Advice of OGC will be obtained as needed to determine the borrower's continued liability and adequacy of security.
Additional liens will not be taken for other loans on marginal land used for the production of softwood timber if the land is presently securing an ST loan.
(a)
(1) Present security for the loan is not adequate to protect the interests of the FmHA or its successor agency under Public Law 103-354, and
(2) The borrower is delinquent, has substantial equity in the real estate to be mortgaged and it is determined that the taking of the mortgage will not prevent the making of an FmHA or its successor agency under Public Law 103-354 real estate loan, which might be needed in the foreseeable future.
(b)
(1) the facts which justify taking the real estate lien;
(2) A conservative estimate of the present market value of the real estate to be mortgaged. (It will not be necessary to submit an appraisal of the property to be mortgaged.);
(3) A brief description of any existing liens on the property, and the repayment terms and the unpaid balance on the debts secured by existing liens, unless this is accurately reflected on a recent financial statement; and
(4) The name of the title holder and how title of the property is held. (Title evidence need not be required.)
(c)
See § 1965.129 of subpart C of this part for servicing SFH loans with cosigners.
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 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.
State Supplements will be prepared, with the advice of the OGC, as necessary to carry out this subpart and forwarded to the National Office for prior or post approval.
The State Director is authorized to redelegate in writing any authority delegated to the State Director in this subpart to one or more of the following State Office employees: Chief, Farmer Programs; Farmer Programs Specialist.
The collection of information requirements in this regulation have been approved by the Office of Management and Budget and have been assigned OMB control number 0575-0086.
The exhibits referenced in this subpart are available in any FmHA or its successor agency under Public Law 103-354 office.
This subpart prescribes the policies, procedures, and authorizations for servicing and liquidating all Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) multiple housing type loans and labor housing grants. These loans include Rural Rental Housing (RRH), Rural Cooperative Housing (RCH), Rural Housing Site (RHS), and Farm Labor Housing (LH). The servicing functions described in this subpart are for the purpose of assisting the borrower in meeting the objectives of the loan, repaying loans on schedule, complying with FmHA or its successor agency under Public Law 103-354 agreements and regulations, protecting the interest of FmHA or its successor agency under Public Law 103-354, and maintaining the security property. Borrowers will be required to pay their debts to the FmHA or its successor agency under Public Law 103-354 and other creditors according to their agreements. Borrowers shall be required to operate their facilities according to FmHA or its successor agency under Public Law 103-354 regulations and applicable State and local laws and regulations. State Directors with the assistance of the Office of General Counsel (OGC) should issue necessary State Supplements to assure compliance with State laws. After careful analysis, and borrower in default who does not evidence prospects of attaining successful operations within a reasonable time will have its loan(s) liquidated according to authorizations contained in this subpart and Subpart A of Part 1955 of this chapter.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(a) Each State Director is authorized to perform the following functions upon determining that the action will not be to the financial detriment of FmHA or its successor agency under Public Law 103-354:
(1) Require additional security in accordance with § 1965.88 of this subpart.
(2) Require borrowers to carry insurance of the types and amounts determined necessary on the real estate and chattel property mortgaged to the FmHA or its successor agency under Public Law 103-354. The borrower must carry adequate liability insurance as required by exhibit B, paragraph XV B 3 of subpart C of part 1930 of this chapter. Evidence of insurance is required for Multiple Housing loans according to the provisions of subpart A of part 1806 of this chapter (FmHA or its successor agency under Public Law 103-354 Instructions 426.1).
(3) Approve the issuance of transfer of stock, change of beneficial interest, change of membership, admittance of new or substitute partners, or withdrawal of partners from a partnership; provided, the State Director determines that the requirements of § 1965.63 of this subpart have been met, and that the change will not jeopardize the successful operation of the project, the soundness of the loan, or the eligibility of the borrower.
(4) Approve transfers with assumption of FmHA or its successor agency under Public Law 103-354 loan accounts when all development has been completed and the unpaid principal balance and accrued interest does not exceed the State Director's loan approval authority as set forth in subpart A of part 1901 of this chapter for the type of loan(s) involved. Transfers will be processed according to § 1965.65 of this subpart.
(5) Approve the reamortization of FmHA or its successor agency under Public Law 103-354 indebtedness that is within the State Director's loan approval authority as set forth in subpart A of part 1901 of this chapter for the type of loan(s) involved according to the provisions of § 1965.70 of this subpart.
(6) Consent to the sale, exchange, or release of security property according to the applicable provisions of § 1965.77 of this subpart.
(7) Accept payment of RRH, RCH and LH loans subject to the provisions of subpart E of this part.
(8) Approve subordination of FmHA or its successor agency under Public Law 103-354 lien position if the total debt against the security after the transaction is within the State Director's approval authority as set forth in subpart A of part 1901 of this chapter
(9) Approve requests from borrowers for the creation of additional indebtedness on the security property. Such approvals must take into account the provisions of loan resolutions or other agreements with FmHA or its successor agency under Public Law 103-354 and other existing creditors. If the proposed additional debt would make the total outstanding obligations of the borrower exceed the FmHA or its successor agency under Public Law 103-354 loan approval limit of the State Director as set forth in subpart A of part 1901 of this chapter, complete documentation and the State Director's recommendations must be sent to the National Office for prior review and authorization to approve.
(10) Renew existing security instruments in accordance with FmHA or its successor agency under Public Law 103-354 State Supplements after consulting with OGC.
(11) Approve, with the concurrence of OGC, changes in a borrower's legal organization such as revisions to certificates of limited partnership, partnership agreements, articles of incorporation or charter, bylaws, or trust agreements when the changes proposed will promote better borrower organization and business operation, and will not adversely affect the repayment of the loan, impair the security rights of the FmHA or its successor agency under Public Law 103-354, or make the borrower ineligible for the existing FmHA or its successor agency under Public Law 103-354 loan or grant assistance.
(12) Approve the borrower's execution, extension, renewal, modification, or cancellation of contracts of types not covered elsewhere in this section when the State Director, with the advice of OGC, determines that the action is in the best interests of both the borrower and the FmHA or its successor agency under Public Law 103-354; and in the case of RRH, RCH, and LH projects, will not be detrimental to the tenants or members.
(13) Approve the extension or expansion of facilities and services in accordance with the respective loan program regulations when the action will best serve the interest of both the borrower and the FmHA or its successor agency under Public Law 103-354.
(14) Approve the lease of security property according to § 1965.61(e) of this subpart.
(b) The State Director may reject any servicing request not in accordance with the guidelines of this subpart.
(c) Any borrower directly and adversely affected by action under this subpart will be granted the appropriate appeal rights according to subpart B of part 1900 of this chapter.
(d) The State Director may request from the National Office any authority not specifically delegated to the State Director. Written requests consistent with the intent and requirements of each respective loan program must be submitted to the National Office for prior authorization and must include the complete docket and the State Director's specific recommendations.
(a) District Directors will: (1) Keep sufficiently informed of borrower operations to know whether they are operating successfully and complying with their obligations to the FmHA or its successor agency under Public Law 103-354,
(2) Furnish borrowers with information, notices, reminders, fair housing posters, advice and assistance, and take other actions regarding the loan obligations and compliance therewith as considered necessary to determine whether borrowers are operating successfully, are complying with their loan obligations, and are likely to continue with compliance. This includes conducting all civil rights compliance reviews to determine compliance with all appropriate legislation regarding nondiscrimination in federally financed programs, in accordance with Subpart E of Part 1901 of this chapter,
(3) Promptly report to the State Director the failure of any borrower to comply with the terms and conditions of its agreements with FmHA or its
(4) Furnish training and technical guidance not readily available through other sources to borrowers to protect the FmHA or its successor agency under Public Law 103-354's interests. This training and guidance may relate to business operations, project management, personnel training, membership activities, fair housing requirements and policy, or any other phase which vitally affects the borrower's operations,
(5) Maintain the Management Card System according to 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) to assure prompt compliance by borrowers with FmHA or its successor agency under Public Law 103-354 requirements relating to repayments, budgets and reports, taxes, insurance and bond renewals, reports required by State law or regulations as indicated in State Supplements, security instrument expirations, and other items of loan and security servicing,
(6) Maintain the official borrower case files according to the requirements of FmHA or its successor agency under Public Law 103-354 Instruction 2033-A (available in FmHA or its successor agency under Public Law 103-354 State and District offices), and MISTR according to FmHA or its successor agency under Public Law 103-354 Instruction 2033, and
(7) Promptly collect FmHA or its successor agency under Public Law 103-354 loan payments and service security for the FmHA or its successor agency under Public Law 103-354 loans.
(b) State Director will:
(1) Coordinate and direct loan servicing activities relating to borrowers and perform other functions as prescribed by this subpart.
(2) Delegate in writing any authority delegated to the State Director in this subpart unless otherwise restricted, to only those State Office staff members who, in the opinion of the State Director, have been adequately trained and who demonstrate their knowledge in understanding and administering the MFH policies and procedures of FmHA or its successor agency under Public Law 103-354. The individual delegation of responsibility and authority may be limited or expanded in scope, or revoked, as deemed appropriate by the State Director and will be prepared according to FmHA or its successor agency under Public Law 103-354 Instruction 2006-F (available in any FmHA or its successor agency under Public Law 103-354 office). Unless specifically authorized elsewhere in this subpart, the authorities of the State Director may not be delegated below the State Office staff level. (The State Office staff does not include District Office staff for the purposes of this subpart.)
(3) Ensure that District Directors carry out their responsibilities for loan servicing and provide the District Office with appropriate technical guidance, training and follow-up supervision to service loans.
(4) Coordinate as appropriate with OGC.
(5) Maintain necessary liaison with State and local officials.
(a)
(b)
(c)
(d)
(e)
(1)
(2)
(i) The lease is advantageous to the borrower and the tenants, and will not impair the FmHA or its successor agency under Public Law 103-354's interest.
(ii) The amount of the consideration is adequate. The consideration must be sufficient to pay all prorated operating and maintenance expenses, a prorated share of the annual reserve deposit, and the prorated part of the loan amortization at the note rate of interest.
(iii) The lease should provide at its termination for the restoration of the leased space to its original condition or a condition acceptable to the owner and FmHA or its successor agency under Public Law 103-354.
(iv) Consent to the lease shall not exceed 3 years at a time unless the State Director determines with the prior written concurrence of the National Office that a longer lease is clearly more advantageous to the borrower, the tenants, and the FmHA or its successor agency under Public Law 103-354.
(v) If foreclosure action has been approved, consent to lease and use of proceeds will be granted only under directions from OGC or the U.S. Attorney, as appropriate.
(vi) When another lienholder's mortgage requires consent of that lienholder to a lease, written consent will be obtained prior to FmHA or its successor agency under Public Law 103-354 approval of the lease.
(vii) The authority to approve the lease of laundry facilities or commissary stores may be redelegated in writing to the District Director by the State Director.
(3)
(4)
(i) The form will show the terms of the proposed lease and will specify the use of proceeds, including any proceeds to be released to the borrower.
(ii) The form will be submitted through the District Director to the State Director, along with a copy of the lease, official borrower case files, the District Director's comments and recommendations, and any other information pertinent to the transaction.
(iii) The State Director will review the material, obtain the guidance of OGC prior to indicating approval or disapproval on Form FmHA or its successor agency under Public Law 103-354 465-1, and provide additional servicing instructions to the District Director.
(f)
Organizations which may be indebted to FmHA or its successor agency under Public Law 103-354 include, but are not limited to: public bodies, broadly-based nonprofit corporations, nonprofit organizations of farmworkers, associations of farmers, RCH consumer cooperatives, profit and limited profit corporations, trusts, profit and limited profit general partnerships, and limited partnerships. This section describes the policy of FmHA or its successor agency under Public Law 103-354 in approving changes of members, ownership interest, and transfer or issuance of stock in these organizations, to determine the continued eligibility of the borrower entity. It
(a)
(1) Ownership changes totalling
(2) Ownership changes in
(3) Other ownership changes of 50% or less within any consecutive 12 month period will be processed without restriction.
(4) All changes of less than 100% will be processed according to paragraph (e) of this section.
(b)
(1) The District Director will provide the State Director with a complete written report of the circumstances, including the organization's plan for obtaining additional membership, and the continued operation of the project. The District Director should submit
(2) The State Director will review the report and evaluate any adverse effect the noncompliance will have on the loan. If it appears that the interest of the United States will be adversely affected, the State Director will forward the material together with appropriate comments and recommendations, to the OGC for review and guidance in the continued servicing or liquidation of the account as appropriate. The State Director will provide the District Director with instructions for servicing the account.
(c)
(d)
(e)
(1) The borrower has provided a listing showing the name, address, Employer Indentification or Social Security number, and percent of ownership of each member, stockholder, general partner, or beneficiary of a trust that will have an interest in the organization.
(2) All new or substitute general partners, and all new or substitute trustees, members, stockholders in privately held corporations, or beneficiaries that will hold an interest in the organization in excess of 10 percent have submitted a current, dated, and signed financial statement showing assets and liabilities, with information on the status and repayment schedule of each debt. (The admission of limited partner in a limited partnership is addressed in § 1965.63(e)(3) of this subpart.) In cases involving publicly held corporation borrowers, borrowers will be required to notify FmHA or its successor agency under Public Law 103-354 of stockholders admitted to the organization in accordance with the approved articles of incorporated and bylaws. However, FmHA or its successor agency under Public Law 103-354 consent is required when there are changes in the overall corporate management or in the organizational documents. (All other changes in stockholders in publicly held corporations are subject to the requirements of this section.) All financial statements submitted must comply with the reporting requirements set forth in exhibit A-7 to subpart E of part 1944 of this chapter. A resume must also be submitted, together
(3) The admission of limited partners in a limited partnership on the basis of the limited partnership agreement previously approved by FmHA or its successor agency under Public Law 103-354 does not constitute a change requiring redetermination of eligibility. Borrowers admitting new or substitute limited partners are however required to notify FmHA or its successor agency under Public Law 103-354 at least annually with a listing showing the name, address, Taxpayer Identification number, and percent of ownership of each new or substitute limited partner. The borrower must also provide copies of any amendments to the organizational documents effecting such changes in the organization together with an opinion from the borrower's attorney certifying that the changes in limited partner interests have been completed in accordance with the approved partnership agreement.
(4) The borrower is unable to provide the housing or other facilities from its own resources and is unable to obtain the necessary credit from private or cooperative sources on terms and conditions that would enable the borrower to refinance the FmHA or its successor agency under Public Law 103-354 indebtedness and operate the project for amounts within the payment ability of those eligible to occupy the housing or benefit from the project. When tenants are benefiting from any FmHA or its successor agency under Public Law 103-354 or other Government subsidy program, the continued availability of the subsidy will be considered in making this decision. For profit and limited profit organizations, the assets of the individual general partners, members or stockholders will also be considered.
(5) The type of change must not adversely affect the operations of the project.
(i) The payment is not contingent on the planned sale of the project or additional owership interests;
(ii) An assignment of interests to secure a promissory note, in the case of a limited partnership, is restricted to the limited partners interests only and
(iii) In cases other than the limited partner's interest in a limited partnership, that there is no reversionary interest held in the entity; and
(iv) Any security agreement or equity note, clearly indicates the necessity of FmHA or its successor agency under Public Law 103-354 approval before any substitutions of interests take place, regardless of any default on the equity note.
(6) In the case of the sale of the interest of a general partner, or the admission or substitution of any general partner, in either a limited partnership or a general partnership, the new or substitute general partner must agree to assume the responsibilities and obligations of the original general partner under the terms of the FmHA or its successor agency under Public Law 103-354 promissory note, mortgage, and the borrower's partnership agreements. The assumption of any personal liability of the transferring general partner by the assuming general partner in a limited partnership may be waived by the State Director with the advice of the OGC if the organizational papers require that liability be limited to the asssets of the partnership according to § 1944.21(a)(2) of subpart E of part 1944 of this chapter. After consulting OGC,
In consideration for being approved by the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) for admission as a general partner into
(7) Any withdrawing stockholder, member, or partner personally liable for the FmHA or its successor agency under Public Law 103-354 indebtedness will not be released of liability unless the new stockholder, member, or partner is made personally liable for the FmHA or its successor agency under Public Law 103-354 debt on an agreement approved by OGC, and the State Director determines that the assets and net worth of the new stockholder, member, or partner are substantially the same as, or greater than, that of the party to be released.
(8) The State Director must determine that approval of the transaction will not adversely affect the FmHA or its successor agency under Public Law 103-354 program in the area, that the objectives of the loan will not be changed, and that the successful operation of the project will not be jeopardized. In making this determination, the State Director must consider the past performance, experience, qualifications and abilities of any individual or organization obtaining an interest in the borrower organization, other than a limited partner holding a minority interest in a limited partnership. Serious consideration must also be given to an individual having a record or reputation for discriminating against individuals because of their race, color, national origin, handicap or other prohibited basis.
(9) Organizational papers must be amended to reflect the changes and a copy submitted to FmHA or its successor agency under Public Law 103-354 to be retained in the case files. The amendment should specify that FmHA or its successor agency under Public Law 103-354 must approve all membership changes (except the admission of limited partners described in § 1965.63(e)(3) of this subpart) or transfers, if they do not already do so. OGC will review any proposed changes of beneficial interests in a trust to determine that all applicable program requirements have been met.
(a)
(1) The requirements of this section apply when:
(i) Title to the security property is transferred, either when the project is sold or through a change in the borrowing legal entity, such that the new entity is considered a distinct and separate legal entity from the original borrower;
(ii) An unauthorized sale of a project has occurred or will occur through a land contract or similar contract;
(iii) The liability for the FmHA or its successor agency under Public Law 103-354 indebtedness has been or will be assumed by an organization, entity or individual who is not presently liable for the debt;
(iv) Membership interests within a borrower entity have been or will be changed 100 percent within any consecutive 12-month period as indicated by § 1965.63(a) of this subpart.
(2) When the mortgage or deed of trust requires FmHA or its successor agency under Public Law 103-354 consent to the sale or other transfer or real estate security, the borrower
(3) Proposed transfers must not be the detriment of the FmHA or its successor agency under Public Law 103-354 or the tenant. LH loans will only be transferred under this subpart when they will continue to be used to provide housing for farm laborers as defined in subpart D of part 1944 of this chapter. Cooperative loans will only be transferred when they will be used for the purpose of providing low income rental housing to promote the general welfare of the community.
(4) The transfer of projects as defined in § 1944.205 of subpart E of part 1944 of this chapter, in which the FmHA or its successor agency under Public Law 103-354 loan transfer is needed to remove a hardship which adversely impacts the present borrower and was caused by circumstances beyond the borrower's control, such as:
(i) Illness or death of the principals;
(ii) Court order requiring the division of security property;
(iii) The individual borrower faces serious financial difficulties due to circumstances beyond the borrower's control, which will force him/her out of operation. These circumstances do not include transferring the property to obtain the equity needed to permit the borrower to apply for additional FmHA or its successor agency under Public Law 103-354 loans or to raise capital to support the borrower's other financial interests not including the FmHA or its successor agency under Public Law 103-354 financed project. Borrowers under this type of hardship must be able to show that they have acted in good faith, demonstrated their managerial skills and financial abilities; and otherwise complied with all other agreements made with FmHA or its successor agency under Public Law 103-354. Hardship transfers due to construction cost overruns will only be considered in the case of individual borrower accounts. (If additional funds are needed to cover cost overruns for any other type of borrower entity, consideration should be given to the admission of new partners, sale of stock, etc., under the provisions of § 1965.63 of this subpart to continue ownership of the project.)
(5) When the State Director determines that a hardship is present and the official case files have been adequately documented to clearly identify the hardship, a transfer may occur without penalty to the transferor. When a hardship is not present and the loan(s) are less than 5 years old, transfer requests should be processed but the transferor (including principals) will be ineligible for further loans or participation in the transferee or other RRH applicant entities for the remainder of the 5-year period. The start of the 5-year period begins on the date of FmHA or its successor agency under Public Law 103-354 loan closing and/or any subsequent transfer.
(6) Transfers of RRH projects with initial or subsequent loans (except loans for the purpose of repairs to existing units) that are at least 5 years old will be processed according to the provisions of this subpart without penalty to the transferor. The transferor (including the principals) may continue to participate in the RRH program through new and existing projects assuming he/she has performed satisfactorily and meets the eligibility criteria of § 1944.211 of subpart E of part 1944 of this chapter.
(7) In all cases, the purchaser is required to provide evidence of its inability to obtain credit elsewhere on rates and term that will not cause rental rates in excess of what low- and moderate-income tenants could afford, considering the availability of any rent subsidies that may be available to the project.
(8) All transfers are subject to the payment application system conversion requirements in subpart K of part 1951 of this chapter.
(9) For all transfers, 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. A copy of the signed and
(b)
(1) Transfers will be made to either eligible or ineligible applicants. Eligible applicants are those applicants meeting all of the eligibility criteria as defined by the appropriate loan program regulations. Ineligible applicants are those applicants failing to meet the eligibility requirements for the respective loan type. Transfers to eligible applicants will receive preference over transfers to ineligible applicants, provided 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.
(i) Transfers to eligible applicants will generally be completed on the basis of the same terms if the loan account is current or can be brought current when the transfer and assumption is closed.
(ii) Transfers to eligible applicants desiring to assume delinquent loans which cannot be brought current at the time of closing, and transfers to ineligible applicants, will be transferred on the basis of new terms.
(2) The approval official must determine that the security is adequate for the FmHA or its successor agency under Public Law 103-354 indebtedness being assumed. If the State Director determines that the total secured FmHA or its successor agency under Public Law 103-354 debt(s) exceeds the present market value of the security, the transferee must assume an amount at least equal to the present market value less any prior liens. In those cases, the transferor will be released from liability and the remaining debt will also be processed according to the applicable provisions of subpart B of part 1956 of this chapter. When the present market value of the security equals or exceeds the debt the transferee will assume the total FmHA or its successor agency under Public Law 103-354 secured debt(s). Security will be upgraded if necessary to meet FmHA or its successor agency under Public Law 103-354 standards.
(3) The transferor shall not receive an equity payment as part of a transfer unless:
(i) All unpaid FmHA or its successor agency under Public Law 103-354 indebtedness against the property is assumed;
(ii) All real estate and personal property taxes owned by the project are current;
(iii) All FmHA or its successor agency under Public Law 103-354 loan payments on the project are current;
(iv) The reserve account is at the authorized level at the time of the transfer;
(v) The State Director receives National Office authorization to proceed, if the preceding requirements cannot be met and it can be demonstrated that no other alternative, including liquidation, would be in the best interests of FmHA or its successor agency under Public Law 103-354 and the tenants; and
(vi) When the transfer is NOT being made in connection with a request for prepayment of the FmHA or its successor agency under Public Law 103-354 loan;
(A) Any equity payment paid to the transferor shall be paid in cash at the time of the transfer; or
(B) If paid on terms;
(
(
(
(
(
(
(
(vii) When the transfer is being made to avert prepayment of the FmHA or its successor agency under Public Law 103-354 loan, an equity loan may be made in accordance with the provisions of subpart E of this part and subpart E of part 1944 of this chapter. If additional equity is to be paid by the purchaser to the seller above the amount of equity recognized by FmHA or its successor agency under Public Law 103-354 in the prepayment valuation of the project, the provisions of paragraph (b)(3)(vi) of this section will apply.
(4) No payment will be received by the transferor for regular equity or equity in connection with a prepayment action unless all FmHA or its successor agency under Public Law 103-354 loans against the project are assumed in full or the payment to the transferor is applied in total against non-FmHA or its successor agency under Public Law 103-354 prior liens. The State Director may require that all or a part of any equity payment be applied against other FmHA or its successor agency under Public Law 103-354 loans owed by the borrower on other FmHA or its successor agency under Public Law 103-354 projects owned by the borrower that are not current, if the FmHA or its successor agency under Public Law 103-354 loans against the project being purchased are assumed in full and all prior liens paid in full.
(5) Upon completion of the transfer there must be no liens, judgments, or other claims against the security being transferred other than those by FmHA or its successor agency under Public Law 103-354 and those authorized liens to which FmHA or its successor agency under Public Law 103-354 has previously agreed, unless prior written approval is obtained from the National Office.
(6) When the loan(s) is secured by both chattel and real estate, all chattel security must be transferred, sold, or liquidated by the time of closing the transfer of the real estate.
(7) The transferee must complete and submit Form HUD 935.2, “Affirmative Fair Housing Marketing Plan,” for the State Director's approval as required by § 1901.203 of subpart E of part 1901 of this chapter.
(8) When the spouse of a deceased individual borrower is not currently liable for the indebtedness, a transfer and assumption to the spouse can be accomplished through use of Form FmHA or its successor agency under Public Law 103-354 1965-9, “Multiple Family Housing Assumption Agreement and Form FmHA or its successor agency under Public Law 103-354 1965-10, ‘Information on Assumption of Multiple Family Housing Loans,” on the same rates and terms if the account is current or new rates and terms if the account is not current. If the spouse is determined to be an eligible applicant according to applicable provisions of the respective loan program and this Subpart, the approval official may
(9) The transfer must be completed with the advice and closing instructions of the OGC.
(10) The rents to the tenants can be increased only if the provisions of paragraph XI of exhibit B to subpart C of part 1930 of this chapter are met.
(11) The transferee will be required to submit reports according to § 1930.122 of subpart C of part 1930 of this chapter.
(12) Forms FmHA or its successor agency under Public Law 103-354 1944-50, “Multiple Family Housing Borrower/Project Characteristics” and 1944-51, “Multiple Family Housing Obligation—Fund Analysis” must be processed in accordance with their respective FMIs for all transferees to update the accounting system.
(c)
(1) All transfers to eligible borrowers will subject the borrower to the appropriate restrictive-use provisions contained in exhibits A-1 or A-2 of subpart E of this part.
(2) All necessary repairs to assure that the housing will be decent, safe and sanitary should be made prior to the transfer whenever possible. When repairs cannot be completed prior to closing, the necessary funds will be escrowed and the repairs will be identified, agreed upon prior to closing and documented as specified in § 1924.5 of subpart A of part 1924 of this chapter. Also, any improvements required by FmHA or its successor agency under Public Law 103-354 to meet the accessibility requirements of section 15b.41 of subpart F of part 15b of subtitle A (see § 1944.215(b)(6) of subpart E of part 1944 of this chapter) should be considered part of any substantial rehabilitation work undertaken as part of the transfer. All repairs will be in accordance with the provisions of subpart A of part 1924 of this chapter. Funds for such improvements or repairs will be from sources in the following priority: Transferor's equity payment; contributions by the transferee; reserve account being transferred provided the amount remaining in the reserve account will be adequate to meet the repairs and expenses in the immediate or near future; if loan funds are available, from the use of an RRH or LH loan when appropriate.
(3) For rental and RCH (as applicable) projects, the transferor's project operating accounts, reserve account, any tenant security deposits, any balance remaining in the transferor's supervised bank account which are needed to complete project development, and any equipment purchased with project funds will be transferred to the transferee. Any funds remaining in an RA contract not disbursed by the transferor will be assigned to the transferee, unless RA is not needed for current eligible residents or another form of subsidy is to be used. Any RA determined to not be needed will be reassigned in accordance with the provisions of paragraph XV of exhibit E to subpart C of part 1930 of this chapter.
Funds in the reserve account should be at the scheduled level and transferred to the transferee at the time of transfer. If an equity loan is to be made by FmHA or its successor agency under Public Law 103-354, reserve and other accounts must be at the scheduled level at the time of transfer.
(4) Any excess development funds held in a supervised bank account must be refunded to the respective loan account upon receipt of the transfer request.
(5) A loan and/or grant may be made to the transferee in connection with a transfer subject to the policies and procedures governing the kind of loan and/or grant being made. Loan and/or grant funds may not be used, however, to pay equity to a transferor unless authorized in accordance with subpart E of this part to avert prepayment.
(6) The transferees must prepare operating budgets, as required by the appropriate program regulations governing the kind of loan being transferred, covering the first partial year and the
(7) For transfers of RRH and RCH loan accounts, current executed tenant and former member certifications using Form FmHA or its successor agency under Public Law 103-354 1944-8, “Tenant Certification,” or a HUD approved form of “Certification or Recertification of Tenant Eligibility” for any tenants receiving Section 8 subsidy, must be on file with FmHA or its successor agency under Public Law 103-354 or provided for each tenant, as required by Exhibit B to subpart C of part 1930 of this chapter, evidencing that the units are or will be occupied by tenants meeting the FmHA or its successor agency under Public Law 103-354 eligibility requirements when the transfer is closed.
(8) For transfers of RRH and LH loan accounts, all leases should also be assigned to the transferee no later than the date of closing.
(9) The proper type of loan agreement or loan resolution for the type of transferee involved must be in effect and secured in the mortgage or deed of trust at the time of transfer. If changes are needed in the exisiting loan agreement or loan resolution to accomplish this, amendments must be made to the existing loan agreement or resolution secured by the mortgage on the security property with the advice of the transferee's attorney and approval of OGC or by any other method acceptable to OGC. If the RRH transferee wishes to convert to the loan agreement/resolution format of Form 1944-33, “Loan Agreement”; 1944-34, “Loan Agreement”; or 1944-35, “Loan Resolution”, as appropriate, the transferee may accomplish this by amending the existing loan agreement/resolution with the advice of transferee's attorney and concurred in by OGC.
(10) When the transfer is NOT being made in connection with a request for prepayment of the FmHA or its successor agency under Public Law 103-354 loan, a limited profit RRH transferee's initial investment and rate of return in the project will remain the same as that originally provided to the transferor. However, if a loan to a nonprofit or profit type borrower is being transferred to a limited profit type transferee, the initial investment to be shown in the loan resolution or agreement will be “None” unless an exception is made by the State Director. (The State Director's authority to establish initial investment will not be delegated to other State Office staff.) Any initial investment established by the State Director should not exceed the amount shown in the transferor's loan agreement/resolution with a rate of return which will not exceed the rate set forth in § 1944.215(n) of subpart E of part 1944 of this chapter when the transfer is approved. An exception will be considered when the following conditions are met and fully documented in the casefile:
(i) The transferee contributes funds for repairs or authorized improvements beyond those which would have been paid from the transferor's equity as indicated in paragraph (c)(2) of this section, or
(ii) The transferee contributed sufficient cash to reduce the loan principal being assumed to no more than 95% (97% for loan agreements dated on or after March 11, 1988) of the original development cost (unless an exception is made in writing by the National Office), or
(iii) The transferee's total contributions for the repairs and debt reduction identified in paragraphs (c)(9) (i) and (ii) of this section, exceed 5% (3% for loans approved on or after March 11, 1988) of the purchase price, or
(iv) The transfer is referred to the National Office with the appropriate recommendations and a request to establish an initial investment for the transferee for those cases in which the State Director requests advice and assistance.
(11) When the transfer is being made to avert prepayment of the FmHA or its successor agency under Public Law
(12) If the transfer involves an RRH or RCH loan using interest credit with a Form FmHA or its successor agency under Public Law 103-354 1944-7, “Multiple Family Housing Interest Credit and Rental Assistance Agreement,” in effect, the transferee may also receive interest credit by executing a new Form FmHA or its successor agency under Public Law 103-354 1944-7 effective the date of transfer. RRH and RCH loans will not be converted from a subsidized (interest credit) basis to a nonsubsidized (full profit) basis as part of the transfer process. If the transfer is to be made on a nonprofit or limited profit basis, the transferee may receive interest credit if the loan is eligible for interest credit according to exhibit H to subpart C of part 1930 of this chapter. A new Form FmHA or its successor agency under Public Law 103-354 1944-7 will be executed by the transferee, attached to Form FmHA or its successor agency under Public Law 103-354 1965-10, “Information on Assumption of Multiple Family Housing Loans,” and a copy of Form FmHA or its successor agency under Public Law 103-354 1944-50, and forwarded to the Finance Office, MFH Unit, when the transfer is closed. The borrower project data on Form FmHA or its successor agency under Public Law 103-354 1944-50 should have been established when the transfer was approved.
(13) A transferee may participate in the RA program if the transferor's project is an eligible project and the transferee is an eligible borrower according to exhibit E to subpart C of part 1930 of this chapter. If the transferor participates in the RA programs, the transferee may assume the remaining portion of the transferor's RA agreement when the transferee is eligible. When the transferee is assuming the transferor's RA agreement, Form FmHA or its successor agency under Public Law 103-354 1944-55, “Multiple Family Housing Transfer of Rental Assistance,” will be executed and attached to the new or existing Form FmHA or its successor agency under Public Law 103-354 1944-27. A copy of Form FmHA or its successor agency under Public Law 103-354 1944-55 and a copy of Form FmHA or its successor agency under Public Law 103-354 1944-50 will be attached to Form FmHA or its successor agency under Public Law 103-354 1965-10 and forwarded to the Finance Office. If the transferee will not be assuming an existing RA agreement, the agreement will be suspended by memorandum to the Finance Office. Subsequently, the State Director must transfer the suspended RA unit(s) to another project(s), using Form FmHA or its successor agency under Public Law 103-354 1944-55, in accordance with exhibit E of subpart C of part 1930 of this chapter.
(14) If a project operates under the HUD Section 8 program, the Housing Assistance Payment (HAP) contract must also be assigned to the transferee with prior approval from HUD. This approval must be obtained so that the assignment of the HAP contract occurs no later than the closing of the transfer.
(15) The transferee must thoroughly understand all loan requirements including the tenant eligibility, management, reserve account, audit, and reporting requirements of applicable FmHA or its successor agency under Public Law 103-354 regulations; and the loan agreement or loan resolution and the content of the signed Form FmHA or its successor agency under Public Law 103-354 400-4, “Assurance Agreement.” Before the transfer is closed the District Director shall carefully review with the transferee subpart L of part 1944 of this chapter, subpart C of part 1930 of this chapter, the applicable loan program regulations, and the loan agreement or resolution with the transferee.
(16) Release of liability will be considered according to the following:
(i) When all FmHA or its successor agency under Public Law 103-354 security is transferred and the total outstanding debt is assumed, the transferor will be released from liability.
(ii) In those cases where the value of the security transferred and debt assumed is less than the full amount of the FmHA or its successor agency under Public Law 103-354 debt, the
(Transferor's name), in our opinion, does not have reasonable debt-paying ability to pay the balance of the debt not assumed after considering its assets and income at the time of the transfer. Transferors have 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 transferor be released of personal liability upon the transferee's assumption of that portion of the indebtedness equal to the present market value of the security property.
(d)
(1) Ineligible applicants can only be approved when a downpayment is made equivalent to a minimum of 10 percent of the remaining loan balance to be assumed. Each ineligible transferee will be encouraged to make as large a downpayment on the FmHA or its successor agency under Public Law 103-354 secured indebtedness as the transferee is financially able.
(2) The transferee must have the ability to pay the FmHA or its successor agency under Public Law 103-354 debt(s) according to the assumption agreement and must possess the legal capacity to enter into the contractual agreement.
(3) The balance of the FmHA or its successor agency under Public Law 103-354 indebtedness assumed must be scheduled for repayment in 2 years or less for RHS accounts, and usually 10 years or less for other types of multiple family loan accounts. If longer terms are needed for LH, RRH, or RCH projects with multiple unit structures, the State Director may authorize longer terms up to 20 years. (Single Family type structures may be sold on terms for 15 years or less.) Amortized monthly or annual installments will be charged with interest to the transferee at the rate currently applicable to above-moderate RH loans, including insurance charges, or at the rate of interest specified in the note(s) being assumed, whichever is greater. Form FmHA or its successor agency under Public Law 103-354 1965-9 will be executed by the transferee.
(4) The State Director may release the transferor from liability under the same provisions as stated in paragraph (c)(14) of this section only when all of the real estate security for a loan is transferred, the total outstanding indebtedness or that portion of the debt equal to the present market value of the security is scheduled for repayment in five years or less from the date of the assumption agreement.
(5) When an ineligible transferee assumes an FmHA or its successor agency under Public Law 103-354 loan where the present borrower has personal liability and it is scheduled for repayment in more than 5 years from the date of the assumption agreement, the transferor must acknowledge their continued liability for the debt by signing an agreement as follows:
The undersigned hereby acknowledges the continued personal liability for the indebtedness owed to the FmHA or its successor agency under Public Law 103-354 and assured
(The original of the signed agreement will be attached to the original assumption agreement, a copy filed in the transferee's District Office case folder, and a copy provided the transferor.)
(6) Transfers to ineligible applicants of loans made on or after December 21, 1979, will not be authorized without the prior consent and authorization of the National Office. Authorization must be requested in writing and include all the information required in paragraph (e) of this section.
(7) Transfers to ineligible applicants of projects subject to restrictive-use provisions will continue to retain the applicable restrictive-use provisions and cause the project to be operated in conformance with FmHA or its successor agency under Public Law 103-354 instructions. If it is determined by FmHA or its successor agency under Public Law 103-354 that the housing is no longer needed to house eligible tenants in accordance with the provisions of subpart E of this part, the restrictive-use provisions may be released.
(8) Those loans which are transferred to ineligible applicants will be classified as Nonprogram Property (NP) and serviced according to this subpart to the extent possible. Those cases which cannot be serviced according to this subpart will be forwarded to the National Office for advice and guidance.
(e)
(f)
(2) Form FmHA or its successor agency under Public Law 103-354 1965-9 will be executed according to the FMI. The unpaid principal balance and accrued interest to be shown on Form FmHA or its successor agency under Public Law 103-354 1965-9 and 1965-10 will be determined by accessing the project account record via field terminal. When this is not possible, the unpaid principal balance, accrued interest, and any other charges will be computed from Form FmHA or its successor agency under Public Law 103-354 1951-53, “Multiple Family Housing Transaction Record” or Form FmHA or its successor agency under Public Law 103-354 451-11, “Statement of Account.” The transferee will be advised of the total amount paid as of the closing date which has not been credited to the account, the payment required to place the account on schedule as of the previous installment due date and, any payments required to bring any monthly or annual payments current, and the
(3) When the property transferred will continue to be used for the same or a similar purpose for which Federal financial assistance was extended, the transferee must sign Form FmHA or its successor agency under Public Law 103-354 400-4.
(4) An appraisal will be required for each transfer, except those completed on a same terms basis for which the State Director is satisfied that the security is adequate. (An appraisal will always be required for transfers on new terms.) An FmHA or its successor agency under Public Law 103-354 designated MFH appraiser will be responsible for preparing an appraisal report within 30 days of the District Director's receipt of the completed application when the total indebtedness will not be assumed, or the State Director may accept an independent appraisal provided by the transferor or transferee under the conditions later specified in this paragraph when the total debt is being assumed and the FmHA or its successor agency under Public Law 103-354 designated MFH appraiser is unable to complete an appraisal within 30 days of the District Office's receipt of the completed application. If the last appraisal is less than 1 year old and the transfer is within the State Director's authority, the FmHA or its successor agency under Public Law 103-354 designated appraiser may supplement the present appraisal report, in lieu of preparing a new appraisal by attaching information on the present market value. A new appraisal will be prepared according to the requirements of FmHA or its successor agency under Public Law 103-354 Instruction 1922-B (available in any FmHA or its successor agency under Public Law 103-354 office) when the current appraisal is over 1 year old, or when the State Director determines a new appraisal report is needed. An independent appraisal may NOT be accepted from the transferor or transferee for the initial appraisal required of FmHA or its successor agency under Public Law 103-354 under provisions of subpart E of this part. The conditions under which the State Director may accept an independent appraisal from the transferor or transferee in lieu of an FmHA or its successor agency under Public Law 103-354 prepared appraisal are:
(i) The expense of the appraisal will be paid by the transferee or transferor without obligation to FmHA or its successor agency under Public Law 103-354,
(ii) The appraisal will be prepared by an accredited Senior Real Property Appraiser (SRPA), Senior Real Estate Analyst (SREA) or Member, Appraisal Institute (MAI) real estate appraiser. The State Appraiser/Trainer may accept an appraisal report from other than an accredited SPRA, SREA or MAI appraiser if he or she determines that:
(A) There are no accredited appraisers within a reasonable distance from the project location, and
(B) The individual preparing the appraisal has satisfactorily completed a minimum of
(iii) The appraisal report form will be Form FmHA or its successor agency under Public Law 103-354 1922-7, “Appraisal Report for Multi-Unit Housing,” or the Federal Home Loan Mortgage Corporation form, FHLMC Form 71A, and it will include adequate documentation to support the appraised value and the qualifications of the appraiser.
(iv) The total FmHA or its successor agency under Public Law 103-354 debt will be assumed by the transferee.
(v) A review of the appraisal will be made by the State Appraiser/Trainer according to FmHA or its successor agency under Public Law 103-354 Instruction 1922-B (available in any FmHA or its successor agency under Public Law 103-354 office) using Form FmHA or its successor agency under
(vi) The appraised value of the property is sufficient to secure the existing FmHA or its successor agency under Public Law 103-354 debt, planned subsequent FmHA or its successor agency under Public Law 103-354 loan(s), and any authorized junior liens.
(5) Form FmHA or its successor agency under Public Law 103-354 1965-9 will be executed according to the FMI when the full debt will be assumed at the same rate and terms. The loan account(s) must be current at the time of the transfer and the reserve account on schedule, less any authorized withdrawals, if the transfer is to be at the same rate and terms.
(6) Form FmHA or its successor agency under Public Law 103-354 1965-9 will be executed according to the FMI when an account cannot be brought current at the time of transfer or less than the full debt is assumed. The loan repayment period may be extended to the maximum term authorized by the appropriate loan program, considering the value and economic life of the security. Transfers on new terms are also subject to the following conditions:
(i) The interest rate charged for all loans, except LH loans, will be the current rate being charged for those loans at the time of loan closing, or the interest rate at the time of approval (the date Form FmHA or its successor agency under Public Law 103-354 1944-51 is approved), whichever is less. The interest rate of LH loans will be the rate specified in the note, except that loans transferred to public bodies, nonprofit organizations of farmworkers, and broadly-based nonprofit corporations for LH purposes may be at a one percent interest rate regardless of the rate specified in the note if the State Director determines that the reduction is necessary in order to maintain rental rates at a level affordable to the tenants. If the State Director determines that the transfer at one percent is necessary for other types of LH transferees, the case should be submitted to the National Office, with the State Director's recommendations and justifications for consideration.
(ii) Loans for RRH and RCH projects which are amortized on an annual payment basis and transferred through the use of Form FmHA or its successor agency under Public Law 103-354 1965-9 shall be converted to a monthly payment amortization and are subject to PASS.
(iii) LH loans may continue to be transferred on a DIAS basis or may be converted to PASS when the approval official determines such a conversion will not be detrimental to the successful operation of the project.
(7) The following paragraph is to be inserted in Form FmHA or its successor agency under Public Law 103-354 1965-9 whenever the full amount of equity has not been paid in cash or through an equity loan made by FmHA or its successor agency under Public Law 103-354 to avert prepayment:
The assuming party covenants and agrees that irrespective of any other agreement to the contrary, (a) no present or future lien(s) have or will be attached to the partnership property encumbered by FmHA or its successor agency under Public Law 103-354 or the income therefrom, (b) the equity payable to the seller will be provided from outside sources or from any authorized return on investment and not from a planned sale of the project, (c) the right of FmHA or its successor agency under Public Law 103-354 to approve or disapprove the substitution of partners in a general or limited partnership transferee organization (this phrase may be stricken when the transferee is an individual) has not and will not be superseded by any agreement between the purchaser and seller that implies prior consent by FmHA or its successor agency under Public Law 103-354 on partner changes in the case of default, (d) the seller does not and will not have a reversionary interest in the FmHA or its successor agency under Public Law 103-354 encumbered property, and (e) the requirements of § 1965.65 of FmHA or its successor agency under Public Law 103-354 Instruction 1965-B (7 CFR part 1965) have been met.
(8) All RRH, RCH, and LH loans, including those approved prior to December 21, 1979, which are transferred to eligible applicants will become subject to the restrictive-use provisions of section 502(c) of title V, Housing Act of 1949, as amended. The restrictive-use language set forth in the appropriate exhibits A-1 or A-2 in accordance with §§ 1965.214(g) and 1965.216(c)(3) of subpart E of this part must be added, with the advice of OGC, to the assumption agreement, security instruments, and
(9) When the transfer docket forms are completed, the approval official must determine that:
(i) The proposed transfer conforms to the applicable procedural requirements and that determinations of hardship status, eligibility, etc., are clearly documented in the casefile.
(ii) Each form is prepared correctly according to the FMI or other appropriate regulations, and
(iii) Items such as names, addresses, and the amount of the indebtedness to be assumed are the same on all forms in which those items appear.
(10) The District Director will record in the Running Case Record or in memo form, the pertinent information concerning the negotiations made between an eligible transferee, FmHA or its successor agency under Public Law 103-354 personnel, the applicant's creditors, and other lenders concerning the availability of other credit. The investigation on the availability of other credit for eligible transferees will be documented in the case file as required for the kind of loan being assumed. Any letters from lenders or other evidence which may have been obtained indicating that the applicant is unable to obtain credit elsewhere on rates and terms that would not cause rental rates to be in excess of what low and moderate income tenants could afford will be included in the docket.
(11) A compliance review should be conducted as required by subpart E of part 1901 of this chapter, if a current one has not recently been completed.
(12) The District Director will forward the transferee's application docket and the official case file, with any comments and recommendations to the State Office. The following table will be used as a guide in distributing the necessary forms for a transfer docket:
(13) The following additional information is required for an equity loan to a nonprofit organization in conjunction with the transfer:
(i) Identity of Interest statement between transferor and transferee,
(ii) Statement of experience of organization and all principals,
(iii) Management Plan and Agreement in accordance with exhibit B of subpart C of part 1930 of this chapter,
(iv) Proposed Application for Occupancy, Lease, and Occupancy Rules and Regulations in accordance with exhibit B of subpart C of part 1930 of this chapter.
(v) Option or purchase agreement,
(vi) Proposed budget showing anticipated rents with updated figures on required reserve contributions,
(vii) Data on current tenants’ incomes, rents and RA, and incomes of those on the waiting list to show amount of RA which will be needed for current tenants and other eligible occupants based on the proposed budget.
(viii) If rehabilitation will be undertaken at the time of the loan, plans and specifications and method of construction must be outlined,
(ix) A breakdown of packaging and administration costs to be paid with any advance to nonprofit organizations or public agencies purchasing a project to avert prepayment, if an advance has not previously been applied for.
(x) If needed, a request for initial operating funds and a detailed breakdown of expenses anticipated to be paid from the funds, and
(xi) District Office comments and recommendations and the State Office evaluation.
(14) If the transfer is within the State Director's loan approval authority, the docket will be forwarded to OGC for review and necessary closing instructions. If the transfer is not within the State Director's loan approval authority, or all planned development is not complete; the complete transfer docket, borrower case file, OGC comments, and complete comments and recommendations of both the District and State Director will be forwarded to the National Office for review and approval authorization.
(15) During the period that a transfer is pending in the District Office, payments received by the Finance Office will continue to be applied to the transferor's account. Those payments include any downpayments made in connection with the transfer for reducing the amount of the debt to be assumed. Any payment on the account not included in the latest transaction record will be deducted from the total amount of principal and interest calculated from the latest information available before the assumption agreement is completed and signed.
(i)
(ii)
(g)
(2) The parties to the transfer are responsible for obtaining legal services necessary to accomplish the transfer. A profit or limited profit organization transferee may use any designated attorney or title insurance company to close the transfer according to the applicable closing instructions. The attorney or the title insurance company and their principals or employees must not be members, officers, directors, trustees, stockholders or partners of the transferee or transferor entity. Nonprofit organization transferees may use a designated attorney who is a member of their organization if the cost is reasonable, typical for the area, and is earned.
(3) The transferee will obtain fire and extended coverage insurance, and flood insurance when required, according to the appropriate program requirements for the outstanding loan(s) involved, unless the State Director requires additional insurance as a condition of approval after evaluating the potential for loss due to special hazards associated with the project. When insurance is required, it may be obtained either by transfer of the existing coverage by the transferor or by acquisition of a new policy by the transferee. When the full amount of the 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.
(4) The proper type of loan agreement or resolution for type of transferee involved must be in effect at the time of the transfer. If changes are needed in the existing loan agreement or resolution cited in the mortgage, the changes should be made by amending the existing loan agreement or resolution after obtaining the advice of OGC.
(5) The restrictive language contained in § 1944.176(d)(1) of subpart D of part 1944 of this chapter and § 1944.236(b)(1) of subpart E of part 1944 of this chapter must be inserted in the deed of conveyance or other instruments as required by OGC for RRH, RCH, and LH loans.
(6) At a time no later than the transfer closing, the transferee will be provided copies of the security instruments (promissory note, mortgage or deed of trust, rental assistance agreement, loan agreement of resolution, etc.) which were executed by the transferor or previous borrower to originally secure the loan being assumed.
(7) A servicing visit should be scheduled within 90 days of closing to verify the transferee's compliance with program requirements.
(h)
For
(a)
(1) The loans are being transferred under § 1965.65(f)(6) of this subpart on new terms to the transferee, OR.
(2) An initial and subsequent loan(s) under one project number were closed on the same date at the same rates and terms, i.e., same interest rate and final due date.
(3) The promissory notes and the loan agreements/resolutions will be consolidated.
(4) The conditions for consolidation of loan agreements/resolutions must be met.
(5) The total indebtedness (principal plus accrued interest, overage and late fees) of all loans being consolidated does not exceed the State Director's approval authority.
(6) If consolidation of loans is not possible on the Amortization Effective Date (AED) for the loans, consolidation
(b)
(2) A new Form FmHA or its successor agency under Public Law 103-354 1944-7, “Interest Credit and Rental Assistance Agreement,” will be prepared and signed by the borrower for the new consolidated promissory note and distributed according to the FMI. The Interest Credit Plan originally established for the project will apply to the consolidated note. If the Interest Credit Plan is changed with the new Form FmHA or its successor agency under Public Law 103-354 1944-7, the District Office will enter the new plan for the project through their field office terminal.
(3) Form FmHA or its successor agency under Public Law 103-354 1965-17, “Multiple Family Housing Note Consolidation,” will be completed to show all of the notes which have been consolidated in the new Form FmHA or its successor agency under Public Law 103-354 1944-52. A copy of the completed Form FmHA or its successor agency under Public Law 103-354 1965-17 will be sent to the Finance Office for processing. The AMAS M5A screen for the project should be reviewed by the District Office and updated, as appropriate, when submitting Form FmHA or its successor agency under Public Law 103-354 1965-17 for processing.
(4) The original and District Office copies of all notes or assumption agreements that are consolidated will be stamped “consolidated,” by the District Office. The original instruments being consolidated will be stapled to the “consolidated” note and filed in the safe in the District Office. When the consolidated note has been paid in full or otherwise satisfied, it and all other instruments will be handled according to the provisions of § 1951.15 of subpart A of part 1951.
(5) A consolidated loan agreement or resolution using Forms FmHA or its successor agency under Public Law 103-354 1944-33A, “Consolidated Loan Agreement RRH Insured Loan to an Individual Operating on a Profit Basis or RRH Loan to an Individual Operating on a Limited Profit Basis,” FmHA or its successor agency under Public Law 103-354 1944-34A, “Consolidated RRH Loan Agreement To a Partnership Operating on a Profit Basis, To a Limited Partnership Operating on a Profit Basis, To a Partnership Operating on a Limited Profit Basis, To a Limited Partnership Operating on a Limited Profit Basis,” or FmHA or its successor agency under Public Law 103-354 1944-35A, “Consolidated Loan Resolution RRH Loan to a Broadly Based Nonprofit Corporation, RRH Loan to a Profit Type Corporation, RRH Loan to Profit Type Corporation Operating on a Limited Profit Basis,” as appropriate, will be prepared for RRH loans to reflect current reporting requirements and the authorized initial investment attributable to the owner after the consolidation has occurred. A revised consolidated loan agreement or resolution will be prepared for LH loans containing the requirements of exhibit C, D, or E of subpart D of part 1944 of this chapter, as appropriate.
(6) Consolidation of notes will only be accomplished with the guidance and assistance of OGC. Under no circumstances will promissory notes be consolidated if the security position of FmHA or its successor agency under Public Law 103-354 will be adversely affected.
(7) New security instruments which describe the consolidated note will be filed to perfect the FmHA or its successor agency under Public Law 103-354 lien position. If the new lien position taken is junior only to the previous lien position securing the loans being
(c)
(2) The State Director may approve the consolidation of loan agreements/resolutions irrespective of the total indebtedness represented by all loan agreements/resolutions being consolidated.
(3) The loan agreements being consolidated are for loans made for the same purpose (for example, loans specifically made for senior citizen projects cannot be consolidated with loans for family projects, unless the consolidated project is redesignated “mixed” and the units previously designated “senior citizen” are restricted to tenants meeting the requirements for “senior citizen” as specified in exhibit B of subpart C of part 1930 of this chapter), to the same borrower entity and have the same plan of operation (nonprofit, limited profit or full profit), and are operating under the same type of Interest Credit, if applicable.
(4) The requirements of subpart C of part 1930 of this chapter concerning reporting, accounting and project management will be fulfilled as a single project.
(5) All project accounts being consolidated must be current after the consolidation processes, unless authorized by the National Office.
(6) RA agreements will not be consolidated; each RA agreement will be tracked under a separate RA number through AMAS. The RA can be assigned to eligible tenants in the new “project” per assignment priorities. The waiting list(s) for the projects being consolidated will be combined.
(7) For consolidation of loan agreements/resolutions of loans in which no loan to build or acquire new units was made on or after December 15, 1989, the restrictive-use provisions of section 502(c) of title V, Housing Act of 1949, as amended will apply. The appropriate restrictive-use language set forth in exhibit A-1 of subpart E of this part for RRH, RCH or LH loans will be added, with the advice of OGC, to the loan agreement/ resolution and security instruments as a condition of FmHA or its successor agency under Public Law 103-354 approval of the action. The restrictive-use period will begin on the date the consolidation is effective.
(8) For consolidation of loan agreements/resolutions of loans for which a loan to build or acquire new units was made on or after December 15, 1989, the consolidated loan may never be prepaid.
(d)
(2) A consolidated loan agreement or resolution using Form FmHA or its successor agency under Public Law 103-354 1944-33A, 1944-34A, or 1944-35A, as appropriate, will be prepared for RRH loans to reflect current reporting requirements and the authorized initial investment attributable to the owner after the consolidation has occurred. A revised consolidated loan agreement or resolution will be prepared for LH loans containing the requirements of exhibit C, D, or E of subpart D of part 1944 of this chapter, as appropriate.
(3) Consolidation of projects will only be accomplished with the guidance and assistance of OGC. Under no circumstances will projects be consolidated if the security position of FmHA or its successor agency under Public Law 103-354 will be adversely affected.
(4) All of the general requirements of paragraph (c) of this section must be met.
(5) Neither the terms nor the due date of the loan(s) involved are altered, and other security instruments remain unchanged, and are not released.
(6) All of the loan agreements or loan resolutions being consolidated may be secured by one deed of trust or mortgage describing all of the loans for the projects if required by OGC.
(a)
(b)
(1) The borrower has made extra payments and/or refunds totaling 10 percent or more of the original loan amounts being reamortized (from sources other than the sale of units within the LH, RRH, or RCH project), and the State Director determines that the borrower and the tenants cannot reasonably be expected to meet their obligations unless the account is reamortized to reduce substantially the FmHA or its successor agency under Public Law 103-354 installments and rental rates; or,
(2) The borrower has a substantial delinquency which was caused by circumstances beyond the ultimate control of the borrower that cannot be cured within one year, and the borrower has acted in good faith and has complied with all applicable FmHA or its successor agency under Public Law 103-354 procedures and policies governing the particular program under which the loan is made; or
(3) The borrower has received an equity loan as an incentive to avert prepayment, or a subsequent loan has been made to a nonprofit corporation or public agency to purchase a project to avert prepayment; or
(4) And, all of the following conditions exist and are adequately documented in the official case file and on Form FmHA or its successor agency under Public Law 103-354 1951-33, “Reamortization Request,” as appropriate:
(i) The reamortization will not operate to the financial detriment of the FmHA or its successor agency under Public Law 103-354 or impair the security rights of the FmHA or its successor agency under Public Law 103-354.
(ii) The budget or plan of operations for the borrower provides reasonable assurance that the newly scheduled payments will be made according to the terms of the proposed reamortization, and that the charges for the use of the facility or service are within the payment ability of those it is intended to serve and are comparable to other similar units in the area; and, the rent increase procedures set forth in exhibit C of subpart C of part 1930 of this chapter will be followed if any increase in rental rates is required.
(iii) The Board of Directors and membership will retain, or have definite plans for obtaining, membership and community support; and, will provide competent management for the continued operation of the borrower entity and the facility financed with the loan.
(iv) The State Director believes that reamortization will enable the borrower to operate successfully and carry out the purpose of the loan.
(v) The FmHA or its successor agency under Public Law 103-354 lien position remains unchanged.
(vi) The approval official must be satisfied that the security (including the potential income for debt service) will be adequate to protect the FmHA or its successor agency under Public Law 103-354's interests over the term of the reamortization. An appraisal as required by FmHA or its successor agency under Public Law 103-354 Instruction 1922-B (available in any FmHA or its successor agency under Public Law 103-354 office) must be made and must reflect that the security is adequate for the principal and interest being reamortized when the reamortization will extend the term of the repayment period more than 5 years.
(vii) The borrower has corrected any management deficiencies which may have contributed to the borrower's previous inability to generate sufficient income to bring or keep the account
(viii) All MFH loans being reamortized must be closed on PASS, except LH loans specified in § 1951.501(a)(2)(i) of subpart K of part 1951 of this chapter. All initial and subsequent loans must convert to PASS in connection with the reamortization.
(ix) When recoverable cost items are involved, they are first capitalized by adding them to the principal loan balance outstanding on the oldest loan and then the entire indebtedness (principal plus outstanding interest, overage and late fees) is reamortized.
(x) Audit receivables may not be reamortized.
(c)
(d)
(1) Form FmHA or its successor agency under Public Law 103-354 1965-16, “Multiple Family Housing Reamortization Agreement,” will be completed according to the FMI. The effective date and the due date for all payments will be the first of the month, except for LH loans whose due date will be established in accordance with the FMI.
(2) If the note or assumption agreement being reamortized is not held in the District Office, the District Director will obtain the promissory note and any assumption agreement from the Finance Office before processing the reamortization.
(3) On the back of the original of the note or assumption agreement (new terms), below all signatures and endorsements, the District Director will insert the following: “A reamortization agreement dated
(4) The end of the amortization period will be the final due date of the note being reamortized, unless the term is extended with the advice and guidance of OGC (and it is permissible according to State and local Statutes), and the FmHA or its successor agency under Public Law 103-354 lien position is not altered. (Any extension of the final due date will not exceed the lesser of the remaining useful life of the security property or the maximum term authorized by the respective loan program authorizations.)
(5) The interest rate for the account will be unchanged except when the final due date has been extended. The interest rate charged will be the rate at the time the Reamortization Request (Form FmHA or its successor agency under Public Law 103-354 1951-33) is approved, or the current interest rate at closing, whichever is less.
(6) The reamortization will be processed with the guidance of OGC.
(7) If the borrower is to receive interest credit benefits following the reamortization of the account, the current interest credit agreement will be cancelled and a new Form FmHA or its successor agency under Public Law 103-354 1944-7 will be prepared and attached to Form FmHA or its successor agency under Public Law 103-354 1965-16 for submission to the Finance Office.
(8) The prepayment restrictive-use provisions of section 502(c) of title V, Housing Act of 1949, as amended will apply. The appropriate restrictive-use language set forth in exhibit A-1 of subpart E of this part for RRH, RCH or LH loans will be added with the advice of OGC, to the loan agreement/ resolution and security instruments, as a condition of FmHA or its successor agency under Public Law 103-354 approval of the action. The restrictive--use period will begin on the date the amortization agreement is effective.
(9) Reamortizations will always be closed the first day of the month. Unpaid interest to the date of closing may be capitalized.
Deceased borrower cases will be handled according to the policy outlined in § 1962.46 of subpart A of part 1962 of this chapter except that all references to the County Supervisor are now construed to mean the District Director. The advice of OGC will be obtained as necessary.
Bankruptcy and insolvency cases will be handled according to the policy outlined in § 1962.47 of subpart A of part 1962 of this chapter except that all references to the County Supervisor now mean District Director. The handling of bankruptcy cases varies from state to state. Therefore, the State Director may issue State Supplements providing more specific guidance to expedite the handling of those cases. The advice of OGC will be obtained as necessary.
When individual borrowers with loans are involved in a divorce action, the District Director will review the case after the final divorce decree has been granted to determine if any action is needed for the future servicing of the account. The District Office file will be submitted to the State Director for advice if the District Director is uncertain of the servicing actions needed to protect the FmHA or its successor agency under Public Law 103-354's interest or if continuation of the loan with the remaining borrower is not authorized. No subsequent loan will be made to pay any equity as a result of a divorce action.
When the District Director believes that the borrower has abandoned a project, an immediate check with the appropriate sources (for example: tenants, management agents, assessor's office, etc.) will be made to determine if the borrower has moved and, if so, whether a forwarding address can be determined so that further servicing actions can be taken.
(a) A property is considered abandoned when any or all of the following conditions exist:
(1) The borrower cannot be located after the District Director has made diligent efforts to contact the borrower. This condition also applies to those instances where the general partner(s) of a limited partnership cannot be located and the limited partners are unknown or cannot be located.
(2) The project remains unoccupied for an extended period of time and the borrower makes no effort to maintain the security property, secure eligible occupants, and/or comply with the objectives of the loan within a reasonable period of time as specified by the District Director in a certified letter sent to the borrower requesting compliance.
(b) If the property is not being maintained and the District Director determines that the borrower has abandoned the project, the District Director will attempt to contact any prior lienholders with a request that they take control of the property and make any emergency repairs necessary. If no prior lienholder is involved or the prior lienholder cannot immediately be contacted or refuses to make the emergency repair, the District Director will immediately notify the State Director and request permission to take possession of the property pending liquidation, make emergency repairs to prevent further deterioration of the security, and to enter into a lease with the individual tenants, or a management or caretaker's agreement, on behalf of the borrower.
(c) A caretaker or management agent will normally be obtained when the borrower has abandoned the security property or has failed to maintain its operation and the State Director determines, with the advice of OGC, that the FmHA or its successor agency under Public Law 103-354 should take possession of the property to best protect the interest of the Government subject to the following:
(1)
(2)
(3)
(i) The lease agreement between the borrower and tenant permits changing the rates.
(ii) A change of rates is needed to provide income sufficient to pay operational and maintenance expenses, including the caretaker's fee, and to repay the loan on schedule.
(iii) Any increase will not result in rental rates above the payment ability of eligible occupants, unless the State Director has given the authority to rent units to ineligible occupants.
(d) All these actions shall be fully documented in the official case file. Liquidation will immediately be instituted according to subpart A of part 1955 of this chapter.
(e) When the project is occupied but rent is not paid or collected, the eligibility of the occupants cannot be determined, and the borrower has failed to comply with the objectives of the loan within a reasonable period of time as specified by the District Director in a certified letter sent to the borrower requesting compliance, the State Director should refer the case to the Regional Attorney for guidance, including the possibility of having a receiver appointed.
(a)
(1) Use of proceeds from the sale of a portion of or an interest in the security,
(2) Exchange of all or a part of the undeveloped security for other real estate, or
(3) Granting or conveyance of rights-of-way subject to the conditions and requirements of this section.
(b)
(c)
(1) The orderly payment of the FmHA or its successor agency under Public Law 103-354 indebtedness will not be impaired. Except that in condemnation
(2) The transaction will not interfere with the successful operation of the multiple housing project or prevent the borrower from carrying out the purpose for which the loan was made. This requirement will not apply in the case of a condemnation action in which a final judgment or award has been made and is not appealed.
(3) The sale of individual units or developed portions of an RRH, RCH or LH project shall require the prior concurrence and authorization of the National Office.
(4) If property to be sold or exchanged is to be used for the same or similar purpose for which the FmHA or its successor agency under Public Law 103-354 loan or grant was made, the purchaser shall execute Form FmHA or its successor agency under Public Law 103-354 400-4. The agreement will remain in effect as long as the property continues to be used for the same or similar purpose for which the FmHA or its successor agency under Public Law 103-354 loan or grant was made.
(5) The consideration is at least equal to the market value of the security property disposed of or the rights being granted. However, right-of-way easements may be granted or conveyed without consideration or with only the minimal consideration being offered if the approval official determines: the value of the security property will not be reduced; its suitability for the intended purpose will not be impaired; and the easement is granted for the borrower to develop additional lots or units which will be integrated into the project or to a public body for enhancement of streets or utilities benefitting the project.
(i) An FmHA or its successor agency under Public Law 103-354 official authorized to appraise multi-unit housing properties shall either make a new appraisal as required by FmHA or its successor agency under Public Law 103-354 Instruction 1922-B (available in any FmHA or its successor agency under Public Law 103-354 office) if the current appraisal is more than one year old, or supplement the present appraisal report by inserting in or attaching to the “Remarks” section, information as to the market value of the security disposed; or
(ii) The approval official may also accept a value determination for such easements which has been provided by other competent sources at no cost to the Government which is mutually acceptable to the borrower and FmHA or its successor agency under Public Law 103-354;
(iii) However, if the proceeds are to be used for development or enlargement, a new appraisal reflecting the market value of the security property as improved or enlarged will be made in all cases.
(iv) The State Director may request an appraisal for any transaction under this section involving security property whenever necessary.
(6) The remaining property is adequate security for the unpaid balance of the FmHA or its successor agency under Public Law 103-354 loan, or the transaction will not adversely affect FmHA or its successor agency under Public Law 103-354's security position or interfere with the successful operation of the security property.
(7) The proceeds from the disposition of the security are used for one or more of the following purposes:
(i) To pay the customary incidental closing costs such as title and recording fees appropriate to the transaction, including additional real estate tax the borrower is required to pay for the year for which arrangements to pay cannot otherwise be made.
(ii) To pay debts owed to any prior lienholders.
(iii) To make extra payments on the FmHA or its successor agency under Public Law 103-354 loan.
(iv) To pay costs necessary to determine the reasonableness of an offer or asking price, such as fees for appraisal of minerals, land, or timber where the necessary appraisal cannot be obtained without costs.
(v) To pay real estate brokers’ commission if a borrower can reasonably expect to obtain proceeds in an amount at least equal to the commission in excess of what could otherwise be obtained had the sale been made without
(vi) To develop or enlarge the borrower's facility for purposes for which a loan of the same type involved could be made, if the development or enlargement is necessary to improve the borrower's debt-paying ability, place the operation on a more sound basis, or otherwise further the objectives of the FmHA or its successor agency under Public Law 103-354 loan. Any proposed development will be planned and performed according to subpart A of part 1924 of this chapter and funds to be used for development or enlargement will be handled according to subpart A of part 1902 of this chapter.
(vii) To purchase or acquire property to be used for purposes for which a loan of the same type involved is authorized, if the FmHA or its successor agency under Public Law 103-354 debt will be as well secured after the transaction as before. FmHA or its successor agency under Public Law 103-354 will obtain a lien on the acquired property, and will obtain title evidence according to subpart B of part 1927 of this chapter.
(viii) To pay any additional income tax which the borrower must pay for the year because of the capital gain or royalty tax attributable to the transactions. Funds for back taxes must be estimated and held in a supervised bank account until actual payment of the tax.
(8) FmHA or its successor agency under Public Law 103-354 liens are not released until receipt of the appropriate sales proceeds for application on the Government's claim.
(d)
(1) Borrowers will be held strictly accountable to the FmHA or its successor agency under Public Law 103-354 for all proceeds derived from the sale of mortgaged property which the FmHA or its successor agency under Public Law 103-354 is entitled to receive under its lien.
(2) Consent to disposition of part, or an interest in, security property as authorized in this subpart may be given by approving a completed Form FmHA or its successor agency under Public Law 103-354 465-1 or other forms approved by OGC or prescribed in State Supplements. Upon request for consent, the District Director will forward Form FmHA or its successor agency under Public Law 103-354 465-1, the borrower's case folder, and any other pertinent information to the State Director.
(i) Chattel security may be released from a chattel mortgage by use of Form FmHA or its successor agency under Public Law 103-354 460-1, “Partial Release,” or other approved form, and from a security interest under the Uniform Commercial Code by use of Form FmHA or its successor agency under Public Law 103-354 462-12, “Statements of Continuation, Partial Release, Assignment, Etc.” Satisfaction or termination of chattel security instruments will be accomplished following the guidance of subpart A of part 1962 of this chapter.
(ii) Real estate security may be released by use of Form FmHA or its successor agency under Public Law 103-354 460-1 or other form approved by OGC. Satisfaction or termination of real estate security instruments when the FmHA or its successor agency under Public Law 103-354 debt has been paid in full or satisfied by debt settlement action will be accomplished with the use of Form FmHA or its successor agency under Public Law 103-354 460-4, “Satisfaction.”
(iii) Any consent which would result in the FmHA or its successor agency under Public Law 103-354 loan account being paid in full will be subject to the prepayment provisions of § 1965.90 of this subpart and subpart E of this part as applied to RRH, RCH, and LH loans.
(a)
(b)
(1) The FmHA or its successor agency under Public Law 103-354 multiple housing account must be current and the borrower must be capable of providing adequate management.
(2) The transaction must further the objectives for which the FmHA or its successor agency under Public Law 103-354 loan or loans were made and FmHA or its successor agency under Public Law 103-354's debt must be adequately secured or will not be adversely affected.
(3) The proposed use of the funds will improve the borrower's ability to repay the FmHA or its successor agency under Public Law 103-354 loan(s) or is necessary to place the borrower's operation on a sound basis.
(4) The borrower is unable to refinance the FmHA or its successor agency under Public Law 103-354 loan on terms which can reasonably be expected to be met yet still meet the original intent of the program.
(5) The terms and conditions of the prior lien will be such that the borrower can reasonably be expected to meet them as well as all other debts.
(6) The amount of the indebtedness against the security property, including the amount of the subordination, will not exceed its present market value.
(7) When an increase in the amount of the prior lien or a new prior lien is involved, subordination will be granted only when the funds will be used for the same purposes for which the loan of the same type is authorized; except, all LH loans on a farm tract may be subordinated for essential farm improvements and any other purpose for which an FmHA or its successor agency under Public Law 103-354 Farm Ownership loan can be made as described in § 1943.16 of subpart A of part 1943 of this chapter. LH loans will not be subordinated to provide operating capital or purchase chattels. If the LH loan is secured only by the LH units and the project site, the LH loan will only be subordinated for purposes for which an LH loan may be made.
(8) Any proposed development will be planned and performed according to subpart A of part 1924 of this chapter or
(9) Funds to be used for development or enlargement of farm operations will be handled as prescribed for loan funds in subpart A of part 1902 of this chapter except that, if the creditor will not permit the use of a supervised bank account, arrangements should be made to assure that funds will be spent for planned purposes and should be approved by the District Director before being released.
(10) In case of land purchase, FmHA or its successor agency under Public Law 103-354 will obtain the best lien obtainable on the land purchased.
(11) Subordinations need not cover the entire site. If a subordination is requested to permit an interim lender to advance construction funds, only the portion of the site scheduled for construction will be subordinated. If the entire farm tract has been taken as security for a LH loan, subordination of the lien on all property except the minimum adequate site, including necessary ingress and egress, on which the LH units are situated, may be authorized for any purpose consistent with the LH program regulations and paragraph (b)(7) of this subpart. For RHS loans, the prorated portion of the lien for the individual lots may be subordinated to permit construction of dwelling units utilizing conditional commitments as authorized in the RHS program regulations.
(12) All subordination requests will be forwarded to OGC for review. The guidance of OGC should be obtained in the preparation of the documents necessary to effect the subordination.
(13) The subordination is for a specific amount.
(14) The proposed action will not change the nature of the borrower's activities so as to make it ineligible for appropriate loan program assistance.
(15) The subordination must not adversely impact the agency's ability to service the loan according to program regulations, and has been determined to be within the bounds of good judgment considering the intent, funding limitations, and respective program authorities.
(16) An agreement to provide notice of foreclosure must be obtained from any new prior lienholder as required in subpart B of part 1927 of this chapter. As appropriate, any junior lienholders consent to the transaction and use of proceeds will be obtained prior to approval of the transaction.
(a)
(1) The transaction will not adversely effect the FmHA or its successor agency under Public Law 103-354's security position and any additional obligations incurred will be within the borrower's repayment ability.
(2) The items covered by the severance agreement are needed in the successful operation of the security property.
(3) The financing arrangements are otherwise sound and proper.
(b)
(c)
(a)
(b)
(1) The junior lien will enable the borrower to obtain additional credit to make needed improvements or repairs on the security property for purposes for which a loan of the same type involved could be made and funds in the reserve account have been depleted. Except, zero interest loans available from other Federal, State or local agencies, authorities, or commissions; and those from utility companies regulated by such governmental bodies, may be secured by a junior lien when the State Director determines it is in the best interest of the FmHA or its successor agency under Public Law 103-354, borrower and tenants irrespective of the balance in the reserve account.
(2) The junior lien will improve the borrower's total financial condition or debt-paying ability as it relates to the multiple family housing project.
(3) The terms of the junior lien will not jeopardize the borrower's ability to repay the FmHA or its successor agency under Public Law 103-354 indebtedness and, in the case of RRH, RCH, and LH loans, will not result in increased rental rates for the project unless authorized according to exhibit C to subpart C of part 1930 of this chapter.
(4) The junior creditor agrees in writing that foreclosure action under their lien will not be initiated before holding a discussion with the District Director and after giving a reasonable period of notice to FmHA or its successor agency under Public Law 103-354, and any operating plans of the junior lien holder are consistent with FmHA or its successor agency under Public Law 103-354 requirements.
(5) Security for the junior lien must not include project income or revenue.
(6) No junior liens will be authorized in connection with a transfer of ownership.
(7) The total debt (including the outstanding FmHA or its successor agency under Public Law 103-354 loan balance) is within the State Director's approval authority.
(8) All other requests for consent to junior liens must be submitted to the National Office with complete comments and recommendations from both the District Director and State Director, and all of the borrower's case files. Such requests will be reviewed on a case-by-case basis and appropriate authorization given or withheld depending on the individual merits of the proposal and its compatibility with the respective loan program requirement.
(9) When a junior lien is placed on any property without the prior consent of FmHA or its successor agency under Public Law 103-354, the account will be serviced for liquidation with the guidance of OGC according to the security instruments. However, the State Director may request permission to post approve the junior lien by submitting a formal request to the National Office provided he/she determines that all other conditions set forth in this section are met.
(a)
(b)
(1) The District Director will service delinquent accounts with guidance and assistance as necessary from the State Director. Every delinquent borrower will be serviced according to a routine established for the particular loan type by the State Director. The following sequential steps should be taken for each delinquent account:
(i) Each quarterly delinquency Report Code 616 and 621 or other official FmHA or its successor agency under Public Law 103-354 Report will be reviewed for accuracy by the State Director. The following delinquency classification system for multi-housing accounts may be used. The District Director will classify each account on the Report Code 621, as follows:
(ii) if the report is in error, the District Director will immediately contact the Finance Office and provide any information necessary to correct the report and/or remove the account from the delinquent status. These communications with the Finance Office should be directed to the Multiple-Family Housing unit. Before contacting the Finance Office, the District Director must complete a field audit of the account to be submitted with the inquiry.
(iii) If the report is accurate and a delinquency indeed exists, the District Director will immediately contact the borrower to determine the reason for the delinquency and will attempt to collect either in a lump sum or in additional monthly payments over a short period of time, usually not to exceed one year. This should include foregoing any cash return until the account is current.
(iv) Within 30 days of receipt of the quarterly delinquency report, the District Director will submit to the State Director a detailed report with specific comments and recommendations for servicing each delinquent account. This report will classify the accounts and indicate which accounts are actually delinquent. Emphasis will be placed on performing delinquency servicing actions to reduce true delinquencies. The State Director will assist the District Director in developing a realistic servicing plan for each delinquent account. The State Director will prepare a statewide delinquency reduction plan annually and update it quarterly based on the delinquency reports and information provided by the District Directors. Appropriate consideration should be given to reamortizing, transferring, conveying or foreclosing accounts recognizing the willingness of the borrower to cooperate and comply with FmHA or its successor agency under Public Law 103-354 requirements and to meet the purposes for which the loan was made. Consideration should also be given to:
(A) Adequate budgeting of project income and expenses.
(B) Improving management and outreach.
(C) Implementing interest credit and/or rental assistance if the borrower and project qualify.
(D) Participating in the HUD Section 8 program for existing housing through the local Public Housing Agency (PHA).
(E) Effecting a justified rent increase according to applicable program requirements.
(F) Obtaining an assignment of project income.
(2) District Directors should be firm in dealing with the borrower or the borrower's representative. However, the management agent is not the party ultimately responsible for the loan, and it is therefore imperative that the borrower fully understand the consequences of the default. Courtesy, cooperation and sound judgment must be involved. If the delinquent account cannot be brought current within a reasonable period, steps should be taken according to subpart A of part 1955 of this chapter to protect the Government's interest.
(c)
(d)
(e)
(1) The specific recommendations of the District Director on the method of carrying out the liquidation,
(2) The case file and any other pertinent information developed in support of the accusations,
(3) A summary of FmHA or its successor agency under Public Law 103-354 efforts to work out an acceptable solution short of liquidation,
(4) A current appraisal of the security property as required by FmHA or its successor agency under Public Law 103-354 Instruction 1922-B (available in any FmHA or its successor agency under Public Law 103-354 office) will be completed by an FmHA or its successor agency under Public Law 103-354 official authorized to make that particular type of appraisal and an estimate of the net amount that may be realized from the sale of the assets,
(5) The most recent balance sheet or financial statement from the borrower,
(6) A current statement of account from the Finance Office, and
(7) A problem case report using Form FmHA or its successor agency under
(a)
(b)
(a)
(1) The account is behind schedule.
(2) The property has not been properly managed or maintained.
(3) There is serious doubt that the borrower can carry out the objectives of the loan.
(b)
(1) The facts which justify the taking of additional security.
(2) A conservative estimate of the market value of any real estate to be mortgaged; however, it will not be necessary to make a formal appraisal of the property to be mortgaged unless determined necessary by the State Director.
(3) A brief description of any existing liens on the additional security including the repayment terms and the unpaid balance.
(4) The name of the title holder and how title to the property is held. Title evidence need not be required.
(5) A plan for servicing the additional security to be taken.
(6) A description of the other servicing alternatives available to assure that the objectives of the loan will be met and to protect the Government from loss.
(c)
For initial loans made or insured pursuant to contracts entered into on or after December 15, 1989, equity loans may be guaranteed by FmHA or its successor agency under Public Law 103-354 after a 20-year period, from the date of the loan, has elapsed. The following steps will be followed when a borrower wishes to receive this equity:
(a) Borrower submits a plan requesting an equity loan which ensures that the cost of amortizing the loan doesn't result in the displacement of very low-income tenants or substantially alter the income mix of the tenants in the project.
(b) FmHA or its successor agency under Public Law 103-354 will determine whether the housing will continue to remain decent, safe, and sanitary and that the local housing market is such that the housing will continue to meet the needs of eligible tenants for the remaining life of the initial loan.
(c) In accordance with the conditions outlined in subpart E of this part, FmHA or its successor agency under Public Law 103-354 will offer to guarantee an equity loan to the borrower which may be repaid from an occupancy surcharge account in accordance with subpart K of part 1951 of this chapter. In addition it must be determined that such an equity loan would not impose undue hardship on tenants or unreasonable cost to the Federal Government. The guaranteed loan will not exceed the lesser of:
(1) The amount determined and calculated in accordance with the equity loan instructions contained in subpart E of this part or (2) 30 percent of the appraised value of the project at the time of the initial loan as shown on the appraisal for that loan.
(d) If the borrower indicates preliminary acceptance of the equity loan, an application will be completed in accordance with subpart E of part 1944 of this chapter and two appraisals will be conducted in the manner outlined in subpart E of part for loans to nonprofit organizations.
(e) When the actual amount of the guaranteed equity loan is determined, the borrower will indicate acceptance of the loan.
(a)
(b)
(c)
All servicing actions contained in this subpart are authorized without regard to whether the area is no longer defined as an eligible area.
State Offices are to provide information to the National Office for submission to IRS at their request on RRH transfers, voluntary conveyances and foreclosures that were finalized (the deed recorded) subsequent to January 22, 1985. In addition, information is to be provided on changes of membership
State supplements will be prepared with the advice of OGC as necessary to comply with State laws and to provide guidance to the District Director in the servicing actions required. All State supplements, unless specifically authorized by particular subsections of this subpart must be submitted for prior National Office approval before implementation. Requests for approval must include complete justification, citations of State law, and appropriate legal opinions from the respective Regional Attorney.
Each instrument of conveyance for any transfer or foreclosure sale of real property subject to Title VI of the Civil Rights Act of 1964 will contain the following convenant:
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 Rehabilitation Act of 1973 and the regulations as 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 or for so long as the purchaser owns it, whichever is later.
The Administrator of the Farmers Home Administration or its successor agency under Public Law 103-354 may, in individual cases, make an exception to any requirement of this Subpart not inconsistent with the authorizing statute if the Administrator finds that application of the requirement would adversely affect the interest of the Government or the immediate health or safety of the tenants or the community. The Administrator will exercise the authority only at the request of the State Director. The State Director will submit the request supported by data which demonstrates the adverse impact, identifies the particular requirement involved, shows proper alternative courses of action, and identifies how the adverse impact will be eliminated.
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 0575-0100. Public reporting burden for this collection of information is estimated to vary from 10 minutes to 4.25 hours per response, with an average of 1.67 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 #0575-0100), Washington, DC 20503.
Requests to pay Multi-Family Housing (MFH) loans in full require that certain actions be taken to ensure the affordability of housing for specified tenants for a guaranteed period of time. The requirement applies to all projects, whether or not they are subject to restrictive-use provisions or prohibitions on prepayment. This subpart provides step-by-step guidance for use by Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) and MFH borrowers when prepayment requests are made. The steps outlined are mandated by the Rural Rental Housing Displacement Prevention Provisions of the Housing and Community Development Act of 1987. When a MFH project is subject to multiple FmHA or its successor agency under Public Law 103-354 MFH loans, and the borrower offers prepayment or payment in full for one or more but not all of the MFH loans on the project, the borrower will not be allowed to pay off the most restrictive loan without invoking the prepayment provisions of this subpart, unless the borrower agrees to be bound by the more restrictive provisions for the balance of the time period remaining on the more restrictive loan being paid in full.
Nonprofit organizations and public agencies interested in being notified of projects being offered for sale by FmHA or its successor agency under Public Law 103-354 borrowers wishing to prepay should contact FmHA or its successor agency under Public Law 103-354. Local nonprofit and public agencies wishing to purchase projects in one district need only contact the applicable FmHA or its successor agency under Public Law 103-354 District Office. Organizations or agencies interested in one state only should contact the FmHA or its successor agency under Public Law 103-354 State Office. National and regional nonprofit organizations interested in receiving multi-state notifications should contact the FmHA or its successor agency under Public Law 103-354 National Office. Interested organizations should submit their names, addresses, contact persons, and the areas in which they wish to purchase. The notification to FmHA or its successor agency under Public Law 103-354 must be updated annually if the organization wishes to continue to receive notifications of pending prepayments. FmHA or its successor agency under Public Law 103-354 will send notices requesting the update at least 30 days prior to removing the organization's name from the list. The National Office will not verify the eligibility of the organizations requesting notification, but will periodically forward the names of interested organizations to State Offices. The State Office will periodically compile a list of interested nonprofit organizations and public agencies and forward the list to its District Offices.
(a)
(1) Borrower written request for prepayment (§ 1965.205 and exhibit C of this subpart).
(2) Required notifications (§ 1965.206 of this subpart).
(3) Evaluation of borrower ability to prepay (§ 1965.211 and exhibit E of this subpart).
(4) FmHA or its successor agency under Public Law 103-354 incentive offer and borrower decision regarding incentives (§§ 1965.213 and 1965.214 and exhibits D and E of this subpart).
(5) Evaluation of project need by FmHA or its successor agency under Public Law 103-354 (§ 1965.210 and exhibit E of this subpart).
(6) Approval of prepayment under exception authority (§ 1965.215 and exhibit E of this subpart).
(7) Sale to nonprofit organizations or public agencies (§§ 1965.216 and 1965.217 of this subpart).
(8) Approval of prepayment in the absence of interest in purchase by nonprofit organization of public agency (§§ 1965.218 and 1965.219 of this subpart).
(9) Actions to be taken in the event of restrictive-use violations (§ 1965.222 of this subpart).
(10) Relationship of these procedures to other servicing actions (§ 1965.223 of this subpart).
(11) Prepayment of loans due to advance payments or completion of amortized payments (§ 1965.224 of this subpart).
(b)
(a) Prior to initiating a formal prepayment request, borrowers considering prepaying their loans should meet with the applicable FmHA or its successor agency under Public Law 103-354 Servicing Office to discuss the prepayment request and the requirements of this procedure. The borrower will be provided with exhibit C of this subpart, to aid in completing the prepayment request package.
(b) At the meeting, the Servicing Office will inform the borrower that the project will be evaluated as unsubsidized conventional multi-family housing for the purposes of determining eligibility for incentives. An appraisal will be completed to determine if any equity exists in the project when valued as unsubsidized conventional multi-family housing. The components of the incentive offer, if any, will be dependent upon the amount of equity as follows:
(1) If the project has equity in excess of the borrower's initial investment, an equity loan and a combination of additional incentives may be considered;
(2) If no equity exists, but it can be shown that the project can be prepaid and operated successfully in the subject market, a combination of incentives not including an equity loan will be considered; or
(3) If, based upon the Servicing Office's knowledge of the market it appears likely the project would not qualify for an equity loan, the Servicing Office should so inform the borrower during the meeting. However, in no instance will the Servicing Office personnel discourage eligible borrowers from
(c) Borrowers seeking to prepay MFH loans must submit a complete prepayment request to the Servicing Official at least 180 days in advance of the anticipated prepayment date (unless an exception is granted in accordance with § 1965.215 (f)(2) of this subpart). A prepayment request will not be considered complete nor will the 180-day period begin until all of the following items have been submitted:
(1) A written request to prepay the FmHA or its successor agency under Public Law 103-354 loan on a specified date;
(2) Complete and documented information necessary to prepare the prepayment report as outlined in exhibit B of this subpart and to make the required determination needed to develop an incentive offer as outlined in exhibit D of this subpart. Exhibit C of this subpart should be used as guidance for the documentation necessary to complete the request;
(3) Documentation of the borrower's ability to prepay under the conditions specified in the prepayment request. Exhibit C of this subpart should be used as guidance for the documentation necessary;
(4) Certification that the housing will continue to be administered in accordance with Fair Housing Act policies;
(5) A statement from the borrower accepting restrictive-use provisions in the release documents if the borrower wishes to prepay the loan subject to restrictions; and
(6) Evidence that actions required by any applicable State laws related to prepayment have been met.
The Servicing Office will determine whether the prepayment request is in conformance with § 1965.205 of this subpart. Within 15 working days of receipt of a prepayment request, the Servicing Office will take the following actions:
(a)
(b)
(1)
(2)
(i) The borrower proposes to prepay the FmHA or its successor agency under Public Law 103-354 loan and remove the housing from the FmHA or its successor agency under Public Law 103-354 program if all prepayment requirements imposed by FmHA or its successor agency under Public Law 103-354 are met;
(ii) FmHA or its successor agency under Public Law 103-354's preliminary determination that the borrower's request to prepay will/will not be approved;
(iii) The likely effect of the prepayment on tenants living at the project. Include:
(A) The level at which rents at the project are projected to be set if prepayment is accepted;
(B) Restrictive-use provisions the borrower has agreed to maintain and the terms of the restrictions;
(C) Whether Section 8 or State or local subsidy will remain with the project; and
(D) Whether the borrower has the option to terminate section 8 assistance at the next renewal period (opt-out), and if so, when.
(iv) FmHA or its successor agency under Public Law 103-354 must make a determination as to whether tenants would be displaced due to increased rents, and whether there is alternative housing available in the community that is comparable in quality, size, location and rent structure before deciding to accept the prepayment;
(v) Conditions under which prepayment will be accepted;
(vi) A 30-day tenant comment period will be available for tenants to present comments concerning the proposed prepayment. Tenants will be allowed to review the information used by FmHA or its successor agency under Public Law 103-354 to make the determinations regarding prepayment;
(vii) Tenants will be given immediate priority for other federally-financed housing if there will be any displacement;
(viii) Tenants will be kept apprised of all decisions reached regarding acceptance of the prepayment and action dates;
(ix) Tenants will be given the opportunity to submit evidence at any appeal hearing the borrower may request;
(x) If prepayment is accepted, tenants choosing to stay in their units and pay the higher rents, with or without Federal, State, or other subsidy, are entitled to do so, unless evicted for cause unrelated to prepayment; and
(xi) Any other information relevant to the case.
(3)
(4)
(5)
“The mortgage on this project may be repaid to the Federal Government on or after (
(ii) The borrower will also be required to provide new tenants with copies of all letters sent to existing tenants advising them of the status of the prepayment. The Servicing Office will also send new tenants any additional correspondence sent to existing tenants, but will inform the new tenants that they will not be eligible for an LOPE.
(6)
Loans made on or after December 15, 1989, to build or acquire new RRH units may not be prepaid for the life of the loan, even if the borrower is willing to sign restrictions agreeing to operate the project for low- and moderate-income people after prepayment. The prohibition and conditions for use are described in subpart E of part 1944 of this chapter.
For LH projects with
(a) Restrictive-use provisions protect tenants in prepaid projects from future rent increases that would create new or increased rent overburden. Restrictive-use provisions apply to all loans approved between December 21, 1979, and December 14, 1989, all subsequent loans approved on or after December 15, 1989, and those loans approved prior to December 21, 1979, subsequently made subject to restrictive-use provisions as a result of:
(1) A servicing action;
(2) Acceptance of prepayment incentives; or
(3) Restrictions accepted as a condition of prepayment as specified in this subpart and exhibits A-1 through A-4 of this subpart.
(b) The restrictions mandate that conditions of occupancy, rent, and charges other than rent be maintained so that the housing will continue to be affordable to the protected population of tenants. Priority for tenants entering the project after prepayment must continue to be for those tenants in the lowest income category in the protected population, if determined eligible for the units. Borrower responsibilities under restrictive-use provisions are discussed in greater detail in § 1965.215 (e)(6) of this subpart.
For loans approved prior to December 15, 1989, that have not subsequently accepted prepayment incentives, the Servicing Office or other designated office must evaluate the need for the housing to determine the level of incentives to be offered, including equity loans, and whether the prepayment may be legally accepted with or without restrictive-use provisions. A reasonable effort must be made to enter into an agreement with the borrower to maintain the housing for low-income use that takes into consideration the economic loss the borrower may suffer by foregoing prepayment. When developing an incentive offer, the Servicing Office or other designated office must first offer incentives other than equity loans, unless it is determined that alternative incentives are not adequate to provide a fair return to the borrower, prevent prepayment of the loan, or prevent displacement of the tenants. The guidance provided in §§ 1965.213 and 1965.214 and Exhibit E of this subpart (available in any Rural Development State or District Office) will be used to determine the appropriate incentive package. Once an incentive offer has been accepted on a project, the project will be considered ineligible for future incentive offers until such time as the restrictive-use period associated with the incentive offer has expired.
The borrower's ability to prepay the loan will be evaluated in accordance with exhibit E of this subpart. If it is
To determine the appropriate incentives to offer a borrower, an appraisal must be completed. The purpose of the appraisal is to determine if the borrower's current equity in the project exceeds the initial investment. The project will be appraised as unsubsidized conventional multi-family housing. The effect on value of any hard and soft costs of conversion of the project from subsidized housing to unsubsidized conventional housing will be considered. Additionally, project reserve accounts and the present worth of any unexpired non-FmHA or its successor agency under Public Law 103-354 project based tenant subsidies will be valued as assets of the project for inclusion in the appraisal. FmHA or its successor agency under Public Law 103-354 Instruction 1922-B (available in any FmHA or its successor agency under Public Law 103-354 office) will be used for guidance in conducting multi-family housing appraisals. After receipt of the appraisal, the Servicing Official or other designated official will determine the amount of the equity loan, if any, the number of Rental Assistance (RA) units necessary, the amount of annual return on investment to be offered, and whether excess Section 8 rents may be released to the borrower, if applicable.
The Servicing Official must offer an incentive package to the borrower as an inducement to not prepay if the borrower's loan(s) is not subject to prohibitions on prepayment or the borrower has not previously accepted incentive offers on the project for which the associated restrictive-use period has not expired. If a prepayment incentive offer which includes any equity loan is accepted, the equity loan may be processed and closed with the current borrower or any eligible transferee.
(a)
(b)
(1)
(2)
(i) The increase in rent overburden that will be experienced by tenants, in the project as a result of the incentives offered. The Multiple Housing Tenant File System (MTFS) will be reviewed to determine the number of tenants that will be rent overburdened by the increase in rents resulting from any subsequent loan made for equity. The number of RA units offered will be equal to the number of tenants experiencing rent overburden; and/or
(ii) A change in the market increasing the need for affordable housing. This criteria will usually be used when the project is experiencing substantial vacancies due to market factors. Generally, if the incentive offer contains a substantial equity loan, it would be unlikely that this provision would be consistent with the determination that the project is located in a strong unsubsidized market.
(iii) Reamortizing the existing debt under the provisions of § 1965.70 of subpart B of this part should be examined to determine if reamortization will lower existing debt service, thereby reducing tenant rent overburden and the need for additional RA.
(3)
(ii)
(iii)
(4)
(5)
(c)
(2)
(3)
(d)
(1) A statement that the package is a one-time incentive being offered in return for the extension of the low and moderate income use of the housing.
(2) The amount of the equity loan being offered (if any). Any offer of an equity loan will include a statement that the borrower is subject to:
(i) A continued eligibility determination in accordance with subpart E of part 1944 of this chapter; and
(ii) Appropriation limitations. When an incentive offer that includes an equity loan is accepted by a borrower, funding the components of the offer is considered binding on FmHA or its successor agency under Public Law 103-354. If funds are not immediately available to fund an incentive loan, the amount of the offer will be included on a funding waiting list maintained by the National Office. Priority for funding is based on the date of receipt of the original complete prepayment request, as specified in § 1965.205 of this subpart.
(3) The maximum amount of any increased return on investment offered.
(4) The number of RA units that will be provided to protect existing tenants from rent overburden due to other incentives that may increase rental rates in the project.
(5) Interest credit or additional interest credit if needed to protect existing tenants from rent overburden due to other incentives that may increase rental rates in the project.
(6) The offer of borrower receipt of excess project-based section 8 rents, if applicable.
(7) The offer must be accepted or rejected in writing within 30 days, or the prepayment request will be voided.
(8) Appropriation limitations may restrict available incentives each year. The actual receipt of the preceding incentives may not be forthcoming in the near future. However, the offer is binding on FmHA or its successor agency under Public Law 103-354. Acceptance of the incentive offer by the borrower will cause the request to be maintained on the waiting list for funding until obligated.
(a)
(b)
(c)
(d)
(e)
(1) All interested agencies contacted in accordance with § 1965.206 (b) of this subpart and tenants will be advised that prepayment of the loan will not take place. If the ownership is to be transmitted, tenants will be so advised. Any rent increases resulting from acceptance of an incentive offer will be processed in accordance with § 1965.204(b) of this subpart.
(2) The National Office will issue authorizations to obligate incentives to the extent possible, depending upon the availability of loan funds and RA. Authorizations will be issued in the order in which complete prepayment requests were received as set forth in § 1965.205 of the subpart. To fully utilize all available prepayment incentive loan funds and RA, projects with fully processed incentive packages may be authorized prior to authorizing packages with earlier receipt dates for which incentives have not been fully processed. Any other required National Office authorizations will be given at the same time.
(f)
(1) If the annual return on investment is increased, a statement will be added to the loan agreement specifying that, “The maximum annual return on investment is being increased by $
(2) If a conversion of profit type is made, the procedures of paragraph IV A 2 d of exhibit B of subpart C of part 1930 of this chapter will be followed. If the interest subsidy is increased, a new Form FmHA or its successor agency under Public Law 103-354 1944-7, “Multiple Family Housing Interest Credit and Rental Assistance Agreement,” will be executed.
(3) Any change in the amount of RA will require the execution of a new RA agreement or a change in the existing RA agreement, as described in paragraph V C of exhibit E of subpart C of part 1930 of this chapter.
(4) Loans for equity will be made in accordance with subpart E of part 1944 of this chapter. In accordance with § 1951.517 (b)(1) of subpart K of part 1951 of this chapter, the equity loan will be established as a Predetermined Amortization Schedule System (PASS) loan and all existing loans on the project will be converted to PASS. All assumptions and transfers will be processed in accordance with § 1965.65 of subpart B
(g)
(a)
(b)
(i) Local market conditions;
(ii) Information submitted as support for the prepayment request;
(iii) Responses to the 30-day tenant comment period;
(iv) the effect of the prepayment on minorities, handicapped individuals, and families with children; and
(v) Any other relevant information.
(2) The results of the determination of need will be documented in the case file.
(c)
(1)
(i) If the Servicing Office cannot make the determination that housing opportunities to minorities will not be materially affected as a result of the prepayment, the borrower may prepay if the borrower agrees to the following restrictions and inclusion of the applicable restrictive language found in paragraph (A) or (B) of exhibit A-4 of this subpart, and to execute the applicable Restrictive-Use Agreement found in exhibit G-2 or G-3 of this subpart;
(A) Maintain the housing for low- and moderate-income people for a minimum period of 20 years from the date
(B) If 20 years from the date of the closing of the last loan or servicing action has already lapsed, offer to sell the housing to a qualified nonprofit organization or public agency in accordance with paragraph (e)(9) of this section and paragraph (B) of exhibit A-4 of this subpart;
(ii) If the Servicing Office determines that housing opportunities to minorities will not be materially affected as a result of prepayment, but that there is an inadequate supply of safe, decent, and affordable rental housing within the market area, the borrower may prepay if the borrower agrees to the following restrictions and inclusion of the applicable restrictive-use language found in paragraph (C) of exhibit A-4 of this subpart and agrees to execute the Restrictive-Use Agreement found at exhibit G-4 of this subpart:
(iii) If the Servicing Office determines that housing opportunities to minorities will not be materially affected as a result of prepayment, and that there is an adequate supply of safe, decent, and affordable rental housing within the market area for the foreseeable future, the borrower may prepay without restrictions. The provisions of paragraph (c)(3) of this section will apply.
(2)
(3)
(i) For loans not subject to restrictive-use provisions nor prohibition on prepayment, it is determined by FmHA or its successor agency under Public Law 103-354 that housing opportunities for minorities will not be materially affected as a result of the prepayment. Exhibit E of this subpart will be used to assist in making this determination.
(ii) For loans subject to restrictive-use provisions, it is determined Federal or other financial assistance provided to residents will no longer be provided, due to no fault, action or lack of action on the part of the borrower. If a borrower applies to have restrictions removed after prepayment because Federal or other financial assistance will no longer be provided, the restrictions will be released only if the loss of Federal or other financial assistance could not have been reasonably anticipated at the time of acceptance of the prepayment.
(iii) Regardless of whether or not the loan is subject to restrictive-use provisions, a determination is made by FmHA or its successor agency under Public Law 103-354 that there is no longer a need for the housing (in accordance with exhibit E of this subpart).
(4)
(5)
(d)
(1) 15 days of the borrower's rejection of an incentive offer for loans not subject to restrictive-use provisions nor prohibited from prepayment; or
(2) 60 days of a complete prepayment request by a borrower subject to restrictive-use provisions.
(e)
(1)
(2)
(3)
(i) All relevant information concerning the prepayment has been reviewed and FmHA or its successor agency under Public Law 103-354 has decided to accept the prepayment on (date).
(ii) Fully detailed reason(s) describing why the prepayment was approved. Also include the reasons for acceptance of the prepayment in less than 180 days (if applicable).
(iii) At the time of prepayment, rents are expected to be $
(iv) The tenant will be affected by this change on (date the tenant's current lease expires, date of the prepayment or other mandated date, whichever is later.)
(v) (The following statement should be included if the loan is being prepaid but will retain restrictive-use provisions.) All current eligible tenants may continue to occupy the housing until the tenants decide to voluntarily move, the tenants no longer meet eligibility requirements or the restrictive-use provisions expire on (insert expiration
(vi) (The following statement should be included if the project has project-based section 8 rents.) Eligible tenant rents will continue to be subsidized by the Department of Housing and Urban Development (HUD) until (insert the date the section 8 contract expires). (If applicable, include the following.) If section 8 subsidies are not continued after (insert the date the section 8 contract expires), the owner of the project will continue eligible tenant rents at levels that will not create or increase rent overburden until (insert date the restrictive-use expires. However, declines in tenant income shall not require corresponding reductions in rent levels.
(vii) (The following statement should be included if project-based HUD section 8 or other subsidies will expire prior to 2 years after the prepayment.) Eligible tenants currently residing in the project who may subsequently be displaced or experience rent overburden due to the prepayment may qualify for certain protections. The following protections are available to eligible tenants who believe they have experienced displacement or rent overburden:
(A) Letters of Priority Entitlement (LOPE) to other FmHA or its successor agency under Public Law 103-354 housing. Tenants may apply for LOPEs up until the day the tenants’ rents are scheduled to be increased. These letters will be valid for 60 days after issuance. All LOPEs will be issued in accordance with title VI of the Civil Rights Act of 1964, as codified in subpart E of part 1901 of this chapter.
(B) Tenants currently receiving rental assistance (RA) will be able to continue to receive RA if they move to other FmHA or its successor agency under Public Law 103-354 financed housing in which they are eligible for RA.
(C) Tenants choosing to stay in their units after prepayment and pay higher rents, with or without Federal, State or other subsidy, are entitled to do so, unless evicted for a cause unrelated to prepayment.
(viii) Eligible tenants residing in prepaying projects will also be sent:
(A) A list of project names, locations, number of apartments, senior citizen or family designation, and unit sizes of other FmHA or its successor agency under Public Law 103-354 projects in the market area.
(B) The names and locations of other subsidized housing; and
(C) Addresses and telephone numbers of the applicable HUD area office, and other agencies which administer housing subsidies or aid in relocation anywhere in the market area.
(ix) Tenants will be allowed to review the information used to make any of the determinations regarding acceptance of the prepayment, prepayment rent increases and alternatives to prepayment.
(4)
(i) A tenant with an LOPE has 60 days to apply in writing to other FmHA or its successor agency under Public Law 103-354 projects in any location in the country.
(ii) A tenant with an LOPE is to be placed at the top of all waiting lists in FmHA or its successor agency under Public Law 103-354 projects applied to,
(iii) The tenant will not be removed from the priority position on the waiting list until the tenant moves to a unit utilizing an LOPE or is purged from the waiting list in accordance with exhibit B or subpart C of part 1930 of this chapter.
(iv) If the tenant holding the LOPE is receiving RA in the prepaying project, and uses the LOPE to move to a Plan II project for which the tenant would qualify for RA, the RA will be transferred to the project to which the tenant moves. The RA will be reassigned to that tenant without competition. RA brought to a project by a tenant from a prepaying project will remain at the receiving project if the tenant subsequently moves to another FmHA or its successor agency under Public Law 103-354 project.
(v) If the tenant's current security deposit of (a specified amount) has not been released by the prepaying project by the date a tenant moves, the new landlord will be encouraged to defer collection of the new security deposit until the tenant's current deposit is refunded, even if the date of release is after the date the tenant occupies the new unit.
(5)
(6)
(Name of owner) certifies that (name of project) is being operated in compliance with the restrictive-use provisions contained in (applicable release document) and the Restrictive-Use Agreement which set forth certain requirements for operation of the project for the benefit of low- and moderate-income people in conformance with applicable FmHA or its successor agency under Public Law 103-354 regulations (Name of borrower) understands that failure to operate the project in conformance with the restrictive-use provisions may cause a tenant or the Government to seek enforcement of the provisions.
The borrower must also agree to execute the applicable Restrictive-Use Agreement found at exhibits G-1 thru 4 to this Subpart.
(7)
(8)
(9)
(f)
(2)
(3)
(g)
In instances where the borrower is not subject to restrictive-use provisions and no incentive agreement can be reached between FmHA or its successor agency under Public Law 103-354 and the borrower, and the prepayment cannot be accepted under § 1965.215 and exhibit E of this subpart because a need remains for the housing, the borrower will be required to offer to sell the project to a nonprofit organization or public agency. The following steps will be taken:
(a)
(b)
(1) The Servicing Official is to provide the borrower with a list of nonprofit organizations and public agencies which have notified FmHA or its successor agency under Public Law 103-354 of their interest in purchasing projects that are attempting to prepay. The list will include nonprofit organizations and public agencies that have notified the FmHA or its successor agency under Public Law 103-354 Servicing, State, and National Offices of their interest.
(2) The Servicing Official will instruct the borrower to contact each nonprofit organization and public agency on the list within 10 days of establishing project fair market value. The sequence of contacting nonprofit organizations and public agencies is set forth in paragraphs (b)(3) (i) and (ii) of this section. Materials notifying nonprofit organizations and public agencies of the project's availability will include sufficient information regarding the project and its operation for interested purchasers to make an informed decision. If an interested purchaser requests additional information concerning the project, the borrower shall promptly provide the requested materials.
(3) The borrower must advertise and offer to sell the project for a minimum of 180 days. The borrower may choose to suspend advertising and other sales efforts while eligibility of an interested purchaser is determined. However, if the purchaser is determined to be ineligible, the borrower must resume advertising until a minimum of 180 days has passed. The borrower may satisfy the 180-day requirement by continuing advertising and sales efforts during the eligibility review of an interested purchaser. If additional offers are received during this time period, the offers will be reserved as back-up offers until the eligibility determination of the initial purchaser is completed.
(i)
(ii)
(c)
(1) Be capable of managing the housing and related facilities for its remaining useful life, either by self management or through a management agent.
(2) Agree that no subsequent transfer of the housing and related facilities will be permitted during the remaining useful life of the housing and related facilities unless the FmHA or its successor agency under Public Law 103-354 Administrator determines that the transfer will further the provision of housing and related facilities for low-income families or persons, or there is no longer a need for such housing and related facilities. Generally, transfers between qualified nonprofit organizations and/or public agencies will be acceptable. However, under no condition will a transfer be approved to an entity in which the nonprofit transferor or a member of the nonprofit entity holds an ownership interest.
(3) Agree to obligate itself and successors in interest to maintain the housing for very low- and low-income families or persons for the remaining useful life of the project and related facilities, although no currently eligible moderate-income tenants will be required to move. The provision in exhibit A-2 of this subpart will be used and inserted in the deed, security instrument, loan agreement/resolution and/or assumption agreement, as appropriate.
(4) Show financial feasibility of the project including anticipated funding to be authorized in accordance with § 1965.217(d) of this subpart. Financial feasibility may also include any regular RA or debt forgiveness RA allocations which can reasonably be anticipated to be available for the project at the time of the transfer.
(5) Have no identity of ownership or controlling interest, regardless of degree, except as management agent between:
(i) Officers or directorate persons or parties with a material interest (or persons or parties related to any person or party with such interest) in loans financed under section 515 that have been prepaid; and
(ii) Officers or directorate persons or parties with a material interest (or persons or parties related to any person or party with such an interest) in the purchasing entity.
(6) Evidence compliance with paragraph (c)(5) of this section. An officer legally authorized to execute documents on behalf of the purchasing nonprofit entity shall execute the following statement:
(Name of purchasing nonprofit entity) certifies that no officer or directorate of (name of purchasing nonprofit entity) has been a person or party with a material interest (or persons or parties related to any person or party with such interest) in any loans financed under section 515 that have been prepaid.
(d)
(1) Local nonprofit organizations and public agencies have priority over regional and national nonprofit organizations and public agencies;
(2) Nonprofit organizations and public agencies with the most successful experience in developing and managing subsidized housing; and
(3) Nonprofit organizations and public agencies with the longest experience in developing and managing subsidized housing.
(a)
(b)
(c)
(d)
(1)
(i) A loan sufficient to enable the nonprofit organization or public agency to purchase a project at the fair market value;
(ii) With proper justification, first year operating expenses not to exceed 2 percent of the project's appraised fair market value if current operating funds are not sufficient.
(2)
(i)
(A) Direct costs to the organization or agency that are based on written estimates for legal fees for purchasing the project, architectural fees, and/or other expenses as described in § 1944.222 of subpart E of part 1944 of this chapter and as authorized by the State Director. Legal fees for organizing the entity are not an eligible cost;
(B) Fees, for technical assistance received from a nonprofit organization, with housing and/or community development experience, to assist the organization or agency in the packaging of the loan docket and project as well as legal, technical, and professional fees incurred. Legal fees for organizing the entity are not an eligible cost. The Agency will allow payments to eligible organizations packaging applications without discrimination because of race, color, religion, sex, national origin, age, familial status, or handicap if such an organization has authority to contract. The packaging organization may not represent or be associated with anyone else, other than the purchasing nonprofit organization or public agency, who may benefit in any way in the proposed transaction.
(ii)
(A) The policies and regulations contained in subpart Q of part 1940 of this chapter apply to grantees under this subpart.
(B) The grantee will retain records for three years from the date Standard Form (SF)-269A, “Financial Status Report,” is submitted. The records will be accessible to Agency; and other Federal officials in accordance with 7 CFR part 3015.
(C) Annual audits will be required if the grantee has received more than $25,000 of Federal assistance in the year in which the grant funds were received. The audits will be due 13 months after the end of the fiscal year in which funds were received.
(
(
(iii)
(A) Submit to the appropriate Servicing Office SF-270, “Request for Advance or Reimbursement,” for an amount not to exceed $10,000;
(B) Submit a copy of the accepted purchase offer or option to purchase and assume responsibility for a prepaying project and related facilities;
(C) As soon as possible after obtaining an accepted purchase offer or option, submit a complete transfer and loan package (if applicable), as described in § 1965.65 of subpart B of part 1965 of this chapter for transfers and subpart E of part 1944 of this chapter for loans to purchase the project;
(D) If less than $10,000 is advanced or reimbursed at the time of submittal of the grant application package and the applicant expects that further advances or reimbursements may be needed, additional funds may be requested so long as the total advanced or reimbursed does not exceed $10,000. SF-270 will be used to request additional advances or requests for reimbursement. If advance funds are requested, the amount requested may not exceed the amount the grantee expects to use during the 30 days following receipt of the advance. The final draw advance or request for reimbursement shall not be later than the closing date of the transfer and loan and shall be submitted on SF-270;
(E) Fully document all requests for advances with line item estimates on SF-270. Requests for reimbursement shall be documented with itemized bills or receipts for each item listed on SF-270;
(F) Include SF-269A with the grant application if the entire amount of the grant is being requested at that time. If the grant will be advanced or reimbursed in more than one draw, SF-269A will be submitted with the final draw;
(G) Include a signed statement for all grant applications which states, “Neither the organization nor any of its employees are associated with or represent anyone in this transaction other than the applicant.”
(iv)
(A) The FmHA or its successor agency under Public Law 103-354 Approval Official will review each grant application package for the amount authorized. The FmHA or its successor agency under Public Law 103-354 Approval Official will execute and distribute Form FmHA or its successor agency under Public Law 103-354 1944-51, “Multiple Family Housing Obligation Fund Analysis,” in accordance with the Forms Manual Insert;
(B) The Servicing Official will be responsible for reviewing the eligibility of costs estimated to be incurred or submitted for reimbursement;
(C) A grant agreement, prepared in substantially the same format as exhibit F of this subpart and authorized by grant resolution, will be dated and executed by the applicant on the date of grant closing. The executed agreement will be filed in the casefile.
(D) A grant resolution authorizing the appropriate officers of the applicant to execute the grant agreement will be adopted by the applicant's board of directors or other form of governing body. A certified copy is to be submitted to FmHA or its successor
(e)
(1) Submit the assumption to the State Office for approval in accordance with § 1965.65 of subpart B of this chapter.
(2) Transfer any RA associated with the project to the transferee in accordance with paragraph XV B 1 of exhibit E of subpart C of part 1930 of this chapter unless debt forgiveness RA is used to replace current project RA.
(3) Notify tenants that prepayment of the loan will not be taking place and to whom the ownership of the housing is being transferred. The notification should state that any rent increases resulting from the transfer and loan will be processed in accordance with § 1965.204 (b) of this subpart.
(4) Transfer all existing loans in the project on new rates and terms and consolidate and reamortize, if necessary, to maintain project feasibility and reduce rental subsidy payments.
(5) Ensure that all delinquent accounts are brought current, cost items paid in full, project accounts brought current and transferred with the project, and all taxes and liens paid or prorated at closing as applicable. Deferred maintenance identified in previous inspections must be acceptably completed before the transferor may retain any equity.
(6) Insert the restrictive-use provisions contained in exhibit A-2 of this subpart in the deed, security instruments, loan agreement/resolution, assumption agreement, and/or reamortization agreement, as appropriate.
(f)
Borrowers not subject to restrictive-use provisions or prohibitions on prepayment may prepay without restrictions within 120 days of meeting either of the following requirements.
(a)
(1) At least 180 days have passed since the offer to sell to a local nonprofit organization or public agency began and the advertisement continued for the full 180 days;
(2) The project has been offered to regional and national organizations for at least a 60-day period of the 180 days;
(3) Documentation is provided showing that all organizations whose names were provided by the District or State Office were contacted in accordance with § 1965.216 (b) of this subpart and offered the housing for purchase;
(4) No qualified nonprofit organization has made a bona fide offer to purchase the property for the appraised fair market value. Note: (An offer will be considered to be bona fide if there is a written offer to purchase the project at fair market value, even if the offer is contingent on FmHA or its successor agency under Public Law 103-354 funding when no funding is available.); and
(5) Funds have been available for the purpose of carrying out a transfer/sale during this period.
(b)
When a prepayment is accepted in accordance with § 1965.218 of this subpart, the Servicing Office will process the prepayment in accordance with the applicable provisions of § 1965.215 (e)(1), (2), (3), (4), and (8) of this subpart.
Should the Servicing Office receive a written complaint or become otherwise aware of a violation of the prepayment restrictive-use provisions set out in exhibit A-3 or A-4 of this subpart or the Restrictive-Use Agreements set out in exhibits G-1 thru 4 of this subpart by the owner of a previously FmHA or its successor agency under Public Law 103-354-financed project, the following actions will be taken:
(a) The complainants will be informed that they may pursue enforcement through the courts.
(b) The Servicing Office or other designated office will conduct a preliminary evaluation of the complaint. This evaluation may necessitate the gathering of additional information. Should the preliminary evaluation indicate the complaint is not valid, the complainant will be so informed. Should the preliminary evaluation indicate the complaint is or may be valid, then the complaint, all facts gathered, an evaluation report, and Servicing Office recommendation will be forwarded to the State Office or other designated office for review and action.
(c) If the State Office or other designated office determines that a violation of the restrictive-use provisions has likely occurred, the Administrator will be notified. The State Office or other designated office will ask the OGC to provide advice in such cases and, if appropriate, refer the case to the Department of Justice or other appropriate agency for enforcement. A copy of any complaint requesting enforcement of the restrictive-use provisions submitted to the Department of Justice or other appropriate agency should also be forwarded to the Administrator.
(a)
(b)
(c)
(d)
If the loan on a project, in which the last loan to build or acquire new units was obligated prior to December 15, 1989, reaches or falls below six remaining payments due to borrower voluntary advance payments or mandatory extra payments required by FmHA or its successor agency under Public Law 103-354 regulation or law, the borrower will be notified that the final payment on the account cannot be accepted unless a prepayment request is made. FmHA or its successor agency under Public Law 103-354 will inform the borrower that, by law, prepayment regulations must be followed for all loans requesting prepayment subsequent to enactment of the law. The borrower will be required to submit all applicable information required by § 1965.205 of this subpart and complete all applicable actions required by this subpart before a final payment can be accepted.
The Administrator may, in individual cases, make an exception to any requirements of this subpart not required by the authorizing statute if the Administrator finds that application of such requirement would adversely affect the interest of the Government, adversely affect the accomplishment of the purposes of the RRH or LH programs, or result in undue hardship on the tenants by applying the requirements. The Administrator may exercise the authority at the request of the State Director. The State Director will submit the request supported by data that demonstrates the adverse impact, citing the particular requirement involved and recommending proper alternative course(s) of action, and outlining how the adverse impact could be mitigated. Exception to any requirement may also be initiated by the Assistant Administrator for Housing.
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 0575-0155. Public reporting burden for this collection of information is estimated to vary from 5 minutes to 5 hours per response, with an average of 1.3 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, 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 control number 0575-0155), Washington, DC 20503.
The following Multi-Family Housing projects are subject to restrictive-use provisions as set forth in their loan documents or security instruments:
(a) All loans approved between December 21, 1979, and December 15, 1989;
(b) Subsequent loans not made to build or acquire new units approved on or after December 15, 1989;
(c) Any loans approved prior to December 21, 1979, and subsequently made subject to restrictive-use provisions due to a servicing action (e.g., transfer, reamortization, consolidation) as described in subpart B of part 1965 of this chapter, or an incentive to deter prepayment of the loan as described in this subpart.
All loans or servicing actions meeting the above criteria with prepayment incentives obligated or approved after the effective date of this regulation, will be subject to the following restriction. The restriction will be inserted in the deed, conveyance instrument, loan agreement/resolution, assumption agreement, interest credit agreement, or reamortization agreement, as appropriate. The restrictions are applicable for a term of 20 years from the date on which the last loan was closed or made subject to such restrictions as a result of a servicing action or incentive to not prepay.
“The borrower and any successors in interest agree to use the housing for the purpose of housing people eligible for occupancy as provided in section 514 or section 515 of title V of the Housing Act of 1949, as amended, and FmHA or its successor agency under Public Law 103-354 regulations then extant during this 20 year period beginning (the date the last loan on the project is obligated, or date the project was last made subject to the prepayment restrictive-use provisions as a result of servicing actions or incentive to not prepay the loan, authorized under this subpart or other subparts). Until (date), no eligible person occupying the housing shall be required to vacate, or any eligible person wishing to occupy shall be denied occupancy without cause. The borrower will be released from these obligations before that date only when the Government determines that there is no longer a need for such housing, or that such other financial assistance provided the residents of such housing will no longer be provided due to no fault, action or lack of action on the part of the borrower. A tenant or individual wishing to occupy the housing may seek enforcement of this provision, as well as the Government.”
Multi-Family Housing projects made subject to restrictive-use provisions because of a transfer and subsequent loan to a nonprofit organization or public agency in order to avert prepayment of the loan as described in this subpart are subject to restrictions which are set forth in the loan instruments or security agreements. Loans meeting the preceding conditions with prepayment incentives obligated after the effective date of this regulation will be required to have the following restriction inserted in the deed, conveyance instrument, loan resolution, and assumption agreement, as applicable:
“The borrower and any successors in interest agree to use the housing for the purpose of housing very low- and low-income people eligible for occupancy as provided in Farmers Home Administration or its successor agency under Public Law 103-354 regulations then extant during the remaining useful life of the project. A tenant or person wishing to occupy the housing may seek enforcement of this provision as well as the Government. Throughout the remaining useful life of this project, no eligible person occupying or wishing to occupy the housing shall be required to vacate or be denied occupancy without cause. Rents, other charges, and conditions of occupancy will be set to meet these conditions. The borrower will be released during such period from these obligations only when the Government determines that there is no longer a need for such housing, or that such other financial assistance provided to the residents of such housing will no longer be provided due to no fault, action or lack of action on the part of the borrower.”
The restrictions are intended to protect only very low- and low-income individuals and families for the remaining useful life of the project, unless the Government subsidy is removed without cause or it is determined there is no longer a need for the housing. These restrictions will not be superceded by new restrictions imposed by subsequent transfers. Eligible moderate-income tenants living at the project at the time of prepayment will not be required to move as a result of the restrictions. Moderate-income applicants for the housing will continue to retain priority over ineligible applicants for the housing.
The required clauses contained in this exhibit pertain to the following multi-family projects, unless an exception to the restrictive-use provisions have been granted in accordance with this subpart:
(a) Any loan on the project obligated between December 21, 1979, and December 15, 1989, or subsequent loan not made to build or acquire new units approved on or after December 15, 1989;
(b) Any loan made subject to restrictive-use provisions as a result of a transfer, consolidation, or reamortization as set forth in this subpart;
(c) Any loan made subject to restricitive-use provisions as a result of accepting an incentive to not prepay as set forth in this subpart;
(d) Any loan previously subject to restrictive-use provisions being accelerated.
The preceding projects may only be prepaid if the title to the real property is made
“The owner and any successors in interest agree that the housing located on this property will be used only as authorized under section 514 or 515 of title V of the Housing Act of 1949, as amended, and 7 CFR part 1965, subpart E, or other regulations then extant until (insert date shown on existing restrictive-use provisions). A tenant or applicant for occupancy may seek enforcement of this provision as well as the Government. During the restricted period, no eligible person occupying or wishing to occupy the housing shall be required to vacate or be denied occupancy without cause. Rents, other charges, and conditions of occupying will be set so that the effect will not differ from what would have been, had the project remained in the FmHA or its successor agency under Public Law 103-354 program. The owner agrees to keep a notice posted at the project, and in a visible place available for tenant inspection, for the remainder of the restrictive-use period, stating that the project is to be used in accordance with the Housing Act, and that management practices and rental rates will be consistent with those necessary to maintain the project for (insert “low- and moderate-income” or “very low- and low-income” as shown on existing restrictive-use provisions) tenants for the remainder of the restrictive-use period.”
The provisions provide protections to the same categories of tenants who were protected while the loan(s) were in effect, to the same extent that the tenants were protected prior to the prepayment and for the length of time remaining under the restrictions prior to the prepayment.
Multi-Family Housing projects which were not subject to restrictive-use provisions prior to prepayment may, generally, only be prepaid if the title to the real property is made subject to one of the following restrictive-use provisions and the provisions are filed with the security releases. The restrictive-use provisions apply to all loans made prior to December 21, 1979, that were not subsequently made subject to restrictive-use provisions as a result of servicing actions after December 21, 1979. The restrictions will also be used for sales of projects at foreclosure for projects not previously subject to restrictive-use provisions. The conditions for which restrictive-use provisions are not required are set forth in § 1965.215 of this subpart.
(A) 20-year Restrictive-Use Provisions. These provisions are used when the owner agrees to restrictive-use provisions for a minimum of a 20-year period, and agrees to offer to sell the assisted housing and related facilities to a qualified nonprofit organization or public agency in accordance with Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) regulation upon termination of the 20-year period. The period is calculated from the date on which the last loan for the project was obligated or applicable servicing action taken. The borrower will also be required to execute the Restrictive-Use Agreement found at exhibit G-2 to this subpart.
“The owner and any successors in interest agree to use the housing as required in 7 CFR part 1965, subpart E or other regulations then extant during this 20-year period beginning (date of the last loan or servicing action) for the purpose of housing low- and moderate-income people eligible for occupancy. A tenant or applicant for housing may seek enforcement of this provision, as well as the Government. Prior to (date period ends) no eligible person occupying or wishing to occupy the housing shall be required to vacate or be denied occupancy without cause. Rents, other charges, and conditions of occupancy will be established to meet these conditions such that the effect will not differ from what would have been, had the project remained in the FmHA or its successor agency under Public Law 103-354 program. The owner also agrees to keep a notice posted as the project for the remainder of the restrictive-use period, in a visible place available for tenant inspection, stating that the project is to be used in accordance with the Housing Act, and that management practices and rental rates will be consistent with those necessary to maintain the project for the protected population for the remainder of the restrictive-use period. At the expiration of this period ending (date), the housing and related facilities will be offered for sale to a qualified nonprofit organization or public agency, as determined by FmHA or its successor agency under Public Law 103-354.”
(B)
“The owners and any successors in interest agree to immediately offer to sell the housing and related facilities to a qualified nonprofit organization or public agency, as determined by Farmers Home Administration or its successor agency under Public Law 103-354.”
(C)
“The owner and any successors in interest agree to use the housing for the purpose of housing eligible low- and moderate-income people occupying the project at the time the prepayment was accepted, as provided in 7 CFR part 1965, subpart E, and other applicable regulations then extant. No eligible person currently occupying the housing shall be required to vacate prior to the end of the remaining useful life of the project without cause. Rents, other charges, and conditions of occupancy will be established to meet these conditions. Existing tenants are protected to ensure that none experience new or increased rent overburden until each voluntarily moves from the project. The owner also agrees to keep a notice posted at the project in a place available for tenant inspection, for the remaining useful life of the project or until the last existing tenant vacates, stating that the project is to be used in accordance with the Housing Act, and that management practices and rental rates for current tenants as of the date of the prepayment will be consistent with those necessary to maintain the project for low- and moderate-income tenants. A tenant may seek enforcement of this provision as well as the Government.”
This agreement dated
Grantee has determined to undertake a project of acquisition of a multi-family housing project financed by the Grantor to house rural residents and has duly authorized the undertaking of such a project.
Grantee wishes to obtain grant funds to assist in the costs of acquisition of such project.
Grantor has agreed to grant the Grantee a sum not to exceed $
Now, therefore, In consideration of said grant by Grantor to Grantee, to be made pursuant to section 502 of the Housing Act of 1949 to cover any direct costs (other than the purchase price) incurred by the organization
Grantee agrees that grantee will: A. Attempt to acquire said project in accordance with FmHA or its successor agency under Public Law 103-354 regulations.
B. If acquired, either directly or through contract, manage, operate and maintain the project continuously in an efficient and economic manner.
C. Make services of said project available within its capacity to all eligible rural residents without discrimination because of race, color, religion, sex, age, handicap, marital or familial status, or national origin. For more specific requirements see 7 CFR part 15, subparts A and B.
D. Provide Grantor with such periodic reports as it may require and permit periodic inspections of its operations by a representative of the Grantor.
E. To execute Forms FmHA or its successor agency under Public Law 103-354 400-1, “Equal Opportunity Agreement,” and FmHA or its successor agency under Public Law 103-354 400-4, “Assurance Agreement,” and to execute any other agreements required by Grantor which Grantee is legally authorized to execute. If any such form has been executed by Grantee as a result of a loan or transfer being made to Grantee by Grantor contemporaneously with the making of this grant, another form of the same type need not be executed in connection with this grant.
F. Upon any default under its representations or agreements set forth in this instrument, Grantee, at the option and demand of Grantor, will repay to Grantor forthwith the original principal amount of the grant stated hereinabove, with interest at the rate of 5 percentum per annum from the date of the default. Default by the Grantee will constitute termination of the grant, thereby causing cancellation of Federal assistance under the grant. The provisions of this Grant Agreement may be enforced by Grantor, at its option and without regard to prior waivers by it of previous defaults of Grantee, by judicial proceedings to require specific performance of the terms of this Grant Agreement or by such other proceedings in law or equity, in either Federal or State courts, as may be deemed necessary by Grantor to assure compliance with the provisions of this Grant Agreement and the laws and regulations under which this grant is made. For further provisions regarding enforcement see 7 CFR 3016.43.
G. Return immediately to Grantor, as required by the regulations of Grantor, any grant funds actually advanced and not needed by Grantee for approved purposes.
H. Provide Financial Management Systems, as more specifically provided in 7 CFR 3016.20, which will include:
1. Accurate, current and complete disclosure of the financial results of each grant. Financial reporting will be on an accrual basis.
2. Records which identify adequately the source and application of funds for grant-supported activities. Those records shall contain information pertaining to grant awards and authorizations, obligations, unobligated balances, assets, liabilities, outlays, and income.
3. Effective control over and accountability for all funds. Grantee shall adequately safeguard all such funds and shall assure that they are used solely for authorized purposes.
4. accounting records supported by source documentation.
I. Retain financial records, supporting documents, statistical records, and all other records pertinent to the grant for a period of at least 3 years after grant closing except that the records shall be retained beyond the 3-year period if audit findings have not been resolved. Microfilm copies may be substituted in lieu of original records. The Grantor and the Comptroller General of the United States, or any of their duly authorized representatives, shall have access to any books, documents, papers, and records of the Grantee's government which are pertinent to the specific grant program for the purpose of making audits, examinations, excerpts, and transcripts.
J. Provide an audit report pursuant to 7 CFR part 3016 prepared in sufficient detail to allow the Grantor to determine that funds have been used in compliance with the proposal, any applicable laws and regulations and this Agreement.
K. Agree to account for and to return to Grantor interest earned on grant funds pending that disbursements for program purposes when the Grantee is a unit of local government. States and agencies or instrumentalities of states shall not be held accountable for interest earned on grant funds pending their disbursement.
L. Except as specifically provided in this agreement, comply with the applicable provisions of USDA's general grant regulations set out in 7 CFR part 3016.
M. Comply with the requirements of 7 CFR part 3017, subpart F, relating to drug-free workplace requirements and 7 CFR part 3018 relating to restrictions on lobbying.
Grantor agrees that it: A. Will make available to Grantee for the purpose of this Agreement not to exceed
B. Will assist grantee with such assistance as Grantor deems appropriate in acquiring the project.
C. At its sole discretion and at any time may give any consent, deferment, subordination, release, satisfaction, or termination of any or all of Grantee's grant obligations, with or without available consideration, upon such terms and conditions as Grantor may determine to be (1) advisable to further the purpose of the grant or to protect Grantor's financial interest therein and (2) consistent with both the statutory purposes of the grant and the limitations of the statutory authority under which it is made.
Termination of This Agreement: This Agreement may be terminated for cause in the event of default on the part of the Grantee as provided in paragraph F of this exhibit or for convenience of the Grantor and Grantee prior to the date of completion of the grant purpose. Termination for convenience will occur when both the Grantee and Grantor agree that the continuation of the grant will not produce beneficial results commensurate with the further expenditure of funds.
In Witness Whereof Grantee on the date first above written has caused these presence to be executed by its duly authorized
(Name of Borrower), herein referred to as owner, and any successors in interest agree that the (Name of Project), herein referred to as housing, will be used only as authorized under section 514 or 515 of title V of the Housing Act of 1949, as amended, and 7 Code of Federal Regulations (CFR) part 1965, subpart E, or other Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) regulations then in existence until (Date shown on existing restrictive-use provisions) for the purpose of housing low- and moderate-income people eligible for occupancy. A tenant or applicant for housing may seek enforcement of this provision, as well as the United States. During the restrictive period, no eligible person occupying or wishing to occupy the housing shall be required to vacate or be denied occupancy without cause. Rents, other charges, and conditions of occupancy will be set so that the effect will not differ from what would have been had the project remained in the FmHA or its successor agency under Public Law 103-354 program. The owner also agrees to keep a notice posted at the project for the remainder of the restrictive-use period, in a visible place available for tenant inspection, stating that the project is to be used in accordance with the Housing Act, and that management practices and rental rates will be consistent with those necessary to maintain the project for the protected population for the remainder of the restrictive-use period.
Furthermore, the owner agrees to be bound by the applicable provisions of 7 CFR part 1930, subpart C, specific to tenant rights and relations for the duration of the restrictive-use period. The owner agrees to be responsible for ensuring that rental procedures, verification and certification of income and/or employment, lease agreements, rent or occupancy charges, and termination and eviction remain consistent with the provisions set forth in 7 CFR part 1930, subpart C, and to adhere to applicable local, State, and Federal laws. The owner agrees to obtain FmHA or its successor agency under Public Law 103-354 concurrence with any changes to the preceding rental procedures that may deviate from those approved at the time of the prepayment, prior to implementing the changes. Any changes proposed must be consistent with the objectives of the program and the regulations. Documentation, including annual income recertifications, shall be maintained to evidence compliance in the event there is a future complaint or audit. The owner must be able to document that acceptable waiting lists were maintained, units were rented to appropriate tenants, and rents were established at appropriate levels. The owner agrees to make the documentation available for Government inspection upon request. The owner and any successors in interest agree to provide the following signed and dated certification to the applicable FmHA or its successor agency under Public Law 103-354 Servicing Office or other designated office within 30 days of the beginning of each calendar year until (Date restrictive-use period ends):
(Name of Owner) certifies that (Name of Project) is being operated in compliance with the restrictive-use provisions contained in (Applicable release document) and the Restrictive-Use Agreement which sets forth certain requirements for operation of the
(Name of Borrower), herein referred to as owner, and any successors in interest agree to use the (Name of Project), herein referred to as housing, as required in 7 Code of Federal Regulations (CFR) part 1965, subpart E, or other Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) regulations then in existence during the 20-year period beginning (date of the last loan or servicing action) for the purpose of housing low- and moderate-income people eligible for occupancy. A tenant or applicant for housing may seek enforcement of this provision, as well as the United States. Prior to (date period ends) to eligible person occupying or wishing to occupy the housing shall be required to vacate or be denied occupancy without cause. Rents, other charges, and conditions or occupancy will be established to meet these conditions such that the effect will not differ from what would have been, had the project remained in the FmHA or its successor agency under Public Law 103-354 program. The owner also agrees to keep a notice posted at the project for the remainder of the restrictive-use period, in a visible place available for tenant inspection, stating that the project is to be used in accordance with the Housing Act, and that management practices and rental rates will be consistent with those necessary to maintain the project for the protected population for the remainder of the restrictive-use period. At the expiration of this period ending (date) the housing and related facilities will be offered for sale to a qualified nonprofit organization or public agency, as determined by FmHA or its successor agency under Public Law 103-354.
Furthermore, the owner agrees to be bound by the applicable provisions of 7 CFR part 1930, subpart C, specific to tenant rights and relations for the duration of the restrictive-use period. The owner agrees to be responsible for ensuring that rental procedures, verification and certification of income and/or employment, lease agreements, rent or occupancy charges, and termination and eviction remain consistent with the provisions set forth in 7 CFR part 1930, subpart C, and to adhere to applicable local, State, and Federal laws. The owner agrees to obtain FmHA or its successor agency under Public Law 103-354 concurrence with any changes to the preceding rental procedures that may deviate from those approved at the time of the prepayment, prior to implementing the changes. Any changes proposed must be consistent with the objectives of the program and the regulations. Documentation, including annual income recertification, shall be maintained to evidence compliance in the event there is a future complaint or audit. The owner must be able to document that acceptable waiting lists were maintained, units were rented to appropriate tenants, and rents were established at appropriate levels. The owner agrees to make the documentation available for Government inspection upon request. The owner and any successors in interest agree to provide the following signed and dated certification to the applicable FmHA or its successor agency under Public Law 103-354 Servicing Office or other designated office within 30 days of the beginning of each calendar year until (date restrictive-use period ends):
(Name of Owner) certifies that (Name of Project) is being operated in compliance with the restrictive-use provisions contained in (Applicable release document) and the Restrictive-Use Agreement which sets forth certain requirements for operation of the project for the benefit of low- and moderate-income people in conformance with applicable FmHA or its successor agency under Public Law 103-354 regulations. (Name of Owner) understands that failure to operate the project in conformance with the restrictive-use provisions may cause a tenant or the United States to seek enforcement of the provisions.
(Name of Borrower), herein referred to as owner, and any successors in interest agree to immediately attempt to sell the (Name of Project), herein referred to as housing and related facilities to a qualified nonprofit organization or public agency, as determined by Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public
Furthermore, the owner agrees to be bound by the applicable provisions of 7 CFR part 1930 C, specific to tenant rights and relations for the duration of the sales period. The owner agrees to be responsible for ensuring that rental procedures, verification and certification of income and/or employment, lease agreements, rent or occupancy charges, and termination and eviction remain consistent with the provisions set forth in 7 CFR part 1930, subpart C, and to adhere to applicable local, State, and Federal laws. The owner agrees to obtain FmHA or its successor agency under Public Law 103-354 concurrence with any changes to the preceding rental procedures that may deviate from those approved at the time of the prepayment, prior to implementing the changes. Any changes proposed must be consistent with the objectives of the program and the regulations. Documentation, including annual income recertifications, shall be maintained to evidence compliance in the event there is a future complaint or audit. The owner must be able to document that acceptable waiting lists were maintained, units were rented to appropriate tenants, and rents were established at appropriate levels. The owner agrees to make the documentation available for Government inspection upon request. The owner and any successors in interest agree to provide the following signed and dated certification to the applicable FmHA or its successor agency under Public Law 103-354 Servicing Office or other designated office within 30 days of the beginning of each calendar year until a sale to nonprofit organization or public agency takes place:
(Name of Owner) certifies that (Name of Project) is being operated in compliance with the restrictive-use provisions contained in (Applicable release document) and the Restrictive-Use Agreement which sets forth certain requirements for operation of the project for the benefit of low- and moderate-income people in conformance with applicable FmHA or its successor agency under Public Law 103-354 regulations. (Name of Owner) understands that failure to operate the project in conformance with the restrictive-use provisions may cause a tenant or the United States to seek enforcement of the provisions.
(Name of Borrower), herein referred to as owner, and any successors in interest agree to use the (Name of Project), herein referred to as housing, for the purpose of housing low- and moderate-income people occupying the project at the time the prepayment was accepted, as required 7 Code of Federal Regulations (CFR) part 1965, subpart E, and other applicable Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) regulations then in existence. No eligible person occupying the housing shall be required to vacate prior to the end of the remaining useful life of the project without cause. Rents, other charges, and conditions of occupancy will be established to meet these conditions for these tenants such that the effect will not differ from what would have been, had the project remained in the FmHA or its successor agency under Public Law 103-354 program. Existing tenants are protected to ensure that none experience new or increased rent overburden as a result of owner actions until each voluntarily moves from the project. The owner also agrees to keep a notice posted at the project in a visible place available for tenant inspection, for the remaining useful life of the project or until the last existing tenant voluntarily vacates, stating that the project is to be used in accordance with the Housing Act, and that management practices and rental rates will be consistent with those necessary to maintain the project for low- and moderate-income tenants. A tenant may seek enforcement of this provision, as well as the United States.
Furthermore, the owner agrees to be bound by the applicable provisions of 7 CFR part 1930, subpart C, specific to tenant rights and relations for the remaining useful life of the project or until the last existing tenant voluntarily vacates. The owner agrees to be responsible for ensuring that rental procedures, verification and certification of income and/or employment, least agreements, rent or occupancy charges, and termination and eviction remain consistent with the provisions set forth in 7 CFR part 1930, subpart C, and to adhere to applicable local, State, and Federal laws. The owner agrees to obtain FmHA or its successor agency under Public Law 103-354 concurrence with any changes to the preceding rental procedures that may deviate from those approved at the time of the prepayment, prior to implementing the changes. Any changes proposed must be consistent with the objectives of the program and the regulations. Documentation, including annual income recertifications, shall be maintained to evidence compliance in the event there is a future complaint or audit. The owner must be able to document that rents were established at appropriate levels. The owner agrees to make the documentation available for Government inspection upon request. The owner and any successors in interest agree to provide the following signed and dated certification to the applicable FmHA or its successor agency under Public Law 103-354 Servicing Office or other designated office within 30 days of the beginning of each calendar year until the last existing tenant voluntarily vacates:
(Name of Owner) certifies that (Name of Project) is being operated in compliance with the restrictive-use provisions contained in (Applicable release document) and the Restrictive-Use Agreement which sets forth certain requirements for operation of the project for the benefit of low- and moderate-income people in conformance with applicable FmHA or its successor agency under Public Law 103-354 regulations. (Name of Owner) understands that failure to operate the project in conformance with the restrictive-use provisions may cause a tenant or the United States to seek enforcement of the provisions.
5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
This subpart contains the general regulations and prescribed forms which are applicable to the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) guaranteed loan programs authorized in part 1980, except for subpart D, Rural Housing Program Loans. Additional regulations for these programs are found in the various subparts of part 1980. These additional regulations apply to lenders, holders, borrowers, and other parties involved in making, guaranteeing, insuring (if applicable),
(a)
An evidence of debt. In those instances where FmHA or its successor agency under Public Law 103-354 makes an insured loan or guarantees a bond issue, “note” shall also be construed to include “Bond” or other evidence of indebtedness where appropriate.
(b)
The Loan Note Guarantee and Contract of Guarantee constitute obligations supported by the full faith and credit of the United States and are incontestable except for fraud or misrepresentation of which the lender or holder has actual knowledge at the time it becomes such lender or holder or which lender or holder participates in or condones. Generally, any Loan Note Guarantee, Contract of Guarantee or Assignment Guarantee Agreement attached to or relating to a note which provides for payment of interest on interest is void. In the case of Farm Credit Programs loans, however, a Loan Note Guarantee, Contract of Guarantee or Assignment Guarantee Agreement attached to a note that provides for the capitalization of interest is not void. The guarantee and right to require purchase will be directly enforceable by holder notwithstanding any fraud or misrepresentation by the lender or any unenforceability of the Loan Note Guarantee by the lender. The Loan Note Guarantee or Contract of Guarantee will be unenforceable by the lender to the extent any loss is occasioned by violation of usury laws, negligent servicing or failure to obtain the required security regardless of the time at which the Agency acquires knowledge of the foregoing. Any losses occasioned will be unenforceable by the lender to the extent that loan funds are used for purposes other than those specifically approved by the Agency in its Form FmHA 1980-15 (available in any Agency office). Negligent servicing is defined as the failure to perform those services which a reasonably prudent lender would perform in servicing its own portfolio of loans that are not guaranteed. The term includes not only the concept of a failure to act but also not acting in a timely manner or acting in a manner contrary to the manner in which a reasonably prudent lender would act up to the time of loan maturity or until a final loss is paid. The Loan Note Guarantee or Assignment Guarantee Agreement in the hands of a holder shall not cover interest accruing 90 days after the holder has demanded repurchase by the lender, nor shall the Loan Note Guarantee or Assignment Guarantee Agreement in the hands of a holder cover interest accruing 90 days after the lender or the Agency has requested the holder to surrender the evidence of debt for repurchase.
(a)
(1) The lender normally makes loans in the region or geographic location in which the applicant's project being financed is located; or
(2) The lender has specific expertise in loans for the proposed project and provides evidence of such expertise to the satisfaction of the Agency or its successor agency under Public Law 103-354.
(b)
(1)
(2)
(3)
(4)
(i) For those loans covered by Form FmHA or its successor agency under Public Law 103-354 449-35, the lender or its principal officers (including immediate family) or the borrower or its principals or officers (including immediate family) hold any stock or other evidence of ownership in the other; or
(ii) For Farm Credit Programs loans covered by Form FmHA or its successor agency under Public Law 103-354 1980-38, the lender or its officers, directors, principal stockholders or other principal owners or the borrower or its officers, directors, stockholders or other owners have any business dealings with, or hold any stock or other evidence of ownership in, the other.
(5)
(c)
(a) Lenders and applicants will propose the percentage of guarantee. The Agency will set the percentage of guarantee. The maximum percentage of guarantee will be ninety percent. Also, except as modified for Farm Credit Programs guaranteed loans (see subpart B of this part), the maximum loss covered by Form FmHA 449-34 or Form FmHA 1980-27 (both available in any Agency office) can never exceed the lesser of: The Farm Service Agency loan guarantee limit is 90 percent unless otherwise stated in subpart B of this part.
(1) The percentage of guarantee of principal and interest indebtedness as evidenced by said note(s) or by assumption agreement(s), any loan subsidy due, and the percentage of guarantee of principal and interest indebtedness on secured protective advances for protection and preservation of collateral made with the Agency or its successor agency under Public Law 103-354's authorization; or
(2) The percentage of guarantee of the principal advanced to or assumed by the borrower under said note(s) or assumption agreement(s) and any interest due (including any loan subsidy) thereon.
(b) The Agency or its successor agency under Public Law 103-354 will determine the percentage of guarantee after considering all credit factors involved, including but not limited to:
(1)
(2)
(3)
(4)
(5)
(a)
(1) The fee will be paid to FmHA or its successor agency under Public Law 103-354 by the lender and is nonreturnable. The lender may pass on the fee to the borrower.
(2) Guarantee fee rates are specified in exhibit K 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).
(b)
(a)
(2) All Other Program Guarantees. Under all programs except the Downpayment FO Loan program for beginning farmers or ranchers, the lender may establish the charges and fees for the loan, provided they are the same as those charged other applicants for similar types of transactions. “Similar types of transactions” means those transactions involving the same type of loan requested for which a non-guaranteed loan applicant would be assessed charges and fees.
(b)
(1)
(2)
(3)
(a) FmHA or its successor agency under Public Law 103-354 will not guarantee any loan or line of credit made with the proceeds of any obligation the interest on which is excludable from income under section 103 of the Internal Revenue Code of 1954, as amended (IRC). Funds generated through the issuance of tax-exempt obligations may not be used to purchase the guaranteed portion of any FmHA or its successor agency under Public Law 103-354 guaranteed loan or line of credit nor may an FmHA or its successor agency under Public Law 103-354 guaranteed loan or line of credit serve as collateral for a tax-exempt issue.
(b) The only time FmHA or its successor agency under Public Law 103-354 may guarantee a loan or line of credit for a project which involves tax-exempt financing is when the guaranteed loan funds are (1) used to finance a part of the project which is separate and distinct from the part of the project which is financed by the tax-exempt issue, and (2) the guaranteed loan or line of credit has at least a parity security position with the tax-exempt obligation.
The need for an Environmental Impact Statement (EIS) will be determined by the FmHA or its successor agency under Public Law 103-354 approval official. The determination will be based upon FmHA or its successor agency under Public Law 103-354's completion of the appropriate environmental review and Form FmHA or its successor agency under Public Law 103-354 1940-20, “Request for Environmental Information,” when required as set forth in subpart G of part 1940 of this chapter and other agency comments or other information available. If an EIS is necessary, applicants and lenders will be required to provide essential data for use in its preparation. FmHA or its successor agency under Public Law 103-354 State Directors will coordinate preparation and processing of any required EIS. If joint financing for the proposal is involved, the lead agency will be responsible for preparation of the EIS. In all cases, FmHA or its successor agency under Public Law
(a)
(b)
(1)
(2)
(3)
(i) The contractor or subcontractor must submit Form FmHA or its successor agency under Public Law 103-354 400-6, “Compliance Statement,” before or as a part of the bid or negotiation.
(ii) An Equal Opportunity Clause must be part of each contract and subcontract. This clause is incorporated in Form FmHA or its successor agency under Public Law 103-354 424-6, “Construction Contract,” which may serve as a guide.
(iii) With notification of the contract award, the contractor must receive:
(A) Form FmHA or its successor agency under Public Law 103-354 400-3, “Notice to Contractors and Applicants,” signed by the County Supervisor with an attached Equal Employment Opportunity Poster. Posters in Spanish must be provided and displayed where a significant portion of the population is Spanish speaking.
(B) Form AD-425, “Contractor's Affirmative Action Plan for Equal Employment Opportunity Under Executive Order 11246 and Executive Order 11375,” if the contractor or subcontractor is subject to the requirements of paragraph (b)(5) of this section.
(4)
(i) In addition to meeting the requirements of paragraph (b)(3) of this section, each such contractor or subcontractor must file Standard Form 100, “Equal Employment Opportunity Employer Information Report EEO-1,” with the Joint Reporting Committee within 30 days of the contract or subcontract award unless this report has already been submitted within the last 12 months.
(ii) An annual report must be filed on or before March 31, as long as the contractor or subcontractor holds a contract equal to $10,000 or more which is financed with a guaranteed loan.
(5)
(6)
(7)
(i) A written complaint of alleged discrimination must be signed by the complainant and should include the following information:
(A) The name and address (including telephone number, if any) of the complainant.
(B) The name and address of the person committing the alleged discrimination.
(C) A description of the acts considered to be discriminatory.
(D) Any other pertinent information that will assist in the investigation and resolution of the complaint.
(ii) Such complaint must be filed not later than 180 days from the date of the alleged discrimination, unless the time for filing is extended by FmHA or its successor agency under Public Law 103-354 for good cause shown by the complainant.
(a)
(1) If the community, as a result of such designation by FIA as a special flood or mudslide prone area, has an approved flood plain area management plan.
(2) If the project location and construction plans and specifications for new buildings or improvements to existing buildings comply with an approved flood plain area management plan in paragraph (a)(1) of this section.
(3) The requirements of Subpart G of Part 1940 of this chapter have been met.
(b)
(a)
(1) Comply with all the requirements of section 114 of the Clean Air Act (42 U.S.C., 1857 C-9) and section 308 of the Federal Water Pollution Control Act
(2) Notify the FmHA or its successor agency under Public Law 103-354 of the receipt of any communication from the EPA indicating that a facility to be utilized in the carrying out of the FmHA or its successor agency under Public Law 103-354 program loan purposes is under consideration to be listed on the EPA List of Violating Facilities. (Prompt notification is required prior to the making of the loan.)
(3) Certify that any facility to be utilized in the performance of any nonexempt contract or subcontract is not listed on the EPA List of Violating Facilities pursuant to 40 CFR 15.20 as of the date of contract award.
(4) Include, or cause to be included, the criteria and requirements contained in this section in every nonexempt subcontract and will take such action as the Government may direct as a means of enforcing such provisions.
(5) Secure the service of a contractor who agrees to comply with the provisions in paragraph (a) of this section.
(b)
(c)
(d)
(2)
(3)
(4)
As a condition for FmHA or its successor agency under Public Law 103-354 making or guaranteeing a loan, the applicant will provide a written statement to FmHA or its successor agency under Public Law 103-354 of the effect,
In addition to the specific requirements of this subpart, proposals for facilities financed in whole or in part with an FmHA or its successor agency under Public Law 103-354 loan or guarantee will be coordinated with all appropriate Federal, State and local agencies in accordance with the following:
(a)
(1) Organization and authority to design, construct, develop, operate, and/or maintain the proposed facilities;
(2) Borrowing money, giving security therefor, and raising revenues for the repayment thereof;
(3) Land use zoning;
(4) Health, safety, and sanitation standards;
(5) Protection of the environment and consumer affairs.
(b)
(a) When the applicant is either an individual or partnership of five or fewer members and applies for financial assistance from a lender which applies to FmHA or its successor agency under Public Law 103-354 for a guarantee, the following actions must be taken:
(1) Except for Farmer Programs loans, within 3 days of the receipt of a pre-application or complete application from a lender for a guarantee for a loan, FmHA or its successor agency under Public Law 103-354 will forward Form FmHA or its successor agency under Public Law 103-354 410-7, “Notification to Applicant on Use of Financial Information From Financial Institution,” to those applicants desiring loan assistance. If notification is made upon receipt of a pre-application, notification will not be made upon receipt of an application for the same applicant. For Farmer Programs loans, this notification is included in Form FmHA or its successor agency under Public Law 103-354 1980-25, “Farmer Programs Application,” and therefore, Form FmHA or its successor agency under Public Law 103-354 410-7 need not be sent to the loan applicant.
(2) Except for Farmer Programs loans, notification must also be given to the lender and other financial institutions to which FmHA or its successor agency under Public Law 103-354 makes a direct request for financial records. For Farmer Programs loans, this notification is included in Form FmHA or its successor agency under Public Law 103-354 1980-25, and therefore, Form FmHA or its successor agency under Public Law 103-354 410-7 need not be sent to the lender. The notification to the lender and other financial institutions will read as follows:
I certify that the United States Department of Agriculture, acting through the Farmers Home Administration or its successor agency under Public Law 103-354, has complied with the applicable provisions of Title XI, Pub. L. 95-630, in seeking financial information regarding
(b) Under no circumstances may financial information obtained under this Subpart be disseminated to any other department or
All guaranteed loan applications must be approved or disapproved, and the lender notified in writing, not later than 60 days after receipt of a completed application, except as noted in paragraph (d) of this section.
(a) If an application is not complete, the lender will be notified, in writing, not later than 20 days after receipt of the application by FmHA or its successor agency under Public Law 103-354, of the reason(s) the application is incomplete.
(b) When an application is disapproved, the written notification to the lender will state the reasons(s) for disapproval.
(c) When an application is disapproved and subsequent action, as the result of an appeal, reverses or revises the initial decision, FmHA or its successor agency under Public Law 103-354 will notify the lender of such action within 15 days after the reversal/revision decision is made.
(d) Applications for Community Programs guaranteed loans that would otherwise be disapproved due to the lack of guarantee authority to make the loans will be placed in a pending status. The applications will remain in a pending status until guarantee authority becomes available. Within 60 days after guaranteed authority becomes available, FmHA or its successor agency under Public Law 103-354 will notify the applicants of the approval or disapproval of the loan.
(a) The guaranteed loan programs are subject to the provisions of Executive Order 12699 which requires each Federal agency assisting in the financing, through Federal grants or loans, or guaranteeing the financing, through loan or mortgage insurance programs, of newly constructed buildings to assure appropriate consideration of seismic safety.
(b) All new buildings shall be designed and constructed in accordance with the seismic provisions of one of the following model building codes or the latest edition of that code providing an equivalent level of safety to that contained in the latest edition of the National Earthquake Hazard Reduction Program's (NEHRP) Recommended Provisions for the Development of Seismic Regulations for New Building (NEHRP Provisions):
(1) 1991 International Conference of Building Officials (ICBO) Uniform Building Code;
(2) 1993 Building Officials and Code Administrators International, Inc. (BOCA) National Building Code; or
(3) 1992 Amendments to the Southern Building Code Congress International (SBCCI) Standard Building Code.
(c) The date, signature, and seal of a registered architect or engineer and the identification and date of the model building code on the plans and specifications will be evidence of compliance with the seismic requirements of the appropriate building code.
(a)
(1) No major changes have been made in the lender's loan or line of credit conditions and requirements since the issuance of the Conditional Commitment for Guarantee or Conditional
(2) All planned property acquisition has been completed and all development has been substantially completed in accordance with plans and specifications. All costs have not exceeded the amounts approved by the lender and the Agency.
(3) Required hazard, flood, or prevention insurance, worker's compensation and personal life insurance when required is in effect.
(4) Truth in lending requirements have been met.
(5) All equal employment opportunity and nondiscrimination requirements have been or will be met at the appropriate time.
(6) The loan or line of credit has been properly closed, and the required security instruments have been obtained, or will be obtained on any after acquired property that cannot be covered initially under State law.
(7) The borrower has marketable title to the collateral then owned by borrower, subject to the instrument securing the loan or line of credit to be guaranteed and subject to any other exceptions approved in writing by FmHA or its successor agency under Public Law 103-354.
(8) When required, the entire amount of loan for working capital has been disbursed except in cases where the State Director has approved disbursement over an extended time.
(9) When required personal, joint operation (for Farmer Program loans only), partnership, or corporate guarantees have been obtained. Copies of the guarantees will be provided to FmHA or its successor agency under Public Law 103-354.
(10) All other requirements of the Conditional Commitment for Guarantee or Conditional Commitment for Contract of Guarantee have been met.
(11) Lien priorities are consistent with requirements of the Conditional Commitment for Guarantee or Conditional Commitment for Contract of Guarantee.
(12) The loan proceeds have been disbursed for purposes and in amounts consistent with the Conditional Commitment for Guarantee and as specified on Form FmHA or its successor agency under Public Law 103-354 449-1, “Application for Loan and Guarantee,” or Form FmHA or its successor agency under Public Law 103-354 1980-10, “Application for Loan and Guarantee” (Community Programs). In line of credit cases if any advances have occurred, advances have been disbursed for purposes and in amounts consistent with the Conditional Commitment for Contract of Guarantee and Line of Credit Agreements. A copy of a detailed loan settlement statement of the lender will be attached to support this certification.
(13) Equity requirements have been met. A reconciliation of the borrower's net worth from the latest financial statement to the date of loan closing will be provided with this certification.
(14) There has been no adverse change(s) in the borrower's financial condition nor any other adverse change in the borrower during the period of time from FmHA or its successor agency under Public Law 103-354's issuance of the Conditional Commitment for Guarantee to issuance of the Loan Note Guarantee or from the time of FmHA or its successor agency under Public Law 103-354's issuance of the Conditional Commitment for Contract of Guarantee to the issuance of the Contract of Guarantee. The lender's certification must address all adverse changes of the borrower and be supported by financial statements of the borrower and its guarantors not more than 60 days old at time of certification. For purposes of this paragraph, the term “borrower” includes additionally any parent, affiliate, or subsidiary of the borrower.
(b)
(c)
(d)
(e)
(a)
(1) Except for Farmer Programs loans, the lender and FmHA or its successor agency under Public Law 103-354 will execute Form FmHA or its successor agency under Public Law 103-354 449-35. The original will be delivered to FmHA or its successor agency under Public Law 103-354 and a signed duplicate original will be retained by the lender. There will be a Form FmHA or its successor agency under Public Law 103-354 449-35 executed for all loans and lines of credit guaranteed by FmHA or its successor agency under Public Law 103-354.
(2) For Farmer Programs loans, a new lender's agreement (Form FmHA or its successor agency under Public Law 103-354 1980-38) does not need to be executed for each loan.
(i) Eligible lenders (non-CLP or non-ALP) must execute the most current version of Form FmHA or its successor agency under Public Law 103-354 1980-38. The original will be kept in the County Office operational file for that lender.
(ii) ALP lenders must have executed an ALP lender's agreement (attachments 1 or 2 of exhibit A of subpart B of this part). The original will be kept in the State Office with a copy in the County Office operational file.
(iii) CLP lenders must have executed the most current version of Form FmHA or its successor agency under Public Law 103-354 1980-38. The original will be kept in the State Office with a copy in the County Office operational file.
(iv) Outstanding guarantees will be governed by the provisions of the lender's agreement in effect at the time the guarantee was issued; therefore, all expired lender's agreements must be retained in the State and/or County Office operational file.
(3) In all cases, the lender's agreement will be executed no later than the time the Loan Note Guarantee or Contract of Guarantee is signed.
(b)
(2) In the event a lender has made a loan guaranteed by FmHA or its successor agency under Public Law 103-354 under previous regulations and has obtained a Form FmHA or its successor agency under Public Law 103-354 449-17, “Contract of Guarantee,” the lender
(i) Prepare and submit to FmHA or its successor agency under Public Law 103-354 a written request for such substituted guarantee.
(ii) Certify to FmHA or its successor agency under Public Law 103-354 that there is no adverse change in the borrower's financial situation, the collateral and terms of the loan remain the same as under the original guarantee, and the loan is in good standing.
(iii) Pay the required guarantee fee.
(iv) Certify to FmHA or its successor agency under Public Law 103-354 the outstanding principal amount of the loan.
(v) Execute Form FmHA or its successor agency under Public Law 103-354 449-35.
(3) If a lender has selected the multi-note system as provided in paragraph III A 2 of Form FmHA 449-35, or § 1980.119 of subpart B of this part, a Loan Note Guarantee will be prepared and attached to each note the borrower issues. All the notes will be listed on Form FmHA or its successor agency under Public Law 103-354 449-34.
(4) If the lender requests a series of new notes to replace previously issued guaranteed notes as provided in paragraph III A (b) of Forms FmHA 449-35 or § 1980.119 of subpart B of this part, the County Supervisor may reissue the new Loan Note Guarantee in exchange for the original Loan Note Guarantee.
(c)
(d)
(e)
(f)
(g)
(h)
Any sale or assignment by the lender of the guaranteed portion of the loan must be accomplished in accordance with the conditions in paragraph III of Form FmHA or its successor agency under Public Law 103-354 449-35 or § 1980.119 of subpart B of this part. Only guaranteed portions of loans not in payment default as set forth in the terms of the debt instruments may be sold. Should the lender know at the time the loan application is being prepared that it plans to sell or assign any part of the guaranteed portion of the loan as provided in Form FmHA or its successor agency under Public Law 103-354 449-35 or § 1980.119 of subpart B of this part, the lender will provide this information with the application of FmHA or its successor agency under Public Law 103-354. Line of Credit agreements evidencing advances made under lines of credit will not be sold or assigned except as provided in paragraph I.C.4. of Form FmHA or its successor agency under Public Law 103-354 1980-38 and § 1980.119 of subpart B of this part.
(a) Refer to paragraph X of Form FmHA or its successor agency under Public Law 103-354 449-35 or I.D.6. of Form FmHA or its successor agency under Public Law 103-354 1980-38.
(b) FmHA or its successor agency under Public Law 103-354 may be required to purchase the guaranteed portion of a loan(s) from holder(s) in the event of default or servicing problems. The County Supervisor will coordinate any requests from holder(s) located in close proximity to the local lender. If several holders are located outside the area, the State Director will handle the transaction and notify the County Supervisor. The County Supervisor will prepare a Form FmHA or its successor agency under Public Law 103-354 1980-37, “FmHA or its successor agency under Public Law 103-354 Purchase of a Guaranteed Loan Portion,” for each holder(s) and follow the instructions on the reverse of the form.
(a)
(b)
(c)
Refer to paragraph XII of Form FmHA or its successor agency under Public Law 103-354 449-35, or for Farmer Programs Loans, § 1980.136 of subpart B of this part.
Refer to paragraph XIII of Form FmHA or its successor agency under Public Law 103-354 449-35, or paragraph I.D.6.(b) of Form FmHA or its successor agency under Public Law 103-354 1980-38.
(a)
(b)
If the Loan Note Guarantee has not automatically terminated the lender may request FmHA or its successor agency under Public Law 103-354 to terminate the Loan Note Guarantee(s) or Contract(s) of Guarantee, for any reason, provided the lender holds all the guaranteed portions of the loan. (See paragraph 12 of Form FmHA or its successor agency under Public Law 103-354 449-34, or paragraph 6 of Form FmHA or its successor agency under Public Law 103-354 1980-27.) The lender will provide the County Supervisor with a written notice that the loan(s) or line(s) of credit is (or are) paid in full and/or termination of the Loan Note Guarantee(s) or Contract(s) of Guarantee, enclosing the original Form(s) FmHA or its successor agency under Public Law 103-354 449-34 or Form FmHA or its successor agency under Public Law 103-354 1980-27 for cancellation. Within 30 days, the County Supervisor will forward a memorandum to the Finance Office through the State Director. The memorandum will indicate that: “the loan(s) or line(s) of credit is (or are) paid in full,” and/or “the Loan Note Guarantee or Contract of Guarantee has been cancelled at the request of the lender.”
Only the borrower, lender and/or holder can appeal an FmHA or its successor agency under Public Law 103-354 decision. The borrower must jointly
Upon request by FmHA or its successor agency under Public Law 103-354 the lender will permit representatives of FmHA or its successor agency under Public Law 103-354 (or other agencies of the U.S. Department of Agriculture authorized by that Department) to inspect and make copies of any of the records of the Lender pertaining to FmHA or its successor agency under Public Law 103-354 guaranteed loans. Such inspection and copying may be made during regular office hours of the lender, or any other time the lender and FmHA or its successor agency under Public Law 103-354 finds convenient.
FmHA or its successor agency under Public Law 103-354 State Directors may supplement this regulation subject to National Office review to the extent necessary to properly implement the program in their States.
(a)
(b) [Reserved]
(a) [Reserved]
(b)
(4) In those cases where the guaranteed loan was closed under the provisions of paragraph III(A)(2) of Form FmHA or its successor agency under Public Law 103-354 449-35 or § 1980.119 of subpart B of this part, known as the “Multi-Note System,” FmHA or its successor agency under Public Law 103-354 will not attempt to or participate in the obtaining of replacement notes from the borrower. It will be the responsibility of the holder to bear costs of note replacement if the borrower agrees to issue a replacement instrument. Should such note be replaced, the terms of the note cannot be changed. (See paragraph III(A)(2)(b) of Form FmHA or its successor agency under Public Law 103-354 449-35 or § 1980.119 of subpart B of this part for general conditions for reissued notes.) If the evidence of debt has been lost, stolen, destroyed, mutilated or defaced, such evidence of debt must be replaced before FmHA or its successor agency under Public Law 103-354 will replace any instruments.
A. State Directors will review all documents when presented by the lender to assure all requirements are met.
B. The State Director will contact the Regional OGC for assistance before new guarantee instruments are issued.
C. If the decision is to reissue Loan Note Guarantee(s), Contract of Guarantee(s), or Assignment Guarantee Agreement(s) the following procedure will be followed:
(1)
If borrower notes are needed they must be obtained by the holder from the borrower. The indemnity bond must be kept in safekeeping.
(2)
(3) The lender must execute the replacement forms prior to FmHA or its successor agency under Public Law 103-354 execution of the same.
(4) Certificates of Incumbency may be provided.
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, or opinion of the Comptroller General, provided the Administrator determines that application of the requirement or provision would adversely affect the Government's interest. Requests for exception, must be in writing by the State Director and submitted through the appropriate Assistant Administrator. Requests must be supported with documentation to explain the adverse effect on the Government's interest, propose alternative courses of action, and show how the adverse effect will be eliminated or minimized if the exception is granted. In addition, any request for an exception to § 1980.13(b) of this subpart must document that the lender involved has furnished acceptable evidence of regulation and supervision.
The reporting requirements contained in this subpart have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0024. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 28 hours per response, with an average of 2.08 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 the Department of Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, D.C. 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB
In consideration of the making of the subject loan by the above named Lender, the United States of America, acting through the Farm Service Agency, Rural Business-Cooperative Service, Rural Utilities Service, or Rural Housing Service (herein called “Government”), pursuant to the Consolidated Farm and Rural Development Act (7 U.S.C. 1921
A. Any Holder 100 percent of any loss sustained by such Holder on the guaranteed portion and on interest due (including any loan subsidy) on such portion and any capitalized interest on such portion resulting from the restructuring of a Guaranteed Farm Credit Program loans but not exceeding statutory loan limits.
B. The Lender the lesser of 1. or 2. below:
1. Any loss sustained by such Lender on the guaranteed portion including:
a. principal and interest indebtedness as evidenced by said note(s) or by assumption agreement(s), and
b. Any loan subsidy due and owing, and
c. Principal and interest indebtedness on secured protective advances for protection and preservation of collateral made with Government's authorization, including but not limited to, advances for taxes, annual assessments, any ground rents, and hazard or flood insurance premiums affecting the collateral, or
d. and, Capitalized interest on such portion resulting from the restructuring of a Guaranteed Farm Credit Programs Loans and not exceeding statutory loan limits, or
2. The guaranteed principal advanced to or assumed by the Borrower under said note(s) or assumption agreement(s) and any interest due (including any loan subsidy) thereon and any capitalized interest resulting from the restructuring of a Guaranteed Farm Credit Programs loans and not exceeding statutory loan limits.
If Government conducts the liquidation of the loan, loss occasioned to a Lender by accruing interest (including any loan subsidy) after the date Government accepts responsibility for liquidation will not be covered by this Loan Note Guarantee. If Lender conducts the liquidation of the loan accruing interest (including any loan subsidy) shall be covered by this Loan Note Guarantee to date of final settlement when the lender conducts the liquidation expeditiously in accordance with the liquidation plan approved by Government.
The Holder is the person or organization other than the Lender who holds all or part of the guaranteed portion of the loan with no servicing responsibilities. Holders are prohibited from obtaining any part(s) of the Guaranteed portion of the loan with proceeds from any obligation, the interest on which is excludable from income, under Section 103 of the Internal Revenue Code of 1954, as amended (IRC). When the Lender assigns a part(s) of the guaranteed loan to an assignee, the assignee becomes a Holder only when Form FmHA 449-36, “Assignment Guarantee Agreement,” is used.
The Lender is the person or organization making and servicing the loan which is guaranteed under the provisions of the applicable subpart of 7 C.F.R. part 1980. The Lender is also the party requesting a loan guarantee.
Lender will be responsible for servicing the entire loan, and Lender will remain mortgagee and/or secured party of record not withstanding the fact that another party may hold a portion of the loan. When multiple notes are used to evidence a loan, Lender will structure repayments as provided in the loan agreement. In the case of Farm Ownership, Soil and Water, or Operating Loans, the Lender agrees that if liquidation of the account becomes imminent, the Lender will consider the Borrower for an Interest Rate Buydown under Exhibit C of subpart B of 7 C.F.R., part 1980, and request a determination of the Borrower's eligibility by Government. The Lender may not initiate foreclosure action on the loan until 60 days after a determination has been made with respect to the eligibility of the Borrower to participate in the Interest Rate Buydown Program.
The entire loan will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of the loan. The unguaranteed portion of the loan will not be paid first nor given any preference or priority over the guaranteed portion.
The Loan Note Guarantee constitutes an obligation supported by the full faith and credit of the United States and is incontestable except for fraud or misrepresentation of which Lender or any Holder has actual knowledge at the time it became such Lender or Holder or which Lender or any Holder participates in or condones. If the note to which this is attached or relates provides for the payment of interest on interest, then this Loan Note Guarantee is void. However, in the case of the Farm Credit Programs loans, the capitalization of interest when restructuring loans will not void this Loan Note Guarantee. In addition, the Loan Note Guarantee will be unenforceable by Lender to the extent any loss is occasioned by the violation of usury laws, negligent servicing, or failure to obtain the required security regardless of the time at which Government acquires knowledge of the foregoing. Any losses occasioned will be unenforceable to the extent that loan funds are used for purposes other than those specifically approved by Government in its Conditional Commitment for Guarantee. Negligent servicing is defined as the failure to perform those services which a reasonably prudent lender would perform in servicing its own portfolio of loans that are not guaranteed. The term includes not only the concept of a failure to act but also not acting in a timely manner or acting in a manner contrary to the manner in which a reasonably prudent lender would act up to the time of loan maturity or until a final loss is paid.
The guarantee and right to require purchase will be directly enforceable by Holder notwithstanding any fraud or misrepresentation by Lender or any unenforceability of this Loan Note Guarantee by Lender. Nothing contained herein will constitute any waiver by Government of any rights it possesses against the Lender. Lender will be liable for and will promptly pay to Government any payment made by Government to Holder which if such Lender had held the guaranteed portion of the loan, Government would not be required to make.
Lender will receive all payments of principal, or interest, and any loan subsidy on account of the entire loan and will promptly remit to Holder(s) its pro rata share thereof determined according to its respective interest in the loan, less only Lender's servicing fee.
Protective advances made by Lender pursuant to the regulations will be guaranteed against a percentage of loss to the same extent as provided in this Loan Note Guarantee notwithstanding the guaranteed portion of the loan that is held by another.
The Lender has the option to repurchase the unpaid guaranteed portion of the loan from the Holder(s) within 30 days of written demand by the Holder(s) when: (a) the borrower is in default not less than 60 days on principal or interest due on the loan or (b) the Lender has failed to remit to the Holder(s) its pro rata share of any payment made by the borrower or any loan subsidy within 30 days of its receipt thereof. The repurchase by the Lender will be for an amount equal to the unpaid guaranteed portion of principal and accrued interest (including any loan subsidy) less the Lender's servicing fee. The Loan Note Guarantee will not cover the note interest to the Holder on the guaranteed loan(s) accruing after 90 days from the date of the demand letter to the Lender requesting the repurchase. Holder(s) will concurrently send a copy of demand to Government. The Lender will accept an assignment without recourse from the Holder(s) upon repurchase. The Lender is encouraged to repurchase the loan to facilitate the accounting for funds, resolve the problem, and to permit the borrower to cure the default, where reasonable. The Lender will notify the Holder(s) and Government of its decision.
If Lender does not repurchase as provided by paragraph 7 hereof, Government will purchase from Holder the unpaid principal balance of the guaranteed portion together with accrued interest (including any loan subsidy) to date of repurchase less Lender's servicing fee, within thirty (30) days after written demand to Government from Holder. The Loan Note Guarantee will not cover the note interest to the Holder on the guaranteed loan(s) accruing after 90 days from the date of the original demand letter of the Holder to the Lender requesting the repurchase. Such demand will include a copy of the written demand made upon the Lender. The Holder(s) or its duly authorized agent will also include evidence of its right to require payment from Government. Such evidence will consist of either the original of the Loan Note Guarantee properly endorsed to Government or the original of the Assignment Guarantee Agreement properly assigned to Government without recourse including all rights, title, and interest in the loan. Government will be subrogated to all rights of Holder(s). The Holder(s) will include in its demand the amount due including unpaid principal, unpaid interest (including any loan subsidy) to date of demand and interest (including any loan subsidy) subsequently
The Government will promptly notify the Lender of its receipt of the Holder(s)'s demand for payment. The Lender will promptly provide the Government with the information necessary for Government determination of the appropriate amount due the Holder(s). Any discrepancy between the amount claimed by the Holder(s) and the information submitted by the Lender must be resolved before payment will be approved. Government will notify both parties who must resolve the conflict before payment by Government will be approved. Such conflict will suspend the running of the 30 day payment requirement. Upon receipt of the appropriate information. Government will review the demand and submit it to the State Director for verification. After reviewing the demand the State Director will transmit the request to the Government Finance Office for issuance of the appropriate check. Upon issuance, the Finance Office will notify the office servicing the borrower and State Director and remit the check(s) to the Holder(s).
Lender consents to the purchase by Government and agrees to furnish on request by Government a current statement certified by an appropriate authorized officer of the Lender of the unpaid principal and interest then owed by Borrowers on the loan and the amount including any loan subsidy then owed to any Holder(s). Lender agrees that any purchase by Government does not change, alter or modify any of the Lender's obligations to Government arising from said loan or guarantee nor does it waive any of Government's rights against Lender, and that Government will have the right to set-off against Lender all rights inuring to Government as the Holder of this instrument against Government's obligation to Lender under the Loan Note Guarantee.
If, in the opinion of the Lender, repurchase of the guaranteed portion of the loan is necessary to adequately service the loan, the Holder will sell the portion of the loan to the Lender for an amount equal to the unpaid principal and interest (including any loan subsidy) on such portion less Lender's servicing fee. The Loan Note Guarantee will not cover the note interest to the Holder on the guaranteed loans accruing after 90 days from the date of the demand letter of the Lender or Government to the Holder(s) requesting the Holder(s) to tender their guaranteed portion(s).
a. The Lender will not repurchase from the Holder(s) for arbitrage purposes or other purposes to further its own financial gain.
b. Any repurchase will only be made after the Lender obtains Government written approval.
c. If the Lender does not repurchase the portion from the Holder(s), Government at its option may purchase such guaranteed portions for servicing purposes.
The Lender may retain, or sell the unguaranteed portion of the loan only through participation. Participation, as used in this instrument, means the sale of an interest in the loan wherein the Lender retains the note, collateral securing the note, and all responsibility for loan servicing and liquidation.
This Loan Note Guarantee will terminate automatically (a) upon full payment of the guaranteed loan; or (b) upon full payment of any loss obligation hereunder; or (c) upon written notice from the Lender to Government that the guarantee will terminate 30 days after the date of notice, provided the Lender holds all of the guaranteed portion and the Loan Note Guarantee(s) are returned to be cancelled by Government.
The amount due under this instrument will be determined and paid as provided in the applicable subpart of 7 CFR part 1980 in effect on the date of this instrument.
* In addition to the interest rate of the note attached hereto, Government will pay a loan subsidy of
In the case of Farm Credit Programs loans, the Lender/Holder(s) may capitalize interest only when the note is restructured. When delinquent interest is so treated as principal, the new principal amount may exceed the principal amount of the loan listed herein, but may not exceed statutory loan limits. The new principal amount and new guaranteed portion will be identified at restructuring in an addendum to this Loan Note Guarantee. Such capitalized interest will be covered by this loan Note Guarantee. References to “principal and interest” and “principal advanced” herein, therefore, shall include any capitalized interest on the guaranteed portion of the loan resulting from the restructuring of a Guaranteed Farm Credit Programs loans and not exceeding statutory loan limits.
All notices will be initiated through the
UNITED STATES OF AMERICA
(insert applicable agency)
I. The maximum loss covered under the Loan Note Guarantee will not exceed
II.
The Loan Note Guarantee will be unenforceable by the Lender to the extent any loss is occasioned by violation of usury laws, negligent servicing, or failure to obtain the required security regardless of the time at which FmHA or its successor agency under Public Law 103-354 acquires knowledge of the foregoing. Any losses will be unenforceable by the Lender to the extent that loan funds are used for purposes other than those specifically approved by FmHA or its successor agency under Public Law 103-354 in its Conditional Commitment for Guarantee. Negligent servicing is defined as the failure to perform those services which a reasonably prudent Lender would perform in servicing its own portfolio of loans that are not guaranteed. The term includes not only the concept of a failure to act but also not acting in a timely manner or acting in a manner contrary to the manner in which a reasonably prudent Lender would act up to the time of loan maturity or until a final loss is paid.
Public reporting burden for this collection of information is estimated to average 1
III.
A. The Lender may retain all of the guaranteed loan. The Lender is not permitted to sell or participate in any amount of the guaranteed or unguaranteed portion(s) of the loan(s) to the applicant or Borrower or members of their immediate families, their officers, directors, stockholders, other owners, or any parent, subsidiary or affiliate. If the Lender desires to market all or part of the guaranteed portion of the loan at or subsequent to loan closing, such loan must not be in default as set forth in the terms of the notes. The Lender may proceed under the following options:
1.
2.
a.
b.
(1) Upon written approval by FmHA or its successor agency under Public Law 103-354, the Lender may cause to be issued a series of new notes, not to exceed the total provided in 2.a. above, as replacement for previously issued guaranteed note(s) provided:
(a) The Borrower agrees and executes the new notes.
(b) The interest rate does not exceed the interest rate in effect when the loan was closed.
(c) The maturity of the loan is not changed.
(d) FmHA or its successor agency under Public Law 103-354 will not bear any expenses that may be incurred in reference to such reissue of notes.
(e) There is adequate collateral securing the note(s).
(f) No intervening liens have arisen or have been perfected and the secured lien priority remains the same.
(2) FmHA or its successor agency under Public Law 103-354 will issue the appropriate Loan Note Guarantees to be attached to each of the notes then extant in exchange for the original Loan Note Guarantee which will be cancelled by FmHA or its successor agency under Public Law 103-354.
3.
a. The Lender may obtain participation in its loan under its normal operating procedures. Participation means a sale of an interest in the loan wherein the Lender retains the note, collateral securing the note, and all responsibility for loan servicing and liquidation.
b. The Lender is required to hold in its own portfolio or retain a minimum of 10% of Farmer Program loans and 5% for Community Programs and Business and Industry Program loans of the total guaranteed loan(s) amount. The amount required to be retained must be of the unguaranteed portion of the loan and cannot be participated to another. The Lender may sell the remaining amount of the unguaranteed portion of the loan, except for Farmer Program loans, only through participation. However, the Lender will always retain the responsibility for loan servicing and liquidation.
B. When a guaranteed portion of a loan is sold by the Lender to a Holder(s), the Holder(s) shall thereupon succeed to all rights of Lender under the Loan Note Guarantee to the extent of the portion of the loan purchased. Lender will remain bound to all the obligations under the Loan Note Guarantee, and this agreement, and the FmHA or its successor agency under Public Law 103-354 program regulations found in the applicable subpart of title 7 CFR part 1980, and to future FmHA or its successor agency under Public Law 103-354 program regulations not inconsistent with the express provisions hereof.
C. The Holder(s) upon written notice to the Lender may resell the unpaid guaranteed portion of the loan sold under provision III A.
IV. The Lender agrees loan funds will be used for the purposes authorized in the applicable subpart of title 7 CFR part 1980 and in
V. The Lender certifies that none of its officers or directors, stockholders or other owners (except stockholders in a Farm Credit Bank or other Farm Credit System Institution will direct lending authority that have normal stockshare requirements for participation) has a substantial financial interest in the Borrower. The Lender certifies that neither the Borrower nor its officers or directors, stockholders or other owners has a substantial financial interest in the Lender. If the Borrower is a member of the board of directors or an officer of a Farm Credit Bank or other Farm Credit System Institution with direct lending authority, the Lender certifies that an FCS institution on the next highest level will independently process the loan request and will act as the Lender's agent in servicing the account.
VI. The Lender certifies that it has no knowledge of any material adverse change, financial or otherwise, in the Borrower, Borrower's business, or any parent, subsidiaries, or affiliates since it requested a Loan Note Guarantee.
VII. The Lender certifies that a loan agreement and/or loan instruments concurred in by FmHA or its successor agency under Public Law 103-354 has been or will be signed with the Borrower.
VIII. Lender certifies that it has paid the required guarantee fee.
IX.
A. The Lender will service the entire loan and will remain mortgagee and/or secured part of record, notwithstanding the fact that another may hold a portion of the loan. The entire loan will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of the loan. Lender may charge Holder a servicing fee. The unguaranteed portion of a loan will not be paid first nor given any preference or priority over the guaranteed portion of the loan.
B. Disposition of the guaranteed portion of a loan may be made prior to full disbursement, completion of construction and acquisitions only with the prior written approval of FmHA or its successor agency under Public Law 103-354. Subsequent to full disbursement, completion of construction, and acquisition, the guaranteed portion of the loan may be disposed of as provided herein.
It is the Lender's responsibility to see that all construction is properly planned before any work proceeds; that any required permits, licenses or authorizations are obtained from the appropriate regulatory agencies; that the Borrower has obtained contracts through acceptable procurement procedures; that periodic inspections during construction are made and that FmHA or its successor agency under Public Law 103-354's concurrence on the overall development schedule is obtained.
C. Lender's servicing responsibilities include, but are not limited to:
1. Obtaining compliance with the covenants and provisions in the note, loan agreement, security instruments, and any supplemental agreements and notifying in writing FmHA or its successor agency under Public Law 103-354 and the Borrower of any violations. None of the aforesaid instruments will be altered without FmHA or its successor agency under Public Law 103-354's prior written concurrence. The Lender must service the loan in a reasonable and prudent manner.
2. Receiving all payments on principal and interest (including any loan subsidy) on the loan as they fall due and promptly remitting and accounting to any Holder(s) of their pro rata share thereof determined according to their respective interests in the loan, less only Lender's servicing fee. The loan may be reamortized, renewed, rescheduled or (for Farm Ownership, Soil and Water, and Operating loans only) written down only with agreement of the Lender and Holder(s) of the guaranteed portion of the loan and only with FmHA or its successor agency under Public Law 103-354's written concurrence.
3. Inspecting the collateral as often as necessary to properly service the loan.
4.
5.
6. Assuring that if personal or corporate guarantees are part of the collateral, current
7. Obtaining the lien coverage and lien priorities specified by the Lender and agreed to by FmHA or its successor agency under Public Law 103-354, properly recording or filing lien or notice instruments to obtain or maintain such lien priorities during the existence of the guarantee by FmHA or its successor agency under Public Law 103-354.
8. Assuring that the Borrower obtains marketable title to the collateral.
9. Assuring that the Borrower (any party liable) is not released from liability for all or any part of the loan, except in accordance with FmHA or its successor agency under Public Law 103-354 regulations.
10. Providing FmHA or its successor agency under Public Law 103-354 Finance Office with loan status reports semiannually as of June 30 and December 31 on Form FmHA or its successor agency under Public Law 103-354 1980-41, “Guaranteed Loan Status Report.” For Farm Ownership, Soil and Water, and Operating loans, Form FmHA or its successor agency under Public Law 103-354 1980-41 will only be submitted annually as of December 31.
11. Obtaining from the Borrower periodic financial statements under the following schedule:
12. Monitoring the use of loan funds to assure they will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in 7 CFR Part 1940, Subpart G, Exhibit M.
D. If a Farm Ownership, Soil and Water or Operating loan is involved the Lender shall participate in any farm credit mediation program of a state in accordance with the rules of that system and 7 CFR Part 1980, Subpart B, § 1980.126.
X.
A. The Lender will notify FmHA or its successor agency under Public Law 103-354 when a Borrower is thirty (30) days (90 days for guaranteed rural housing loan) past due on a payment or if the Borrower has not met its responsibilities of providing the required financial statements to the Lender or is otherwise in default. The Lender will notify FmHA or its successor agency under Public Law 103-354 of the status of a Borrower's default on Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status.” A meeting will be arranged by the Lender with the Borrower and FmHA or its successor agency under Public Law 103-354 to resolve the problem. Actions taken by the Lender with written concurrence of FmHA or its successor agency under Public Law 103-354 will include but are not limited to the following or any combination thereof:
1. Deferment of principal payments (subject to rights of any Holder(s)).
2. An additional temporary loan by the Lender to bring the account current.
3. Reamortization of or rescheduling the payments on the loan (subject to rights of any Holder(s)).
4. Transfer and assumption of the loan in accordance with the applicable subpart of Title 7 CFR Part 1980.
5. Reorganization.
6. Liquidation.
7. Subsequent loan guarantees.
8. Changes in interest rates with FmHA or its successor agency under Public Law 103-354's Lender's, and the Holder’(s) approval; provided, such interest rate is adjusted proportionally between the guaranteed and unguaranteed portion of the loan and the type of rate remains the same.
9. Principal and interest write down in accordance with 7 CFR Part 1980, Subpart B, § 1980.125.
B. The Lender will negotiate in good faith in an attempt to resolve any problem to permit the Borrower to cure a default, where reasonable. In the case of Farm Ownership, Soil and Water, or Operating loans, the Lender agrees that if liquidation of the account becomes imminent, the Lender will consider the Borrower for an Interest Rate Buydown under Exhibit C of Subpart B of 7 CFR, Part 1980, and request a determination of the Borrower's eligibility by FmHA or its successor agency under Public Law 103-354. The Lender may not initiate foreclosure action on the loan until 60 days after a determination has been made with respect to the eligibility of the Borrower to participate in the Interest Rate Buydown Program.
C. The Lender has the option to repurchase the unpaid guaranteed portion of the loan from the Holder(s) within 30 days of written demand by the Holder(s) when: (a) the Borrower is in default not less than 60 days in payment of principal or interest due on the loan or (b) the Lender has failed to remit to the Holder(s) its pro rata share of any payment made by the Borrower or any loan subsidy within 30 days of its receipt thereof. The repurchase by the Lender will be for an amount equal to the unpaid guaranteed portion of the principal and accrued interest less the Lender's servicing fee. The loan note
D. If Lender does not repurchase as provided by paragraph C, FmHA or its successor agency under Public Law 103-354 will purchase from Holder(s) the unpaid principal balance of the guaranteed portion herein together with accrued interest (including any loan subsidy) to date of repurchase, within 30 days after written demand to FmHA or its successor agency under Public Law 103-354 from the Holder(s). The loan note guarantee will not cover the note interest to the Holder on the guaranteed loan(s) accruing after 90 days from the date of original demand letter of the Holder(s) to the Lender requesting the repurchase. Such demand will include a copy of the written demand made upon the Lender.
The Holder(s) or its duly authorized agent will also include evidence of its right to require payment from FmHA or its successor agency under Public Law 103-354. Such evidence will consist of either the originals of the Loan Note Guarantee and note properly endorsed to FmHA or its successor agency under Public Law 103-354 or the original of the Assignment Guarantee Agreement properly assigned to FmHA or its successor agency under Public Law 103-354 without recourse including all rights, title, and interest in the loan. FmHA or its successor agency under Public Law 103-354 will be subrogated to all rights of Holder(s). The Holder(s) will include in its demand the amount due including unpaid principal, unpaid interest (including any loan subsidy) to date of demand and interest subsequently accruing from date of demand to proposed payment date. Unless otherwise agreed to by FmHA or its successor agency under Public Law 103-354, such proposed payment will not be later than 30 days from the date of the demand.
The FmHA or its successor agency under Public Law 103-354 office serving the Borrower will promptly notify the Lender of the Holder(s) demand for payment. The Lender will promptly provide the FmHA or its successor agency under Public Law 103-354 office servicing the Borrower with the information necessary for FmHA or its successor agency under Public Law 103-354's determination of the appropriate amount due the Holder(s). Any discrepancy between the amount claimed by the Holder(s) and the information submitted by the Lender must be resolved before payment will be approved. FmHA or its successor agency under Public Law 103-354 will notify both parties who must resolve the conflict before payment by FmHA or its successor agency under Public Law 103-354 will be approved. Such a conflict will suspend the running of the 30 day payment requirement. Upon receipt of the appropriate information, the FmHA or its successor agency under Public Law 103-354 office servicing the Borrower will review the demand and submit it to the State Director for verification. After reviewing the demand, the State Director will transmit the request to the FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of the appropriate check. Upon issuance, the Finance Office will notify the office serving the Borrower and State Director and remit the check(s) to the Holder(s).
E. Lender consents to the purchase by FmHA or its successor agency under Public Law 103-354 and agrees to furnish on request by FmHA or its successor agency under Public Law 103-354 a current statement certified by an appropriate authorized officer of the Lender of the unpaid principal and interest then owed by the Borrower on the loan and the amount due the Holder(s). Lender agrees that any purchase by FmHA or its successor agency under Public Law 103-354 does not change, alter or modify any of the Lender's obligations to FmHA or its successor agency under Public Law 103-354 arising from said loan or guarantee, nor does such purchase waive any of the FmHA or its successor agency under Public Law 103-354's rights against Lender, and FmHA or its successor agency under Public Law 103-354 will have the right to set-off against Lender all rights inuring to FmHA or its successor agency under Public Law 103-354 from the Holder against FmHA or its successor agency under Public Law 103-354's obligation to Lender under the Loan Note Guarantee. To the extent FmHA or its successor agency under Public Law 103-354 holds a portion of a loan, loan subsidy will not be paid the Lender.
F. Servicing fees assessed by the Lender to a Holder are collectible only from payment installments received by the Lender from the Borrower. When FmHA or its successor agency under Public Law 103-354 repurchases from a Holder, FmHA or its successor agency under Public Law 103-354 will pay the Holder only the amounts due the Holder, FmHA or its successor agency under Public Law 103-354 will not reimburse the Lender for servicing fees assessed to a Holder and not collected from payments received from the Borrower. No servicing fee shall be charged FmHA or its successor agency under Public Law 103-354 and no such fee is collectible
G. Lender may also repurchase the guaranteed portion of the loan consistent with paragraph 10 of the Loan Note Guarantee.
XI.
The Lender will liquidate the loan unless FmHA or its successor agency under Public Law 103-354, at its option, decides to carry out liquidation.
When the decision to liquidate is made, the Lender may proceed to purchase from Holder(s) the guaranteed portion of the loan. The Holder(s) will be paid according to the provisions in the Loan Note Guarantee or the Assignment Guarantee Agreement.
If the Lender does not purchase the guaranteed portion of the loan, FmHA or its successor agency under Public Law 103-354 will be notified immediately in writing. FmHA or its successor agency under Public Law 103-354 will then purchase the guaranteed portion of the loan from the Holder(s). If FmHA or its successor agency under Public Law 103-354 holds any of the guaranteed portion, FmHA or its successor agency under Public Law 103-354 will be paid first its pro rata share of the proceeds from liquidation of the collateral.
A.
1. Such proof as FmHA or its successor agency under Public Law 103-354 requires to establish the Lender's ownership of the guaranteed loan promissory note(s) and related security instruments.
2. Information lists concerning the Borrower's assets including real and personal property, fixtures, claims, contracts, inventory (including perishables), accounts receivable, personal and corporate guarantees, and other existing and contingent assets, advice to whether or not each item is serving as collateral for the guaranteed loan.
3. A proposed method of making the maximum collection possible on the indebtedness.
4. If the outstanding principal B&I or CP loan balance including accrued interest is less than $200,000, the Lender will obtain an estimate of the market and potential liquidated value of the collateral. On B&I or CP loan balances in excess of $200,000, and all other loans regardless of the outstanding principal balance, the Lender will obtain an independent appraisal report on all collateral securing the loan, which will reflect the current market value and potential liquidation value. The appraisal report is for the purpose of permitting the Lender and FmHA or its successor agency under Public Law 103-354 to determine the appropriate liquidation actions. Any independent appraiser's fee will be shared equally by FmHA or its successor agency under Public Law 103-354 and the Lender.
B. FmHA or its successor agency under Public Law 103-354's response to Lender liquidation plan. FmHA or its successor agency under Public Law 103-354 will inform the Lender in writing whether it concurs in the Lender's liquidation plan within 30 days after receipt of such notification from the Lender. If FmHA or its successor agency under Public Law 103-354 needs additional time to respond to the liquidation plan, it will advise the Lender of a definite time for such response. Should FmHA or its successor agency under Public Law 103-354 and the Lender not agree on the Lender's liquidation plan, negotiations will take place between FmHA or its successor agency under Public Law 103-354 and the Lender to resolve the disagreement. The Lender will ordinarily conduct the liquidation; however, should FmHA or its successor agency under Public Law 103-354 opt to conduct the liquidation, FmHA or its successor agency under Public Law 103-354 will proceed as follows:
1. The Lender will transfer to FmHA or its successor agency under Public Law 103-354 all rights and interest necessary to allow FmHA or its successor agency under Public Law 103-354 to liquidate the loan. In this event, the Lender will not be paid for any loss until after the collateral is liquidated and the final loss is determined by FmHA or its successor agency under Public Law 103-354.
2. FmHA or its successor agency under Public Law 103-354 will attempt to obtain the maximum amount of proceeds from liquidation.
3. Options available to FmHA or its successor agency under Public Law 103-354 include any one or combination of the usual commercial methods of liquidation.
C.
D.
E.
1. Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” will be used for calculations of all estimated and final loss determinations. Estimated loss payments may be approved by FmHA or its successor agency under Public Law 103-354 after the Lender has submitted a liquidation plan approved by FmHA or its successor agency under Public Law 103-354. Payments will be made in accordance with applicable FmHA or its successor agency under Public Law 103-354 regulations.
2. When the Lender is conducting the liquidation, and owns any of the guaranteed portion of the loan, it may request a tentative loss estimate by submitting to FmHA or its successor agency under Public Law 103-354 an estimate of loss that will occur in connection with liquidation of the loan. FmHA or its successor agency under Public Law 103-354 will agree to pay an estimated loss settlement to the Lender provided the Lender applies such amount due to the outstanding principal balance owed on the guaranteed debt. Such estimate will be prepared and submitted by the Lender on Form FmHA or its successor agency under Public Law 103-354 449-30, using the basic formula as provided on the report except that the appraisal value will be used in lieu of the amount received from the sale of collateral. For Farm Ownership, Soil and Water, and Operating loans only, if it appears the liquidation period will exceed 90 days, the Lender will file an estimated loss claim. Once this claim is approved by FmHA or its successor agency under Public Law 103-354, the Lender will discontinue interest accrual on the defaulted loan and the loss claim will be promptly processed in accordance with the applicable FmHA or its successor agency under Public Law 103-354 regulations.
After the Report of Loss estimate has been approved by FmHA or its successor agency under Public Law 103-354, and within 30 days thereafter, FmHA or its successor agency under Public Law 103-354 will send the original Report of Loss estimate to FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of a Treasury check in payment of the estimated amount due the Lender.
After liquidation has been completed, a final loss report will be submitted on Form FmHA or its successor agency under Public Law 103-354 449-30 by the Lender to FmHA or its successor agency under Public Law 103-354.
3. After the Lender has completed liquidation, FmHA or its successor agency under Public Law 103-354 upon receipt of the final accounting and report of loss, may audit and will determine the actual loss. If FmHA or its successor agency under Public Law 103-354 has any questions regarding the amounts set forth in the final Report of Loss, it will investigate the matter. The Lender will make its records available to and otherwise assist FmHA or its successor agency under Public Law 103-354 in making the investigation. If FmHA or its successor agency under Public Law 103-354 finds any discrepancies, it will contact the Lender and arrange for the necessary corrections to be made as soon as possible. When FmHA or its successor agency under Public Law 103-354 finds the final Report of Loss to be proper in all respects, it will be tentatively approved in the space provided on the form for that purpose.
4. When the Lender conducted liquidation and after the final Report of Loss has been tentatively approved:
a. If the loss is greater than the estimated loss payment, FmHA or its successor agency under Public Law 103-354 will send the original of the final Report of Loss to the Finance Office for issuance of a Treasury check in payment of the additional amount owed by FmHA or its successor agency under Public Law 103-354 to the Lender.
b. If the loss is less than the estimated loss, the Lender will reimburse FmHA or its successor agency under Public Law 103-354 for the overpayment plus interest at the note rate from date of payment.
5. If FmHA or its successor agency under Public Law 103-354 has conducted liquidation, it will provide an accounting and Report of Loss to the Lender and will pay the Lender in accordance with the Loan Note Guarantee.
6. In those instances where the Lender has made authorized protective advances, it may claim recovery for the guaranteed portion of any loss of monies advanced as protective advances and interest resulting from such protective advances as provided above, and such payment will be made by FmHA or its successor agency under Public Law 103-354 when the final Report of Loss is approved.
F.
G.
H.
I.
J.
K.
XII.
Protective advances must constitute an indebtedness of the Borrower to the Lender and be secured by the security instrument(s). FmHA or its successor agency under Public Law 103-354 written authorization is required on all protective advances in excess of $500. Protective advances include but are not limited to advances made for taxes annual assessments, ground rent hazard or flood insurance premiums affecting the collateral, and other expenses necessary to preserve or protect the security. Attorney fees are not a protective advance.
XIII.
The Lender will not make additional expenditures or new loans without first obtaining the written approval of FmHA or its successor agency under Public Law 103-354 even though such expenditures or loans will not be guaranteed.
XIV.
After a loan has been liquidated and a final loss has been paid by FmHA or its successor agency under Public Law 103-354, any future funds which may be recovered by the Lender will be pro-rated between FmHA or its successor agency under Public Law 103-354 and the Lender. FmHA or its successor agency under Public Law 103-354 will be paid such amount recovered in proportion to the percentage it guaranteed for the loan and the
XV.
Refer to the applicable subpart of title 7 of CFR part 1980.
If a loss should occur upon consummation of a complete transfer and assumption for less than the full amount of the debt and the transferor-debtor (including personal guarantees) is released from personal liability, the Lender, if it holds the guaranteed portion, may file an estimated Report of Loss on Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to recover its pro rata share of the actual loss at that time. In completing Form FmHA or its successor agency under Public Law 103-354 449-30, the amount of the debt assumed will be entered on line 24 as Net Collateral (Recovery). Approved protective advances and accrued interest thereon made during the arrangement of a transfer and assumption, if not assumed by the Transfer, will be entered on Form FmHA or its successor agency under Public Law 103-354 449-30, line 13 and 14.
XVI.
A. The Lender is responsible for protecting the guaranteed loan debt and all collateral securing the loan in bankruptcy proceedings. When the loan is involved in a reorganization bankruptcy proceeding under Chapters 9, 11, 12 or 13 of the Bankruptcy Code, payment of loss claims may be made as provided in this paragraph XVI. For a Chapter 7 bankruptcy or liquidation plan in a Chapter 11 bankruptcy, only paragraphs XVI B3 and B6 are applicable.
B.
1.
a. If a borrower has filed for protection under a reorganization bankruptcy, the Lender will request a tentative estimated loss payment of accrued interest and principal written off. This request can only be made after the bankruptcy plan is confirmed by the court. Only one estimated loss payment is allowed during the reorganization bankruptcy. All subsequent claims during reorganization will be considered revisions to the initial estimated loss. A revised estimated loss payment may be processed by FmHA or its successor agency under Public Law 103-354, at its option, in accordance with any court approved changes in the reorganization plan. At the time the performance under the confirmed reorganization plan has been completed, the Lender is responsible for providing FmHA or its successor agency under Public Law 103-354 with the documentation necessary to review and adjust the estimated loss claim to (a) reflect the actual principal and interest reduction on any part of the guaranteed debt determined to be unsecured and (b) to reimburse the Lender for any court ordered interest rate reduction during the term of the reorganization plan.
b. The Lender will use Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to request an estimated loss payment and to review estimated loss payments during the course of the reorganization plan. The estimated loss claim as well as any revisions to this claim will be accompanied by applicable legal documentation to support the claim.
c. Upon completion of the rorganization plan, the Lender will complete Form FmHA or its successor agency under Public Law 103-354 1980 44, “Guaranteed Loan Borrower Default Status,” and forward this form to the Finance Office.
2.
a. Interest loss payments sustained during the period of the reorganization plan will be processed in accordance with paragraph XVI B1.
b. Interest loss payments sustained after the reorganization plan is completed will be processed annually when the Lender sustains a loss as a result of a permanent interest rate reduction which extends beyond the period of the reorganization plan.
c. Form FmHA or its successor agency under Public Law 103-354 449-30 will be completed to compensate the Lender for the difference in interest rates specified on the Loan Note Guarantee or Interest Rate Buydown Agreement and the rate of interest specified by the bankruptcy court.
3. Final Loss Payments.
a. Final Loss Payments will be processed when the loan is liquidated.
b. If the loan is paid in full without an additional loss, the Finance Office will close out the estimated loss account at the time notification of payment in full is received.
4. Payment Application. The Lender must apply estimated loss payments first to the unsecured principal of the guaranteed portion of the debt and then to the unsecured interest of the guaranteed portion of the debt. In the event the bankruptcy court attempts to direct the payments to be applied in a different manner, the Lender will immediately notify the FmHA or its successor agency under Public Law 103-354 servicing office.
5. Overpayments. Upon completion of the reorganization plan, the Lender will provide FmHA or its successor agency under Public Law 103-354 with the documentation necessary to determine whether the estimated loss paid equals the actual loss sustained. If the actual loss sustained, as a result of the reorganization, is greater than the estimated loss payment, the Lender will submit a revised estimated loss in order to obtain payment of the additional amount owed by FmHA or its successor agency under Public
6. Protective Advances. If approved protective advances were made prior to the borrower having filed bankruptcy, as a result of prior liquidation action, these protective advances and accrued interest will be entered on Form FmHA or its successor agency under Public Law 103-354 449-30.
XVII.
For Farm Ownership, Soil and Water, and Operating loans only, refer to title 7 of CFR part 1980, subpart B, § 1980.125. The maximum amount of loss payment associated with a loan/line of credit agreement which has been written down will not exceed the percent of the guarantee multiplied by the difference between the outstanding principal and interest balance of the loan/line of credit before the write-down and the outstanding balance of the loan/line of credit after the write-down. The Lender will use Form FmHA or its successor agency under Public Law 103-354 449-30. “Loan Note Guarantee Report of Loss,” to request an estimated loss payment to receive is pro-rata share of any loss sustained.
XVIII.
This agreement is subject to all the requirements of the applicable subpart of Title 7 CFR Part 1980, and any future amendments of these regulations not inconsistent with this agreement. Interested parties may agree to abide by future FmHA or its successor agency under Public Law 103-354 regulations not inconsistent with this agreement.
XIX.
If this agreement is executed prior to the execution of the Loan Note Guarantee, this agreement does not impose any obligation upon FmHA or its successor agency under Public Law 103-354 with respect to the execution of such contract. FmHA or its successor agency under Public Law 103-354 in no way warrants that such a contract has been or will be executed.
XX.
All notices and actions will be
XXI. The Lender will ensure that the borrower complies with the measures identified in the Government's environmental impact analysis for this facility for the purpose of avoiding or reducing the adverse environmental impacts of the facility's construction or operation.
1. The principal amount of the loan now outstanding is $
2. Loan Servicing. The Lender will be responsible for servicing the entire loan and will remain mortgagee and/or secured party of record. The entire loan will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of the loan. The Lender will receive all payments on account of principal of, or interest (including any loan subsidy and any capitalized interest, resulting from the restructuring of a Guaranteed Farm Credit Programs loans and not exceeding statutory loan limits) on, the entire loan and shall promptly remit to the Holder its pro rata share thereof determined according to their respective interests in the loan, less only the Lender's servicing fee.
3. Servicing Fee. Holder agrees that Lender will retain a servicing fee of
4. Purchase by Holder. The guaranteed portion purchased by the Holder will always be a portion of the loan which is guaranteed. The Holder will hereby succeed to all rights of the Lender under the Loan Note Guarantee to the extent of the assigned portion of the loan. The Lender, however, will remain bound by all obligations under the Loan Note Guarantee and the program regulations found in the applicable subpart of 7 CFR part 1980 now in effect and future regulations not inconsistent with the provisions hereof.
5. Full Faith and Credit. The Loan Note Guarantee constitutes an obligation supported by the full faith and credit of the United States and is incontestable except for fraud or misrepresentation of which the Holder has actual knowledge at the time of this assignment, or which it participates in or condones. Any Assignment Guarantee Agreement attached to or relating to a note which provides for capitalization of interest is void. Except in the case of Farm Credit Program loans, a note which provides for the payment of interest on interest as a result of restructuring the loan and not exceeding statutory loan limits, and any Assignment Guarantee Agreement attached to or related to such note is not void.
6. Rights and Liabilities. The guarantee and right to require purchase will be directly enforceable by Holder not withstanding any fraud or misrepresentations by Lender or any unenforceability of the Loan Note Guarantee by Lender. Nothing contained herein shall constitute any waiver by Government of any rights its possesses against the Lender, and the Lender agrees that Lender will be liable and will promptly reimburse Government for any payment made by Government to Holder which, if such Lender had held the guaranteed portion of the loan, Government would not be required to make. The Holder(s) upon written notice to the Lender may resell the unpaid balance of the guaranteed portion of the loan assigned hereunder. An endorsement may be added to the Form FmHA 449-36 to effectuate the transfer.
7. Repurchase by the Lender (Defaults). The Lender has the option to repurchase the unpaid guaranteed portion of the loan from the Holder(s) within 30 days of written demand by the Holder(s) when: (a) the borrower is in default not less than 60 days on principal or interest due on the loan or (b) the Lender has failed to remit to the Holder(s) its pro rata share of any payment made by the borrower or any loan subsidy within 30 days of its receipt thereof. The repurchase by
8. Purchase by Government. If Lender does not repurchase as provided by paragraph 7, Government will purchase from Holder the unpaid principal balance of the guaranteed portion together with accrued interest (including any loan subsidy) to date of repurchase, less Lender's servicing fee, within 30 days after written demand to Government from the Holder. The Loan Note Guarantee will not cover the note interest to the Holder on the guaranteed loans accruing after 90 days from the date of the original demand letter of the holder to the lender requesting the repurchase. Such demand will include a copy of the written demand made upon the Lender. The Holder(s) or its duly authorized agent will also include evidence of its right to require payment from Government. Such evidence will consist of each the original of the Loan Note Guarantee properly endorsed to Government or the original of the Assignment Guarantee Agreement properly assigned to Government without recourse including all rights, title, and interest in the loan. Government will be subrogated to all rights of Holder(s). The Holder will include in its demand the amount due including unpaid principal, unpaid interest (including any loan subsidy) to date of demand and interest (including any loan subsidy) subsequently accruing from date of demand to proposed payment date. Unless otherwise agreed to by Government, such proposed payment will not be later than 30 days from the date of demand.
The Government will promptly notify the Lender of its receipt of the Holder(s)'s demand for payment. The Lender will promptly provide the Government with the information necessary for Government's determination of the appropriate amount due the Holder(s). Any discrepancy between the amount claimed by the Holder(s) and the information submitted by the Lender must be resolved before payment will be approved. Government will notify both parties who must resolve the conflict before payment will be approved. Such a conflict will suspend the running of the 30 day payment requirement. Upon receipt of the appropriate information. Government will review the demand and submit it to the State Director for verification. After reviewing the demand the State Director will transmit the request to the Government Finance Office of issuance of the appropriate check. Upon issuance, the Finance Office will notify the office servicing the borrower and the State Director and remit the check(s) to the Holder(s).
9. Lender's Obligations. Lender consents to the purchase by Government and agrees to furnish on request by Government a current statement certified by an appropriate authorized officer of the Lender of the unpaid principal and interest then owned by Borrowers on the loan and the amount then owed to any Holder(s). Lender agrees that any purchase by Government does not change, alter or modify any of the Lender's obligations to Government arising from said loan or guarantee nor does it waive any of Government's right against Lender, and that Government shall have the right to set-off against Lender all rights inuring to Government as the Holder of this instrument against Government's obligation to Lender under the Loan Note Guarantee.
10. Repurchase by Lender for Servicing. If, in the opinion of the Lender, repurchase of the assigned portion of the loan is necessary to adequately service the loan, the Holder will sell the assigned portion of the loan to the Lender for an amount equal to the unpaid principal and interest (including any loan subsidy) on such portion less Lender's servicing fee. The loan note guarantee will not cover the note interest to the Holder on the guaranteed loans accruing after 90 days from the date of the demand letter of the lender or Government to the Holder(s) requesting the Holder(s) to tender their, guaranteed portion(s).
a. The Lender will not repurchase from the Holder(s) for arbitrage purpose or other purposes to further its own financial gain.
b. Any repurchase will only be made after the Lender obtains Government written approval.
c. If the Lender does not repurchase the portion from the Holder(s), Government at its option may purchase such guaranteed portions for servicing purposes.
11. Foreclosure. The parties owning the guaranteed portions and unguaranteed portion of the loan will join to institute foreclosure action, or in lieu of foreclosure, take a deed of conveyance to such parties.
12. Reassignment. Holder upon written notice to Lender and Government may reassign the unpaid guaranteed portion of the loan sold hereunder. Upon such notification, the assignee will succeed to all rights and obligations of the Holder hereunder.
13. Interest Capitalization. In the case of Farm Credit Programs loans, the Lender may capitalize interest only when the note is
14. Notices. All notices and actions will be initiated through the Government
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The guaranteed portion of this line of credit is
In consideration of making advance(s) by the Lender within the line of credit ceiling pursuant to the Line of Credit Agreement, the United States of America acting through the Farm Service Agency (herein called “Government”), pursuant to the Consolidated Farm and Rural Development Act (7 U.S.C. 1921
1. Any loss sustained by such Lender on the guaranteed portion including:
a. Principal and interest indebtedness as evidenced by said line of credit agreement(s) (and note(s), if any exist) or by assumption agreement(s), and any capitalized interest on such portion resulting from the restructuring of an Operating loan and not exceeding statutory loan limits, and
b. Principal and interest indebtedness on secured protective advances for protection and preservation of collateral made with Government's authorization, including but not limited to, advances for delinquent taxes, annual assessments, any ground rents, and hazard or flood insurance premiums affecting the collateral; or
2. The guaranteed principal advances to or assumed by the Borrower under said line of credit agreement(s) (and note(s), if any exist) or assumption agreement(s), and any interest due thereon, including any capitalized interest on such portion resulting from the restructuring of an Operating loan and not exceeding statutory loan limits. If an Operating Loan Line of Credit is involved, advances under the line of credit must be made within three years (five for Certified Lenders) from the date of this Contract. Advances made after that date will be covered by this Contract. If Government conducts the liquidation of the line of credit, loss occasioned to a Lender by accruing interest after the date Government accepts responsibility for liquidation will not be covered by this Contract of Guarantee. If Lender conducts the liquidation of the line of credit, accruing interest shall be covered by this Contract of Guarantee to date of final settlement when the Lender conducts the liquidation expeditiously in accordance with the liquidation plan approved by Government.
Lender will be responsible for serving the entire line of credit, and Lender will remain mortgagee and/or secured party of record. The Lender agrees that, if liquidation of the account becomes imminent, the Lender, will consider the Borrower of an Operating Loan Line of Credit for an Interest Rate Buydown under Exhibit C of subpart B of 7 C.F.R., part 1980, and request a determination of the Borrower's eligibility by Government. The Lender may not initiate foreclosure action on the line of credit until 60 days after a determination has been made with respect to the eligibility of the Borrower to participate in the Interest Rate Buydown Program.
The entire line of credit will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of the line of credit. The unguaranteed portion of the line of credit will not be paid first nor given any preference or priority over the guaranteed portion.
The Contract of Guarantee constitutes an obligation supported by the full faith and credit of the United States and is incontestable except for fraud or misrepresentation of which Lender has actual knowledge at the time it became such Lender or which Lender participates in or condones. If the line of credit agreement or note to which this Contract of Guarantee is attached provides for the payment of interest on interest, this Contract of Guarantee is void. However, in the case of Farm Credit Programs loans, the capitalization of interest when restructuring loans will not void this Contract of Guarantee.
In addition, the Contract of Guarantee will be unenforceable by the Lender to the extent any loss is occasioned by the violation of usury laws, negligent servicing, or failure to obtain the required security regardless of the time at which Government acquires knowledge of the foregoing. Any losses occasioned will be unenforceable to the extent that loan funds are used for purposes other than those specifically approved by Government in its Conditional Commitment for Guarantee. Negligent servicing is defined as the failure to perform those services which a reasonably prudent lender would perform in servicing its own portfolio of loans that are not guaranteed. The term includes not only the concept of a failure to act but also not acting in a timely manner or acting in a manner contrary to the manner in which a reasonably prudent lender would act up to the time of loan maturity or until a final loss is paid.
Protective advances made by Lender pursuant to the regulations will be guaranteed against a percentage of loss to the extent as provided in this Contract of Guarantee.
The Lender may retain or sell the unguaranteed portion of the line of credit only through participation. Participation, as used in this instrument, means the sale of an interest in the line of credit in which the Lender retains the line of credit agreement (and note if one exists) collateral securing the line of credit and all responsibility for servicing and liquidation of the line of credit.
This Contract of Guarantee will terminate automatically (a) upon full payment of the guaranteed line of credit occurring after the advance period has expired; or (b) upon full payment of any loss obligation under this Contract, or (c) upon written notice from the Lender to Government that the guarantee will terminate 30 days after the date of notice, provided the Contract is returned to Government to be cancelled.
The amount due under this instrument will be determined and paid as provided in the applicable subpart of 7 C.F.R. part 1980 in effect on the date of this instrument.
In the case of Operating loans, the Lender may capitalize interest only when the note is restructured. When delinquent interest is so treated as principal, the new principal amount may exceed the line of credit listed herein, but may not exceed statutory loan limits. The new principal amount and new guaranteed portion will be identified at restructuring in an addendum to this Contract of Guarantee. Such capitalized interest will be covered by this Contract of Guarantee. References to principal and interest herein, therefore, shall include any capitalized interest on the guaranteed portion of the loan resulting from the restructuring of an Operating loan and not exceeding statutory loan limits.
All notices and actions will be initiated through the County Supervisor for
The purpose of this Agreement is to establish the Lender as an approved participant in the Farm Credit Programs Guaranteed Loan Programs of the Farm Service Agency (FSA), U.S. Department of Agriculture (herein called “Government”). This Agreement provides the terms and conditions for originating and servicing such loans, including lines of credit.
Complete the appropriate section indicating participation/non-participation in the Certified Lender Program.
Participating in the Certified Lender Program (“CLP”)
Not participating in the Certified Lender Program
Read this Agreement in its entirety and sign in the space on thelast page. Your signature indicates consent with this Agreement.
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• Becomes insolvent;
• Has filed for any type of bankruptcy protection, has been forced into involuntary bankruptcy, or has requested an assignment for the benefit of creditors;
• Has taken any action to cease operations, or to discontinue servicing or liquidating any or all of its portfolio guaranteed by Government;
• Has changed its name, location, address, tax identification number, or corporate structure;
• Has been debarred, suspended, or sanctioned in connection with its participation in any Federal guaranteed program; or
• Has been debarred, suspended, or sanctioned by any Federal or State licensing or certification authority.
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The Lender also agrees to provide to Government, as requested by the Government or as required by regulation, copies of audited financial statements, reports on internal controls, copies of compliance audits, and such other information that may be required for Government to properly monitor the Lender's performance.
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• Ensure that documents, including the mortgage and any security agreements, chattel mortgages or equivalent documents relating to it have been properly signed, are valid and contain terms enforceable by the Lender;
• Ensure that all security with appropriate lien priorities is obtained in accordance with Form FmHA 1980-15, and Government regulations;
• Ensure that all closing documents required to be recorded are recorded accurately, in the appropriate offices, and in a timely and accurate manner;
• Ensure that security interests are perfected in collateral according to applicable regulatory requirements and procedures;
• Ensure that all required hazard insurance is obtained in accordance with Government regulations;
• Collect all fees and costs due and payable by the borrower in the course of the loan transaction and disburse payment directly to the parties for services rendered; and
• Ensure that all loan proceeds are used as authorized.
The entire loan will be secured equally with the same security and the same lien priority for both the guaranteed and unguaranteed portions of the loan, under the assurance that the unguaranteed portion of the loan will not be paid first nor given any preference or priority over the guaranteed portion of the loan.
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The Lender may retain all of any guaranteed loan. The Lender is not permitted to sell or participate any amount of the guaranteed or unguaranteed portion(s) of loan(s) to the applicant or borrower or members of their immediate families, their officers, directors, stockholders, other owners, or any parent, subsidiary, or affiliate. The Lender may market all or part of the guaranteed portion of the loan at or after loan closing only if the loan is not in default as set forth in the terms of the note. A line of credit may only be marketed by participation. Refer to 7 CFR 1980.119 for further guidelines.
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a. The Lender will notify Government using Form FmHA 1980-44, “Guaranteed Loan Borrower Default Status,” when a borrower is 30 days past due on a payment or if the borrower has not provided the required financial statements to the Lender or is otherwise in default. The Lender will continue to submit Form FmHA 1980-44 every 60 days until the default is resolved, and will notify the Agency when the default is resolved. A meeting will be arranged by the Lender with the borrower and Government to resolve the problem. Actions taken by the Lender, with written concurrence of Government, may include but are not limited to, any curative actions contained in subpart B or 7 CFR part 1980 or liquidation.
b. The loan may be reamortized, rescheduled, or written down only with the agreement of any Holder(s) of the guaranteed portion of the loan, and only with Government's written agreement.
c. The Lender will negotiate in good faith to resolve any problem in order to allow the
d. Debt Writedown. (Refer to 7 CFR Part 1980 subpart B, 1980.125.) The maximum amount of loss payment associated with a loan/line of credit agreement which has been written down will not exceed the percent of the guarantee multiplied by the difference between the outstanding principal and interest balance of the loan before the writedown and the outstanding balance of the loan after the writedown. The Lender will use Form FmHA 449-30, “Loan Note Guarantee Report of Loss,” to request an estimated loss payment to receive its pro rate share of any loss sustained. Interest will be paid to the date of the check on all debt writedown claims.
e. The Lender must participate in any mediation program of any State in accordance with the rules of that system and 7 CFR Part 1980 subpart B, 1980.126.
f. When the borrower has not made payment of principal or interest due on the loan for 60 days or more or the Lender has failed to give the Holder(s) its pro rata share of any payment made by the borrower within 30 days of receipt of the payment, the Holder may request the lender to repurchase the unpaid guaranteed portion of the guaranteed loan. If the Lender chooses not to repurchase, Government will purchase the unpaid principal balance. Upon Government's repurchase, the lender will liquidate the account or reimburse Government the amount of the repurchase within 180 days of Government's repurchase. See 7 CFR 1980.119 for further guidance on repurchasing loans from Holder(s).
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If the Lender contracts for servicing of guaranteed Farm Credit Programs loans, the Lender is not relieved of responsibility for proper servicing of the loans.
The Government shall have the right to conduct reviews, including on-site reviews, of the Lender's operations and the operations of any agent of the Lender, for the purpose of verifying compliance with this Agreement and Government regulations and guidelines. These reviews may include, but are not limited to: audits of case files; interviews with owners, managers, and staff; audits of collateral; and inspections of the Lender's and/or its agents underwriting, servicing, and liquidation guidelines. The Lender and/or its agents shall provide access to all pertinent information to allow the Government, or any party authorized by the Government, to conduct such reviews.
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• Adequacy in meeting requirements for origination, servicing, and liquidation of loans and lines of credit, including protection of collateral;
• Satisfaction of the reporting requirements of the Government;
• Success in operating in a sound and prudent businesslike manner;
• Portfolio performance compared to overall performance of the Farm Credit Program Guaranteed Loan Programs; and
• Results of on-site reviews of the underwriting and/or servicing performed by the Lender.
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The following is a list of Government regulations which, along with any future amendments consistent with this Agreement, contain the information necessary for the Lender to be in compliance with Government requirements.
Lenders participating in the CLP may be granted special authority to certify compliance with certain statutory or regulatory requirements. 7 CFR 1980.190 describes authorities and responsibilities for CLP Lenders.
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This Agreement, Parts I through IV inclusive, and any regulations or guidelines incorporated by reference, shall constitute the entire Agreement. There are no other agreements, written or oral, regarding the terms in this Agreement which are or shall be binding on the parties.
The undersigned certifies that they have read and understand the requirements in this Agreement, and in 7 CFR part 1980, subparts A and B, and agree to the participation requirements and other provisions of this Agreement.
The Lender's Agreement or Agreement For Participation in Farmer Programs Guaranteed Loan Programs of the United States Government executed with the Lender dated
The Lender's Agreement or Agreement For Participation in Farmer Programs Guaranteed Loan Programs of the United States
The principal amount of loan or line of credit is evidenced by
Copies of the lender's Loan Note Guarantee, or Contract of Guarantee for a line(s) of credit, and any Assignment Guarantee Agreement, if applicable (Loan Note Guarantee cases only) are attached to this Agreement as a part of it.
This agreement is effective beginning
In consideration of the subject lender's write down of interest rate on the above borrower's account by
Public reporting burden for this collection of information is estimated to average 5 minutes 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, Room 404-W, Washington, D.C. 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB No. 0575-0075), Washington, D.C. 20503.
1. Buydown Rates
The buydown rate set forth in this agreement will remain constant during the term of this agreement. If a 95 percent guarantee has been issued to the lender by FmHA or its successor agency under Public Law 103-354 under Exhibit E to 7 CFR Part 1980, Subpart B, the percentage of this interest rate reduction made by the lender will be permanent.
2. Interest Rate Buydown Payments
FmHA or its successor agency under Public Law 103-354's payments made in connection with the interest rate buydown will be calculated using 360 or 365 day year method on a declining balance. The lender will indicate on Form FmHA or its successor agency under Public Law 103-354 1980-19, “Guaranteed Loan Closing Report,” the preferred method, which may not change once established.
3. Annual Rate Buydown Claims and Payments
The intial Interest Rate Buydown claim will be prepared by the lender using form FmHA or its successor agency under Public Law 103-354 1980-24, “Request Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender,” on or about a date 12 months from the date of this agreement, unless it is the first or last claim which may be submitted in accordance with the first and last due date on the borrower's promissory note. Subsequent claims will be filed by the lender on or about a date 12 months thereafter but no later than the anniversary date of filing of
4. When Interest Rate Buydown Payments Cease
For Loan Note Guarantee cases, when FmHA or its successor agency under Public Law 103-354 purchases a portion of a loan, interest buydown payments on that portion will cease. Interest rate buydown payments will cease upon termination of the Loan Note Guarantee or Contract of Guarantee, upon reaching the expiration date set forth in this agreement or upon cancellation by the Government. Interest buydown payments shall cease upon the assumption/transfer of the loan if the transferee was not liable for the debt at the time the buydown was granted. The lender shall complete Form FmHA or its successor agency under Public Law 103-354 1980-24, “Request Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender,” to request payment for the buydown/subsidy through the date of the transfer or assumption of the guaranteed loan.
5. Cash Flow
The lender certifies that the interest rate reduction to the borrower results in a reduced, equally amortized payment schedule for the term of this agreement so that the borrower's operation projects a positive cash flow on all income and expenses including debt service for the term of this agreement. A typical plan of operation must show that a positive cash flow can be expected during the initial 24 month buydown period. For those loans/lines of credit with terms less than 24 months, then the operation must show a positive cash flow for the term of the loan/line of credit. In cases where the term of the loan or line of credit agreement exceeds the term of this agreement, the lender certifies that the borrower is projected to have a positive cash flow on all income and expenses including debt service after this agreement expires. Cash flow and positive cash flow are defined in exhibit D or exhibit E to subpart B of 7 CFR 1980, as applicable, and must be calculated in accordance with § 1980.113(d)(8) of subpart B of part 1980.
6. Cancellation of Interest
Lender certifies that the amount of interest written down on subject borrower's account will be permanently canceled as it becomes due and no attempt will be made to collect that portion of the debt.
7. Repurchase of loans presently guaranteed by FmHA or its successor agency under Public Law 103-354 eligible for interest rate buydown. (Loan Note Guarantee Cases Only). See also item 10 of Form FmHA or its successor agency under Public Law 103-354 449-36.
In the case of converting a guaranteed loan without an interest rate buydown to one with such a buydown, the lender must obtain the holder's consent in writing. If the holder does not consent to the interest rate reduction proposed by the lender, the lender must repurchase the unpaid portion of the loan from any holder(s) before the interest rate buydown can be granted. Any repurchase will only be made after the lender obtains FmHA or its successor agency under Public Law 103-354's written approval. In the event the lender assigns the guaranteed portion of the loan to a holder(s) the Assignment Guarantee Agreement (Form FmHA or its successor agency under Public Law 103-354 449-36) will be amended as provided in 7 CFR, Part 1980, Subpart B, Exhibit D, paragraph VI B2 or Exhibit E, paragraph VI B2, as applicable, to reflect the reduced interest rate.
8. Regulatory Changes
This Agreement is subject to the present regulations of the FmHA or its successor agency under Public Law 103-354 and its future regulations not inconsistent with any provisions of this agreement.
9. Cancellation
The Interest Rate Buydown Agreement is incontestable except for fraud or misrepresentation of which the lender has actual knowledge at the time this Agreement is executed or for which the lender participates in or condones.
10. Excessive Interest Rate Buydown
The Government may amend or cancel this agreement and collect from the lender any amount of reduction granted as a result of incomplete or inaccurate information, computation errors, or other circumstances which resulted in interest rate buydown payments that the lender was not entitled to receive.
11. Access to Lender's Files
Lender agrees to allow FmHA or its successor agency under Public Law 103-354 access to audit findings by the lender's supervising agency when examining interest rate buydown claims.
Completed by lender to request periodic interest rate buydown payments or interest assistance payments for Farmer Program Loans or subsidy payments for EM Actual Loss Loans. This form is also used to continue or adjust interest assistance on the account.
FmHA or its successor agency under Public Law 103-354 Instruction 1980-B
Lender in consultation with the FmHA or its successor agency under Public Law 103-354
If this form is being completed to establish a continuation of interest assistance after a year with zero percent interest assistance, items 1 through 16 should be completed as usual; item 17 will be 0.00; item 18 as usual; item 19 as 3 (no check issued); and items 21 through 33 as usual.
Original to Finance Office; Copy to Servicing Office; and Copy to Lender.
Item 1. Enter the Borrower's Case Number. Show the state and county code and the borrower's Social Security or Internal Revenue Service Tax Identification Number.
Item 2. Enter Borrower's Name (Last Name First)—abbreviate when necessary.
Item 3. Enter the Lender's Internal Revenue Service Tax Identification Number.
Item 4. Enter Lender's Name—abbreviate when necessary.
Item 5. Enter the FmHA or its successor agency under Public Law 103-354 assigned branch number.
Item 6. Enter FmHA or its successor agency under Public Law 103-354 assigned loan number.
Item 7. Enter the original loan amount.
Item 8. Enter the beginning date of the current buydown, interest assistance or subsidy period.
Item 9. Enter the ending date of the current buydown, interest assistance, or subsidy period. The ending date on this request equals the beginning date on the next request.
Subsidy payments on EM Actual Loss Loans may be submitted for a 6 or 12 month period only.
If the Contract of Guarantee or Loan Note Guarantee is or becomes void or unenforceable, or terminates, or a transfer and assumption occurs, the subsidy/buydown/interest assistance should be claimed up to that date. In the case of assumptions to eligible transferees, the beginning date on the transferred loan is the assumption date; and the inital claim may be at anytime with future claims at 12-month intervals, except as described above.
Item 10. Enter the principal balance of the loan at the beginning of the subsidy period. If this is the first claim on a new loan, this amount will match the amount advanced on Form FmHA or its successor agency under Public Law 103-354 1980-19, Loan Closing Report. If this loan was a buydown or interest assistance on an existing loan, this amount will match the loan amount on Form FmHA or its successor agency under Public Law 103-354 1980-19. For subsequent claims the principal balance must equal the ending principal balance on the previous claim.
Item 11. Enter the borrower's accrued interest at the beginning of the subsidy period. This accrued interest must equal the ending accrued interest shown on the previous claim.
Item 12. Enter the amount of principal disbursed during the current subsidy period. This amount does not include protective advances. If zero, enter 0.00.
Item 13. Enter the total amount of interest payments recevied from the borrower during the current claim period. If zero, enter 0.00.
Item 14. Enter the total amount of principal payments received from the borrower during the current claim period. If zero, enter 0.00.
Item 15. Enter the accrued interest balance at the end of the current claim period. If zero, enter 0.00. (This amount is the beginning accrued interest balance on the next claim.)
Item 16. Enter the principal balance at the end of the current claim period. If zero, enter
Item 17. Enter the amount of interest rate buydown/interest assistance/subsidy payable.
Item 18. Enter the applicable code to identify if this is the final payment.
Item 19. Completed by FmHA or its successor agency under Public Law 103-354 servicing office or Finance Office.
Item 20. Completed by Finance Office Only. The Finance Office will enter the check issue date for manual checks only (item 19 equals 2).
Item 21. Enter the beginning date of the next interest assistance period.
Item 22. Enter the ending date of the next interest assistance period.
Item 23. Enter the percent of assistance requested for the next period. IF THIS PERCENT IS GREATER THAN THE PERCENT ON THE MASTER INTEREST ASSISTANCE AGREEMENT, FUNDS MUST BE OBLIGATED PRIOR TO SIGNING THIS FORM. If the borrower will need zero percent next year, enter 00.0000.
Item 24. Enter the applicable code.
Item 25. Enter the effective date of the interest assistance termination. Complete only if item 24 equals 1.
Item 26. Enter the reason for termination code. Complete only if item 25 is complete.
Item 27. THIS FORM WILL BE RETURNED IF IT IS NOT SIGNED. Enter the authorized lender's signature.
Item 28. Enter the title of the person authorized to sign this form.
Item 29. Enter the date signed by the lender's representative.
Item 30. Enter the percent of interest assistance approved. TO BE COMPLETED BY FmHA or its successor agency under Public Law 103-354 SERVICING OFFICE ONLY. This amount may not exceed the Maximum Rate of Interest Assistance which was obligated and is stated on the Interest Assistance Agreement.
Item 31. Enter the authorized FmHA or its successor agency under Public Law 103-354 representative signature for approval.
Item 32. Enter the title of the authorized FmHA or its successor agency under Public Law 103-354 representative.
Item 33. Enter the date signed by FmHA or its successor agency under Public Law 103-354 representative.
The lender may charge a fixed or variable interest rate which is specified in this agreement during the term of the Interest Assistance Agreement. The type of rate must be the same as the type of rate in the underlying note or line of credit agreement.
The interest rate that the lender will charge will be clearly indicated in the Request for Interest Assistance. If a variable rate will be charged, the base rate, basis points and adjustment interval not only will be clearly set forth in the Request for Interest Assistance, but also will comply with § 1980.175(e) of 7 CFR part 1980, subpart B. If the lender uses a variable rate note or line of credit agreement, the rate may only be changed once each year. During the term of the Interest Assistance Agreement, variable interest rates may not be increased by more than a total of 3 percent above the effective note rate of interest at the time this agreement is entered into. This cap on interest increases will be clearly spelled out in the note/line of credit agreement or in an allonge attached to the note/line of credit agreement or other legally effective amendment of the interest rate; however, no new note or line of credit agreement may be issued. The date of interest rate adjustment shall coincide with the annual payment date on loans/lines of credit with annual payments. On other loans/lines of credit the annual review date will be clearly set out in the note/line of credit agreement and has been set out on this agreement as the ending date of the initial period of Interest Assistance.
FmHA or its successor agency under Public Law 103-354 payments made in connection with Interest Assistance will be calculated using a 360 or 365 day year method on a declining balance. The lender will indicate on Form FmHA or its successor agency under Public Law 103-354 1980-19. “Guaranteed Loan Closing Report,” the preferred method, which may not change once established.
The initial Interest Assistance claim will be prepared by the lender using Form FmHA or its successor agency under Public Law 103-354 1980-24. “Request Interest Assistance/Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender,” within 60 days after the ending date of the initial period specified in this agreement. Subsequent claims will be filed by the lender on or after the same date each year thereafter but no later than 60 days after the anniversary of the ending date of the initial Interest Assistance claim. Upon full payment of the note or line of credit agreement the lender will immediately prepare Form FmHA or its successor agency under Public Law 103-354 1980-24 and mail a copy to the FmHA or its successor agency under Public Law 103-354 servicing office.
For all loans which extend beyond the ending date of the initial review period, the lender will analyze the borrower's need for continued Interest Assistance in accordance with the methodology defined in Exhibit D to supart B of 7 CFR, part 1980. The lender will then submit the Request for Continuation/Adjustment of Interest of Assistance by completing the applicable section of Form FmHA or its successor agency under Public Law 103-354 1980-24. The request for payment of the claim from the previous period will not be processed until the analysis of the borrower's need and request for Continuation/Adjustment has been made by the lender.
For Loan Note Guarantee cases, when FmHA or its successor agency under Public Law 103-354 purchases a portion of a loan, Interest Assistance payments on that portion will cease. Interest Assistance payments will cease upon termination of the Loan Note Guarantee or Contract of Guarantee, upon reaching the expiration date set forth in this agreement or upon cancellation by the Government. Interest Assistance payments shall cease upon the assumption/transfer of the loan if the transferee was not liable for the debt at the time the assistance was granted. The lender shall complete Form FmHA or its successor agency under Public Law 103-354 1980-24, “Request Interest Assistance/Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender,” to request payment for the Interest Assistance through the date of the transfer or assumption of the guaranteed loan.
A cash flow budget of operation must show that a positive cash flow can be expected during the initial 24-month period of assistance. For those loans/lines of credit with terms less than 24 months, the operation must show a positive cash flow for the term of the loan/line of credit. Cash flow budget and positive cash flow are defined in exhibit D to supart B of 7 CFR, part 1980, as applicable, and must be calculated in accordance with 1980.113(d)(8) of subpart B of part 1980.
Lender certifies that the amount of interest reduction on the subject borrower's account will be permanently cancelled as it becomes due and no attempt will be made to collect that portion of the debt which will be paid by FmHA or its successor agency under Public Law 103-354.
This agreement is subject to the present regulations of the FmHA or its successor agency under Public Law 103-354 and its future regulations not inconsistent with any provisions of this agreement.
The Interest Assistance Agreement is incontestable except for fraud or misrepresentation of which the lender has actual knowledge at the time this agreement is executed or for which the lender participates in or condones.
The Government may amend or cancel this agreement and collect from the lender any amount of reduction granted as a result of incomplete or inaccurate information, computation errors, or other circumstances which resulted in Interest Assistance payments that the lender was not entitled to receive.
Upon request by FmHA or its successor agency under Public Law 103-354, the lender will permit representatives of FmHA or its successor agency under Public Law 103-354 (or other agencies of the U.S. Department of Agriculture authorized by that Department) to inspect and make copies of any of the records of the lender pertaining to FmHA or its successor agency under Public Law 103-354 guaranteed loans. Such inspection and copying may be made during regular office hours of the lender, or any other time the lender and FmHA or its successor agency under Public Law 103-354 find convenient.
To the extent permitted by law and the supervisory agency, the lender agrees to allow FmHA or its successor agency under Public Law 103-354 access to audit findings by the lender's supervising agency when examining Interest Assistance claims.
(a)
(b)
(c)
(1)-(2) [Reserved]
(d)
(e)
(2)
(a)
(b)
(1) Meets the loan eligibility requirements for OL, FO or SW loan assistance, as applicable, in accordance with §§ 1980.175(b), 1980.180(b) or 1980.185(b) of this subpart.
(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 provide 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) Except for OL loans, does not own real farm or ranch property or who, directly or through interests in family farm entities owns real farm or ranch property, the aggregate acreage of which does not exceed 25 percent of the average farm or ranch acreage of the farms or ranches in the county where the property is located. If the farm is located in more than one county, the average farm acreage of the county where the loan applicant's residence is located will be used in the calculation. If the loan applicant's residence is not located on the farm or if the loan applicant is an entity, the average farm acreage of the county where the major portion of the farm is located will be used. The average county farm or ranch acreage will be determined from the most recent Census of Agriculture developed by the U.S. Department of Commerce, Bureau of the Census. State Directors will publish State supplements containing the average farm or ranch acreage by county.
(6) Demonstrates that the available resources of the loan 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.
(1) Produces agricutlural commodities for sale in sufficient quantities so that it is recognized in the community as a farm rather than a rural residence.
(2) Provides enough agricultural income by itself, including rented land, or together with any other dependable income to enable the borrower to:
(i) Pay necessary family living and operating expenses.
(ii) Maintain essential chattel and real property.
(iii) Pay debts.
(3) Is managed by:
(i) The borrower when a loan is made to an individual.
(ii) The members, stockholders, partners, or joint operators responsible for operating the farm when a loan is made to a cooperative, corporation, partnership, or joint operation.
(4) Has a substantial amount of the labor requirements for the farm and nonfarm enterprise provided by:
(i) The borrower and the borrower's immediate family for a loan made to an individual.
(ii) The members, stockholders, partners, or joint operators responsible for operating the farm, along with the families of these individuals, for a loan made to a cooperative, corporation, partnership, or joint operation.
(5) May use a reasonable amount of full-time hired labor and seasonal labor during peak load periods.
(1) Add projected net farm operating income, projected annual nonfarm income, projected capital depreciation/amortization expenses, scheduled annual interest on term debt, and scheduled annual interest on capital leases.
(i) Net farm operating income is the gross income generated by a farming operation annually, minus all yearly operating expenses (including withdrawals from entities for living expenses), operating loan interest, interest on term debt and capital lease payments, and depreciation/amortization expenses. Exclude Income and Social Security Taxes, Carryover Debt and Delinquent Interest.
(ii) Depreciation/amortization expenses are an annual allocation of the cost or other basic value of tangible capital assets, less salvage value, over the estimated life of the unit (which may be a group of assets), in a systematic and rational manner.
(iii) Capital leases are agreements under which the lessee effectively acquires ownership of the asset being leased. A lease is a capital lease if it meets any one of the following criteria:
(A) The lease transfers ownership of the property to the lessee at the end of the lease term.
(B) The lessee has the right to purchase the property for significantly less than its market value at the end of the lease.
(C) The term of the lease is at least 75 percent of the estimated economic life of the leased property.
(D) The present value of the minimum lease payments equals or exceeds 90 percent of the fair market value of the leased property.
(2) Subtract from this sum projected annual Income and Social Security tax payments, including any delinquent taxes, and family living expenses. The difference is the Balance Available for Term Debt Repayment.
(i) Family living expenses are any withdrawals from income to provide for needs of family members.
(ii) Family members are considered to be the immediate members of the family residing in the same household with the individual borrower, or, in the case of a cooperative, corporation, partnership, or joint operation, with the operator(s).
(3) Divide the Balance Available for Term Debt Repayment by the sum of the annual scheduled principal and interest payments on term debt, plus the annual scheduled principal and interest payments on capital leases, excluding delinquent installments. The quotient is the Term Debt and Capital Lease Coverage Ratio.
(4) Add the Balance Available for Term Debt Repayment to any cash carryover from the preceding year.
(5) Subtract from this sum the amount of the Total Annual Scheduled Term Debt and Capital Lease Payments, and any debt carried over from the previous year. The difference is the Capital Replacement and Term Debt Repayment Margin, which must be equal to or greater than any planned capital asset purchases not financed.
(6) Example:
(i) Items A through P of this example correspond to the figures found on Form FmHA or its successor agency under Public Law 103-354 1980-25.
(ii) Term Debt and Capital Lease Coverage Ratio:
See § 1980.11 of subpart A of this part.
(a)
(1)
(ii) All security must secure the entire loan/line of credit. The lender may not take separate security to secure only that portion of the loan/line of credit not covered by the guarantee. The lender may not require compensating balances or certificates of deposit as a means of eliminating the lender's exposure on the unguaranteed portion of the loan/line of credit. However, compensating balances or certificates of deposit as used in the ordinary course of business are not prohibited.
(iii) When the Agency and a guaranteed lender are involved in separate loans to the same borrower, separate collateral must be clearly identified for both the the Agency's loan and the lender's loan. Different lien positions on real estate are considered separate collateral. The Agency may subordinate an interest in property which secures an Agency insured loan only in the following circumstances:
(A) To permit a guaranteed lender to advance funds and perfect a security interest in crops, feeder livestock, or livestock products (milk, eggs, wool, etc.).
(B) When the lender requesting the guarantee needs the subordination of the Agency's real estate lien to maintain its lien position when servicing or restructuring.
(C) When the lender requesting the guarantee is refinancing the debt of another lender and the Agency's lien position on real estate security will not be adversely affected.
(iv) When the lender is involved in both a guaranteed loan and an unguaranteed loan to the same borrower, the following will apply:
(A)
(B)
(2)
(ii) The lender may ask FmHA or its successor agency under Public Law 103-354 to make an exception to the requirement for personal or entity guarantees if the proposed guarantors cannot provide such guarantees due to other existing contractual obligations or legal restrictions. Applicants will give the lender written evidence of any such obligations or restrictions. FmHA or its successor agency under Public Law 103-354's concurrence is required before an exception is made.
(iii)
(A) In the case of personal guarantees, provide current financial statements (not over 90 days old at time of filing) signed by the guarantors, and disclosing community or homestead property.
(B) In the case of corporate guarantees, provide current financial statements (not over 90 days old at time of filing) certified by an officer of the corporation.
(3)
(ii) Applicants must either:
(iii) The lender will encourage any borrower who grows crops to obtain and maintain Federal Crop Insurance Corporation (FCIC) crop insurance or multi-peril crop insurance, if it is available.
(iv) When the lender believes it is necessary, life insurance will be required for the individual borrower or all members of the entity borrower and will be assigned or pledged to the lender. This life insurance may be decreasing term insurance. A schedule of life insurance available will be included as part of the application.
(v) Worker's Compensation Insurance will be obtained as required by State law.
(vi) The requirements found in Exhibit M to Subpart G of Part 1940 of this chapter will be met.
(b)
(1) An application on hand from a veteran as defined in § 1980.106(b) of this subpart will be given preference by the lender over an application from a nonveteran on file at the same time.
(2) An application on hand from an FmHA or its successor agency under Public Law 103-354 direct loan borrower will be given preference over one from an applicant who does not have an FmHA or its successor agency under Public Law 103-354 direct loan.
(3) An application for a loan for land purchase from an applicant who has a dependent family; or is an owner of livestock and farm implements necessary to successfully carry on a farming operation; or is able to make downpayments will be given preference over one from an applicant who does not meet any of these criteria.
(4) Priority will be given to otherwise qualified applicants requesting assistance for soil and water conservation and protection purposes denoted in § 1980.185 (c)(1) of this subpart, who use loan funds to build conservation structures or establish conservation practices on highly erodible land to comply with part 12 of this title (see attachment 1 of exhibit M of subpart G of part 1940 of this chapter which is available in any FmHA or its successor agency under Public Law 103-354 office).
(c)
(d)
(2) The outstanding combined direct and guaranteed FO or OL principal balance owned by the loan applicant or owed by anyone who will sign the note as cosigner may not exceed the authorized guaranteed loan limit for that type of loan.
(3) Chattel and/or real estate security must be separate and identifiable from the security pledged to FmHA or its successor agency under Public Law 103-354 for an direct loan. Different lien positions on real estate are considered separate and identifiable collateral.
(e)
The County Supervisor will determine whether the lender is requiring adequate security. If necessary, the assistance of the District Director or Farmer Programs Staff will be obtained.
(a)
(1) Repayment Schedules—In order for notes to be acceptable, the principal and interest repayment schedules will be clearly shown in the note(s). Use of a note with a “payment on demand” feature is not permissible unless it is modified by a supplemental agreement in the form of an allonge to the note or other legally effective amendment which waives the demand feature and sets forth the repayment schedule.
(2) Signatures—Except in those unusual circumstances where an exemption is obtained in accordance with § 1980.108 of this subpart the promissory note will be signed as follows:
(i) Individuals. Only one person will sign the note as a borrower. If a cosigner is needed, the cosigner will also sign the note.
(ii) Partnerships or joint operations. The note will be executed by the partner or joint operator authorized to sign for the entity, and all partners in the partnership or joint operators in the joint operation, as individuals.
(iii) Corporations or cooperatives. The promissory note(s) or Line of Credit Agreement will be executed so as to evidence liability of the entity as well as individual liability of all member(s) or stockholder(s) in the entity.
(b)
(1) Covering the “proceeds and products” of the collateral described, and
(2) Stating that “disposition of the collateral is not authorized hereby.”
Loan subsides are payments made by the Agency to lenders to induce them to service and collect guaranteed EM loans.
(a)
(b)
(c)
The County Supervisor will provide assistance in connection with loan/line of credit application processes. The degree of this assistance will be determined by the lender's experience with Agency guaranteed processing, the lender's farm lending experience, and the complexity of the proposal. The lender should contact the local Agency office serving the area where the farming operation is conducted for guidance and assistance in preparing the application and for obtaining the guarantee. The County Supervisor will provide copies of all applicable Agency forms and regulations.
(a)
(1)
(2)
(3) Credit bureau report, where available, and other pertinent information concerning an applicant's credit history obtained by the lender.
(4) A copy of any lease, contract or agreement entered into by the applicant which may be pertinent to the consideration of the application, or when a written lease is not obtainable, a statement setting forth the terms and conditions of the agreement will be included in the loan docket.
(5) Verification of all debts of $1,000 or more. The lender may use Form FmHA 440-32, “Request for Statement of Debts and Collateral,” or any other documentation.
(6)
(i) Improved management or production practices to be implemented.
(ii) Requirements for accounting, recordkeeping, and financial reporting.
(iii) Limitations on the purchase or sale of capital assets.
(iv) Prohibitions against incurring additional debt or cosigning for the liabilities of others.
(v) Limits on family living expenses.
(vi) Insurance requirements and collateral inspections.
(vii) Purposes for which loan or line of credit funds can be used.
(viii) Interest rates and terms; how and when the rate may fluctuate; term of loan; and conditions related to the repayment, renewal, etc., of loans with balloon payments.
(ix) Credit ceiling, special limitations, and conditions precedent to annual readvancement or continuation of loans or lines of credit.
(x) Limitations on salaries paid to entity members, hired labor, or consultants. Limitations on withdrawals in the case of joint operations and partnerships.
(7)
(i) Lenders will use the following sources of price information to develop operation forecast projections:
(A) Futures market price less the recognized basis points for the area, documented by date, location, time and degree of use.
(B) Government loan rates,
(C) Published current market prices.
(D) The negotiated price in any forward contract.
(E) Prices developed by the State land grant university for the time of crop sale.
(F) For specialty crops, the average of three previous years’ prices, only if the above data is not available.
(ii) Lenders will use the following guidelines for estimating yields when developing operating plans. These are to be used only as guidelines. Deviations from historical performance may be acceptable if specific to the changes in the operation, adequately justified, and acceptable to the Agency approval official.
(A) For existing farmers, actual production/yields for the past 5 years will be utilized.
(B) For those farmers with less than a 5-year production or yield history, the applicant's available production history will be utilized.
(C) For those farmers whose actual history is insufficient to provide an accurate estimate, consider the use of FSA Farm Programs actual records for specific farms, county averages, State averages, university data, or any other reliable sources of information that are acceptable to the lender, applicant, and the Agency.
(D) When an accurate projection cannot be made because the applicant's production history has been affected by disasters declared by the President or designated by the Secretary of Agriculture, the following applies:
(
(
(iii) When the loan applicant has or will have a farm plan developed in conjunction with a proposed or existing FmHA or its successor agency under Public Law 103-354 insured loan, there must be consistency in the data between the two plans.
(8)
(i)
(A)
(B)
(C)
(ii)
(A)
(B)
(9)
(10)
(11)
(i) A complete list of members, stockholders, partners, or joint operators showing the address, citizenship, principal occupation, and the number of shares and percentage of ownership or of stock held in the cooperative or
(ii) A current, personal balance sheet from all members of a cooperative, joint operators of a joint operation, partners of a partnership, or stockholders of a corporation. To be current, the balance sheet must be no more than 90 days old on the date that the application is completed.
(iii) A current balance sheet of the cooperative, corporation, partnership, or joint operation.
(iv) A copy of the cooperative's or corporation's charter, or any partnership or joint operation agreement, any articles of incorporation any bylaws, any certificate or evidence of current registration (good standing), and a resolution(s) adopted by the Board of Directors or members of stockholders authorizing specified officers of the cooperative, corporation, partnership, or joint operation to apply for and obtain the desired loan and execute required debt, security, and other instruments and agreements.
(12) A concise narrative summary of the following items:
(i) The agricultural and nonagricultural enterprises comprising the operation, including any proposed to be added or dropped.
(ii) The real estate used in the operation including significant planned and existing improvements, significant conservation practices in effect, adequacy of facilities, external factors of negative or positive impact.
(iii) Chattel property, including the adequacy of machinery, equipment, and foundation livestock to carry out the existing or proposed operation.
(iv) The farm business organization and key personnel. For example, the legal business structure, roles, functions and backgrounds of key individuals, the accounting and record keeping system, and agreements for transferring or dissolving the business.
(v) Goals. The short-term and long-term business goals of the operation.
(vi) Historical financial data.
(vii) Planned changes. Changes to overcome negative trends or other aspects of the operation. Consider such items as improved production techniques or management practices.
(b)
(1) There has been no material change in the borrower's financial position since the previous OL guarantee was issued.
(2) The scope of the borrower's operation has not changed and the proposed loan will not alter the scope of the operation,
(c)
(1) Form FmHA 1980-25 will be prepared using estimated interest rates and terms. All other items required, with the exception of the loan or line of credit agreement, for a complete application under this section will be attached. The lender will submit the loan or line of credit agreement prior to the Agency's issuance of the Conditional Commitment.
(2) Form FmHA 1940-3, “Request for Obligation of Funds—Guaranteed Loans.”
(a)-(b) [Reserved]
(c)
(1) The proposed loan or line of credit is for authorized purposes, and the amounts of borrowed capital are appropriate to successfully carry on the agricultural operation.
(2) The operation's capital position is adequate taking its strengths and weaknesses into consideration.
(3) The applicant has adequate repayment ability and has a reasonable chance of securing non-guaranteed commercial credit for the operation in the future. Developing an acceptable farm plan is the responsibility of the lender and its borrower.
(4) Security is adequate, values are reasonable, and loan terms are consistent with the useful life of the security and Agency regulations.
(5) The projected budget is reasonable in light of the applicant's stated goals.
(d) [Reserved]
(e)
The Agency will review loan applications to determine whether the loan applicants meet eligibility requirements and meet the definition of “beginning farmer or rancher,” as defined in § 1980.106 of this subpart. See § 1980.176(k) for Agency actions relative to special OL assistance to beginning farmers or ranchers. Applications do not need to be complete before they are reviewed by the Agency; however, all information relating to the eligibility must be received.
The lender, after reviewing approval conditions and security requirements as set forth in Form FmHA or its successor agency under Public Law 103-354 1980-15, will complete and execute the “Acceptance or Rejection of Conditions” and return a copy to the County Supervisor. If the conditions cannot be met, the lender and loan applicant may propose alternatives to the County Supervisor. These alternatives will be considered and the lender will be advised of FmHA or its successor agency under Public Law 103-354's decision to accept or reject the alternatives. If accepted, Form FmHA or its successor agency under Public Law 103-354 1980-15 will be so revised. If rejected, the County Supervisor will notify the loan application and the lender in writing within 10 calendar days of FmHA or its successor agency under Public Law 103-354's decision of all the specific reasons for the decision, and advise them of their opportunity for appeal as set out in subpart B of part 1900 of this chapter, and in accordance with § 1980.80 of subpart A of this part.
(a)
(b)
(c)
(d)
The County Supervisor will:
A. Consult with the lender and loan applicant concerning any changes made to the initially issued or revised Form FmHA or its successor agency under Public Law 103-354 1980-15. A copy of Form FmHA or its successor agency under Public Law 103-354 1980-15 and any amendments will be included in the file.
B. Review the loan agreement between the borrower and lender which provides for the periodic submission of financial statements to the County Supervisor. An annual analysis report of the farming operation will be required. In line of credit cases, the County Supervisor will review with the non-CLP lenders, the requirement that the lender is to submit a current financial statement and cash flow prepared in accordance with § 1980.113 of this subpart for prior approval of advances made in the second and third years of a line of credit.
C. Review plans for inspection on construction projects.
D. Review basic credit requirements of all loans/lines of credit.
E. Review cost overruns, if any, and how they will be met.
(a) See § 1980.61 of subpart A of this part.
(b) A guaranteed portion of the loan may not be sold by the lender until the loan has been fully disbursed to the borrower. The guaranteed portion of a line of credit will never be sold or assigned by the lender except as provided in part III of Form FmHA or its successor agency under Public Law 103-354 1980-38.
(c) Each Loan Note Guarantee issued will contain the statement “This Loan Note Guarantee is issued under the Lender's Agreement dated
(d) Each Contract of Guarantee issued will contain the statement “This Contract of Guarantee is issued under Lender's Agreement dated
A.
B.
C.
The lender may retain all of any guaranteed loan. The lender is not permitted to sell or participate any amount of the guaranteed or unguaranteed portion(s) of loan(s) to the loan applicant or borrower or members of their immediate families, their officers, directors, stockholders, other owners, or any parent, subsidiary or affiliate. The lender may market all or part of the guaranteed portion of the loan at or after loan closing only if the loan is not in default as set forth in the terms of the note. A line of credit may only be marketed by participation. The lender may proceed as follows:
(a)
(b)
(c)
(1) At loan closing. The lender will provide for no more than 10 notes, unless the borrower and FmHA or its successor agency under Public Law 103-354 agree otherwise, for the guaranteed portion and one note for the unguaranteed portion. FmHA or its successor agency under Public Law 103-354 will provide the lender with Form FmHA or its successor agency under Public Law 103-354 449-34 for each of the notes.
(2) After loan closing. Upon written approval by FmHA or its successor agency under Public Law 103-354, the lender may issue a series of new notes replacing previously issued guaranteed note(s), not to exceed the amount specified in paragraph (c)(1) of this section. FmHA or its successor agency under Public Law 103-354 will then provide the lender with a new Loan Note Guarantee to be attached to the new notes in exchange for the original Loan Note Guarantee which will be cancelled by FmHA or its successor agency under Public Law 103-354. The following conditions must be met:
(i) The borrower agrees and executes the new notes.
(ii) The interest rate does not exceed the interest rate in effect when the loan was closed.
(iii) The maturity of the loan is not changed.
(iv) FmHA or its successor agency under Public Law 103-354 will not bear any expenses that may be incurred in reference to such re-issuance of notes.
(v) There is adequate collateral securing the note(s).
(vi) The secured lien priority remains the same.
(d)
(e)
(f)
(g)
(h)
(1) The holder(s), or its duly authorized agent, will also include evidence of its right to require payment from FmHA or its successor agency under Public Law 103-354. Such evidence will consist of either the originals of the Loan Note Guarantee and note properly endorsed to FmHA or its successor agency under Public Law 103-354 or the original of the Assignment Guarantee Agreement which has been properly assigned to FmHA or its successor agency under Public Law 103-354 without recourse including all rights, title, and interest in the loan. FmHA or its successor agency under Public Law 103-354 will retain all rights of the holder(s). In its demand, the holder will specify the amount due including unpaid principal, unpaid interest to the date of demand, and interest which has accrued from the date of demand to the proposed payment date. FmHA or its successor agency under Public Law 103-354 will verify the amount of the unpaid principal and interest with the lender. Unless otherwise agreed to by FmHA or its successor agency under Public Law 103-354, such proposed payment will ordinarily be within 30 days from the date of the demand to FmHA or its successor agency under Public Law 103-354.
(2) FmHA or its successor agency under Public Law 103-354 will promptly notify the lender of the holder(s) demand for payment. The lender will promptly provide FmHA or its successor agency under Public Law 103-354 a current statement which has been certified by an appropriate authorized officer of the lender, of the unpaid principal and interest then owed by the borrower on the loan, and the amount due the holder(s).
(3) Any discrepancy between the amount claimed by the holder(s) and
(4) The lender further agrees that any purchase by FmHA or its successor agency under Public Law 103-354 does not change, alter, or modify any of the lender's obligations to FmHA or its successor agency under Public Law 103-354 specified in the loan or guarantee, nor does the purchase waive any of FmHA or its successor agency under Public Law 103-354's rights against the lender. FmHA or its successor agency under Public Law 103-354 will have the right to set-off all lender's rights which have been passed along to FmHA or its successor agency under Public Law 103-354 from the holder against FmHA or its successor agency under Public Law 103-354's obligation to the lender under the Loan Note Guarantee.
(5) Servicing fees assessed by the lender to a holder can only be collected from payment installments received by the lender from the borrower. When FmHA or its successor agency under Public Law 103-354 repurchases from a holder, FmHA or its successor agency under Public Law 103-354 will pay the holder only the amounts due to the holder. FmHA or its successor agency under Public Law 103-354 will not reimburse the lender for any servicing fees which have been assessed to the holder and not collected from the borrower. No service fee shall be charged to FmHA or its successor agency under Public Law 103-354, and no such fee can be collectible from FmHA or its successor agency under Public Law 103-354.
(6) The lender may also repurchase the guaranteed portion of the loan consistent with paragraph 10 of the Loan Note Guarantee.
With prior written approval of the FmHA or its successor agency under Public Law 103-354 State Director, a new eligible lender may be substituted for the original provided the new lender agrees in writing to assume all servicing and other responsibilities
(a) All transfers and assumptions must be approved in writing by FmHA or its successor agency under Public Law 103-354. Such transfers and assumptions must be to an eligible applicant. EM actual loss loans may only be
(b) The transferee will submit Form FmHA or its successor agency under Public Law 103-354 1980-25 and other needed information to the lender for evaluation.
(c) In accordance with the Food Security Act of 1985 (Pub. L. 99-198), after December 23, 1985, if an individual transferee or any member, stockholder, partner, or joint operator of an entity transferee 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 the approval of the transfer and assumption in any crop year, the individual or entity shall be ineligible for a transfer and assumption for the crop year in which the individual or member, stockholder, partner, or joint operator of the entity was convicted and the four succeeding years. Applicants will attest on Form FmHA or its successor agency under Public Law 103-354 1980-25 that as individuals or that its members, if an entity, have not been convicted of such crime after December 23, 1985.
(d) When a transfer and assumption occurs and the transferee has an outstanding insured or guaranteed FO, SW or RL loan, the borrower's total unpaid principal insured and guaranteed indebtedness for these loans may not exceed the lesser of $300,000 or the market value of the farm or other security. When the transferee is indebted for an OL loan/line of credit, the transferee's total insured and guaranteed OL principal balance may not exceed $400,000 at the time of the transfer and assumption.
(e) Available transfer and assumption options to eligible applicants include transferring the
(f) In any transfer and assumption case, the transferor, including any guarantor(s), may be released from liability by the lender with FmHA or its successor agency under Public Law 103-354 written concurrence only when the value of the collateral being transferred is at least equal to the amount of the loan or the line of credit ceiling for Contracts of Guarantee. If the transfer is for less than this:
(1) FmHA or its successor agency under Public Law 103-354 must determine that the transferor has no reasonable debt-paying ability considering assets and income at the time of the transfer.
(2) FmHA or its successor agency under Public Law 103-354 County Committee must certify that the transferor has cooperated in good faith, used due diligence to maintain the collateral against loss, and has otherwise fulfilled all of the regulations of this subpart to the best of the transferor's ability.
(g) Any proceeds received from the sale of security before a transfer and assumption will be credited to the transferor's guaranteed loan debt in inverse order of maturity before the transfer and assumption transaction is closed.
(h) The lender is responsible for getting an appraisal of the fair market value of all the collateral securing the loan/line of credit. Subject to the approval of the transferor and transferee, an appraisal can be made by either independent fee appraisers or qualified appraisers on the lender's staff. Appraisers must meet the qualifications outlined in § 1980.113(a)(8)(ii) of this subpart. The appraisal report fee and other related costs will be paid by the transferor and the transferee, as they agree.
(i) The market value of the security being acquired by the transferee, plus any additional security the transferee proposes to give, must be adequate to secure the balance of the total guaranteed loan/line of credit ceiling for Contracts of Guarantee, plus any prior liens.
(j) If any cash downpayment is made, it may be paid directly to the transferor as payment for the transferor's equity in the project provided:
(1) The lender recommends and FmHA or its successor agency under Public Law 103-354 approves the cash downpayment be released to the transferor.
(2) Any downpayment that is made by the transferee to the transferor does not suspend the transferee's obligation to continue to make the guaranteed loan/line of credit payments as they come due under the terms of the assumption.
(3) The transferor agrees not to take any actions against the transferee in connection with such transfer in the future without first obtaining the approval of FmHA or its successor agency under Public Law 103-354 and the lender.
(4) The lender determines that the transferee has the ability to repay the guaranteed debt assumed and any other indebtedness.
(k) The lender will issue a statement to FmHA or its successor agency under Public Law 103-354 that the debt can be properly transferred and the conveyance instruments must be filed, registered, or recorded, as appropriate, and must be legally sufficient.
(l) FmHA or its successor agency under Public Law 103-354 will not guarantee any additional loans to provide equity funds for a transfer and assumption.
(m) The assumption will be made on the lender's form of assumption agreement.
(n) The assumption agreement must contain the FmHA or its successor agency under Public Law 103-354 case number of the transferor and transferee.
(o) The assumption agreement may change loan terms and/or interest rates only if a new Loan Note Guarantee or Contract of Guarantee will be executed.
(p) In the case of a transfer and assumption at the same rates and terms the lender must give any holder(s) notice of the transfer and notice that future payments will be made under a different name and case number. It is the lender's responsibility to see that the transfer and assumption is noted on all originals of the Loan Note Guarantee or Contract of Guarantee. The lender must provide FmHA or its successor agency under Public Law 103-354 with a copy of the transfer and assumption agreement.
(q) Before allowing a transfer and assumption at
A.
1. To all transfer and assumption cases.
2. To the release of the transferor and guarantor(s) from liability on the loan or line of credit agreement. The approval official will notify the lender and the appropriate parties of the decision in writing.
3. To any changes in the loan or line of credit terms and/or interest rates provided the holder(s), if any, and lender agree.
B. The Loan Note Guarantee or Contract of Guarantee will be endorsed in the space provided on the form.
C. A copy of the Assumption Agreement will be retained in the County Office file. The County Supervisor will notify the Finance Office of all approved transfer and assumption cases so that Finance Office records may be adjusted accordingly. This will be accomplished by sending completed Forms FmHA or its successor agency under Public Law 103-354 1980-7, “Notification of Transfer and Assumption of a Guaranteed Loan,” FmHA or its successor agency under Public Law 103-354 1980-51, “Add, Change, or Delete Guaranteed Loan Record,” to the Finance Office.
(a)
(1) The borrower meets the eligibility requirements under §§ 1980.175(b), 1980.176, 1980.180(b), and 1980.185(b) of this subpart for FO, SW, and OL loans/lines of credit, as applicable, and the lender's security position would not be adversely affected. For FO, SW loans and OL loans/lines of credit refer to this subpart for these requirements. For EM loans refer to subpart D of part 1945 of this chapter for eligibility and security requirements. For RL loans refer to SW eligibility and security requirements as set out in this subpart.
(2) The action will ensure that the borrower will be able to continue the farming or ranching operation.
(3) Any delinquency is due to circumstances beyond the borrower's control. Circumstances beyond the borrower's control are limited to one of the following:
(i) A reduction in income has occurred which is not due to inadequate or poor financial management decisions, such as untimely marketing practices which might occur when a borrower has forward contracted and the price continues to increase.
(ii) Unforseen, but essential, farm expenses and/or, in the case of individual borrowers and the partners, joint operators, stockholders and members who operate the farm, essential family living expenses.
(iii) A natural disaster, such as a drought or flood, regardless of whether the area has been declared a disaster area.
(4) The borrower has acted in good faith demonstrating sincerity and honesty in meeting agreements with, and promises made to the lender and the Agency. This means cooperating in servicing the account and maintaining the security, and satisfactorily completing the Borrower Training program if required.
(5) The lender determines that a positive cash flow cannot be developed with the existing repayment schedule, but can be developed with revised repayment terms;
(6) Any holder agrees in writing to the rescheduling, reamortization or deferral. The holder must understand that it will not receive any payments from the lender or from the Agency during any deferral period.
(7) The lender may capitalize the outstanding interest when restructuring the loan. The restructuring proposal will be reviewed by the appropriate agency loan approval official in accordance with loan approval authorities based on the total outstanding principal and interest at the time of the proposal. Approval of servicing actions on guaranteed loans will be based on the new principal and guaranteed amounts and the authorities set forth in exhibit C of FmHA Instruction 1901-A (available in any Agency office). Approved capitalized interest will be treated as part of the principal and interest indebtedness in calculating the maximum loss amount under § 1980.20.
(8) Only interest that has accrued at the rate indicated on the borrower's original promissory notes may be capitalized. Late payment fees or default interest penalties that have accrued due to the borrower's failure to make payments as agreed may not be capitalized.
(9) A credit report is obtained by the lender.
(b)
(2) The term “rescheduling” means to rewrite the rates and/or terms of a single note or line of credit agreement which acknowledges indebtedness for a loan made for operating purposes (EM loan or OL loan/line of credit).
(3) EM loans made for operating loan purposes may be consolidated only with other EM loans made for operating loan purposes, including EM loans for annual operating purposes and EM major adjustment loans for operating (Subtitle B) purposes. OL Loan Note Guarantee loans may be consolidated only with other OL Loan Note Guarantee loans.
(4) An EM loan made for operating loan purposes or an OL loan/line of
(5) EM loans for actual losses, EM major adjustment loans for real estate purposes, OL loans secured by real estate, OL Contract of Guarantee lines of credit with unlike terms and OL loans/lines of credit with an outstanding Interest Rate Buydown Agreement, Interest Assistance Agreement, or Shared Appreciation Agreement will not be consolidated.
(6) There is no limit on the number of times a consolidation or rescheduling action may take place.
(7) Unless a note or line of credit agreement being rescheduled is consolidated with one or more notes or lines of credit agreements at the time of the rescheduling, no new note or line of credit agreement will be taken when a loan/line of credit is rescheduled. Instead, the existing note or line of credit agreement will be modified by attaching an “allonge” or other legally effective amendment, evidencing the revised repayment schedule and any interest rate change. When a note or line of credit agreement being rescheduled is also being consolidated with one or more other notes or lines of credit agreement, then a new note evidencing the consolidated indebtedness will be taken.
(8) The interest rate for a consolidated or rescheduled EM loan for operating purposes will be the current rate established by the Secretary of Agriculture for similar type loans in effect at the time of action. This information is available from any Agency or its successor agency under Public Law 103-354 office (See Agency or its successor agency under Public Law 103-354 Instruction 440.1, exhibit B).
(9) The interest rate for a consolidated OL loan or rescheduled OL loan/line of credit will be the negotiated rate agreed upon by the lender and the borrower subject to the limitations set out in § 1980.175(e) of this subpart. If the rescheduled OL loan/line of credit has an outstanding interest rate buydown agreement in effect at the time of rescheduling, the interest rate will remain the same during the balance of the buydown agreement period. If the rescheduled OL loan/line of credit has an outstanding Interest Assistance Agreement, the interest rate will not exceed the rate of the original Interest Assistance Agreement.
(10) A rescheduled note or the new note which exists after a consolidation of two or more loans must be repaid over a period not to exceed fifteen (15) years from the date of the action, unless the note evidences a loan made solely for recreation and/or nonfarm enterprise purposes, in which case it must be repaid over a period not to exceed seven (7) years from the date of the action. A rescheduled OL line of credit agreement must be repaid over a period not to exceed seven (7) years from the date of the action; however, a new OL line of credit agreement that exists after consolidating an existing line of credit with a new line of credit cannot exceed the terms (to make advances as well as final maturity date) of the existing line of credit agreement. Balloon payments are prohibited, however, the loan can be rescheduled in unequal amortized installments, provided the current year and any typical year plan demonstrate that these installments will be used only in those cases where a new enterprise is being established, developing a farm, or during recovery from economic reverses. The consolidation will be reported to the Finance Office with Form FmHA or its successor agency under Public Law 103-354 1980-19, “Guaranteed Loan Closing Report,” along with a memorandum identifying which loans are being consolidated.
(11) When a consolidation occurs, a new Form FmHA or its successor agency under Public Law 103-354 449-34 will be executed.
(12) When a consolidation occurs, the new note or line of credit agreement will describe the notes or line of credit agreements being consolidated and will state that the indebtedness evidenced by such notes or line of credit agreements is not satisfied. The original notes or line of credit agreements will be retained for identification purposes.
(c)
(1) No new note will be taken when a loan is reamortized. Instead, the existing note will be modified by attaching an “allonge” or other legally effective amendment, evidencing the revised repayment schedule and any interest rate change.
(2) The interest rate for a reamortized EM actual loss loan will be at the same rate as the original loan.
(3) The interest rate for a reamortized EM major adjustment loan for real estate purposes will be the current market rate in effect for similar type loans at the time of reamortization as established by the Secretary of Agriculture. This information is available from any Agency or its successor agency under Public Law 103-354 office. (See Agency or its successor agency under Public Law 103-354 Instruction 440.1, exhibit B).
(4) The interest rate for a reamortized FO or SW loan will be the negotiated rate agreed upon by the lender and the borrower at the time of the action subject to the limitations set out in §§ 1980.180 and 1980.185 of this subpart, as applicable. The interest rate limitation set out in these sections will also apply when RL loans are reamortized. If the reamortized FO or SW loan still has an outstanding interest rate buydown agreement in effect at the time of reamortization, the interest rate will remain the same during the balance of the buydown agreement period. If the reamortized FO or SW loan has an outstanding Interest Assistance Agreement, the interest rate will not exceed the rate of the original Interest Assistance Agreement.
(d)
(1) Payments may be deferred for no more than five years, but in no case will the deferral period extend beyond the final due date of the note.
(2) The lender must determine, and the Agency or its successor agency under Public Law 103-354 must concur, that scheduled payments cannot be made for reasons beyond the borrower's control as defined in paragraphs (a)(3)(i) and (ii) of this section and must also determine that there are reasonable prospects that the borrower will be able to resume full payments at the end of the deferral period.
(e)
(f)
(a)
(1) The borrower cannot demonstrate a positive cash flow projection on all income and expenses, including debt service, after consideration is given to servicing the loan or line of credit
(2) The loan or line of credit agreement, if written down, will result in a net recovery to the lender, during the term of the loan or line of credit agreement as written down, that would be more than or equal to the net recovery to the lender from the borrower through bankruptcy or from an involuntary liquidation or foreclosure of the security for the loan or line of credit. The calculations to be used in making this determination are found in paragraph (b) of this section.
(3) The requirements found in § 1980.124(a)(2) through (a)(5) of this subpart are met.
(4) After being asked by the lender, other creditors of the borrower may agree to voluntarily adjust their debts as outlined in subpart A of part 1903 of this chapter. If other major creditors of the borrower, other than those that are fully collateralized, agree to participate in developing a restructuring plan or agree to participate in a State's farm mediation program, then the write down may be approved, providing the remaining requirements in this paragraph can be met. Failure of such creditors to agree to participate will not preclude use of a write down if the lender, with the Agency's or its successor agency under Public Law 103-354's concurrence, determines that a write down results in the least cost to the lender.
(5) If the borrower owns real estate which secures the loan, the borrower must sign a shared appreciation agreement, as further specified in paragraph (c) of this section, covering the amount written down.
(6) Any holder must agree to the write down in writing. If the holder does not agree to this action, the leader must repurchase the unpaid portion of the loan from the holder before the write down may be approved.
(7) If a line of credit is written down, no further advances may be made under that agreement and the principal amount remaining after the write down fixes the principal amount covered by the guarantee.
(8) The lender will obtain Agency or its successor agency under Public Law 103-354 approval of the proposed write down by submitting to the County Supervisor the following:
(i) A cash flow statement indicating the borrower can pay all necessary expenses and service all debt after the write down.
(ii) A current appraisal of the property securing the loan.
(iii) An estimate of lender's cost relating to an involuntary liquidation or bankruptcy including disposal of any property taken into inventory.
(iv) A proposed estimated loss claim.
(v) A current balance sheet for the borrower.
(9) If the borrower has both a line of credit and a loan, the lender will write down the line of credit before consideration will be given to a write down of the loan.
(b)
(1) The recovery value of the security will be based on the amount of the current appraised value of the security
(i) The current appraised value will be determined by an independent appraiser selected by the lender and approved by the Agency. The appraisal fee will be shared equally by the lender and the Agency.
(ii) Any lease income estimated to be generated while the property is in the lender's inventory will be calculated to offset any of the estimated cost items listed in paragraph (iii) below.
(iii) The estimated costs associated with liquidation and disposition include the following:
(A) The payment of prior liens;
(B) Taxes and assessments, depreciation, management costs, yearly percentage decrease or increase in the value of the property, and lost interest income, each calculated for the lender's average holding period, in the State in which the property is located, for the type of property involved;
(C) Resale expenses, such as repairs, commissions, and advertising; and
(D) Other reasonable and necessary administrative costs and expenses, including attorney's fees, that customarily are incurred in such liquidation and disposition.
(2) The value of the written down loan/line of credit agreement will be based on the present value of payments that the borrower would make to the lender if the loan/line of credit terms were modified using any combination of the authorities provided in §§ 1980.124 and 1980.125 of this subpart or an Interest Assistance as provided in exhibit D of this subpart.
(3) The loan may be written down with the Agency's approval if the calculations specified in paragraphs (b)(1) and (2) of this section show that the net recovery to the lender, during the term of the loan or line of credit agreement as written down, would be more than or equal to the net recovery to the lender from the borrower through bankruptcy or from an involuntary liquidation or foreclosure of the security.
(c)
(1) The shared appreciation agreement will have a term not to exceed 10 years from the date of the shared appreciation agreement and provide for the recapture of appreciation on real estate based on the difference between the appraised market value of the real estate at the time the loan/line of credit agreement is written down and at the time of recapture.
(2) The shared appreciation agreement will provide that the amount recaptured will be 75 percent of the appreciated value of the real estate if the events described in paragraph (c)(3) of this section occur within 4 years of the write down, and 50 percent of such value if the recapture occurs during the remainder of the term of the agreement.
(3) Recapture of the appreciated value of the real estate will occur either at the end of the term of the shared appreciation agreement or at the time the real estate is conveyed, the loan/line of credit agreement is repaid, or the borrower ceases farming, whichever occurs earlier. Transfer of title to the borrower's spouse on the borrower's death will not be treated as a conveyance for the purpose of recapture.
(4) Any amount recaptured will be shared on a pro-rata basis between the lender and FmHA as provided in Form FmHA 1980-38.
(5) In no case will the amount recaptured exceed the amount of debt written down.
(d)
(2) If the interest rate is changed, the interest rate will be the negotiated rate agreed upon by the lender and the borrower, subject to the provisions of § 1980.124 (b) (8) and (9) and (c) (2), (3), and (4) of this subpart, depending on the type of loan involved.
(3) The lender must attach the original of exhibit F of this subpart to the promissory note or line of credit agreement which evidences a loan/line of credit agreement that is written down
(4) As provided by paragraph I.D.3. of Form FmHA 1980-38, the lender will remit to the holder the holder's pro-rata share of any estimated loss claim payments made by the Agency after the writedown.
(5) Additional security instruments will be required if needed to maintain lien priority or to protect the interests of the lender and the Agency. In addition, if exhibit F is executed, the lender is responsible for making sure that the security instruments also assure future collection of any appreciation in the real property covered by exhibit F.
(6) The maximum amount of loss payment associated with a loan/line of credit agreement which has been written down will not exceed the percentage of the guarantee multiplied by the difference between the outstanding principal and interest balance of the loan/line of credit before the write down and the outstanding balance of the loan/line of credit after the write down. The lender will complete Form FmHA 449-30, “Loan Note Guarantee Report of Loss,” to receive its pro-rata share of any loss sustained.
(7) During the period of time in which the shared appreciation agreement is in effect, a note or line of credit agreement which has been written down cannot be consolidated.
Various States have mediation programs, which are designed to assist farm borrowers and their creditors in resolving financial disputes through the process of mediation. Where a State has such a farm credit mediation program, the lender shall participate in accordance with the rules of that system. The lender must not agree to any proposals concerning the rewriting of the terms of the guaranteed loan which do not comply with the provisions of Subpart A of this Part and this Subpart, especially §§ 1980.124 and 1980.125. Any agreements reached as a result of such mediation must have prior concurrence by the State Director or designee. FmHA or its successor agency under Public Law 103-354 is not bound by any agreements developed in mediation or findings of the mediator unless the Agency agrees to them in writing.
The lender is responsible for seeing that any buildings or other improvements or major land development to be paid for with loan funds are properly completed within a reasonable period of time. The lender is responsible for perfecting the required lien in the security, which includes ensuring that the security property is free of any mechanic's, materialmen's, or other liens which would affect lien priority. All major construction, major repairs, and major land development must be performed by qualified parties under conditions considered standard and prudent by commercial lenders and their financial regulators. Form FmHA 449-11, “Certificate of Acquisition or Construction,” must be completed and submitted to the Agency. In connection with construction, the lender is responsible for:
(a) Making sure there is compliance with applicable laws, ordinances, codes and regulations, including the Agency regulations, which affect all phases of construction. The lender may inspect the site and any construction or development work at any stage whenever the lender considers it necessary.
(b) Seeing that the plans, specifications, and estimates are adequate.
(c) Making sure of the rights to an adequate water supply of sufficient quantity and quality.
(d) Identifying whether the construction or development will be performed by contract or other method.
(e) Checking to see that any necessary bonds covering contractors are in proper form.
(f) Seeing that all equal opportunity and nondiscrimination requirements are met. (See § 1980.41 of Subpart A of this part.)
(g) Limiting periodic or partial payments for construction or development to a reasonable percentage of the actual value of work and material in place. The lender will make final payment only after seeing that the final inspection has been made.
(h) Ascertaining that after planned development is completed, the requirements of § 1980.108(a)(3)(i) of this Subpart are met.
The lender will service the entire loan as mortgagee and/or secured party of record in a reasonable and prudent manner, notwithstanding the fact that a holder may hold a portion of the loan. The lender will obtain compliance with the covenants and provisions in the note, security instruments, and any other agreements, and notify FmHA or its successor agency under Public Law 103-354 of any violations. Specific requirements include:
(a) Assuring that the borrower complies with all laws and ordinances which are applicable to the loan, the collateral, and/or operation of the farm.
(b) Obtaining the lien coverage and lien priorities specified by the lender and agreed to by FmHA or its successor agency under Public Law 103-354 and properly recording or filing lien or notice instruments in order to obtain and maintain such lien priorities during the existence of the guarantee by FmHA or its successor agency under Public Law 103-354. In no case will FmHA or its successor agency under Public Law 103-354 pay a loss claim on the portion of a loss which results from a lender's failure to obtain a perfected security interest in the loan collateral.
(c) Obtaining assignments on all USDA crop and livestock program payments when required.
(d) Assuring that the borrower obtains marketable title to the collateral.
(e) Assuring that the borrower and any party liable for the loan is not released from liability for all or any part of the loan, except in accordance with FmHA or its successor agency under Public Law 103-354 regulations.
(f) Providing the FmHA or its successor agency under Public Law 103-354 County Office with loan status reports on Form FmHA or its successor agency under Public Law 103-354 1980-41, “Guaranteed Loan Status Report.” The non-CLP lender must submit these reports annually as of December 31. The CLP lender must submit these reports as of March 31 and September 30 each year.
(g) Obtaining financial statements from each borrower and guarantor at least annually. The lender is responsible for preparing an analysis of the farming operation, taking any servicing actions if required, and providing copies of the statements and a record of action to the FmHA or its successor agency under Public Law 103-354 office at least annually.
(h) Monitoring the use of loan funds to assure they will not be used for any unauthorized purpose, including any purposes that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands either to produce an agricultural commodity or to make the production of an agricultural commodity possible, as further explained in exhibit M of subpart G of part 1940 of this chapter
(i) Assuring that the borrower has not converted loan security. If so, FmHA or its successor agency under Public Law 103-354 and the lender will determine whether the potential recovery will be cost effective. If it is determined that the recovery will be cost effective, the lender must pursue the conversion.
(j) Assuring that the loan and collateral are protected in foreclosure, bankruptcy, receivership, insolvency, condemnation, or other litigation.
(k) Assuring that proceeds from the sale or other disposition of collateral are accounted for and applied in accordance with the lien priorities on which the guarantee is based. Except
(l) Assuring that insurance loss payments, condemnation awards, or similar proceeds are applied to debts in accordance with lien priorities on which the guarantee was based, or to rebuilding or acquiring needed replacement collateral with the written approval of FmHA or its successor agency under Public Law 103-354.
(m) Seeing that all construction is properly planned before any work proceeds; that any required permits, licenses or authorizations are obtained from the appropriate regulatory agencies; that the borrower has obtained contracts through acceptable procurement procedures; that periodic inspections during construction are made; and that FmHA or its successor agency under Public Law 103-354 agrees to the overall development schedule.
The State Director or designee(s) will:
(a) Provide for the framework of the real estate appraisal review and monitoring function and the documentation thereof;
(b) Perform appraisal reviews in accordance with the requirements of Standard 3 of the USPAP and perform at least one appraisal review per fiscal year for either each appraiser, or each lending institution that prepares, or uses, a real estate appraisal for the guaranteed program in a given fiscal year; and
(c) Provide appraisal training and guidance to assist State and field office personnel in making guaranteed approval decisions and serve as a resource to approval and underwriting officials performing administrative appraisal reviews, as needed.
Protective advances are advances made by a lender when the borrower is in liquidation or close to being liquidated to protect or preserve the collateral itself from loss or deterioration. Protective advances include advances made for property taxes, annual assessments, ground rent, hazard or flood insurance premiums affecting the collateral, and other expenses necessary to preserve or protect the security. Attorney fees are not a protective advance.
(a) The Agency's written authorization is required on all protective advances in excess of $3,000 made by a CLP lender. For non-CLP lenders, the amount is $500.
(b) Protective advance requests requiring Agency approval must be accompanied by a repayment plan showing adequate repayment ability for the advance and all other debts. If a feasible repayment plan cannot be developed, a liquidation plan will be submitted with the protective advance request.
(c) The County Supervisor is authorized to approve protective advances up to $10,000 and will consult with the lender on future servicing of the account. The State Director is authorized to approve protective advances in excess of $10,000. Such protective advances must be approved in writing by the County Supervisor or State Director.
(d) Protective advances must constitute a debt of the borrower to the lender and be secured by the security instruments.
(e) It is not intended that protective advances be made in lieu of additional loans.
See paragraph 12 of Form FmHA or its successor agency under Public Law 103-354 449-34, or paragraph 6 of Form
(a)
(1) The lender will file a proof of claim where necessary and all the necessary papers and pleadings concerning the case.
(2) The lender will attend and where necessary participate in meetings of the creditors and all court proceedings.
(3) The lender, whose collateral is subject to being used by the bankruptcy estate, will immediately seek adequate protection of the collateral, including petitioning for a super priority. Adequate protection of the collateral, depending on interpretation, may take several forms. In a bankruptcy, the trustee is authorized to sell, lease or use the collateral if the borrower's business is in operation. The only collateral the trustee cannot utilize is cash collateral unless the secured creditor grants permission or the bankruptcy court authorizes the use of such after giving a proper hearing and notice.
(i) Cash collateral means cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents, such as accounts receivable.
(ii) Concerning machinery, equipment and real estate, adequate protection can be interpreted differently under reorganization. The bankruptcy trustee could dispose of certain collateral and grant to the secured party a replacement lien on some other collateral which may or may not have the same value. For example, the lender may hold a first lien on a good saleable piece of real estate and could find replacement of this particular parcel of property with a second or possibly a third lien on another parcel of land that the lender may find undesirable for adequate protection. There are no guarantees to the lender when the borrower is in reorganization that the collateral will be protected to the lender's satisfaction. The lender should be fully aware of what is taking place with the collateral and resist any adverse changes that may be made in the collateral securing the FmHA or its successor agency under Public Law 103-354 guaranteed loan.
(4) When permitted by the Bankruptcy Code, the lender will request a modification of any plan of reorganization whenever it appears that additional recoveries are likely. In Chapters 11, 12, and 13 bankruptcy cases, the lender will monitor the plans to determine whether the borrower is fulfilling the requirements of the plan and take appropriate action to obtain dismissal of the case if the borrower fails to comply with the requirements of the plan. A dismissal of the plan by the bankruptcy court would restore the original outstanding indebtedness at the time the reorganization plan was approved.
(5) FmHA or its successor agency under Public Law 103-354 will be kept adequately and regularly informed in writing on all aspects of the proceedings.
(b)
(2) Lender expenses, in Chapters 11, 12, or 13 reorganization cases, are not deducted from the proceeds of the collateral because a reorganization is not a liquidation. All expenses incurred by the lender (including attorney's fees), while the borrower is in reorganization, are considered normal expenses of servicing the account, and therefore are the responsibility of the lender and are not deductible from the proceeds of the collateral or covered under the FmHA or its successor agency under Public Law 103-354 guarantee.
(c)
(2) If a trustee is appointed by the bankruptcy court to sell the collateral under a conversion of a reorganization plan to a liquidation plan or Chapter 7, the trustee rather than the lender, in this instance, is responsible for liquidating the collateral. Normally, any expenses incurred by the lender during this period are not considered liquidation expenses and cannot be deducted from collateral proceeds. The lender is not engaged in the actual liquidation but is performing in a manner considered to be normal servicing of the loan under the circumstances.
(3) If the property is abandoned by the trustee and the lender is actually engaged in actual liquidation, reasonable liquidation expenses would be recoverable from liquidation proceeds with prior written concurrence for each expense from FmHA or its successor agency under Public Law 103-354 before the expense is incurred.
(d)
(2)
(ii) Interest loss payments sustained after the reorganization plan is completed will be processed annually when the lender sustains a loss as a result of a permanent interest rate reduction extending beyond the period of the reorganization plan.
(iii) Form FmHA or its successor agency under Public Law 103-354 449-30 will be completed to compensate the lender for the difference in interest rates specified on the Guaranteed Contract and the rate of interest specified by the bankruptcy court.
(3)
(ii) If the loan is paid in full without an additional loss, the Finance Office will close out the estimated loss account at the time notification of payment in full is received.
(4)
(5)
(6)
(7)
A. The lender is responsible for advising FmHA or its successor agency under Public Law 103-354 of the completion of the reorganization plan. The lender is also responsible for advising FmHA or its successor agency under Public Law 103-354 if the borrower does not comply with the plan and servicing action the lender will take to protect the interest of the lender and FmHA or its successor agency under Public Law 103-354. However, the FmHA or its successor agency under Public Law 103-354 servicing office will monitor the lender's files to ensure timely notification of servicing actions.
B. When an estimated loss claim is paid during the operation of the reorganization plan, and the borrower repays the loan in full without an additional loss sustained by the lender, a Final Report of Loss is not necessary. The Finance Office will close out the estimated loss account as a Final Loss at the time notification of payment in full is received.
C. If the bankruptcy court attempts to direct that loss payments will be applied to the account other than the unsecured principal first and then to unsecured accrued interest, the lender is responsible for notifying the FmHA or its successor agency under Public Law 103-354 servicing office immediately. The FmHA or its successor agency under Public Law 103-354 servicing office will then obtain advice from OGC on what actions FmHA or its successor agency under Public Law 103-354 should take.
D. Accrued interest owed to the lender should be supported by documentation as to how the accrued interest amount was calculated by the lender. A copy of the promissory note and ledger should also be attached. As part of the review of the final loss claim, FmHA or its successor agency under Public Law 103-354 should be assured that the lender has not accrued interest on the principal and interest amount of the loan that was paid by the estimated loss payment. The approval official is responsible for verifying the accuracy of the interest calculations on the final report of loss before submission to the Finance Office.
E. Repurchase of Notes—In cases where a default on the guaranteed note does not exist, the State Director may approve the repurchase of the unpaid guaranteed portion of the loan(s) from any holder(s) to reduce interest accrual during a Chapter 7 proceeding, or after a Chapter 11 proceeding becomes a liquidation proceeding. (Refer to § 1980.119 of this subpart).
F. All loss claims must be approved by the State Director. The County Supervisor will accept Form 449-30 from the lender, review the form for accuracy, and forward the form to the State Director for approval. The State Director will submit Form FmHA or its successor agency under Public Law 103-354 449-30 to the Finance Office.
(a) See paragraph I.D.6. of Form FmHA or its successor agency under Public Law 103-354 1980-38.
(b) The lender will prepare current financial information including a cash flow and will schedule a meeting with the County Supervisor and the borrower to discuss possible solutions including Interest Assistance to resolve the borrower's financial problems.
(c) A record of the meeting will be prepared by the lender, which will at least include a list of the individuals who attend, and a summary of the problem and proposed solutions. The original will be retained in the lender's loan file and a copy will be submitted to the County Supervisor and the borrower.
(d) If the lender and the borrower's proposed action is either denied or partially denied, the County Supervisor will notify the lender and the borrower in writing within 10 days of FmHA or its successor agency under Public Law 103-354's decision of all the reasons for the decision and advise them of their opportunity to jointly appeal the decision as set out in subpart B of part 1900 of this chapter.
A. The County Supervisor will review and distribute Form FmHA or its successor agency under Public Law 103-354 1980-44 in accordance with the preparation instructions in the FMI upon receipt of the lender's default notification in accordance with paragraph I.D.5. of Form FmHA or its successor agency under Public Law 103-354 1980-38. The County Supervisor will coordinate and process any request for FmHA or its successor agency under Public Law 103-354 to purchase (as outlined in § 1980.119 of this subpart) when the holder(s) is located in close proximity to the local lender. If any holder is located outside the area, the State Director will designate an employee to handle the repurchase arrangements. If the employee is not the County Supervisor, the County Supervisor will be notified of the transaction.
B. The County Supervisor will verify the amounts due the holder(s), and transmit the holder's demand for payment by memorandum to the State Director. Copies of evidence of the holder's ownership will be included. Any original evidence of ownership will be retained in the County Office. A proposed payment date will be established in order to calculate the interest due the holder(s).
C. In the event of default or servicing problems, the County Supervisor will use Form FmHA or its successor agency under Public Law 103-354 1980-37, “FmHA or its successor agency under Public Law 103-354 purchase of a Guaranteed Loan Portion,” to request a check to pay the guaranteed portion of a loan(s) to the holder(s) when necessary. The Finance Office will forward the check within 10 days after receipt of the request.
D. Any evidence of ownership retained in the County Office will be considered in any future report of loss calculations. A record of any purchase will be maintained in the loan file.
If the lender concludes that liquidation of a guaranteed loan account is necessary due to default or third party actions which the borrower cannot or will not cure or eliminate within a reasonable period of time, a meeting will be arranged by the lender with FmHA or its successor agency under Public Law 103-354. All liquidations must receive prior concurrence by the County Supervisor. The District Director or State Office will be consulted on complex cases for advice. When FmHA or its successor agency under Public Law 103-354 concurs with the lender's conclusion or at any time concludes independently that liquidation is necessary, it will notify the lender and the matter will be handled as follows:
(a) The lender will liquidate the loan unless FmHA or its successor agency under Public Law 103-354, at its option, decides to carry out the liquidation. FmHA or its successor agency under Public Law 103-354 will exercise the option to liquidate only when there is reason to believe the lender's liquidating plan is not likely to provide a reasonably adequate recovery. If FmHA or its successor agency under Public Law 103-354 liquidates, all of the requirements for liquidating an FmHA or its successor agency under Public Law 103-354 insured loan will be followed (see subpart A of part 1955, subpart A of part 1962 and subpart A of part 1965 of this chapter). When FmHA or its successor agency under Public Law 103-354 exercises the option to liquidate, the State Director or designee will be the approval official. When such a decision is made, the approval official will submit Form FmHA or its successor agency under Public Law 103-354 1980-45, “Notice of Liquidation Responsibility,” to the Finance Office.
(b) When the decision to liquidate is made, the lender may proceed to purchase the guaranteed portion of the loan from the holder(s). The holder(s) will be paid according to the provisions in the Loan Note Guarantee or the Assignment Guarantee Agreement.
(c) If the lender does not purchase the guaranteed portion of the loan, FmHA or its successor agency under Public Law 103-354 will be notified immediately in writing. FmHA or its successor agency under Public Law 103-354 will then purchase the guaranteed portion of the loan from the holder(s). If FmHA or its successor agency under Public Law 103-354 holds any of the guaranteed portion, FmHA or its successor agency under Public Law 103-354 will be paid its pro rata share of the proceeds from liquidation of the collateral first.
(d) The liquidation and loss claim will be handled as follows:
(1)
(i) Proof of the lender's ownership of the guaranteed loan promissory note(s), line of credit agreement(s) and related security instruments.
(ii) a list of borrower's assets including real and personal property, fixtures, claims, inventory (including perishables), accounts receivable, personal and corporate guarantees, and other existing and contingent assets, together with notice of which items are serving as collateral for the guaranteed loan.
(iii) A proposed method of maximizing the collection of debts. The lender should also specify how to collect any remaining loan balances of the guaranteed loan(s). After all loan collateral has been liquidated, possibilities for judgements will be determined.
(iv) The lender will obtain an independent appraisal report on all collateral securing the loan which will reflect the current market value and potential liquidation value. The appraisal report is to allow the lender and FmHA or its successor agency under Public Law 103-354 to determine the appropriate liquidation actions. Any independent appraiser's fee will be shared equally by FmHA or its successor agency under Public Law 103-354 and the lender. Both the lender and FmHA or its successor agency under Public Law 103-354 recover this cost from the first collateral sales proceeds received, each taking half of the proceeds until the cost of the appraisal is recovered. The funds that are collected as recovery of an appraisal fee will be forwarded to the Finance Office along with Form FmHA or its successor agency under Public Law 103-354 1980-40, “Reverse of Report of Liquidation Expense.”
(v) An estimate of time necessary to complete the liquidation. When the lender is conducting a liquidation that the lender estimates will take longer than 90 days and owns any of the guaranteed portion of the loan, the lender will request a tentative loss estimate by submitting to FmHA or its successor agency under Public Law 103-354 an estimate of the loss claim that will occur upon liquidation of the loan. The estimated loss claim will be submitted with the liquidation plan.
(vi) In cases where the lender becomes aware that the borrower has converted loan security, FmHA or its successor agency under Public Law 103-354 and the lender will determine whether the potential recovery will be cost effective. The lender must address in the liquidation plan whether the recovery will be pursued.
(2)
(i) The lender will transfer to FmHA or its successor agency under Public Law 103-354 all rights and interests necessary to allow FmHA or its successor agency under Public Law 103-354 to liquidate the loan. In this event, the lender will not be paid for any loss until after the collateral is liquidated and the final loss is determined by FmHA or its successor agency under Public Law 103-354.
(ii) FmHA or its successor agency under Public Law 103-354 attempt to obtain the maximum amount of proceeds from the liquidation.
(iii) FmHA or its successor agency under Public Law 103-354 may choose one or any combination of the usual commercial methods of liquidation.
(3)
(4)
(e) Form FmHA or its successor agency under Public Law 103-354 449-30 will be used to calculate the estimated and final loss. The State Director has approval authority for all loss claims. If approved, the State Director will submit Form FmHA or its successor agency under Public Law 103-354 449-30 to the Finance Office, with copies to the District and County Office. The Finance Office will forward loss payment checks within 10 days of receipt of the request to the County Supervisor for delivery to the lender.
(1)
(2)
(i) After the lender has completed liquidation, FmHA or its successor agency under Public Law 103-354 may audit the account and will determine the actual loss upon receipt of the final accounting and Report of Loss. If FmHA or its successor agency under Public Law 103-354 has any questions regarding the amount set forth in the final Report of Loss, it will investigate the matter. The lender will make its records available to and otherwise assist FmHA or its successor agency under Public Law 103-354 in making the investigation. If FmHA or its successor agency under Public Law 103-354 finds any discrepancies, it will contact the lender and arrange for the necessary corrections to be made as soon as possible. When FmHA or its successor agency under Public Law 103-354 finds the final Report of Loss to be proper in all respects, the loss claim will be tentatively approved in the space provided on the form for that purpose. If a lender's final loss claim is either denied or reduced, the County Supervisor will notify the lender in writing within 10 days of FmHA or its successor agency under Public Law 103-354's decision, of all the reasons for the decision, and advise the lender of its opportunity for an appeal as set out in § 1980.80 of subpart A of this part and subpart B of part 1900 of this chapter.
(ii) In those instances where the lender has made authorized protective advances, it may claim recovery for the guaranteed portion of any loss monies advanced as protective advances, including any accrued interest resulting from the protective advances. Payment will be made by FmHA or its successor agency under Public Law 103-354 when the final Report of Loss is approved.
(iii) Final loss payments will be made within 30 days after review of the accounting of the collateral.
(iv) When the lender has conducted liquidation and after the final Report of Loss has been tentatively approved:
(A) If the loss is greater than the estimated loss, the Agency will pay the additional amount owed to the lender.
(B) If the loss is less than the estimated loss, the lender will reimburse the Agency for the overpayment plus interest at the note rate from the date of overpayment.
(3)
(4)
(5)
(6)
(7)
(8)
(a) The maximum percentage of guarantee is 90 percent, except in the following situations when lenders will be provided a 95 percent guarantee:
(1) When the sole loan purpose of a guaranteed OL or FO loan is to refinance a direct FSA farm credit program loan.
(2) When the purpose of an FO loan guarantee is to participate in the down payment loan program.
(3) When a guaranteed OL is made to a farmer or rancher who is participating in the down payment loan program. The guaranteed OL must be made during the period that a borrower has a direct FO loan outstanding for acquiring a farm or ranch.
(4) When a guaranteed OL or FO loan is requested for multiple purposes and only a portion of the loan is used to refinance a direct FSA farm credit program loan, in which case a weighted percentage of guarantee is provided.
(b) Guarantees issued to CLP lenders are never at a guarantee rate of less than 80 percent.
(a)
(b) The applicant, and anyone who will execute the promissory note, has not caused the Agency a loss by receiving debt forgiveness on all or a portion of any direct or guranteed loan made under the authority of the Consolidated Farm and Rural Development Act (CONACT) by debt write-down, write-off, compromise under the provisions of section 331 of the CONACT, adjustment, reduction, charge-off or discharge in bankruptcy or through any payment of a guaranteed loss claim
(1) An individual must:
(i) Be a citizen of the United States (See § 1980.106(b) of this subpart for the definition of “United States”) or an alien lawfully admitted to the United States for permanent residence under the Immigration and Nationality Act. Aliens must provide INS Forms I-151 or I-551, “Alien Registration Receipt Card.” Indefinite parolees are not eligible. If the authenticity of the information shown on the alien's identification document is questioned, the County Supervisor may request the Immigration and Naturalization Service (INS) to verify the information appearing on the alien's identification card by completing INS Form G-641, “Application for Verification of Information from Immigration and Naturalization Records,” obtainable from the nearest INS district. (See Exhibit B of Subpart A of Part 1944 of this chapter.) Mail the completed form to INS. The payment of a service fee by Agency to INS is waived by inserting in the upper right hand corner of INS Form G-641, the following: “INTERAGENCY LAW ENFORCEMENT REQUEST.”
(ii) Possess the legal capacity to incur the obligations of the loan.
(iii) Have sufficient applicable educational and/or on the job training or farming experience in managing and operating a farm or ranch (within 1 of the last 5 years) which indicates the managerial ability necessary to assure reasonable prospects of success in the proposed plan of operation.
(iv) Have the character (emphasizing credit history, past record of debt repayment and reliability), and industry to carry out the proposed operation. Past record of debt repayment will not be cause for a determination that the applicant is not eligible if an honest attempt has been made to meet the obligation.
(v) Honestly try to carry out the conditions and terms of the loan.
(vi) Be unable to obtain sufficient credit without a guarantee to finance actual needs at reasonable rates and terms, taking into consideration prevailing private and cooperative rates and terms in the community in or near which the applicant resides for loans for similar purposes and periods of time.
(vii) Be an owner-operator or tenant-operator of not larger than a family farm after the loan is closed.
(2) A cooperative, corporation, partnership or joint operation must:
(i) Be unable to obtain sufficient credit without a guarantee to finance actual needs at reasonable rates and terms, taking into account prevailing private and cooperative rates and terms in or near the community for loans for similar purposes and periods of time. This applies to the entity and all of its members, stockholders, partners, or joint operators, as individuals.
(ii) Be controlled by farmers or ranchers engaged primarily and directly in farming or ranching in the United States after the loan is made.
(iii) Consist of members, stockholders, partners or joint operators who are individuals and not a cooperative(s), corporation(s), partnership(s), or joint operation(s).
(iv) If the members, stockholders, partners, or joint operators holding a majority interest are related by marriage or blood:
(A) They must be citizens of the United States (see § 1980.106(b) of this subpart for the definition of “United States”) or an alien lawfully admitted to the United States for permanent residence under the Immigration and Nationality Act. Aliens must provide INS Forms I-151 or I-551, “Alien Registration Receipt Card.” Indefinite parolees are not eligible. If the authenticity of the information shown on the alien's identification document is questioned, the County Supervisor may request INS to verify the information appearing on the alien's identification card by
(B) They must have sufficient educational or on the job training or farming experience in managing and operating a farm or ranch (within 1 of the last 5 years) which indicates the managerial ability necessary to assure reasonable prospects of success in the proposed plan of operation.
(C) They and the entity itself must have the character (emphasizing credit history, past record of debt repayment and reliability), and industry to carry out the proposed operation. Past record of debt repayment will not be cause for a determination that the applicant is not eligible if an honest attempt has been made to meet the obligation.
(D) They and the entity itself will honestly try to carry out the conditions and terms of the loan.
(E) At least one member, stockholder, partner or joint operator must operate the family farm.
(F) The entity must operate the farm and be authorized to own or operate a farm in the State(s) in which the farm is located.
(v) If the members, stockholders, partners or joint operators holding a majority interest are
(A) The requirements of paragraphs (b)(2)(iv) (A) through (D) must be met.
(B) They and the entity itself must operate the family farm.
(C) The entity must operate the farm and be authorized to do so in the State(s) in which the farm is located.
(vi) If each member's, partner's, stockholder's or joint operator's ownership interest does
(3) [Reserved]
(4) The loan applicant must agree to meet the training requirements of § 1980.191 of this subpart unless a waiver is granted as set forth in that section. In the case of a cooperative, corporation, partnership, or joint operation, any individual member, stockholder, partner, or joint operator holding a majority interest in the operation or who is operating the farm must agree to complete the training or qualify for the waiver on behalf of the entity. However, if one entity member is solely responsible for financial or production management, then only that entity member will be required to complete the training in that area for the entity or qualify for a partial waiver. If the financial and production functions of the farming operation are shared, the knowledge and skills of the individual(s) with the responsibility of production and/or financial management of the operation will be considered in the aggregate for granting a waiver or requiring that training be completed. If a waiver is not granted, these individuals will be required to complete the training in accordance with their responsibilities. If the loan applicant has previously been required to obtain training, the loan applicant must be enrolled in and attending, or have satisfactorily completed, the training required. Borrowers applying for restructuring of guaranteed loans will not be required to complete training; however, if training has been required as part of a previous loan making action, the borrower must be enrolled and attending, or have satisfactorily completed, the training required.
(c)
(i) Payment of costs associated with reorganizing a farm or ranch to improve its profitability.
(ii) Purchase of livestock, including poultry, and farm or ranch equipment, including quotas and bases, and cooperative stock for credit, production, processing or marketing purposes.
(iii) Payment of annual farm or ranch operating expenses, examples of which include feed, seed, fertilizer, pesticides, farm or ranch supplies, cash rent, family subsistence, and other farm and ranch needs.
(iv) Payment of costs associated with land and water development for conservation or use purposes.
(v) Refinancing indebtedness incurred for any authorized OL loan purpose, when the lender and loan applicant can demonstrate the need to refinance.
(vi) Payment of loan closing costs.
(vii) Payment of costs associated with complying with Federal or State-approved standards under the Occupational Safety and Health Act of 1970 (29 U.S.C. 655 and 29 U.S.C. 667). This purpose is limited to applicants who demonstrate that compliance with the standards will cause them substantial economic injury.
(viii) Payment of training costs required or recommended by the approval official.
(2)
(i) Payment of annual operating expenses, family subsistence, and purchase of feeder animals.
(ii) Payment of current annual operating debts advanced by other creditors or the lender. Under no circumstances can carry-over operating debts be refinanced.
(d) Loan limitations. (1) No guaranteed OL loan shall be made to any applicant after the 15th year that an applicant, or any individual signing the promissory note, received direct or guaranteed OL loans.
(2) Real estate improvements and repairs can be made only when the loan applicant owns the property, or the loan applicant has a lease that either ensures use of the improvement or repair over its useful life or provides fair compensation for the unused economic life.
(3) The total outstanding direct and guaranteed OL principal balance owed by the loan applicant or owed by anyone who will sign the note/line of credit agreement as a cosigner may not exceed a total of $400,000 at loan closing. The amount of principal outstanding at any time on a guaranteed line of credit also must never exceed the ceiling set out on the Contract of Guarantee.
(4) Loans may not be made for: (i) The purchase of real estate, or (ii) Making principal payments on real estate.
(5) Guaranteed lines of credit
(6) Loans also may not be made for any purpose that will contribute to excessive erosion or highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in exhibit M to subpart G of part 1940 of this chapter. A decision by FmHA or its successor agency under Public Law 103-354 to reject an application for this reason is appealable. However, an appeal questioning either the presence of a wetland, converted wetland, or highly erodible land must be filed directly with the USDA agency making the determination in accordance with its appeal procedures.
(7) Multiple Guarantees. More than one Loan Note Guarantee or Contract of Guarantee may be executed with the same or different lenders to a borrower so long as each loan/line of credit is secured with separate collateral that is clearly identified. This requirement does not preclude cross-collateralization of loans/lines of credit with other guaranteed loans/lines of credit to obtain additional collateral provided that the loans/lines of credit are held by the same lender. Total loans or line of credit ceilings must not exceed $400,000 at any time.
(e)
(2) The lender may charge a rate on both the guaranteed and nonguaranteed loan portion, not to exceed the rate the lender charges its average farm customer. Average farm customers are those conventional borrowers who are required to pledge their crops, livestock and other chattel and real estate security for the loan. This does not include those high risk farmers with limited security and management ability that are generally charged a higher interest rate by conventional agricultural lenders. Also, this does not include those low risk farm customers who obtain financing on a secured or unsecured basis who have as collateral items such as saving accounts, time deposits, certificates of deposit, stocks and bonds, and life insurance which they are able to pledge for the loan. At the request of FmHA or its successor agency under Public Law 103-354 the lender will provide evidence of the rate charged the average farm customers. Such evidence may consist of average yield data, or documented administrative differential rate schedule formulas used by the lender.
(3) Except for Farm Credit System member institutions, if a variable rate is used, it must be tied to a rate specifically agreed to by the lender and borrower. Such agreement on interest rate must be documented in the borrower/lender's loan agreement. The interest rate on loans made by a Farm Credit System member institution will be a fixed or variable rate based on their administrative and borrowing costs. Variable rates may change according to the normal practices of the lender for its average farm customers, but frequency of change must be set forth in the loan/line of credit intstrument.
(4) The lender, borrower and holder (if any) may collectively effect a temporary reduction in the interest rate when processing an Interest Rate Buydown under exhibit E of this subpart. The reduced rate of interest must be a fixed rate for the term of the buydown. The lender is responsible for the legal documentation of interest rate changes by an “allonge” attached to the promissory note(s) or line of credit agreement or other legally effective amendment of the interest rate; however, no new note(s) or line of credit agreement(s) may be issued. If the amendment is attached to a variable rate note or line of credit agreement, the fixed rate of interest charged during the buydown period will be calculated not to exceed the average variable rate charged the lender's average farm customer over the past 90 days.
(5) Interest will be charged only on the actual amount of funds loaned and for the actual time the loan is outstanding. Interest on protective advances made by the lender to protect the security may be charged at the rate specified in the security instruments.
(6) The lender and borrower may collectively effect a temporary reduction in the interest rate when processing an Interest Assistance under exhibit D of this subpart. The lender may charge a fixed or variable interest rate during the term of the Interest Assistance Agreement. The type of rate must be the same as the type of rate in the underlying note or line of credit agreement. If the lender uses a variable rate, the rate may only be changed once each year. During the term of the Interest Assistance Agreement, variable interest rates may not be increased by more than a total of 3 percent above the effective note rate of interest at the time this agreement is entered into. This cap on interest increases will be clearly spelled out in the note/line of credit agreement or in an allonge attached to the note/line of credit agreement or other legally effective amendment of the interest rate; however, no new note or line of credit agreement may be issued. The date of interest rate adjustment shall coincide with the annual payment date on loans/lines of credit with annual payments. On other loans/lines of credit, the annual review dates will be clearly set out in the note/line of credit agreement.
(f)
(2) Except for lines of credit made under the CLP program, all advances on a line of credit must be made within 3 years from the date of the Contract of Guarantee. For lines of credit made under the CLP program, all advances must be made within 5 years from the date of the Contract of Guarantee.
(3) Ordinarily, loan funds used to pay annual operating expenses or bills incurred for such purposes for the crop year being financed will be scheduled for payment when the income from the year's operation is to be received. Under certain circumstances these payments may be scheduled over longer periods. Circumstances which warrant an extended repayment schedule are factors such as establishing a new enterprise, developing a farm, or during recovery from disaster or economic reverses. Crops only are not sufficient security when repayment is scheduled over the longer period.
(4) Advances for purposes other then those for annual operating expenses will be scheduled for payment over the minimum period necessary considering the applicant's ability to pay and the useful life of the security, but not in excess of seven years.
(5) When conditions warrant, installments scheduled in accordance with paragraph (f)(4) of this section may include equal, unequal, or balloon installments. In each case warranting balloon installments there must be adequate collateral for the loan/line of credit at the time the balloon installment becomes due. In no case will annual crops and/or machinery be used as the sole collateral securing a loan with a balloon installment. Circumstances which warrant balloon payments are factors such as establishing a new enterprise, developing a farm, or during recovery from a disaster or economic reverses. The amount ballooned should not exceed that which the borrower could reasonably expect to pay during a maximum additional 15-year period except for NFE loans, which will be a maximum additional 7 years. The applicant must be advised before the loan is closed that the lender will review each case at the end of the initial loan term to determine if such rescheduling is warranted. (See § 1980.124 of this subpart.)
(g)
(h)
(2) When guaranteed OL loans are made to eligible
(i)
(1)
(2)
Real property insurance will not be required when a real estate appraisal report shows that both the present market value of the land (after deducting the value of buildings) and the owner's equity in the land exceed the amount of the debt, including the debts for the loan being made. However, the applicant will be encouraged to carry insurance. If insurance claims for loss or damage to buildings to be replaced or repaired with loan funds are outstanding at the time the guarantee is approved, the applicant will be required to agree in writing that when settlement of these is made, the proceeds will be used to replace or repair buildings, to apply to debts secured by prior liens, or to apply to the guaranteed OL loan/line of credit being made.
(3)
(j)
(2) Applicants receiving loans for nonfarm enterprises will be advised of the possibility of incurring liability and encouraged to obtain public liability and property damage insurance.
(a)
(b)
(1) Section 1980.175(b)(1)(vii) does not apply. Instead an individual must be the owner-operator of not larger than a family farm after the loan is closed.
(2) Section 1980.175(b)(2)(iv)(F) does not apply. Instead a cooperative, corporation, partnership or joint operation must own
(c) Loans are authorized only to:
(1) Acquire or enlarge a farm or ranch. Examples of items that the Agency may authorize the use of FO funds for include, but are not limited to, providing down payments, purchasing easements or the loan applicant's portion of land being subdivided, and participating in special FO loan programs of this subpart. In the case of a contract purchase, purchase contracts
(2) Make capital improvements provided the loan applicant owns the farm, 0r has either a lease to ensure use of the improvement over its useful life or that compensation will be received for any remaining economic life. Examples of items that the Agency may authorize the use of FO funds for include, but are not limited to, the construction, purchase, and improvement of farm dwellings, service buildings and facilities that can be made fixtures to the real estate.
(3) Promote soil and water conservation and protection. Examples include the correction of well-defined, hazardous environmental conditions, and the construction or installation of tiles, terraces and waterways.
(4) Pay closing costs, including but not limited to purchasing stock in a cooperative, and appraisal and survey fees.
(5) Refinancing indebtedness incurred for authorized FO or OL loan purposes, provided the lender and loan applicant demonstrate the need to refinance the debt.
(d)
(1) The total outstanding insured or guaranteed FO, Soil and Water (SW) or Recreation (RL) loan principal balance owed by the applicant or by anyone who will sign the note as a cosigner will exceed the lesser of $300,000 or the market value of the farm or other security.
(2) The noncontiguous character of a farm containing two or more tracts is such that an efficient farming operation and nonfarm enterprise cannot be conducted due to the distance between tracts or due to inadequate rights-of-way or public roads between tracts.
(3) The loan purpose will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in exhibit M to subpart G of part 1940 of this chapter.
A decision by FmHA or its successor agency under Public Law 103-354 to reject an application for this reason is appealable. However, an appeal questioning either the presence of a wetland, converted wetland, or highly erodible land on a particular property must be filed directly with the USDA agency making the determination in accordance with its appeal procedures.
(e)
(1)
(2) Installments on loans may be deferred in accordance with § 1980.124(d) of this subpart.
(3) At the request of FmHA or its successor agency under Public Law 103-354, the lender will provide evidence of the rate charged the average farm customer. Such evidence may consist of average yield data, or documented administrative differential rate schedule formulas used by the lender.
(f)
(2) When obtaining real estate security the following will apply:
(i) A mortgage will be taken on the entire farm owned or to be owned by the applicant, including land in which the applicant owns an undivided interest, except a portion of the farm will be excluded when:
(A) The applicant's title to that part of the farm is defective, and cannot be cleared at a reasonable cost provided:
(
(
(
(
(B) The present lienholder on that part of the farm will not permit a junior lien or State law will not recognize or permit a lien when the security is not included in the appraisal report.
(C) Soundness of the loan will not be affected if there is defective title or part of the farm is not included as security for the loan.
(ii) When the farm alone will not provide enough security, other real estate owned by the applicant may also be taken as security.
(iii) Loans may be secured by a junior lien on real estate provided:
(A) Prior lien instruments do not contain provisions for future advances (except for taxes, insurance, other costs needed to protect the security, or reasonable foreclosure costs), cancellation, summary forfeiture, or other clauses that may jeopardize the Government's or the lender's interest or the applicant's ability to pay the guaranteed FO loan unless any such undesirable provisions are limited, modified, waived or subordinated insofar as the Government and the lender are concerned.
(B) Agreements are obtained from prior lienholders to give notice of foreclosure to the lender whenever State law or other arrangements do not require such a notice.
(iv) Any loan of $10,000 or less may be secured by the best lien obtainable without title clearance or legal services normally required, provided the lender believes from a search of the county records that the applicant can give a mortgage on the farm. This exception to title clearance will not apply when land is to be purchased.
(3) Loans may be secured by chattels subject to the following conditions:
(i) There is not enough real estate security for the loan and the best lien obtainable on the farm has been taken.
(ii) Taking a lien on chattels will not prevent the borrower from obtaining operating credit from other sources or the FmHA or its successor agency under Public Law 103-354.
(iii) Junior liens on chattels may be taken when there is enough equity in the property. However, when practical, a first lien on selected chattel items should be obtained.
(iv) A first lien will be taken on equipment or fixtures bought with loan funds whenever such property cannot be included in the real estate lien and this additional security is needed to secure the loan.
(v) The lender is responsible for obtaining the lien on chattel security and keeping it effective as notice to third parties.
(4) Other items or property may be taken as additional security when needed. These include:
(i) Items such as land, buildings, fixtures, fences, water, water stock and facilities, other improvements, easements, rights-of-way, and other appurtenances that are considered part of the farm and usually pass with the farm in a change of ownership. If any of these do not pass with a change of ownership, the lender will identify such items and include them in an appropriate security instrument or assignment.
(ii) Other property that cannot be converted to cash without jeopardizing the borrower's farm operation such as the cash value of insurance policies, stock, memberships or stock in associations or water stocks. Any such property must have security value and be transferable.
(5) For the State of Hawaii—FO loans on leasehold interests on real property. The term owner-operator as used in this subpart shall include in the State of Hawaii the lessee-operator of real property in any case in which the County Supervisor determines that such real property cannot be acquired in fee simple by the lessee-operator. The leasehold must provide adequate security for the loan. A leasehold is the
(g)
(2) Buildings adequate for the planned operation of the farm, including any nonfarm enterprise, must be available for the applicant's use after the loan is made. The necessary buildings ordinarily will be located on the applicant's farm. Exceptions to this requirement are when:
(i) The applicant already owns an adequate, decent, safe, and sanitary dwelling, suitable for the family's needs, and is located close enough to the farm so the farm may be operated successfully. A real estate lien will be taken on such dwelling.
(ii) The applicant has a long-term lease on acceptable rented buildings that are adjacent to or near the farm, or the applicant occupies suitable buildings which the applicant will eventually inherit or be permitted to purchase from a relative.
(iii) The farm does not have an adequate dwelling and the applicant owns a suitable mobile home which will be used as the applicant's home. A mobile home will not be considered to add value to the farm but FO guaranteed loan funds may be used to finance anchoring the home.
(3) Development needed to make the farm and any nonfarm enterprise ready for a successful operation will be planned during loan processing. The plans should provide for completing the development at the earliest practicable date. The applicant should obtain the recommendations of representatives of the Forest Service, Soil Conservation Service, State Agricultural Extension Service, and State Planning and Development Agency or local planning groups to be included in the development plan and in the operating plan. In planning such development with the applicant, the lender will encourage the applicant to use any cost-sharing assistance that may be available through any sources such as the ASCS programs.
(4) Insurance on buildings and other property, and insurance available in flood and mudslide hazard areas, will be obtained as required by the lender. Applicants receiving loans for nonfarm enterprises will be advised by the lender of the possibility of incurring liability and will be encouraged to obtain public liability and property damage insurance. Chattel security should be insured against losses caused by hazards customarily insured against in the area if the loss of such security would jeopardize the interests of the lender and the Government.
(5) When loan soundness depends on income from other sources in addition to income from owned land, it will be necessary for the lender to determine that:
(i) There is reasonable assurance that any rented land which the applicant depends on will be available; and/or
(ii) Any off-farm employment the applicant depends on is likely to continue.
(6) Nonfarm enterprises will be analyzed by the lender to determine soundness.
(7) Other assets not used directly in the farming operation will be handled as follows:
(i) A guaranteed FO loan may be made when essential real estate is owned, either in whole or as an undivided interest, that will not be part of the farm provided:
(A) The real estate furnishes employment or income which is essential to the applicant's success.
(B) Sale of the property will not eliminate the need for FmHA or its successor agency under Public Law 103-354 guaranteed credit.
(C) Retention of the real estate will not cause the operation to be larger than a family farm.
(ii) An applicant will dispose of nonessential real estate or an undivided interest in real estate no later than loan closing. If this is not feasible, the applicant must agree in writing to dispose of the property as soon after closing as possible. Under no circumstances may the property be held for more than three years after closing.
(iii) The applicant must agree to use the proceeds from the sale of other real estate to:
(A) Pay costs and taxes connected with the sale;
(B) Reduce the FmHA or its successor agency under Public Law 103-354 guaranteed debt or any prior lien;
(C) Make essential capital purchases; or
(D) Pay essential farm and home expenses.
(iv) Real estate or an interest in real estate which is retained after loan closing, but which is not part of the farm will not be included in:
(A) The appraisal report.
(B) The security instrument for the loan.
(C) The total debt against the security.
(8) When life estates are involved, loans may be made:
(i) To both the life estate holder and the remainderman, provided:
(A) Both have a legal right to occupy and operate the farm; and
(B) Both are eligible for the loan; and
(C) Both parties sign the note and mortgage.
(ii) To the remainderman only, provided:
(A) The remainderman has a legal right to occupy and operate the farm; and
(B) The lien instrument is signed by the remainderman, life estate holder, and any other party having any interest in the security.
(iii) To the life estate holder only, provided:
(A) There is no legal restriction placed on a life estate holder who occupies and operates a farm; and
(B) The lien instrument is signed by the life estate holder, remainderman, and any other party having any interest in the security.
(9) A loan will not be approved if a lien junior to the lender's lien securing the guaranteed loan is likely to be taken simultaneously with or immediately subsequent to the loan closing to secure any debt the borrower may have at the time of loan closing or any debt that may be incurred in connection with the guaranteed loan such as for a portion of the purchase price of the farm or money borrowed from others for payments on debts against the farm, unless the total debt against the security would be within its market value.
(10) When guaranteed FO loans are made to eligible
(a)
(b)
(1) An individual must:
(i) Be a citizen of the United States (see § 1980.106(b) of this subpart for the definition of “United States”) or an alien lawfully admitted to the United States for permanent residence under the Immigration and Nationality Act. Aliens must provide INS Forms I-151 or I-551, “Alien Registration Receipt Card.” Indefinite parolees are not eligible. If the authenticity of the information shown on the alien's identification document is questioned, the County Supervisor may request the INS to verify the information appearing on the alien's identification card by completing INS Form G-641, “Application for Verification of Information from Immigration and Naturalization Records,” obtainable from the nearest INS district (see exhibit B of subpart A of part 1944 of this chapter). Mail the completed form to INS. The payment of a service fee by FmHA or its successor agency under Public Law 103-354 to INS is waived by inserting in the upper right hand corner of INS Form G-641, the following: “INTERAGENCY LAW ENFORCEMENT REQUEST.” There is no U.S. citizenship restriction on loans made for waste pollution abatement and control facilities under § 1980.185(c)(2) of this subpart.
(ii) Possess the legal capacity to incur the obligations of the loan.
(iii) Have sufficient applicable educational and/or on the job training or farming experience in managing and operating a farm or ranch (1 year's complete production and marketing cycle within the last 5 years), which indicates the managerial ability necessary to assure reasonable prospects of success in the proposed plan of operation. There is no education or experience restriction on loans made for waste pollution abatement and control facilities under § 1980.185(c)(2) of this subpart.
(iv) Have the character (emphasizing credit history, past record of debt repayment and reliability) and industry to carry out the proposed operation. Past record of debt repayment will not be cause for a determination that the applicant is not eligible if an honest attempt has been made to meet the obligation.
(v) Honestly try to carry out the conditions and terms of the loan.
(vi) Be unable to obtain sufficient credit without a guarantee to finance actual needs at reasonable rates and terms, taking into consideration prevailing private and cooperative rates and terms in the community in or near which the applicant resides for loans
(vii) Be the owner or operator of not larger than a family farm after the loan is made, when loan funds are used for soil and water conservation and protection purposes as defined in paragraphs (c)(1)(i) through (c)(1)(v) of this section. There is no farm size restriction on loans made for waste pollution abatement and control facilities under § 1980.185(c)(2) of this subpart.
(viii) If a tenant, have a satisfactory written lease for a sufficient period of time and under terms that will enable the operator to obtain reasonable returns on the improvements to be made with the guaranteed loan. In addition, the lease or separate agreement should provide for compensating the tenant for any remaining value of the improvements upon termination of the lease.
(2) A cooperative, corporation, partnership or joint operation must:
(i) Along with all of its members, stockholders, partners, or joint operators have the character (emphasizing credit history, past record of debt repayment and reliability) and industry to carry out the proposed operation. Past record of debt repayment will not be cause for a determination that the applicant is not eligible if an honest attempt has been made to meet the obligation.
(ii) Along with all of its members, stockholders, partners, or joint operators, honestly try to carry out the conditions and terms of the loan.
(iii) Consist of members, stockholders, partners or joint operators holding a majority interest who are citizens of the United States (see §1980.106(b) of this subpart for the definition of “United States”), or an alien lawfully admitted to the United States for permanent residence under the Immigration and Nationality Act. Aliens must provide INS Forms I-151 or I-551. Indefinite parolees are not eligible. If the authenticity of the information shown on the alien's identification document is questioned, the County Supervisor may request the INS to verify the information appearing on the alien's identification card by completing INS Form G-641, obtainable from the nearest INS district (see exhibit B of subpart A of part 1944 of this chapter). Mail the completed form to INS. The payment of a service fee by FmHA or its successor agency under Public Law 103-354 to INS is waived by inserting in the upper right hand corner of INS Form G-641, the following: “INTERAGENCY LAW ENFORCEMENT REQUEST.” There is no U.S. citizenship restriction on loans made for waste pollution abatement and control facilities under § 1980.185(c)(2) of this subpart.
(iv) Have sufficient applicable educational and/or on the job training or farming experience in managing and operating a farm or ranch (1 year's complete production and marketing cycle within the last 5 years), which indicates the managerial ability necessary to assure reasonable prospects of success in the proposed plan of operation. There is no education or experience restriction on loans made for waste pollution abatement and control facilities under § 1980.185(c)(2) of this subpart.
(v) Be authorized to own and/or operate a farm in the State(s) in which the farm is located.
(vi) Be unable to obtain sufficient credit without a guarantee, either as an entity or as individual members, stockholders, partners, or joint operators, to finance actual needs at reasonable rates and terms, taking into account prevailing private and cooperative rates and terms in or near the community for loans for similar purposes and periods of time.
(vii) Be controlled by individuals engaged primarily and directly in farming or ranching in the United States after the loan is made.
(viii) Be the owner or operator of not larger than a family farm after the loan is made, when loan funds are used for soil and water conservation and protection purposes as defined in paragraphs (c)(1)(i) through (c)(1)(v) of this section. There is no farm size restriction on loans made for waste pollution abatement and control facilities under § 1980.185(c)(2) of this subpart.
(ix) If a tenant, have a satisfactory written lease for a sufficient period of time and under terms that will enable the applicant to obtain reasonable returns on the improvements made with
(x) Consist of members, stockholders, partners or joint operators who are
(xi) When loan funds will be used for soil and water conservation and protection purposes (paragraphs (c)(1)(i) through (c)(1)(v) of this section), and the members, stockholders, partners, or joint operators holding a majority interest are related by blood or marriage, the requirements of § 1980.175(b)(2) (v) and (vii) of this subpart will apply.
(xii) When loan funds will be used for soil and water conservation and protection purposes, and the members, stockholders, partners, or joint operators holding a majority interest are not related by blood or marriage, the requirements of § 1980.175(b)(2)(vi) of this subpart will apply.
(c)
(1) Pay the costs for construction, materials, supplies, equipment, and services related to soil and water conservation and protection purposes, such as:
(i) Installation of conservation structures, including terraces, sod waterways, permanently vegetated stream borders and filter strips, windbreaks (tree or grass), shelterbelts, and living snow fences.
(ii) Establishment of forest cover for sustained yield timber management, erosion control, or shelterbelt purposes.
(iii) Establishment or improvement of permanent pasture.
(iv) The conversion to and maintenance of sustainable agriculture production systems, as described by Department technical guides and handbooks.
(v) Payment of costs to build conservation structures or establish conservation practices on highly erodible land to comply with a conservation plan in accordance with part 12 of this title (see attachment 1 of exhibit M of subpart G of part 1940 of this chapter available in any FmHA or its successor agency under Public Law 103-354 office).
(vi) Other purposes consistent with plans for soil and water conservation, integrated farm management, water quality protection and enhancement, and wildlife habitat improvement.
(vii) The following items/purposes related to conservation and protection purposes and water quality are authorized:
(A) Sodding, subsoiling, land leveling, liming, and fencing.
(B) Fertilizer and seed used in connection with a solid conservation practice or to establish or improve permanent vegetation.
(C) Gasoline, oil, and equipment rental or hire connected with establishing or completing the development.
(D) Reasonable expenses incidental to obtaining, planning, closing, and making the loan, such as fees for legal, engineering or other technical services, hazard insurance premiums, and loan fees authorized in § 1980.22 of subpart A of this part, which are required to be paid by the borrower and which cannot be paid from other funds. Loan funds may also be used to pay the borrower's share of Social Security taxes for labor hired by the borrower in connection with making any planned improvements.
(E) Purchase or repair of special-purpose equipment such as terracing, land leveling, and ditching equipment, provided:
(
(
(F) Acquire a source of water to be used on land the applicant owns, will acquire, or operates including:
(
(
(
(
(
(G) Purchase land or an interest therein for sites or rights-of-way and easements upon which a water or drainage facility will be located.
(H) Pay that part of the cost of facilities, improvements, and “practices” which will be paid for in connection with participation in programs administered by agencies such as the ASCS or the Soil Conservation Service (SCS) only when such costs cannot be covered by purchase orders or assignments to material suppliers or contractors. If loan funds are advanced and the portion of the payment for which the funds were advanced is likely to exceed $1,000, the applicant will assign the payment to the lender.
(I) Provide water supply facilities for dwellings and farm buildings, including such facilities as wells, pumps, farmstead distribution systems, and home plumbing.
(J) Pay costs of land and water development, use, and conservation essential to the applicant's farm, subject to the following:
(
(
(
(
(
(
(
(
(K) Purchase any stock in a cooperative lending agency that is necessary to obtain the loan.
(2) Pay the costs of meeting Federal, State, or local requirements for agricultural, animal, or poultry waste pollution abatement and control facilities, including construction, modification, or relocation of the farm or farm structures if necessary to comply with such pollution abatement requirements.
(d)
(1) The loan being made exceeds the lesser of the value of the farm or other security for such loan or $50,000.
(2) The total outstanding insured or guaranteed SW, FO or RL loan principal balance owed by the applicant or owed by anyone who will sign the note as a cosigner will exceed the lesser of $300,000 or the market value of the farm or other security.
(3) The noncontiguous character of a farm containing two or more tracts is such that an efficient farming operation and nonfarm enterprise cannot be conducted due to the distance between tracts or due to inadequate rights-of-way or public roads between tracts.
(4) The loan purpose will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in exhibit M to subpart G of part 1940 of this chapter. A decision by FmHA or its successor agency under Public Law 103-354 to reject an application for this reason is appealable. However, an appeal questioning either the presence of a wetland, converted wetland, or highly erodible land on a particular property must be filed directly with the USDA agency making the determination in accordance with its appeal procedures.
(e)
(1) The interest rates requirements are the same as set forth for operating loans in § 1980.175(e) of this subpart.
(2) Installments may be deferred in accordance with § 1980.124(d) of this subpart.
(f)
(2) When obtaining real estate security, the following will apply:
(i) A mortgage will be taken on the entire farm to be improved which is owned by the applicant, including land in which the applicant owns an undivided interest, except a portion of the farm will be excluded when:
(A) The applicant's title to that part of the farm is defective, and cannot be cured at a reasonable cost, provided:
(
(
(
(
(B) The present lienholder on that part of the farm will not permit a junior lien or State law will not recognize or permit a lien provided the part excluded from the security is not included in the appraisal report.
(C) Soundness of the loan will not be affected if there is defective title or part of the farm is not included as security.
(ii) When the farm alone will not provide enough security, other real estate owned by the applicant may also be taken as security.
(iii) Loans may be secured by a junior lien on real estate provided:
(A) Prior lien instruments do not contain provisions for future advances (except for taxes, insurance, other costs needed to protect the security, or reasonable foreclosure costs), cancellation, summary forfeiture, or other clauses that may jeopardize the Government's or the lender's interest or the applicant's ability to pay the guaranteed loan unless any such undesirable provisions are limited, modified, waived or subordinated insofar as the Government and the lender are concerned.
(B) Agreements are obtained from prior lienholders to give notice of foreclosure to the lender whenever State law or other arrangements do not require such a notice.
(iv) Any loan of $10,000 or less may be secured by the best lien obtainable without title clearance or legal services normally required, provided the lender believes from a search of the county records that the applicant can give a mortgage on the farm. This exception to title clearance will not apply when land is to be purchased.
(3) Loans may be secured by chattels subject to the following conditions:
(i) Real estate security is inadequate to secure the loan or is not available at all.
(ii) Taking a lien on chattels will not prevent the borrower from obtaining operating credit from other sources or the FmHA or its successor agency under Public Law 103-354.
(iii) Junior liens on chattels may be taken when there is enough equity in the property. However, when practical, a first lien on selected chattel items should be obtained.
(iv) A first lien will be taken on equipment or fixtures bought with loan funds whenever such property cannot be included in the real estate lien and this additional security is needed to secure the loan.
(v) When a loan is made only for the purchase of shares of water stock, such stock will be pledged or assigned as security for the loan. No other security need be required if the stock represents the right to receive water and is transferable separately from the land, provided:
(A) There is a market for the stock.
(B) The purchase price is no greater than the price at which stock in the water company is normally sold.
(vi) If secured by chattels only, the loan cannot be over $100,000 and must be scheduled for repayment within 20
(vii) The lender is responsible for obtaining the lien on chattel security and keeping it effective as notice to third parties.
(4) Other items or property may be taken as additional security when needed. These include:
(i) Items such as land, buildings, fixtures, fences, water, water stock and facilities, other improvements, easements, rights-of-way, and other appurtenances that are considered part of the farm and usually pass with the farm in a change of ownership. If any of these do not pass with a change of ownership, the lender will properly identify such items and include them in an appropriate security instrument or assignment.
(ii) Other property that cannot be converted to cash without jeopardizing the borrower's farm operation such as the cash value of insurance policies, stock, memberships or stock in associations, or water stocks. Any such property must have security value and be transferable.
(5) A loan may be secured by a mortgage on the leasehold if it has negotiable value and is able to be mortgaged, subject to the following:
(i) The unexpired term of the lease should extend beyond the repayment period of the loan for a period sufficient to ensure that the objectives of the loan will be achieved. It the loan repayment period is equal to or greater than the period covered by the lease, the borrower must provide other security to secure the loan or the lessor must agree in writing to compensate the borrower for any unexhausted value of the improvements when the lease expires or is terminated.
(ii) The lessor must have good and marketable title to the real estate, which may be subject to a prior lien, or the lessor must have signed a contract to purchase the real estate. The contract to sell and the lien instruments must not contain covenants, such as short redemption periods or rights to cancel, which may jeopardize the lender's security. Any provisions which may jeopardize the lender's security must be limited, modified, waived or subordinated in favor of the lender.
(iii) With respect to achieving the purpose of the loan, obtaining adequate security, and being able to service the loan and enforce its rights, the lender, as holder of a mortgage upon a lease or leasehold interest, must be in a position substantially as good as if it held a second mortgage on the real estate. Besides the lessor's consent to the mortgage on the leasehold interest, the lender should consider whether or not:
(A) There is reasonable security of tenure. The borrower's interest should not be subject to summary forfeiture or cancellation.
(B) The right to foreclose the mortgage and sell without restriction would adversely affect the saleability or market value of the security.
(C) The lender has a right to bid at a foreclosure sale or to accept voluntary conveyance in lieu of foreclosure.
(D) The lender has the right, after acquiring the leasehold through foreclosure or voluntary conveyance in lieu of foreclosure, or in event of abandonment by the borrower, to occupy the property or sublet it, and to sell it for cash or credit.
(E) The borrower has the right, in the event of default or inability to continue with the lease and the loan, to transfer the leasehold, subject to the mortgage, to an eligible transferee who will assume the guaranteed SW debt.
(F) Advance notice will be given to the lender of the lessor's intention to cancel, terminate or foreclose upon the lease. Such advance notice should be long enough to permit the lender to ascertain the amount of delinquencies, the total amount of the lessor's and any other prior interest, the market value of the leasehold interest and, if litigation is involved, permit appropriate action by the lender to be taken.
(G) There are express provisions covering the question of the lender's obligation to pay unpaid rental or other charges accrued at the time it acquires possession of the property or title to the leasehold, and those which become due during the lender's occupancy or ownership, pending further servicing or liquidation.
(H) There are any necessary provisions to assure fair compensation to the lessee for any part of the premises taken by condemnation.
(I) Any other provisions are necessary to obtain an interest which can be mortgaged.
(iv) The following language or similar language which is legally adequate will be inserted on the lien instrument:
All Borrower's right, title, and interest in and to the leasehold estate for a term of
Borrower will pay when due all rents and all other charges required by said Lease, will comply with all other requirements of said Lease, and will not surrender or relinquish without the lender's written consent, any of the Borrower's right, title or interest in or to said leasehold estate or under said Lease while this instrument remains in effect.
(g)
(2) Applicants are responsible for obtaining all the technical assistance required in connection with a guaranteed SW loan, such as that needed to plan, construct, or establish the improvement or facility to be financed.
(3) Evidence or documentation of the following should be obtained when loan funds are to be used for irrigation purposes:
(i) The land to be irrigated is suitable for irrigation.
(ii) The applicant has a right to use water for irrigation.
(iii) The water is suitable to use for irrigation and is available in sufficient quantities to irrigate a specified amount of land.
(iv) If irrigation specialists have prepared any feasibility studies, copies of these studies should be submitted to the lender.
(4) Insurance on building and other property, and insurance available in flood and mudslide hazard areas, will be obtained as required by the lender. Chattel security should be insured against losses caused by hazards customarily insured against in the area if the loss of such security would jeopardize the interests of the lender and the Government.
(5) When life estates are involved, loans may be made:
(i) To both the life estate holder and the remainderman, provided:
(A) Both have a legal right to occupy and operate the farm; and
(B) Both are eligible for the loan; and
(C) Both parties sign the note and mortgage.
(ii) To the remainderman only, provided:
(A) The remainderman has a legal right to occupy and operate the farm; and
(B) The lien instrument is signed by the remainderman, life estate holder, and any other party having any interest in the security.
(iii) To the life estate holder only, provided:
(A) There is no legal restriction placed on a life estate holder who occupies and operates a farm; and
(B) The lien instrument is signed by the life estate holder, remainderman, and any other party having any interest in the security.
(6) A loan will not be approved if a lien junior to the lender's lien securing the guaranteed loan is likely to be taken simultaneously with or immediately subsequent to the loan closing to secure any debt the borrower may have at the time of loan closing or any debt that may be incured in connection with the guaranteed loan, unless the total debt against the security would be within its market value.
(7) When guarantees SW loans are made to eligible
(a)
(1)
(i) Methods for initial approval period, subsequent approval period(s) and revocation of CLP status;
(ii) Methods a CLP lender will use to process, service and conclude guaranteed OLs;
(iii) Methods FmHA or its successor agency under Public Law 103-354 will use to consider a CLP lender's request for guarantee and monitor guaranteed OL loan activities.
(2)
(3)
(b)
(1)
(i) Provide evidence of being an “Eligible Lender” as defined in subpart A of this part.
(ii) Provide information to show that loan losses—net of recovery—do not exceed the CLP Loss Rate. The CLP Loss Rate will be periodically established by the Administrator, FmHA or its successor agency under Public Law 103-354, and published in exhibits B to FmHA or its successor agency under Public Law 103-354 Instruction 440.1. This Instruction is available in any FmHA or its successor agency under Public Law 103-354 office. The CLP Loss Rate equals the amount of guaranteed OL, FO, and SW total loss claims paid on loans made in the past 7 years divided by the total loan amount of the OL, FO, and SW loans guaranteed in the past 7 years.
(iii) Have the capacity to process and service FmHA or its successor agency under Public Law 103-354 guaranteed OL loans/lines of credit.
(iv) Designate a person(s) who will process and service FmHA or its successor agency under Public Law 103-354 guaranteed OL loans/lines of credit. The lender must certify that this person(s) has attended FmHA or its successor agency under Public Law 103-354 loan processing and servicing training sessions within the previous 12 months, or that the person(s) will attend such training prior to the lender's submission of the first guarantee request under the CLP program. The lender must also agree to send the designated person(s) to future FmHA or its successor agency under Public Law 103-354 training sessions at least annually.
(v) Agree to use forms acceptable to FmHA or its successor agency under Public Law 103-354 for processing, analyzing, securing and servicing FmHA or its successor agency under Public Law 103-354 guaranteed loans/lines of credit. Copies of financial statements, cash flow plans, budgets, loan agreements, analysis sheets, collateral control sheets, security and other forms to be used must be submitted for FmHA or its successor agency under Public Law 103-354 acceptability with request for CLP status. See § 1980.109 and § 1980.113 of this subpart for required forms.
(vi) Agree to abide by all applicable conditions of Form FmHA or its successor agency under Public Law 103-354 1980-22 for all loan guarantees.
(vii) Have closed a minimum of 10 FmHA or its successor agency under Public Law 103-354 guaranteed loans or lines of credit and closed 5 FmHA or its successor agency under Public Law 103-354 guaranteed loans or lines of credit (not including readvances on lines of credit) within the past 2 years.
(viii) Have an acceptable financial strength rating as reported by a lender rating service selected by the Administrator, FmHA or its successor agency under Public Law 103-354.
(2)
(i) Lender Responsibilities—A lender must submit a written request for renewal of Form FmHA or its successor agency under Public Law 103-354 1980--38. The request must be submitted to FmHA or its successor agency under Public Law 103-354 at least 60 days prior to the expiration of the existing Form FmHA or its successor agency under Public Law 103-354 1980-38. The request must contain at least the following:
(A) A formal request for a new 5-year designation as a CLP Lender.
(B) A brief summary of the lender's CLP lending activity. The summary must include the dollar amount and number of FmHA or its successor agency under Public Law 103-354 guaranteed Farmer Programs loans in the lender's portfolio and the number and dollar amount of all FmHA or its successor agency under Public Law 103-354 guaranteed Farmer Programs loans the lender processed as a CLP lender.
(C) Information to indicate that FmHA or its successor agency under Public Law 103-354 guaranteed Farmer Programs net loan losses (reflecting any future recovery) do not exceed the CLP loss rate.
(D) A current update of the data required in paragraph (b)(1) of this section and any proposed changes in the designated person(s) for processing guaranteed loans, forms used, or operating methods used in FmHA or its successor agency under Public Law 103-354 guaranteed Farmer Programs loan processing and servicing.
(ii) FmHA or its successor agency under Public Law 103-354 Responsibilities:
(A) Upon receipt of a lender's renewal request, the State Director will complete a review of the information submitted by the lender. The State Director will also review the lender's CLP performance and consult with appropriate District and County Office personnel.
(B) FmHA or its successor agency under Public Law 103-354 must notify a lender of any additional information needed to process a CLP renewal request within 14 days of receipt of the request.
(C) The State Director will determine whether the lender continues to meet the CLP criteria set forth in this section, and whether a new Form FmHA or its successor agency under Public Law 103-354 1980-38 can be executed.
(D) The State Director will notify the lender in writing of approval, or conditions the lender must meet for approval, or reasons for denial of the request for renewed CLP status. Lenders will be advised of their appeal or review rights as set out in subpart B of part 1900 of this chapter and in accordance with § 1980.80 of subpart A of this part.
(E) FmHA or its successor agency under Public Law 103-354 must notify the lender of the approval or denial of the renewal request at least 30 days after receiving a completed request for renewal.
(3)
(i) The State Director will designate certified lenders in accordance with the terms and conditions of this section and Form FmHA or its successor agency under Public Law 103-354 1980-38, and is responsible for managing the CLP program within the State and the following:
(A) Establishing an operational file for each CLP lender in the State Office. The file will include Form FmHA or its successor agency under Public Law 103-354 1980-38 and all information related to the lender's CLP activities.
(B) Providing all County Offices named in Part IV of Form FmHA or its successor agency under Public Law 103-354 1980-38 with a copy of the agreement and complete application material approved in connection with CLP status.
(C) Monitoring CLP lenders’ loan making and servicing activities to determine compliance with the CLP agreement and subparts A and B of this part pertaining to guaranteed OL loans/lines of credit. This includes assuring that lender files are reviewed in accordance with this section.
(D) Conducting a review of each CLP lender's performance at least annually.
(E) Assuring that effective training sessions are conducted for CLP lender personnel at least annually.
(F) Taking appropriate action against a lender when justified, including revocation of CLP status for the reasons specified in paragraph (b)(3)(iv) of this section, and initiation of Suspension or Debarment action in accordance with subpart M of part 1940 of this chapter. The lender must be notified, in writing, of any such actions taken.
(ii) The District Director will assist the State Director in monitoring CLP performance, and will monitor County
(iii) The County Office will normally be the primary contact point for CLP activities. The County Supervisor is responsible for:
(A) Establishing an operational file for each CLP lender in the office jurisdiction, which will include a copy of the Form FmHA or its successor agency under Public Law 103-354 1980-38, the forms accepted in conjunction with CLP designation, documentation of the results of reviews of the lender's loans, and any other information relative to the lender's CLP activity in that Country Office.
(B) Processing CLP requests for guarantees.
(C) Reviewing CLP lender loan files in accordance with paragraph (d)(3) of this section, unless the State Director delegates this responsibility to another official.
(D) Advising the State Director of CLP lender performance at least annually, and immediately upon discovery of deficiencies in file reviews.
(iv) The State Director may revoke the lender's CLP status at any time for due cause. Cause for revocation of CLP status is limited to any of the following:
(A) The lender's FmHA or its successor agency under Public Law 103-354 guaranteed farm loan loss rate exceeds the CLP loss rate.
(B) Failure to maintain “required criteria” as approved in the application for CLP status.
(C) Changes in ownership.
(D) Failure to properly process and/or service FmHA or its successor agency under Public Law 103-354 guaranteed Farmer Programs loans.
(E) Violation of the terms of the Form FmHA or its successor agency under Public Law 103-354 1980-38.
(F) Failure to correct cited deficiencies in loan documents within 30 days of notification by FmHA or its successor agency under Public Law 103-354 of the deficiencies.
(G) Knowingly submitting false information to FmHA or its successor agency under Public Law 103-354 when requesting a guarantee, or basing a guarantee request on information known to be false.
(H) Failure to submit status reports (as required by Form FmHA or its successor agency under Public Law 103-354 1980-38 and this section) in a timely manner.
(v) A lender which has lost CLP status may continue to submit loan guarantee requests, but only as a non-CLP lender. When CLP status is revoked, FmHA or its successor agency under Public Law 103-354 will work with the lender, when possible, to help it regain CLP status. When Form FmHA or its successor agency under Public Law 103-354 1980-38 is terminated under paragraph (b)(3)(iv)(G) of this section (knowingly submitting false information), National Office concurrence must be obtained prior to returning the lender to CLP status.
(c)
(i) If the lender concludes that an application will be considered, a written statement of basis for the conclusion will be placed in the applicant's file maintained by the lender addressing each of the loan eligibility requirements in § 1980.175(b) of this subpart.
(ii) The CLP lender will only be required to submit Form FmHA or its successor agency under Public Law 103-354 1980-25 with the applicable attachments and sections completed. The CLP lender is certifying that all information required by § 1980.113 of this subpart is maintained in its loan file.
(iii) CLP lenders will process all guaranteed OL loans/lines of credit as a “complete application” by obtaining and completing all required items described in § 1980.113 of this subpart.
(iv) CLP lenders are responsible for meeting the lender's requirements contained in Exhibit M to subpart G of part 1940 of this chapter.
(v) A guaranteed OL loan/line of credit loan will not be closed by a CLP lender prior to receipt of Form FmHA or its successor agency under Public Law 103-354 1980-15 and the determination that all conditions, including the execution of Form FmHA or its successor agency under Public Law 103-354 1980-22, can be met.
(vi) The CLP lender will be responsible for fully securing the OL loan or line of credit under § 1980.175(g) of this subpart.
(vii) CLP lenders may consult with the FmHA or its successor agency under Public Law 103-354 County Supervisor at any time during the processing and will make all material relating to any guarantee application available to FmHA or its successor agency under Public Law 103-354 for review upon request.
(2)
(3)
(d)
(ii) The FmHA or its successor agency under Public Law 103-354 County Supervisor will complete the environmental review required by subpart G of part 1940 of this chapter and will review each request for a guarantee, and immediately contact the CLP lender within five working days if the information is not clear or is inadequate for County Committee review.
(iii) FmHA or its successor agency under Public Law 103-354 may, on a case by case basis, request additional information from the CLP lender or review the CLP lender's loan file if needed to determine whether the applicant is eligible, the loan/line of credit is for authorized purposes, there is reasonable assurance of repayment ability, and sufficient collateral and equity is available. Requests for additional information shall only be made in situation when, because of the unique characteristic of the loan request, an eligibility or approval decision cannot be made.
(2)
(3)
(i) The most recent loans closed by the lender and not yet reviewed.
(ii) Delinquent loans or loans which the lender or FmHA or its successor agency under Public Law 103-354 has identified as high risk.
(iii) Loans in which the funds were used to refinance the lender's own debt.
(iv) Other loans.
(e)
(f)
(1) All existing ALP agreements will continue to be followed until they expire, are revoked, or are replaced by Form FmHA or its successor agency under Public Law 103-354 1980-38.
(2) All existing loans will continue to be serviced as provided in the Lender's Agreement under which the loan was approved.
(3) ALP lenders will continue to be governed by the servicing and reporting requirements in the existing ALP agreements.
(4) ALP lenders may, at any time, apply for CLP status. If CLP status is approved, the lender's ALP designation will be considered expired for OL loans/lines of credit, and the lender will be so notified in writing by FmHA or its successor agency under Public Law 103-354.
(5) Lenders may apply for both an OL loan/line of credit under the CLP program, and an FO or SW loan under the ALP program using the same application.
(g)
(1) A year end balance sheet for each borrower.
(2) Form FmHA or its successor agency under Public Law 103-354 1980-41 as of March 31 and September 30 each year.
(3) For lines of credit, a certification stating that a projected cash flow has been developed and is feasible, that the borrower is in compliance with the provisions of the line of credit agreement, and the previous year income and expenses have been accounted for.
(a)
(2) The authorities contained in this section require borrowers with Farmer Programs loans from lenders guaranteed by FmHA or its successor agency under Public Law 103-354 to obtain training in production and financial management concepts. Unless waived, this training will be an eligibility requirement for all Farmer Programs direct and guaranteed loans.
(3) The training will be carried out by public and/or private sector providers of farm management and credit counseling services (including, but not limited to, community colleges, the Extension Service, State Departments of Agriculture, farm management firms, lenders, and similar qualified organizations).
(4) State Directors will enter into agreements with one or more qualified providers in each State to conduct the training.
(b)
(2)
(i) The loan applicant has successfully completed an equivalent training program. To meet this requirement, the loan applicant must submit via the lender evidence of completion of a program similar to a course approved under this section. The submission must include a description of the content and subjects covered in the program completed by the applicant or entity members. The submission must also include evidence of completion, such as a grade report, certificate of completion, or written certification by the course instructor. The program must have covered all subject areas in paragraph (d)(3)(iii) of this section, including the appropriate production management courses. If applicable, CLP lenders will certify that loan applicants have completed a program similar to a course approved under this section and will assemble the necessary documentation. However, CLP lenders will not be required to submit the documentation to FmHA or its successor agency under Public Law 103-354 with the request for assistance. The County Committee will review the documentation submitted by the lender for assistance to determine whether the training completed satisfies the training requirements of this section; or
(ii) The loan applicant has demonstrated adequate knowledge and ability in the subject areas covered under this training program by performing the tasks described under paragraph (d)(3)(i) of this section and the guaranteed lender has recommended a waiver. To recommend a waiver, the lender must prepare a brief narrative describing the loan applicant's past production and/or financial management performance specifically related to satisfaction of the course objectives. The County Committee will review the loan narrative and other available information to determine if the loan applicant has demonstrated adequate knowledge and ability in the subject areas covered by the training program.
(3)
(i) Loan applicants receiving a waiver from the training and the lender requesting the guarantee will be notified in the letter of eligibility required under § 1980.115 of this subpart.
(ii) Loan applicants required to complete the training and their lenders will be notified in the letter of eligibility. The requirement will also be specified in Form FmHA or its successor agency under Public Law 103-354 1980-15. The notification will include the name(s) of the approved vendor(s) in the loan applicant's area and the specific production courses required. The notification will also include a description of the scoring system to be used to determine if the loan applicant has successfully met the training requirements. The decision to require training is not appealable. However, the decision is reviewable.
(4)
(5)
(6)
(7)
(8)
(c)
(2) The vendor will provide the lender and FmHA or its successor agency under Public Law 103-354 with periodic progress reports. The frequency of these reports will be determined by the State Director. These reports are not intended to reflect a grade or score, but to indicate whether the borrower is attending sessions and honestly endeavoring to complete the training program. Upon completion of the training, the vendor will provide the lender and FmHA or its successor agency under Public Law 103-354 with an evaluation which shall specifically address the borrower's improvement toward meeting the goals outlined in this section. The instructor will also assign the borrower a recommended score according to the following criteria:
1The borrower attended classroom sessions as agreed, satisfactorily completed all assignments, and demonstrated an understanding of the course material.
2The borrower attended classroom sessions as agreed and attempted to complete all assignments; however, the borrower does not demonstrate an understanding of the course material.
3The borrower did not attend classroom sessions as agreed and/or did not attempt to complete assignments. In general, the borrower did not make a good faith effort to complete the training.
(i) Borrowers receiving a score of 1 will have met the requirements of the agreement. The accounts of these borrowers will be serviced in accordance with existing regulations.
(ii) Borrowers receiving a score of 2 will have met the requirements of the agreement. However, since these borrowers do not adequately understand the course material, the lender and the County Supervisor will develop a plan outlining the additional supervision
(iii) Borrowers receiving a score of 3 will not have met the requirements of the agreement for training. Failure to complete the training as agreed will cause the borrower to be ineligible for future FmHA or its successor agency under Public Law 103-354 benefits including future direct and guaranteed loans, Primary Loan Servicing of direct Farmer Programs loans, Interest Assistance renewals, and restructuring of guaranteed loans.
(d)
(2)
(i) A sample of the course materials and a description of the method(s) of training to be used.
(ii) Specific training objectives for each section of the course. These objectives should relate to the general objectives outlined in paragraph (d)(3)(i) of this section.
(iii) A detailed course agenda specifying the topics to be covered, the time to be devoted to each topic, and the number of sessions to be attended.
(iv) A list of instructors and their qualifications, and the criteria by which additional instructors will be selected.
(v) The proposed locations where the training will take place. The sites should be within a reasonable commuting distance for borrowers to be served by the vendor.
(vi) Cost per participant and/or cost per organization,
(vii) Minimum and/or maximum class size.
(viii) A description of the organization's experience in developing and administering training to farmers.
(ix) A description of the monitoring and/or quality control methods the organization intends to use.
(x) A description of the policy on allowing FmHA or its successor agency under Public Law 103-354 employees to attend the course for monitoring purposes,
(xi) A description of how the needs of borrowers with physical and/or mental handicaps or learning disabilities will be met.
(xii) A plan of how the needs of borrowers for whom English is not their primary language will be met.
(3)
(i)
(A) Describe the specific goals of the business, describe what changes are required to attain the business goals, and outline how these changes will occur using present and projected enterprise budgets.
(B) Maintain and utilize a financial management information system which includes financial and production records, a household budget, a statement of financial condition, and an accrual adjusted income statement. The borrower shall also be able to use this system when making financial and production decisions.
(C) Understand and utilize an income statement. Specifically, the borrower must understand the structure and
(D) Understand and utilize a balance sheet. Specifically, the borrower must understand the major components of a balance sheet and its role in analyzing the business, be familiar with the categories of assets and liabilities and be able to provide examples of entries under each, and be familiar with the cost and market methods of valuing assets and liabilities and the advantages of each method.
(E) Understand and utilize a cash flow budget. Specifically, the applicant must be able to explain and justify estimates for production and expenses, and analyze the cash flow to identify potential problems.
(F) Using production records and other production information, be able to identify problems, evaluate alternatives, and make needed corrections to current production practices to achieve greater efficiency and profitability.
(ii)
(iii)
(A)
(B)
(C)
(D)
(iv)
(4)
(5)
(e)
The reporting requirements contained in this subpart have been approved by the Office of Management and Budget (OMB) and have been assigned OMB control number 0575-0079. Public reporting burden for this collection of information is estimated to vary from 15 minutes to 4 hours per response, with an average of 1.32 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 the Department of Agriculture, Clearance Officer, OIRM, Ag Box 7630, Washington, D.C. 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB
I.
A.
B.
C.
II.
To obtain ALP status, an FCS member institution with an acceptable loan loss percentage need only execute the agreement (Attachment 1 and/or Attachment 2 of this Exhibit) and satisfy the State Director that it is using acceptable forms as provided in paragraph II A (1)(e). Even if an FCS member institution is not identified by FCA as having an acceptable loan loss percentage, that institution may still request the State Director to consider it for ALP status under paragraphs II A (1) and (2). When FCS member institutions reorganize into one association, the reorganized association must be considered for ALP status as an initial applicant with unacceptable loan losses. Except for those FCS member institutions identified by FCA as having an acceptable loan loss percentage, ALP status will expire at the end of any approved 2-year period unless the lender applies for a new agreement which can be approved by the appropriate State Director. The ALP status of
A.
(1)
(a) Provide evidence of being an “Eligible Lender” as defined in Subpart A of this part.
(b) Provide information to show that agricultural loan losses—net of recovery—do not exceed the following:
(i) For FCS member institutions, either 6 percent per year of the institution's total loan portfolio for each of the three previous years or 18 percent of the institution's average loan portfolio computed for the three previous years;
(ii) For all other lenders, either 1
(c) Have the capacity to process and service FmHA or its successor agency under Public Law 103-354 guaranteed FO and SW loans and OL loans/lines of credit.
(d) Designate a person(s) who will process and service FmHA or its successor agency under Public Law 103-354 guaranteed OL loans/lines of credit and SW and FO loans and agree for the person(s) to attend training sessions provided by FmHA or its successor agency under Public Law 103-354.
(e) Agree to use forms acceptable to FmHA or its successor agency under Public Law 103-354 for processing, analyzing, securing and servicing FmHA or its successor agency under Public Law 103-354 guaranteed loans/lines of credit. Copies of financial statements, cash flow plans, budgets, loan agreements, analysis sheets, recordkeeping methods, collateral control sheets, security and other forms to be used must be submitted for FmHA or its successor agency under Public Law 103-354 acceptability with request for ALP status. See § 1980.109 and § 1980.113 of this subpart for required forms.
(f) Agree to abide by all applicable conditions of § 1980.60 of Subpart A of this part for all loan guarantees.
(2)
(a) Have experience and familiarity with FmHA or its successor agency under Public Law 103-354 insured and guaranteed loan programs. State length of time and types of loans/lines of credit.
(b) Establish that at least $2.5 million or 50 percent (whichever is less) of total loan portfolio is in agricultural loans.
(c) Provide a resume of designated person who will process and service guaranteed FmHA or its successor agency under Public Law 103-354 loans/lines of credit. Minimum of 30 college hours in agricultural science, training in Agriculture Economics and/or at least two (2) years experience in making and servicing agricultural type loans for production and for real estate purposes is required. If the designated person also performs appraisal duties a qualification statement will be included.
(d) Provide a copy of its most recent Report of Condition and Income (Call Report) and description of current level of agricultural and other leading activities.
(e) Demonstrate a potential capacity for guaranteed OL loan/line of credit and guaranteed FO and SW loan activity in trade area. Must have ability to process and service at least 10 guaranteed OL loans/lines of credit and/or SW and/or FO loans, subject to availability of funds, per fiscal year (October 1-September 30).
(f) Provide comments on experience or ability to comply with regulatory requirements, e.g., Environmental Assessments, Equal Opportunity, Flood and Mudslide, Clean Air, etc. (See §§1980.40 through 1980.46 of Subpart A of this part.)
(g) Agree to submit requests for guaranteed OL loans/lines of credit and/or SW and/or FO loans to county official(s) in service areas after application is complete to coincide with scheduled meetings of the local FmHA or its successor agency under Public Law 103-354 County Committee.
(h) Provide any other supplemental information the lender desires to submit.
B.
(1) A brief summary of activity as an ALP lender including number and dollar amount of guaranteed OL loan/lines of credit, SW loans, and/or FO loans extant, number and dollar amount processed during tenure as ALP, number and dollar amount now under consideration, potential guaranteed OL, SW, and/or FO lending activity and recap of any loss settlements.
(2) A current update of data required in paragraphs IIA(1) (a) and (b) and IIA(2)(d) of this exhibit and any proposed changes in agricultrual loan officer(s), forms used, or operating methods used in guaranteed OL loan/line of credit, SW loan, and/or FO loan processing and servicing.
(3) Request for a new 2-year period of ALP status.
The State Director will promptly review the request, make any inquiry needed to arrive at a decision; and notify the ALP lender of approved ALP status for two years, or required conditions for approval, or denial with reasons. An ALP lender who has not participated in the guaranteed program during the previous 2 year approved period must submit a request as outlined in paragraph II A of this exhibit.
C.
The State Director will revoke ALP status of any approved lender who fails to maintain “required criteria” as approved in the application for ALP status and may revoke status for failure to meet any “optional criteria” as agreed. Status shall also be revoked if the lender violates the terms of the ALP agreement, or fails to properly service any guaranteed loan or line of credit, or to protect adequately the interests of the lender and the Government. Furthermore, status, at the option of the State Director, may also be revoked if an FCS member institution that previously had acceptable loan losses as specified in the introductory text of paragraph II above is no longer identified by FCA as having acceptable losses.
State Directors will provide all County Office named in paragraph XVIII of the ALP agreement (Attachment 1 and/or Attachment 2 of this exhibit) with a copy of the agreement and complete application material approved in connection with ALP status. State Directors will monitor ALP lenders’ loan making and security servicing activities, with the assistance of the District Director and periodic reports from the County Supervisor, to determine compliance with the ALP Agreement and subparts A and B of this part pertaining to guaranteed OL, SW and FO loans. County Supervisors will use their copy of the ALP Agreement to duplicate and place in the County Office file for each loan guaranteed. In the event the State Director determines an ALP lender is not adequately fulfilling all obligations of the agreement, the lender will be contacted and notified of any discrepancies. A maximum of 30 days will be provided to correct any deficiencies. If corrections are not made within 30 days, the lender's ALP status may be revoked in writing by the State Director. The revocation will be in the form of a letter, sent by certified mail, and state reasons for the action. Any outstanding guaranteed loan(s) or line(s) of credit shall continue to be serviced by a lender whose ALP status has expired or been revoked. The lender cannot submit requests for any new guarantees pursuant to this exhibit, but may submit requests under the regular method outlined in this subpart for consideration.
III.
A.
B.
C.
IV.
A-B [Reserved]
Each approved lender who currently has an Approved Lender Agreement executed prior to January 6, 1988, will be required to execute a new Approved Lender Agreement. If liquidation of the account becomes imminent, the Lender will consider the borrower for Interest Assistance and request a determination of the borrower's eligibility by the Agency. The lender may not initiate foreclosure action on the loan until 60 days after a determination has been made on the borrower's eligibility to participate in the Interest Assistance Program.
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), agrees to enter into Loan Note Guarantees with the Lender as may be issued pursuant to the regulations for operating, soil and water, and/or farm ownership loans and to participate in a percentage of any loss on any such operating, soil and water and/or farm ownership loan not to exceed the amount established in the particular loan note guarantee as the percentage of the amount of the principal and any accrued interest. The terms of any Loan Note Guarantee are controlling. As a condition for obtaining a guarantee of the loan(s), the Lender enters into this Agreement.
I. The maximum loss covered under the Loan Note Guarantee will not exceed the
II.
A. The Lender may retain all of any guaranteed loan. The Lender is not permitted to sell or participate any amount of the guaranteed or unguaranteed portion(s) of loan(s) to the applicant or Borrower or members of their immediate families, their officers, directors, stockholders, other owners, or any parent, subsidiary or affiliate. If the Lender desires to market all or part of the guaranteed portion of loan at or subsequent to loan closing, such loan must not be in default as set forth in the terms of the notes. The Lender may proceed under the following options:
1.
2.
a.
b.
(a) The Borrower agrees and executes the new notes.
(b) The interest rate does not succeed the interest rate in effect when the loan was closed.
(c) The maturity of the loan is not changed.
(d) FmHA or its successor agency under Public Law 103-354 will not bear any expenses that may be incurred in reference to such re-issue of notes.
(e) There is adequate collateral securing the note(s).
(f) No intervening liens have arisen or have been perfected and the secured lien priority remains the same.
(2) FmHA or its successor agency under Public Law 103-354 will issue the appropriate Loan Note Guarantees to be attached to each of the notes then exchanged for the original Loan Note Guarantee which will be cancelled by FmHA or its successor agency under Public Law 103-354.
3.
b. The lender may obtain participation of only the unguaranteed portion of its loan in excess of the 10 percent minimum under its normal operating procedures. Participation means a sale of an interest in the loan in which the Lender retains the note, collateral securing the note, and all responsibility for loan servicing and liquidation. Participation with a lender by any entity does not make that entity a holder or a lender.
B. When a guaranteed portion of a loan is sold by the Lender to a Holder(s), the Holder(s) shall upon the sale succeed to all rights of Lender under the Loan Note Guarantee to the extent of the portion of the loan purchased. Lenders will remain bound to all the obligations under the Loan Note Guarantee, and this agreement, and the FmHA or its successor agency under Public Law 103-354 program regulations found in title 7 CFR, part 1980, subparts A and B, and to future FmHA or its successor agency under Public Law 103-354 program regulations not inconsistent with the express provisions of this Agreement.
III. The Lender agrees loan funds will be used for the purposes authorized in 7 CFR part 1980, subparts A and B as set forth in Form FmHA or its successor agency under Public Law 103-354 449-14, “Conditional Commitment for Guarantee,” for the particular loan.
IV. The Lender certifies that none of its officers or directors, stockholders (except stockholders in a Farm Credit Bank or other Farm Credit System institutions with direct lending authority that have normal
V. The Lender will certify to FmHA or its successor agency under Public Law 103-354, prior to the issuance of a Loan Note Guarantee for each loan, that there has been no adverse change(s) in the Borrower's condition during the period of time from FmHA or its successor agency under Public Law 103-354's issuance of the Conditional Commitment for Guarantee to issuance of the Loan Note Guarantee. The Lender's certification must address all adverse changes and be supported by financial statements of the Borrower and its guarantors not more than 90 days old at the time of certification. As used in this paragraph only, the term “Borrower” includes any parent, affiliate, or subsidiary of the Borrower.
VI. Lender will submit the required guarantee fee with a Guaranteed Loan Closing Report at the time a Loan Note Guarantee is issued.
VII.
B. Disposition of the guaranteed portion of a loan may be made prior to full disbursement, completion of construction and acquisitions only with the prior written approval of FmHA or its successor agency under Public Law 103-354. Subsequent to full disbursement, completion of construction, and acquisition, the guaranteed portion of the loan may be disposed of as provided in this Agreement.
It is the Lender's responsibility to see that all construction is properly planned before any work proceeds; that any required permits, licenses or authorizations are obtained from the appropriate regulatory agencies; that the Borrower has obtained contracts through acceptable procurement procedures; that periodic inspections during construction are made and the FmHA or its successor agency under Public Law 103-354's concurrence on the overall development schedule is obtained.
C. Lender's servicing responsibilities include, but are not limited to: 1. Obtaining compliance with the covenants and provisions in the note, loan agreement, security instruments, and any supplemental agreements and notifying in writing FmHA or its successor agency under Public Law 103-354 and the Borrower on any violations.
2. Receiving all payments on principal and interest on the loan as they fall due and promptly remitting and accounting to any Holder(s) of their pro rata share thereof determined according to their respective interests in the loan, less only Lender's servicing fee. The loan may be reamortized, rescheduled or written down only with agreement of the Lender and Holder(s) of the guaranteed portion of the loan and only with FmHA or its successor agency under Public Law 103-354's written concurrence.
3. Inspecting the collateral as often as necessary to properly service the loan.
4. Assuring that adequate insurance is maintained. This includes hazard insurance obtained and maintained with a loss payable clause in favor of the Lender as the mortgagor or secured party.
5. Assuring that:
a. taxes, assessment or ground rents against or affecting collateral are paid;
b. the loan and collateral are protected in foreclosure, bankruptcy, receivership, insolvency, condemnation, or other litigation;
c. Insurance loss payments, condemnation awards, or similar proceeds are applied on debts in accordance with lien priorities on which the guarantee was based, or to rebuilding or otherwise acquiring needed replacement collateral with the written approval of FmHA or its successor agency under Public Law 103-354;
d. Proceeds from the sale or other disposition of collateral are applied in accordance with the lien priorities on which the guarantee is based, except that proceeds from the disposition of collateral, such as machinery, equipment, furniture or fixtures, may be used to acquire property of similar nature without written concurrence of FmHA or its successor agency under Public Law 103-354;
e. The Borrower complies with all laws and ordinances applicable to the loan, the collateral and/or operation of the farm.
6. Assuring that if personal or corporate guarantees are part of the collateral, financial statements from such loan guarantors will be obtained which are not over 90 days old. In the case of guarantees secured by collateral, assuring the security is properly maintained.
7. Obtaining the lien coverage and lien priorities specified by the Lender and agreed to by FmHA or its successor agency under Public Law 103-354, properly recording or filing lien or notice instruments to obtain or maintain such lien priorities during the existence of the guarantee by FmHA or its successor agency under Public Law 103-354.
8. Assuring that the Borrower obtains marketable title to the collateral.
9. Assuring that the Borrower (as defined in 7 CFR part 1980, subpart B, § 1980.106(b)) is not released from liability for all or any part of the loan, except in accordance with FmHA or its successor agency under Public Law 103-354 regulations.
10. Providing the FmHA or its successor agency under Public Law 103-354 Office with loan status reports annually as of December 31 on Form FmHA or its successor agency under Public Law 103-354 1980-41, “Guaranteed Loan Status Report.”
11. Obtaining financial statements from each chattel loan secured borrower at least annually. Lender is responsible for analyzing the financial statements, taking any servicing actions and providing copies of statements and record of action to the FmHA or its successor agency under Public Law 103-354 office upon request.
12. Monitoring the use of loan funds to assure they will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in 7 CFR part 1980, subpart G, exhibit M.
D. The lender shall participate in any farm credit mediation program of a state in accordance with the rules of that system and 7 CFR part 1980, subpart B, § 1980.126.
VIII.
A. The Lender will notify FmHA or its successor agency under Public Law 103-354 when a Borrower is thirty (30) days past due on a payment or if the Borrower has not met its responsibilities of providing the required financial statements to the Lender or is otherwise in default. The Lender will notify FmHA or its successor agency under Public Law 103-354 of the status of a Borrower's default on Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status.” A meeting will be arranged by the Lender with the Borrower and FmHA or its successor agency under Public Law 103-354 to resolve the problem. Actions taken by the Lender with written concurrence of FmHA or its successor agency under Public Law 103-354 may include but are not limited to the following or any combination of the following:
1. Deferment of principal payments (subject to rights of any Holder(s)).
2. An additional temporary loan by the lender to bring the account current.
3. Reamortization or rescheduling of the payments on the loan (subject to rights of any Holder(s)).
4. Transfer and assumption of the loan.
5. Reorganization.
6. Liquidation.
7. Changes in fixed interest rates with FmHA or its successor agency under Public Law 103-354's, Lender's, and the Holder’(s) written approval; provided, such interest rate is adjusted proportionally between the guaranteed and unguaranteed portion of the loan.
8. Principal and interest writedown in accordance with 7 CFR part 1980, subpart B, § 1980.125.
B. The Lender will negotiate in good faith in an attempt to resolve any problem to permit the Borrower to cure a default, where reasonable. The Lender agrees that if liquidation of the account becomes imminent, the Lender will consider the Borrower for an Interest Rate Buydown under exhibit D of subpart B of 7 CFR, part 1980, and request a determination of the Borrower's eligibility by FmHA or its successor agency under Public Law 103-354. The Lender may not initiate foreclosure action on the loan until 60 days after a determination has been made with respect to the eligibility of the Borrower to participate in the Interest Rate Buydown Program.
C. The Lender has the option to repurchase the unpaid guaranteed portion of the loan from the Holder(s) within 30 days of written demand by the Holder(s) when: (a) the Borrower is in default not less than 60 days in payment of principal or interest due on the loan or (b) the Lender has failed to remit to the Holder(s) its pro rata share of any payment made by the borrower within 30 days of its receipt of the payment. The repurchase by the Lender will be for an amount equal to the unpaid guaranteed portion of the principal and accrued interest less the Lender's servicing fee. The Loan Note Guarantee will not cover the note interest to the Holder on the guaranteed loan(s) accruing after 90 days from the date of the demand letter to the Lender requesting the repurchase. The Lender will accept an assignment without recourse from the Holder(s) upon repurchase. The Lender is encouraged to repurchase the loan to facilitate the accounting for funds, resolve the problem, and to permit the borrower to cure the default, where reasonable. The Lender will notify the Holder(s) and FmHA or its successor agency under Public Law 103-354 of its decision.
D. If Lender does not repurchase as provided by Paragraph C, FmHA or its successor agency under Public Law 103-354 will purchase from Holder(s) the unpaid principal balance of the guaranteed portion together with accrued interest to date of repurchase, within 30 days after written demand to FmHA or its successor agency under Public
The Holder(s) or its duly authorized agent will also include evidence of its right to require payment from FmHA or its successor agency under Public Law 103-354. Such evidence will consist of either the originals of the Loan Note Guarantee and note properly endorsed to FmHA or its successor agency under Public Law 103-354 or the original of the Assignment Guarantee Agreement properly assigned to FmHA or its successor agency under Public Law 103-354 without recourse including all rights, title, and interest in the loan. FmHA or its successor agency under Public Law 103-354 will be subrogated to all rights of Holder(s). The Holder(s) will include in its demand the amount due including unpaid principal, unpaid interest to date of demand and interest subsequently accruing from date of demand to proposed payment date. FmHA or its successor agency under Public Law 103-354 will verify the amount of unpaid principal and interest with the Lender. Unless otherwise agreed to by FmHA or its successor agency under Public Law 103-354, such proposed payment will not ordinarily be later than 30 days from the date of the demand to FmHA or its successor agency under Public Law 103-354.
FmHA or its successor agency under Public Law 103-354 will promptly notify the Lender of the Holder(s)'s demand for payment. The Lender will promptly provide the FmHA or its successor agency under Public Law 103-354 with the information necessary for FmHA or its successor agency under Public Law 103-354's determination of the appropriate amount due the Holder(s). Any discrepancy between the amount claimed by the Holder(s) and the information submitted by the Lender must be resolved before payment will be approved. FmHA or its successor agency under Public Law 103-354 will notify both parties who must resolve the conflict before payment by FmHA or its successor agency under Public Law 103-354 will be approved. Such a conflict will suspend the running of the 30 day payment requirement. Upon receipt of the appropriate information, FmHA or its successor agency under Public Law 103-354 will review the demand and submit it to the State Director for verification. After reviewing the demand, the State Director will transmit the request to the FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of the appropriate check. Upon issuance, the Finance Office will notify the State Director and remit the check(s) to the Holder(s).
E. Lender consents to the purchase by FmHA or its successor agency under Public Law 103-354 and agrees to furnish on request by FmHA or its successor agency under Public Law 103-354 a current statement certified by an appropriate authorized officer of the Lender of the unpaid principal and interest then owed by the Borrower on the loan and the amount due the Holder(s). Lender agrees that any purchase by FmHA or its successor agency under Public Law 103-354 does not change, alter or modify any of the Lender's obligations to FmHA or its successor agency under Public Law 103-354 arising from said loan or guarantee, nor does such purchase waive any of FmHA or its successor agency under Public Law 103-354's rights against Lender, and FmHA or its successor agency under Public Law 103-354 will have the right to set-off against Lender all rights inuring to FmHA or its successor agency under Public Law 103-354 from the Holder against FmHA or its successor agency under Public Law 103-354's obligation to Lender under the Loan Note Guarantee.
F. Servicing fees assessed by the Lender to a Holder are collectible only from payment installments received by the Lender from the Borrower. When FmHA or its successor agency under Public Law 103-354 repurchases from a Holder, FmHA or its successor agency under Public Law 103-354 will pay the Holder only the amounts due the Holder. FmHA or its successor agency under Public Law 103-354 will not reimburse the Lender for servicing fees assessed to a Holder and not collected from payments received from the Borrowers. No service fee shall be charged FmHA or its successor agency under Public Law 103-354 and no such fee is collectible from FmHA or its successor agency under Public Law 103-354.
G. Lender may also repurchase the guaranteed portion of the loan consistent with Paragraph 10 of the Loan Note Guarantee.
IX.
The Lender will liquidate the loan unless FmHA or its successor agency under Public Law 103-354, at its option, decides to carry out liquidation.
When the decision to liquidate is made, the Lender may proceed to purchase from Holder(s) the guaranteed portion of the loan. The
If the Lender does not purchase the guaranteed portion of the loan, FmHA or its successor agency under Public Law 103-354 will be notified immediately in writing. FmHA or its successor agency under Public Law 103-354 will then purchase the guaranteed portion of the loan from the Holder(s). If FmHA or its successor agency under Public Law 103-354 holds any of the guaranteed portion, FmHA or its successor agency under Public Law 103-354 will be paid first its pro rata share of the proceeds from liquidation of the collateral.
A.
1. Such proof as FmHA or its successor agency under Public Law 103-354 requires to establish the Lender's ownership of the guaranteed loan promissory note(s) and related security instruments.
2. Information lists concerning the Borrower's assets including real and personal property, fixtures, claims, contracts, inventory (including perishables), accounts receivable, personal and corporate guarantees, and other existing and contingent assets, advice as to whether or not each item is serving as collateral for the guaranteed loan.
3. A proposed method of making the maximum collection possible on the indebtedness.
4. The Lender will obtain an independent appraisal report on all collateral securing the loan, which will reflect the current market value and potential liquidation value. The appraisal report is for the purpose of permitting the Lender and FmHA or its successor agency under Public Law 103-354 to determine the appropriate liquidation actions. Any independent appraiser's fee will be shared equally by FmHA or its successor agency under Public Law 103-354 and the Lender.
B.
1. The Lender will transfer to FmHA or its successor agency under Public Law 103-354 all rights and interests necessary to allow FmHA or its successor agency under Public Law 103-354 to liquidate the loan. In this event, the Lender will not be paid for any loss until after the collateral is liquidated and the final loss is determined by FmHA or its successor agency under Public Law 103-354.
2. FmHA or its successor agency under Public Law 103-354 will attempt to obtain the maximum amount of proceeds from liquidation.
3. Options available to FmHA or its successor agency under Public Law 103-354 include any one or combination of the usual commercial methods of liquidation.
C.
D.
E.
1. Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note
2. When the Lender is conducting the liquidation and owns any of the guaranteed portion of the loan, and it is anticipated liquidation will take longer than 90 days it will request a tentative loss estimate by submitting to FmHA or its successor agency under Public Law 103-354 an estimate of the loss that will occur in connection with liquidation of the loan. FmHA or its successor agency under Public Law 103-354 will agree to pay an estimated loss on the outstanding principal balance owed on the guaranteed debt (See G. below). The Lender will discontinue interest accrual on the defaulted loan when the estimated loss claim is approved by FmHA or its successor agency under Public Law 103-354. Such estimate will be prepared and submitted by the Lender on Form FmHA or its successor agency under Public Law 103-354 449-30, using the basic formula as provided on the report except that the appraisal value will be used in lieu of the amount received from the sale of collateral.
After the Report of Loss estimate has been approved by FmHA or its successor agency under Public Law 103-354, FmHA or its successor agency under Public Law 103-354 will send the original Report of Loss estimate to the FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of a Treasury check in payment of the estimated amount due the Lender.
After liquidation has been completed, a final loss report will be submitted on Form FmHA or its successor agency under Public Law 103-354 449-30 by the Lender to FmHA or its successor agency under Public Law 103-354.
3. After the Lender has completed liquidation, FmHA or its successor agency under Public Law 103-354 upon receipt of the final accounting and Report of Loss, may audit and will determine the actual loss. If FmHA or its successor agency under Public Law 103-354 has any questions regarding the amounts set forth in the final Report of Loss, it will investigate the matter. The Lender will make its records available to and otherwise assist FmHA or its successor agency under Public Law 103-354 in making the investigation. If FmHA or its successor agency under Public Law 103-354 finds any discrepancies, it will contact the Lender and arrange for the necessary corrections to be made as soon as possible. When FmHA or its successor agency under Public Law 103-354 finds the final Report of Loss to be proper in all respects, it will be tentatively approved in the space provided on the form for that purpose.
4. When the Lender has conducted liquidation and after the final Report of Loss has been tentatively approved:
a. If the loss is greater than the estimated loss payment, FmHA or its successor agency under Public Law 103-354 will send the original of the final Report of Loss to the Finance Office for issuance of a Treasury check in payment of the additional amount owed by FmHA or its successor agency under Public Law 103-354 to the Lender.
b. If the loss is less than the estimated loss, the Lender will reimburse FmHA or its successor agency under Public Law 103-354 for the overpayment plus interest at the note rate from date of overpayment.
5. If FmHA or its successor agency under Public Law 103-354 has conducted liquidation, it will provide an accounting and Report of Loss to the Lender and will pay the Lender in accordance with the Loan Note Guarantee.
6. In those instances where the Lender has made authorized protective advances, it may claim recovery for the guaranteed portion of any loss of monies advanced as protective advances and interest resulting from such protective advances as provided above, and such payment will be made by FmHA or its successor agency under Public Law 103-354 when the final Report of Loss is approved.
F.
G.
H.
I.
J.
X.
XI.
XII.
XIII. Transfer and Assumption Cases. Refer to 7 CFR part 1980, subpart B.
If a loss will occur upon consummation of a complete transfer and assumption for less than the full amount of the debt and the transferor debtor (including personal guarantees) is released from personal liability, the Lender, if it holds the guaranteed portion, may file an estimated Report of Loss on Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to recover its pro rata share of the actual loss at that time. In completing Form FmHA or its successor agency under Public Law 103-354 449-30, the amount of the debt assumed will be entered on line 24 as Net Collateral (Recovery). Approved protective advances and accrued interest thereon made during the arrangement of a transfer and assumption, if not assumed by the Transferee, will be entered on Form FmHA or its successor agency under Public Law 103-354 449-30, lines 13 and 14.
XIV.
A. The Lender is responsible for protecting the guaranteed loan debt and all collateral securing the loan in bankruptcy proceedings. When the loan is involved in a reorganization bankruptcy proceeding under Chapters 11, 12 or 13 of the Bankruptcy Code, payment of loss claims may be made as provided in paragraph XIV. For a Chapter 7 bankruptcy or a liquidation plan in a Chapter 11 bankruptcy, only paragraphs XIV B 3 and B 6 are applicable.
B.
1.
a. If a borrower has filed for protection under a reorganization bankruptcy, the Lender will request a tentative estimated loss payment of accrued interest and principal written off. This request can only be made after the bankruptcy plan is confirmed by the court. Only one estimated loss payment is allowed during the reorganization bankruptcy. All subsequent claims during reorganization will be considered revisions to the initial estimated loss. A revised estimated loss payment may be processed by FmHA or its successor agency under Public Law 103-354 at its option in accordance with any court approved changes in the reorganization plan. At the time the performance under the confirmed reorganization plan has been completed, the Lender is responsible for providing FmHA or its successor agency under Public Law 103-354 with the documentation necessary to review and adjust
b. The Lender will use Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to request an estimated loss payment and to revise estimated loss payments during the course of the reorganization plan. The estimated loss claim as well as any revisions to this claim will be accompanied by applicable legal documentation to support the claim.
c. Upon completion of the reorganization plan, the lender will complete Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status,” and forward this form to the Finance office.
2.
a. Interest loss payments sustained during the period of the reorganization plan will be processed in accordance with paragraph XIV B 1.
b. Interest loss payments sustained after the reorganization plan is completed will be processed annually when the lender sustains a loss as a result of a permanent interest rate reduction which extends beyond the period of the reorganization plan.
c. Form FmHA or its successor agency under Public Law 103-354 449-30 will be completed to compensate the lender for the difference in interest rates specified on the Loan Note Guarantee or Interest Rate Buydown Agreement and the rate of interest specified by the bankruptcy court.
3.
a. Final loss payments will be processed when the loan is liquidated.
b. If the loan is paid in full without an additional loss, the Finance Office will close out the estimated loss account at the time notification of payment in full is received.
4.
5.
6.
XV.
XVI.
XVII.
XVIII.
XIX.
XX. This Agreement is dated
The United States of America, acting through Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354), agrees to enter into Contract of Guarantees with the Lender for Operating loan lines of credit and to participate in a percentage of any loss on any such operating loan line of credit advance(s) not to exceed the amount established in the particular contract of guarantee as to percentage of the amount of the principal and any accrued interest. The terms of any Contract of Guarantee are controlling. As a condition for obtaining a guarantee of the line of credit advance(s) the Lender enters into this agreement.
I. The maximum loss covered under the Contract of Guarantee will not exceed the amount established in the particular line of credit guarantee as to percentage of the principal and accrued interest on any Operating Loan line of credit advances made within the line of credit ceiling and the terms and conditions of the Contract of Guarantee.
II.
A. The Lender may obtain participation in its line of credit under its normal operating procedures. The lender is required to hold in its own portfolio or retain a minimum of 10 percent of the total guaranteed line(s) credit amount. The amount required to be retained must be of the unguaranteed portion of the line of credit and cannot be participated to another Lender. The Lender may obtain participation of only the unguaranteed portion of its line of credit in excess of the 10 percent minimum under its normal operations procedure. Participation means a sale of an interest in the line of credit in which the Lender retains the line of credit agreement (and note, if one exists), collateral securing the line of credit, and all responsibility for servicing and liquidation of the line of credit. Participation with a lender by any entity does not make that entity a lender.
B. The Lender may retain or sell any amount of the unguaranteed portion(s) of the line(s) of credit as provided in this section only through participation. However, the Lender cannot participate any amount of the line(s) of credit to the applicant or borrower or members or their immediate families, their officers, directors, stockholders, other owners, or any parent, subsidiary or affiliate. If the Lender desires to sell all or part of the guaranteed portion of the line(s) of credit through participation at or subsequent to execution of the line of credit agreement(s), such line(s) of credit must not be in default as set forth in the terms of the Line of Credit agreement(s) (and note(s), if any exist). The Lender will retain the responsibility for servicing and liquidation of the line(s) of credit. Participation with a lender by an entity does not make the entity a holder.
III. The Lender agrees funds advanced under the line(s) of credit will be used for the purposes authorized in subpart B of title 7 CFR part 1980 as set forth in Form FmHA or its successor agency under Public Law 103-354 1980-15, “Conditional Commitment for Contract Guarantee (Line of Credit),” for the particular line of credit.
IV. The Lender certifies that none of its officers or directors, stockholders (except stockholders in a Farm Credit Bank or other Farm Credit System institutions with direct lending authority that have normal stockshare requirements for participating)
V. The Lender will certify to FmHA or its successor agency under Public Law 103-354, prior to the issuance of a contract of guarantee for each line of credit agreement, that there has been no adverse change(s) in the Borrower's financial condition, nor any other adverse change in the Borrower's condition during the period of time from FmHA or its successor agency under Public Law 103-354's issuance of the Conditional Commitment for Contract of Guarantee to issuance of the Contract of Guarantee. The Lender's certification must address all adverse changes and be supported by financial statements of the Borrower and its guarantors not more than 90 days old at the time of certification. As used in this paragraph only, the term “Borrower” includes any parent, affiliate, or subsidiary of the Borrower.
VI. The Lender will submit the required guarantee fee with a Guaranteed Loan Closing Report at the time a Contract of Guarantee is issued.
VII.
A. The lender will service the entire line of credit and will remain mortgagee and/or secured party of record. The entire line of credit will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of a line of credit. The unguaranteed portion of a line of credit will not be paid first nor given any preference or priority over the guaranteed portion of the line of credit. The Lender shall perform those services which a reasonable prudent lender would perform in servicing its own portfolio of lines of credit or loans that are not guaranteed.
B. It is the Lender's responsibility to see that all construction is properly planned before any work proceeds; that any required permits, licenses or authorizations are obtained from the appropriate regulatory agencies; that the borrower has obtained contracts through acceptable procurement procedures; that periodic inspections during construction are made and that FmHA or its successor agency under Public Law 103-354's concurrence on the overall development schedule is obtained.
C. Lender's servicing responsibilities include, but are not limited to:
1. Obtaining compliance with the covenants and provisions in the line of credit agreement (and note, if one exists), security instruments, and any supplemental agreements and notifying both FmHA or its successor agency under Public Law 103-354 and the Borrower in writing of any violations.
2. Receiving all payments on principal and interest on the line of credit advances as they fall due. The line of credit may be reamortized, rescheduled, or written down only with FmHA or its successor agency under Public Law 103-354's written concurrence.
3. Inspecting the collateral as often as necessary to properly service the line of credit.
4. Assuring that adequate insurance is maintained. This includes hazard insurance obtained and maintained with a loss payable clause in favor of the Lender as the mortgagee or secured party.
5. Assuring that:
(a) Taxes, assessments or ground rents against or affecting collateral are paid;
(b) The line of credit and collateral are protected in foreclosure, bankruptcy, receivership, insolvency, condemnation, or other litigation;
(c) Insurance loss payments, condemnation awards, or similar proceeds are applied on debts in accordance with lien priorities on which the guarantee was based, or to rebuilding or otherwise acquiring needed replacement collateral with the written approval of FmHA or its successor agency under Public Law 103-354;
(d) Proceeds from the sale or other disposition of collateral are applied in accordance with the lien priorities on which the guarantee is based, except that proceeds from the disposition of collateral, such as machinery, equipment, furniture or fixtures, may be used to acquire property of similar nature which will serve as collateral without written concurrence of FmHA or its successor agency under Public Law 103-354;
(e) The Borrower complies with all laws and ordinances applicable to the line of credit, the collateral and/or operation of the farm.
6. Assuring that if personal or corporate guarantees are part of the collateral, financial statements from such guarantors will be obtained which are not over 90 days old. In the case of guarantees secured by collateral, assuring the security is properly maintained.
7. Obtaining the lien coverage and lien priorities specified by the Lender and agreed to by FmHA or its successor agency under Public Law 103-354, properly recording or filing lien or notice instruments to obtain or maintain such lien priorities during the existence of the guarantee by FmHA or its successor agency under Public Law 103-354.
8. Assuring that the Borrower obtains marketable title to the collateral.
9. Assuring that the Borrower (as defined in 7 CFR part 1980, subpart A, section
10. Providing the FmHA or its successor agency under Public Law 103-354 Finance Office with loan status reports annually as of December 31 on Form FmHA or its successor agency under Public Law 103-354 1980-41, “Guaranteed Loan Status Report.”
11. Obtaining financial statements from each chattel loan secured Borrower at least annually. Lender is responsible for analyzing the financial statements, taking any servicing actions needed, and providing copies of statements and record of actions to the County Supervisor.
12. Monitoring the use of loan funds to assure they will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in 7 CFR part 1940, subpart G, exhibit M.
D. The lender shall participate in any farm credit mediation program of a State in accordance with the rules of that system and 7 CFR part 1980, subpart B, § 1980.126.
VIII.
A. The Lender will notify FmHA or its successor agency under Public Law 103-354 when a Borrower is thirty (30) days past due on a payment and is unlikely to bring its account current within sixty (60) days, or if the Borrower has not met its responsibilities of providing the required financial statements to the Lender or is otherwise in default. The Lender will notify FmHA or its successor agency under Public Law 103-354 of the status of a Borrower's default on Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status.” A meeting will be arranged by the Lender with the Borrower and FmHA or its successor agency under Public Law 103-354 to resolve the problem. Actions taken by the Lender with concurrence of FmHA or its successor agency under Public Law 103-354 may include but are not limited to any curative actions contained in subpart B of part 1980 or liquidation.
B. The Lender will negotiate in good faith in an attempt to resolve any problem and to permit the Borrower to cure a default, where reasonable.
IX.
If the Lender concludes that liquidation of a guaranteed line of credit account is necessary because of one or more defaults or third party actions that the Borrower cannot or will not cure or eliminate within a reasonable period of time, a meeting will be arranged by the Lender with FmHA or its successor agency under Public Law 103-354. When FmHA or its successor agency under Public Law 103-354 concurs with the Lender's conclusion or at any time concludes independently that liquidation is necessary, it will notify the Lender and the matter will be handled as follows:
The Lender will liquidate the line of credit unless FmHA or its successor agency under Public Law 103-354, at its option, decides to carry out liquidation.
A.
1. Such proof as FmHA or its successor agency under Public Law 103-354 requires to establish the Lender's ownership of the guaranteed line of credit agreements and related security instruments.
2. Information lists concerning the Borrower's assets including real and personal property, fixtures, claims, contracts, inventory (including perishables), accounts receivable, personal and corporate guarantees, and other existing and contingent assets, advice as to whether or not each item is serving as collateral for the guaranteed line of credit.
3. A proposed method of making the maximum collection possible on the indebtedness.
4. The Lender will obtain an independent appraisal report on all collateral securing the line of credit which will reflect the current market value and potential liquidation value. The appraisal report is for the purpose of permitting the Lender and FmHA or its successor agency under Public Law 103-354 to determine the appropriate liquidation action. Any independent appraiser's fee will be shared equally by FmHA or its successor agency under Public Law 103-354 and the Lender.
B.
1. The Lender will transfer to FmHA or its successor agency under Public Law 103-354 all its rights and interests necessary to allow FmHA or its successor agency under Public Law 103-354 to liquidate the line of credit. In this event, the Lender will not be paid for any loss until after the collateral is liquidated and the final loss is determined by FmHA or its successor agency under Public Law 103-354.
2. FmHA or its successor agency under Public Law 103-354 will attempt to obtain the maximum amount of proceeds from liquidation.
3. Options available to FmHA or its successor agency under Public Law 103-354 include any one or combination of the usual commercial methods of liquidation.
C.
D.
E.
1. Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” will be used for calculation of all estimated and final loss determinations. Estimated loss payments may be approved by FmHA or its successor agency under Public Law 103-354 after the Lender has submitted a liquidation plan approved by FmHA or its successor agency under Public Law 103-354. Payment will be made in accordance with 7 CFR part 1980, subpart B.
2. When the Lender is conducting the liquidation, and it is anticipated liquidation will take longer than 90 days it will request a tentative loss estimate by submitting to FmHA or its successor agency under Public Law 103-354 an estimate of the loss that will occur in connection with liquidation of the line of credit. FmHA or its successor agency under Public Law 103-354 will agree to pay an estimated loss settlement to the Lender provided the Lender applies such amount due to the outstanding principal balance owed on the guarantee debt (See G. below). The Lender will discontinue interest accrual on the defaulted loan when the estimated loss claim is approved by FmHA or its successor agency under Public Law 103-354. Such estimate will be prepared and submitted by the Lender on Form FmHA or its successor agency under Public Law 103-354 449-30, using the basic formula as provided on the report except that the appraisal value will be used in lieu of the amount received from the sale of collateral.
After the Report of Loss estimate has been approved by FmHA or its successor agency under Public Law 103-354, FmHA or its successor agency under Public Law 103-354 will send the original Report of Loss estimate to FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of a Treasury check in payment of the estimated amount due the Lender.
After liquidation has been completed, a final loss report will be submitted on Form FmHA or its successor agency under Public Law 103-354 449-30 by the Lender to FmHA or its successor agency under Public Law 103-354.
3. After the Lender has completed liquidation, FmHA or its successor agency under Public Law 103-354 upon receipt of the final accounting and report of loss, may audit and will determine the actual loss. If FmHA or its successor agency under Public Law 103-354 has any questions regarding the amounts set forth in the final Report of Loss, it will investigate the matter. The Lender will make its records available to and otherwise assist FmHA or its successor agency under Public Law 103-354 in making the investigation. If FmHA or its successor agency under Public Law 103-354 finds any discrepancies, it will contact the Lender and arrange for the necessary corrections to be made as soon as possible. When FmHA or its successor agency under Public Law 103-354 finds the final Report of Loss to be proper in all respects, it will be tentatively approved in the space provided on the form for that purpose.
4. When the Lender has conducted liquidation and after the final Report of Loss has been tentatively approved:
(a) If the loss is greater than the estimated loss payment, FmHA or its successor agency
(b) If the loss is less than the estimated loss, the Lender will reimburse FmHA or its successor agency under Public Law 103-354 for the overpayment plus interest at the note rate from date of overpayment.
5. If FmHA or its successor agency under Public Law 103-354 has conducted liquidation, it will provide an accounting and Report of Loss to the Lender and will pay the Lender in accordance with the Contract of Guarantee.
6. In those instances where the Lender has made authorized protective advances, it may claim recovery for the guaranteed portion of any loss monies advanced as protective advances and interest resulting from such protective advances as provided above, and such payment will be made by FmHA or its successor agency under Public Law 103-354 when the final Report of Loss is approved.
F.
G.
H.
I.
J.
X.
XI.
XII.
XIII.
XIV.
A. The Lender is responsible for protecting the guaranteed loan debt and all collateral securing the loan in bankruptcy proceedings. When the loan is involved in a reorganization bankruptcy proceeding under Chapters 11, 12 or 13 of the Bankruptcy Code, payment of loss claims may be made as provided in this paragraph XIV. For a Chapter 7 bankruptcy or a liquidation plan in a Chapter 11 bankruptcy, only paragraphs XIV B3 and B6 are applicable.
B.
1.
a. If a borrower has filed for protection under a reorganization bankruptcy, the Lender will request a tentative estimated loss payment of accrued interest and principal written off. This request can only be made after the bankruptcy plan is confirmed by the court. Only one estimated loss payment is allowed during the reorganization bankruptcy. All subsequent claims during reorganization will be considered revisions to the initial estimated loss. A revised estimated loss payment may be processed by FmHA or its successor agency under Public Law 103-354 at its option in accordance with any court approved changes in the reorganization plan. At the time the performance under the confirmed reorganization plan has been completed, the Lender is responsible for providing FmHA or its successor agency under Public Law 103-354 with the documentation necessary to review and adjust the estimated loss claim to (a) reflect the actual principal and interest reduction on any part of the guaranteed debt determined to be unsecured and (b) to reimburse the Lender for any court ordered interest rate reduction during the term of the reorganization plan.
b. The Lender will use Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to request an estimated loss payment and to revise estimated loss payments during the course of the reorganization plan. The estimated loss claim as well as any revisions to this claim will be accompanied by applicable legal documentation to support the claim.
c. Upon completion of the reorganization plan, the lender will complete Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status,” and forward this form to the Finance office.
2.
a. Interest loss payments sustained during the period of the reorganization plan will be processed in accordance with paragraph XIV B 1.
b. Interest loss payments sustained after the reorganization plan is completed will be processed annually when the lender sustains a loss as a result of a permanent interest rate reduction which extends beyond the period of the reorganization plan.
c. Form FmHA or its successor agency under Public Law 103-354 449-30 will be completed to compensate the lender for the difference in interest rates specified on the Contract of Guarantee or Interest Rate Buydown Agreement and the rate of interest specified by the bankruptcy court.
3.
a. Final loss payments will be processed when the loan is liquidated.
b. If the loan is paid in full without an additional loss, the Finance Office will close out the estimated loss account at the time notification of payment in full is received.
4.
5.
6.
XV.
XVI.
XVII.
XVIII.
XIX.
XX. This Agreement is dated
Request for Line of Credit Guarantee under Approved Lender Agreement Applicable to Contract of Guarantee Cases (Attachment 2). Line of Credit Ceiling $
Request is made for issuance of a guarantee(s) in the following case.
Ratio Calculation from Financial Information and Operating Plans:
Briefly list any special conditions and narrate security accounting, reporting limitations and supervision etc., contained in proposed loan/line of credit agreement. See 7 CFR part 1980, subpart B, § 1980.113(d)(7)
The applicant's total farming operation is as follows: (Include total acres owned and/or leased broken down to use and indicate irrigated, double crop, etc., if any. Includes totals of all livestock owned and/or tended and describe operation purchasing, marketing, breeding details. Use attachments if necessary.)
The undersigned certifies that:
1. The information contained in this request is correct and that a complete application containing all required items described in § 1980.113(d) of part 1980, subpart B are on file and may be examined by FmHA or its successor agency under Public Law 103-354 at any time during regular business hours prior to or after FmHA or its successor agency under Public Law 103-354 responds to this request for a loan note guarantee or contract of guarantee.
2. Before a Loan Note Guarantee or Contract of Guarantee is issued by FmHA or its successor agency under Public Law 103-354, the lender will certify to conditions in § 1980.60 of 7 CFR part 1980, Subpart A.
3. The lender will provide a Guarantee Loan Closing Report on Form FmHA or its successor agency under Public Law 103-354 1980-19 and a check for the amount of the guarantee fee at the time the Loan Note Guarantee or Contract of Guarantee is issued.
4. This proposed loan/line of credit is considered sound, will be fully secured and is within the borrower's repayment ability.
5. All applicable requirements have been or will be met.
6. The loan or advance under the line of credit cannot be made without an FmHA or its successor agency under Public Law 103-354 guarantee.
This exhibit contains the policies and procedures pertaining to an Interest Assistance Program for guaranteed Operating (OL) loans and lines of credit described in § 1980.175 of this subpart, guaranteed farm ownership (FO) loans described in § 1980.180 of this subpart and guaranteed soil and water loans described in § 1980.185 of this subpart. Subparts A and B of this part are applicable to this exhibit except as modified by exhibits A and E of this subpart and this exhibit. Authority to enter into the Guaranteed Loan Assistance Agreement is provided for in this exhibit and expires September 30, 1995.
The authorities contained in this exhibit provide lenders with a tool to enable them to provide credit to operations of not larger than family farms who are temporarily unable to project a positive cash flow as defined in paragraph III D of this exhibit without a reduction in the interest rate.
This exhibit also requires a lender who has a guaranteed loan/line of credit which is not already involved in the Interest Assistance Program or the earlier Interest Rate Buydown Program to agree that if liquidation of the account becomes imminent, the lender will consider the borrower for Interest Assistance under this exhibit and request a determination of the borrower's eligibility by the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354). The lender may not initiate
FmHA or its successor agency under Public Law 103-354 will enter into an agreement with lenders who participate in this program. The lender will reduce the interest rate paid by the borrower on a loan/line of credit. FmHA or its successor agency under Public Law 103-354 will make annual interest assistance payments to the lender equal to the amount of interest reduction on the loan. Agreements made with a lender under this exhibit will in no case provide for payments that exceed the Maximum Rate of Interest Assistance Available (MRIAA) at the time of approval. The MRIAA is defined in this exhibit and will be published periodically in FmHA or its successor agency under Public Law 103-354 Instruction 440.1, which is available in any FmHA or its successor agency under Public Law 103-354 office.
A.
1. For fully advanced loans with annual payments use the principal balance of loan at the beginning of the plan/review period.
2. For lines of credit and other loans that will not be fully advanced on the effective date of the annual Interest Assistance claims period or loans where payments are scheduled to be made on other than an annual basis, the average balance will be computed from the proposed debt repayment schedule or monthly cash flow budget. The ending principal balance on the loan/line of credit for each month of the plan will be totaled and divided by twelve.
B.
C.
D.
1. Add projected net farm operating income, projected annual nonfarm income, projected capital depreciation/amortization expenses, scheduled annual interest on term debt, and scheduled annual interest on capital leases.
a. Net farm operating income is the gross income generated by a farming operation annually, minus all yearly operating expenses (including withdrawals from entities for living expenses), operating loan interest, interest on term debt and capital lease payments, and depreciation/amortization expenses. Exclude Income and Social Security Taxes, Carryover Debt and Delinquent Interest.
b. Depreciation/amortization expenses are an annual allocation of the cost or other basic value of tangible capital assets, less salvage value, over the estimated life of the unit (which may be a group of assets), in a systematic and rational manner.
c. Capital leases are agreements under which the lessee effectively acquires ownership of the asset being leased. A lease is a capital lease if it meets any one of the following criteria:
(
(
(
(
2. Subtract from this sum projected annual Income and Social Security tax payments, including any delinquent taxes, and family living expenses. The difference is the Balance Available for Term Debt Repayment.
a. Family living expenses are any withdrawals from income to provide for needs of family members.
b. Family members are considered to be the immediate members of the family residing in the same household with the individual borrower, or, in the case of a cooperative, corporation, partnership, or joint operation, with the operator(s).
3. Divide the Balance Available for Term Debt Repayment by the sum of the annual scheduled principal and interest payments on term debt, plus the annual scheduled principal and interest payments on capital leases, excluding delinquent installments. The quotient is the Term Debt and Capital Lease Coverage Ratio.
4. Add the Balance Available for Term Debt Repayment to any cash carryover from the preceding year.
5. Subtract from this sum the amount of the Total Annual Scheduled Term Debt and Capital Lease Payments, and any debt carried over from the previous year. The difference is the Capital Replacement and Term Debt Repayment Margin, which must be equal to or greater than any planned capital asset purchases not financed.
6. Example:
E.
F.
The typical term of scheduled loan/line of credit repayment will not be reduced solely for the purpose of maximizing eligibility for Interest Assistance.
A. To be eligible for Interest Assistance, a loan/line of credit must be scheduled over the maximum terms typically used by lenders for similar type loans. At a minimum, loans will be scheduled for repayment over the terms listed below or the life of the security, whichever is less, as explained below:
1. FO loans and SW loans secured by real estate—20 years from the effective date of the proposed Interest Assistance Agreement (except that for existing guaranteed loans the term will not exceed 40 years from the date of the original note covered by the guarantee).
2. OL loans/lines of credit for the purpose of providing annual operating and living expenses will be scheduled for repayment when the income is scheduled to be received from the sale of the crops, livestock, and livestock products which will serve as security for the loan. In no case will the repayment term exceed 7 years.
3. OL loans for purposes other than annual operating and living expenses (i.e., equipment, livestock, refinancing of existing chattel or carryover debt, real estate development) and SW loans secured by chattel property—7 years from the effective date of the proposed Interest Assistance Agreement.
B. The lender must document that a positive cash flow projection is not possible without reducing the interest rate on the borrower's loan(s)/line(s) of credit. The documentation must show that a positive cash flow projection is not possible with the debt restructured over the term of repayment cited above.
C. The lender must determine whether the borrower owns any significant assets which do not contribute directly to essential family living or farm operating expense. The lender must determine the market value of these assets. The lender will then prepare a new cash flow budget based on the assumption that value of these assets will be used for debt reduction. If a positive cash flow can then be achieved, the borrower is not eligible for Interest Assistance. All Interest Assistance calculations will be made based on the cash flow budget which assumes that the assets will be sold.
D. In order for a borrower's loan to be eligible for Interest Assistance, a realistic plan of operation must show that a positive cash flow as defined in paragraph III D of this exhibit can be expected during the initial 24-month Interest Assistance period. For those loans with terms less than 24 months, the operation must show a positive cash flow for the term of the loan/line of credit.
E. If significant changes in the borrower's cash flow budget are anticipated after the initial 24 months with either expenses, income or debt repayment, then a typical plan(s) must show that the loan is expected to have a positive cash flow during all years of the loan/line of credit.
F. If a positive cash flow cannot be achieved, the lender may ask other creditors to voluntarily adjust their debts as outlined in subpart A of part 1903 of this chapter. If other creditors adjust their debts and a positive cash flow can be achieved with Interest Assistance, then Interest Assistance may be approved.
G. If a positive cash flow cannot be achieved, even with other creditors voluntarily adjusting their debts and with the Interest Assistance, the Interest Assistance request will not be approved.
H. The term of the Interest Assistance Agreement entered into under this exhibit shall not exceed the outstanding term of the loan/line of credit, as limited in paragraph IV A of this exhibit or 10 years, whichever is less.
I. The lender may charge a fixed or variable interest rate during the term of the Interest Assistance Agreement. The type of rate must be the same as the type of rate in the underlying note or line of credit agreement. The interest rate that the lender will charge will be clearly indicated in the Request for Interest Assistance. If a variable rate will be charged, the base rate, basis points and adjustment interval not only will be clearly set forth in the Request for Interest Assistance but also will comply with § 1980.175(e) of this subpart. If the lender uses a variable rate, the rate may be changed only once each year. During the term of the Interest Assistance Agreement, variable interest rates may not be increased by more than a total of 3 percent above the effective note rate of interest at the time this agreement is entered into. This cap on interest increases will be clearly spelled out in the note/line of credit agreement or in an allonge attached to the note/line of credit
J. If the loan applicant has previously been required to obtain training in accordance with § 1980.191 of this subpart, the loan applicant must be enrolled in and attending, or have satisfactorily completed, the training required.
A. Applications for guaranteed loans(s)/line(s) of credit shall be processed in accordance with § 1980.113 of this subpart and with this section.
B. To apply for Interest Assistance in conjunction with a request for guarantee, the lender will complete Form FmHA or its successor agency under Public Law 103-354 1980-25, “Farmer Programs Application.” Additionally, such application must include a copy of Attachment 2 to this exhibit completed by the lender. A proposed debt repayment schedule which shows principal and interest payments for the proposed loan, in each year of the loan, will also be submitted with the application.
C. To request Interest Assistance on an existing guaranteed loan, the lender shall submit to FmHA or its successor agency under Public Law 103-354 the following:
1. Form FmHA or its successor agency under Public Law 103-354 1980-25.
2. Attachment 2 to this exhibit.
3. Proposed debt repayment schedule which shows scheduled principal and interest payments for the subject loan, in each of the remaining years of the loan.
4. Cash flow budgets, pro forma income and expense statements, and supporting justification to document that the request meets the requirements outlined in paragraph IV of this exhibit.
5. Verification of non-farm income. The lender may use Form FmHA or its successor agency under Public Law 103-354 1910-5, “Request for Verification of Employment,” or other similar documentation.
6. Verification of all debts of $1,000 or more. The lender may use Form FmHA or its successor agency under Public Law 103-354 440-32, “Request for State of Debts and Collateral,” or any other documentation.
7. Documentation of the borrower's and lender's compliance with the requirements of exhibit M to subpart G of part 1940 of this chapter, if the affected loan/line of credit is not already subjected to this provision.
D. Requests for Interest Assistance on Contracts of Guarantee (Lines of Credit) or Loan Note Guarantees for annual operating purposes must be accompanied by a projected monthly cash flow budget.
Applications will be evaluated in accordance with § 1980.114 of this subpart. Additionally, the authorized approval official will determine whether or not all applicable provisions of this exhibit have been met. The approval official will check that:
A. Each item input on Attachment 2 is realistic for the area and type of operation and consistent with information provided in the request for guarantee and supporting documentation.
B. All mathematical computations are accurate.
C. The “Needs Test” was properly applied.
D. The loan/line of credit and applicant/borrower are eligible to receive interest assistance.
E. Nonessential assets were identified and that the computations were based on the assumption that these assets will be sold and the proceeds utilized to reduce debt.
Using Attachment 2 of this exhibit (including any necessary corrections), the approval official will determine the level of subsidy to be approved.
If applicant is found ineligible for the loan guarantee or the guarantee cannot be approved for other reasons, the approval official will notify the lender and applicant in accordance with § 1980.114 or § 1980.115 of this subpart, respectively.
If the request for guarantee can be approved or has previously been approved and the request for interest assistance is denied or approved at a level less than that requested, the lender will be notified in accordance with paragraph XII of this exhibit.
If the approval official determines that Interest Assistance can be approved in accordance with paragraph IV of this exhibit, the approval official will:
A. Prepare Form FmHA or its successor agency under Public Law 103-354 1940-3, “Request for Obligation of Funds—Guaranteed Loans.” This form will be used to obligate interest assistance and loan funds for new loans and Interest Assistance funds only for those existing loans which are presently guaranteed without Interest Assistance.
B. Execute Form FmHA or its successor agency under Public Law 103-354 1940-3 and distribute copies in accordance with the Forms Manual Insert (FMI).
C. Verify that the obligation of funds has been completed on Automated Discrepancy
D. For requests which include requesting funds in order to issue a guarantee on the loan/line of credit, prepare Form FmHA or its successor agency under Public Law 103-354 1980-15, “Conditional Commitment (Farmer Programs).” In no case will Form FmHA or its successor agency under Public Law 103-354 1980-15 be executed prior to verification of the obligation of both loan/line of credit and Interest Assistance funds.
E. The approval official will complete the following statement and insert it on the conditional commitment:
F. For requests for Interest Assistance on existing guaranteed loans, the approval official will notify the lender, in writing, that the request has been approved. The letter will include the statement in paragraph VIII E of this exhibit and any special conditions.
A. The lender will prepare, and deliver to FmHA or its successor agency under Public Law 103-354, a Form FmHA or its successor agency under Public Law 103-354 1980-19, “Guaranteed Loan Closing Report,” for each initial and existing guaranteed loan/line of credit which has been granted Interest Assistance under this exhibit.
B. The guarantee will be closed in accordance with § 1980.61 of subpart A of this part and § 1980.118 of this subpart.
1. If FmHA or its successor agency under Public Law 103-354 finds that all requirements have been met, the lender and FmHA or its successor agency under Public Law 103-354 will execute Form FmHA or its successor agency under Public Law 103-354 1980-64, “Interest Assistance Agreement.” The borrower will acknowledge the agreement with its signature.
2. An original Form FmHA or its successor agency under Public Law 103-354 1980-64 will be prepared for each note or line of credit agreement executed. All originals of Form FmHA or its successor agency under Public Law 103-354 1980-64 will be provided to the lender and attached to the note(s) with the original Loan Note Guarantee or Contract of Guarantee.
The Interest Assistance claim will be prepared by the lender using Form FmHA or its successor agency under Public Law 103-354 1980-24, “Request for Interest Assistance/Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender.”
A. The first claim will be submitted to FmHA or its successor agency under Public Law 103-354 within 60 days after date of the initial annual payment/review date which is stated on this agreement. The claim will cover the entire period between the effective date of the agreement and the annual review/payment date.
B. Subsequent claims will cover the period between annual payment/review dates and will be prepared by the lender and submitted within 60 days following the annual payment review date.
C. Upon full payment of the note or line of credit, the lender will immediately prepare Form FmHA or its successor agency under Public Law 103-354 1980-24 and submit it to the FmHA or its successor agency under Public Law 103-354 servicing office.
D. Interest Assistance payments shall cease upon the assumption/transfer of the loan if the transferee was not liable for the debt on the effective date of the Interest Assistance Agreement. The lender shall complete Form FmHA or its successor agency under Public Law 103-354 1980-24 to request payment through the date of the transfer or assumption.
E. All claims for Interest Assistance other than final claims must be accompanied by an analysis of the applicant's continued need for assistance, during the period following the one for which the claim is made, as outlined in paragraph XI of this exhibit.
F. All claims will be submitted to the FmHA or its successor agency under Public Law 103-354 servicing office with documentation to support the assistance claim. The documentation will include:
1. A detailed statement of activity including all disbursements and payments applied to the loan/line of credit account.
2. Detailed calculations of interest charged, actual daily principal balances during the claim period and average principal balance for the claim period.
G. The authorized FmHA or its successor agency under Public Law 103-354 loan servicing official will review the information on Form FmHA or its successor agency under Public Law 103-354 1980-24 and the supporting documentation. If the request is correct, the loan servicing official will approve and process the request. If the information on Form FmHA or its successor agency under Public Law 103-354 1980-24 and the supporting documentation is not complete and/or correct, the loan servicing official will notify the lender in writing of the actions needed to correct the request. The notification letter will be in accordance with paragraph XII of this exhibit.
H. If the lender of the loan/line of credit is changed through a substitution of lender, a claim for the first lender's Interest Assistance, through the effective date of the substitution, will be submitted by the first lender and processed at the time the substitution takes place.
I. Interest Assistance claims shall be submitted concurrently with the submission of final loss claims and any estimated loss claims which cause interest to cease to accrue.
A. For all Interest Assistance Agreements that exceed one year, the lender will perform an annual analysis of the applicant's farming operation and need for continued Interest Assistance. This analysis will include the following:
1. A summary of the operation's actual financial performance in the previous year, including a detailed income and expense statement.
2. A narrative description of the causes of any major differences between the previous year's cash flow budget and actual performance.
3. A current balance sheet.
4. A copy of attachment 2 to this exhibit which has been completed based on the planned year's cash flow budget.
5. A cash flow budget for the year being planned. A monthly cash flow budget is required for all lines of credit and operating loans made for annual operating purposes. All other loans may include either annual or monthly cash flow budget.
The documentation listed above will be provided to FmHA or its successor agency under Public Law 103-354 concurrently with the lender's submission of Form FmHA or its successor agency under Public Law 103-354 1980-24. Parts I and II of Form FmHA or its successor agency under Public Law 103-354 1980-24 must be completed by the lender. This information will be provided to FmHA or its successor agency under Public Law 103-354 within 60 days after the annual payment/review date specified on the Interest Assistance Agreement.
B. The request for continuation/adjustment of Interest Assistance will be checked and evaluated by the authorized FmHA or its successor agency under Public Law 103-354 approval official in accordance with paragraph VI of this exhibit.
1. If the approval official's evaluation substantiates the requested level of Interest Assistance and it is equal to or less than the MRIAA stated on the Interest Assistance Agreement, the approval official will approve the request.
2. If the evaluation indicates that the borrower needs a higher level of Interest Assistance than the MRIAA provided for in the original Interest Assistance Agreement, and the current MRIAA is less than or equal to the MRIAA provided for in the original Interest Assistance Agreement, then the FmHA or its successor agency under Public Law 103-354 approval official will deny the continuation of Interest Assistance. Interest Assistance will be reduced to zero during that annual review period. The lender will be notified in accordance with paragraph XII of this exhibit.
3. If the evaluation indicates that the borrower needs a higher level of Interest Assistance than the MRIAA provided for in the original Interest Assistance Agreement, and the current MRIAA is higher than the MRIAA provided for in the original Interest Assistance Agreement, and the need does not exceed the current MRIAA, the FmHA or its successor agency under Public Law 103-354 approval official shall request additional subsidy funds using Form FmHA or its successor agency under Public Law 103-354 1940-3.
a. If funds are available, the approval official will approve Interest Assistance at the level requested for the planned year only. For subsequent years the higher level of Interest Assistance will be subject to the availability of funds and the borrower's continued need.
b. If additional funds are not available, the request for Interest Assistance will be denied and the rate of Interest Assistance will be reduced to zero for that period. The lender will be notified in accordance with paragraph XII of this exhibit.
4. If the amount of Interest Assistance approved is less than that requested, the lender will be notified in accordance with paragraph XII of this exhibit.
5. The approval official will complete the appropriate portion of FmHA or its successor agency under Public Law 103-354 Form 1980-24 to reflect the amount of Interest Assistance which has been approved for the year. This should be completed even if this year's
The lender will be notified in writing of all FmHA or its successor agency under Public Law 103-354 decisions in which request for Interest Assistance, a request for continuation/adjustment of Interest Assistance or a lender's claim for Interest Assistance are denied or approved a level less than requested.
The notification letter will provide specific reasons for the decision and appeals will be handled in accordance with § 1980.80 of this subpart. In addition, if the reason for the reduction/denial is that the rate of Interest Assistance requested exceeds the maximum amount allowed under this exhibit, then exhibit C of subpart B of part 1900 of this chapter will be sent to the lender.
A. Loans/lines of credit covered by Interest Assistance Agreements cannot be consolidated.
B. Transfers will be processed in accordance with § 1980.123 of this subpart. The loan/line of credit will be transferred with the Interest Assistance Agreement only in cases where the transferee was liable for the debt at the time the Interest Assistance was granted. UNDER NO OTHER CIRCUMSTANCES WILL THE INTEREST ASSISTANCE BE TRANSFERRED. If Interest Assistance is necessary for the transferee to achieve a positive cash flow, the lender may request a new Interest Assistance Agreement which may be approved if Interest Assistance funds are available and the applicant is eligible. The request for the obligation of these funds will be processed using Form FmHA or its successor agency under Public Law 103-354 1940-3. If Interest Assistance is necessary for a positive cash flow and funds are not available, the request for assumption of the FmHA or its successor agency under Public Law 103-354 guaranteed debt will be denied.
C. When consideration is given to using a debt writedown to service a delinquent account, the subsidy level will be recalculated prior to any writedown. If a feasible plan can be obtained using a level of Interest Assistance less than or equal to the original MRIAA for this loan, then the Interest Assistance level will be adjusted and no writedown will be approved. If a feasible plan cannot be achieved using maximum Interest Assistance, all further calculations for determining debt writedown eligibility and amounts to be written down will be based on the borrower receiving the maximum Interest Assistance available.
D. In the event of reamortization, rescheduling or deferral of loans with Interest Assistance, Interest Assistance will remain available for that loan under the terms of the existing Interest Assistance Agreement. If additional Interest Assistance is needed to produce a positive cash flow throughout the life of the rescheduled/reamortized loan and funds are not available for the additional Interest Assistance, then the rescheduling/reamortization will not be approved by the agency. In no case, will the subsidy be extended more than ten years from the initial effective date of the original Interest Assistance Agreement.
E. In a reorganization bankruptcy (chapter 11, 12 or 13) the court may order a temporary or permanent reduction in the interest rate that a lender may charge on a loan/line of credit. In cases where the interest on a loan/line of credit covered by an Interest Assistance Agreement is reduced by court order, the Interest Assistance Agreement will be terminated effective on the date of the court ordered interest reduction. The lender will file a Form FmHA or its successor agency under Public Law 103-354 1980-24 to collect interest assistance due through the effective date of the court ordered interest reduction. Interest loss payments will be processed in accordance with § 1980.144 of this subpart. Guaranteed loans which have had their interest reduced by bankruptcy court order are not eligible to subsequently receive Interest Assistance under this exhibit.
F. For Loan Note Guarantees held by holders, Agency purchase of the guaranteed portion of the loan will stop Interest Assistance payments on that portion. Interest Assistance payments will cease upon termination of the Loan Note Guarantee or Contract of Guarantee by expiration of the document or cancellation by the Government.
G. A lender will notify the Agency when a borrower who is not receiving maximum Interest Assistance is 30 days past due on a payment and is unable to bring the account current within 30 days. The lender will request that the Agency make a determination as to the borrower's eligibility for Interest Assistance. The lender will submit a plan of operation for the farm projecting the repayment ability of the borrower with and without Interest Assistance. Upon receipt of the agency's determination, the lender may request Interest Assistance. If the lender declines Interest Assistance, the lender will notify the Agency in writing within 30 days.
Form FmHA or its successor agency under Public Law 103-354 1980-64 is incontestable except for fraud or misrepresentation, of which the lender and borrower have actual
After the initial or annual request for interest assistance is processed, no adjustments in the level of subsidy can be made until the next annual payment/review date.
Upon written notice to the lender, borrower and any holder, the Government may amend or cancel the Interest Assistance Agreement and collect from the lender any amount of Interest Assistance granted which resulted from incomplete or inaccurate information (of which the lender was aware), an error in computation, or any other reason which resulted in payment that the lender was not entitled to receive.
The County Supervisor will maintain a current list of lenders in the area that participate in the guaranteed farm loan program and other lenders who express a desire to participate in the guaranteed farm program. This list will be made available to farmers upon request.
A. The Interest Assistance Program replaces the Interest Rate Buydown (IRBD) Program which was previously described in this exhibit, effective February 28, 1991.
B. A guaranteed loan will not be covered by both an Interest Rate Buydown Agreement and an Interest Assistance Agreement simultaneously.
C. Loans covered by IRBD Agreements will continue to be serviced, and requests for payments will be made and paid, in accordance with the terms of the “Interest Rate Buydown Agreement,” Form FmHA or its successor agency under Public Law 103-354 1980-58.
D. Existing IRBD Agreements will expire on the date scheduled on Form FmHA or its successor agency under Public Law 103-354 1980-58. Extensions of these agreements are prohibited.
E. If a request for Interest Assistance is made on an existing guaranteed loan which has previously been covered by an IRBD Agreement, the time that Form FmHA or its successor agency under Public Law 103-354 1980-58 was in effect (rounded to the next full year) will be deducted from the 10 years to determine the maximum term that Interest Assistance can be granted. Example: If the borrower has a 20-year guaranteed FO loan with 15 years remaining on the term and the borrower had previously received 3 years of IRBD, the maximum term of Interest Assistance is 7 years.
F. A lender may cancel its IRBD Agreement by notifying FmHA or its successor agency under Public Law 103-354. Such notification shall be made by executing Form FmHA or its successor agency under Public Law 103-354 1980-24 and indicating that they wish the IRBD Agreement terminated. When the lender entered into the IRBD Agreement, the lender modified the borrower's interest rate to a final rate for the term of the original IRBD Agreement. Therefore, even if a lender cancels the IRBD Agreement the effective rate to the borrower will continue as indicated in the allonge or line of credit agreement. If the lender subsequently requests Interest Assistance on this loan, the existing note rate used in calculating the need for Interest Assistance will be the rate which is specified in the IRBD allonge. This rate will also be used in calculating any loss claims payment which may be made on these loans/lines of credit.
G. Since 1987, IRBD program lenders have been required to agree that they will consider the IRBD program prior to the liquidation of guaranteed loans. This requirement has been included in § 1980.115 of this subpart and in various lenders agreements and conditional commitments. In all documents references to the IRBD program are now defined as meaning the Interest Assistance Program.
A. Request for Interest Assistance in conjunction with a request for guarantee.
1. Loan amount/line of credit ceiling
2. The interest rate charged the lender's average farm customer,
3. The proposed note interest rate to the subject borrower prior to Interest Assistance is
B. Request for Interest Assistance on an existing guaranteed loan. Original Loan/Line of Credit closing date
II. Level of Interest Assistance requested for initial year, (cannot exceed MRIAA and must be in increments of .25%)
III. Has this loan been previously covered by an Interest Rate Buydown (IRBD) or Interest Assistance Agreement? Yes/No
IV. In connection with the subject request the lender certifies that:
A. The amount of interest resulting from the percentage of interest which FmHA or its successor agency under Public Law 103-354 agrees to pay will be permanently cancelled as it becomes due and that no attempt will be made to collect that portion of the debt from the borrower.
B. The lender's reduction in interest charged to the borrower will result in a reduced payment schedule for the borrower and a projected positive cash flow (as defined in paragraph III D of this exhibit D to 7 CFR part 1980, subpart B) throughout the term of the Interest Assistance Agreement.
C. The borrower's cash flow projections and/or typical plan of operation have been prepared in accordance with 7 CFR part 1980, subpart B, § 1980.113(d)(8), and are attached to this document. For lines of credit and operating loans for annual operating purposes, a monthly cash flow budget (as defined in paragraph III B of exhibit D to 7 CFR part 1980, subpart B) has been prepared and is attached.
D. A copy of Attachment 2 to this exhibit, “Interest Assistance Worksheet/Needs Test,” has been completed and attached.
The Needs Test below will be used to calculate the needed level of interest assistance subsidy. The level of Interest Assistance will be either zero or four percent. Requests for new or continuing Interest Assistance must meet all requirements of this exhibit and subpart.
If the above test is not met (TDCLC Ratio is <1.10 or Margin after Cash Asset Purchases is <0), then Interest Assistance will not be granted. For a request on a new loan, the guarantee will not be issued or for a continuation request, the assistance level will be zero.
For existing loans, enter the FmHA or its successor agency under Public Law 103-354 loan number (i.e., 44-51) and/or for requests in conjunction with a request for guarantee, enter the request number from Part 6 of the Form FmHA or its successor agency under Public Law 103-354 1980-25:
(Location)
Dear
The Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) has authority to make payments to lenders to reduce eligible borrower interest rates on guaranteed farm loans. The Interest Assistance Program provides lenders with a tool to enable them to provide credit to family farm operators who are unable to project a positive cash flow on all income and expenses, including debt service, without a reduction in the interest rate.
Lenders that participate in this program enter into an agreement with FmHA or its successor agency under Public Law 103-354 to reduce the interest rate paid by the borrower on a loan guaranteed by FmHA or its successor agency under Public Law 103-354. In return, FmHA or its successor agency under Public Law 103-354 will make annual payments to the lender in the amount of the reduction in interest. Payments made to a lender under this authority are currently limited to
Borrowers with guaranteed Farm Operating (OL), Farm Ownership (FO), and Soil and Water (SW) loans may be included in this program.
If you would like additional information regarding the Interest Assistance Program for guaranteed loans and how to apply, you should contact this office.
I will be glad to discuss this program in detail with you.
Sincerely,
This Exhibit contains the policies and procedures pertaining to a Demonstration Project for purchase of certain Farm Credit System acquired farmland (FCS Demonstration Project) for guaranteed Farm Ownership (FO) loans described in § 1980.180 of this subpart. Subparts A and B of this part are applicable to this exhibit except as modified by exhibit A of this subpart and this exhibit. Authority to enter into the FCS Demonstration Project expires January 6, 1992. Attachment 1 is the Farm Credit Bank Agreement to be executed by the Administrator of the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) and the President of each Farm Credit Bank of those Districts which are certified to participate in the “Demonstration Project for the Purchase of Farm Credit System Land.” When a District is certified by the Farm Credit System Assistance Board (FCSAB), the President of the District will sign the Agreement and forward it to the FmHA or its successor agency under Public Law 103-354 Administrator for signature. The original Agreement will be retained by FmHA or its successor agency under Public Law 103-354 with a conformed copy to the District and the FCSAB.
This Exhibit contains a means by which the Farm Credit System (FCS) can make available for sale certain acquired lands to eligible FO applicants, as provided by § 351(h) of the Consolidated Farm and Rural Development Act. Each FCS District President and FmHA or its successor agency under Public Law 103-354 State Director, who will be involved in the Demonstration Project will provide ample notice of the project as outlined in Attachment 1 of this exhibit. Only those properties owned by FCS member institutions certified to issue preferred stock under § 6.27 of the Farm Credit Act of 1971 may be purchased under this exhibit. The Farm Credit Administration (FCA) will provide the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) with a list of these certified FCS member institutions, as further explained in Memorandum of Understanding between FmHA or its successor agency under Public Law 103-354 and FCA found in FmHA or its successor agency under Public Law 103-354 Instruction 2000-MM (available in any FmHA or its successor agency under Public Law 103-354 office). FmHA or its successor agency under Public Law 103-354 may issue certificates of eligibility to eligible borrowers to reduce the interest rate paid by such borrowers on FmHA or its successor agency under Public Law 103-354 guaranteed loans obtained from eligible Farmer Program lenders to purchase properties owned by the Farm Credit System. The sale of land by the Farm Credit System under this program is limited to an aggregate land value not to exceed $250,000,000 at fair market value each fiscal year.
Lenders that participate in this FCS Demonstration Project may enter into an agreement with FmHA or its successor agency under Public Law 103-354 to reduce the interest rate paid on a loan. In return, FmHA or its successor agency under Public Law 103-354 will make annual interest rate buydown payments to the lender in the amount of 4
A.
B.
(1) That the borrower is eligible for a guaranteed FO loan.
(2) The farm is eligible for the program in accordance with § 1980.106(b) of this subpart.
(3) The borrower is eligible for an interest rate reduction.
C.
D.
E.
County Supervisors are authorized to approve Interest Rate Buydown Agreements for the FCS Demonstration Project providing the following requirements are met by the applicant, FCS and the lender.
A. Applications from individuals who are seeking to purchase FCS acquired farmlands with a guaranteed FO loan shall be processed in accordance with § 1980.113 of this subpart and this exhibit. In addition, the lender will submit attachment 2 of exhibit D with the application. The lender must demonstrate that a positive cash flow projection is not possible without reducing the interest rate on the FO loan.
B. Prospective borrowers who seek to purchase FCS acquired farmlands and who do not have a lender involved in that purchase will submit an application to FmHA or its successor agency under Public Law 103-354. The County Committee will review the application, which will also include a description of the property, and render a decision as to the eligibility of the prospective borrower and farm. If the County Committee determines the prospective borrower is eligible and that the farm meets the requirements of § 1980.106(b) of this subpart, then the County Supervisor will determine if the request is feasible. If the request is rejected by either the County Committee or the County Supervisor, the prospective borrower and the lender will be advised of the opportunity for an appeal as set out in subpart B of part 1900 of this chapter.
C. Prospective borrower must provide a down payment equal to at least 15 percent of the land purchase price using personal funds, as defined in paragraph III D of this exhibit.
D. Prospective borrowers must meet the applicable requirements of subpart G of part 1940 of this chapter, including providing Form SCS-CPA-026, “Highly Erodible Land and Wetland Conservation Determination,” and Form AD-1026, “Highly Erodible Land Conservation (HELC) and Wetland Conservation (WC) Certification,” as required by exhibit M to subpart G of part 1940 of this chapter.
E. The FCS must price suitable farmland (family farm size as determined by the County Committee) to eligible prospective borrowers at fair market value.
F. FmHA or its successor agency under Public Law 103-354 will pay the lender an interest rate reduction of 4 percentage points.
G. The loan will be guaranteed at 90 percent in connection with a 4 percentage point interest rate reduction.
H. A lender who permanently reduces the interest rate currently charged on the loan by at least 1 full percentage point will receive a 95 percent guarantee.
I. The terms of the reduction will not exceed the outstanding term of such loan, or 5 years, whichever is less.
J. In order for the prospective borrower to qualify for a loan and an interest rate reduction, a typical plan of operation must show that a positive cash flow can be expected during the reduction period and after the Interest Rate Buydown Agreement expires.
K. The Interest Rate Buydown Agreement will be attached to the promissory note(s). The promissory note(s) cannot exceed the interest rate the lender charges the average farm customer,
Authority to approve loan guarantees and Interest Rate Buydown Agreements expires January 6, 1991. If the FmHA or its successor agency under Public Law 103-354 approval official determines the reduction will be in accordance with paragraph VI of this Exhibit, in addition to the determinations required in § 1980.115, Administrative paragraphs A and B, of this subpart
A. Prepare Form FmHA or its successor agency under Public Law 103-354 1940-3, “Request for Obligation of Funds—Guaranteed Loans.” The request for obligation of funds must include the amount of the loan and its respective buydown.
B. Execute Form FmHA or its successor agency under Public Law 103-354 1940-3 and distribute copies in accordance with the FMI. The Finance Office will enter the obligation of funds on their records for the interest rate reduction and notify the approval official by forwarding the original and one copy of Form FmHA or its successor agency under Public Law 103-354 440-57, “Acknowledgement of Obligated Funds/Check Request.”
A. The lender will prepare and deliver a Form FmHA or its successor agency under Public Law 103-354 1980-19, “Guaranteed Loan Closing Report,” for each guaranteed loan in which the interest rate is reduced under this exhibit.
B. See § 1980.61(b)(1), § 1980.118(c) and Administrative paragraph B of this subpart.
1. If FmHA or its successor agency under Public Law 103-354 finds that all requirements have been met, the lender, FmHA or its successor agency under Public Law 103-354 and the borrower will execute Form FmHA or its successor agency under Public Law 103-354 1980-58, “Interest Rate Buydown Agreement.” In NO CASE will Form FmHA or its successor agency under Public Law 103-354 1980-58 be executed prior to the determination of availability of funds for the loan and interest reduction as evidenced on Form FmHA or its successor agency under Public Law 103-354 440-57.
2. An original Form FmHA or its successor agency under Public Law 103-354 1980-58 will be prepared for each note executed. All originals of Form FmHA or its successor agency under Public Law 103-354 1980-58 will be provided to the lender and attached to the note(s) with the original Loan Note Guarantee. In the event the lender assigns the guaranteed portion of the loan to holder(s), a copy of Form FmHA or its successor agency under Public Law 103-354 1980-58 will be attached to the original Form FmHA or its successor agency under Public Law 103-354 449-36, “Assignment Guarantee Agreement,” along with a copy of the borrower's note(s) with “allonge” and Loan Note Guarantee. Form FmHA or its successor agency under Public Law 103-354 449-36 will be revised to reflect the note amounts. At the top of the face of the document type: “This Assignment Guarantee Agreement is subject to an attachment(s) to the promissory note dated
3. Repurchase of guaranteed loans having interest rate reduction under this FCS Demonstration Project. See item number 10 of Form FmHA or its successor agency under Public Law 103-354 449-36 and item number 6 of Form FmHA or its successor agency under Public Law 103-354 1980-58. When FmHA or its successor agency under Public Law 103-354 purchases a portion of the guaranteed loan, buydown payments on that portion shall cease, but the interest rate reduction shall remain in effect. The lender shall complete Form FmHA or its successor agency under Public Law 103-354 1980-24, “Request Interest Assistance/Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender,” to request payment for the buydown/subsidy through the date of the FmHA or its successor agency under Public Law 103-354 purchase.
Claims and payments will be processed in accordance with paragraphs 2 and 3 of Form FMHA 1980-58.
The term of a buydown agreement entered into under this Exhibit shall not exceed 5 years or the outstanding term of the loan involving the interest rate reduction, whichever is less.
Form FmHA or its successor agency under Public Law 103-354 1980-58 is incontestable, except for fraud or misrepresentation, of which the lender has actual knowledge at the time the Interest Rate Buydown Agreement is executed, or for which the lender participates in or condones. In the event that the buydown agreement is to be cancelled prior to the expiration of the buydown period, the field office should submit Form FmHA or its successor agency under Public Law 103-354 1980-51, “Add, Change, or Delete Guaranteed Loan Record,” with item numbers 1, 2, 3, 4, 12, and 13 completed, to the Finance Office.
Upon written notice to the lender, borrower and any holder(s), the Government may amend or cancel the Interest Rate Buydown Agreement and collect from the lender any amount of reduction granted which resulted from incomplete or inaccurate information (of which the lender was aware), an error in computation, or any other reason which resulted in payment that the lender was not entitled to receive.
Transfers will be processed under this exhibit. The lender shall complete Form FmHA or its successor agency under Public Law 103-354 1980-24, “Request Interest Assistance/Interest Rate Buydown/Subsidy Payment to Guaranteed Loan Lender,” to request payment for the buydown/subsidy through the date of the transfer or assumption of the guaranteed loan under the transferor's case number. If the reduction is necessary for the transferee to achieve a positive cash flow, the lender must make application for an initial reduction under this exhibit.
The lender will submit Form FmHA or its successor agency under Public Law 103-354 1980-24 annually along with detailed calculations and a statement of activity of the borrower's account to support forward to the Finance Office for payment. FmHA or its successor agency under Public Law 103-354 may review audit reports by the lender's supervising agency when reduction claims are involved.
I.
I. The Bank will make available for purchase by qualified borrowers property eligible for the FCS Demonstration Project as further explained in paragraph II of exhibit E of 7 CFR part 1980, subpart B.
II. The Bank may, at its discretion and for the purpose of maximizing the economic return on the sale of acquired property, subdivide tracts of land to make available parcels that permit eligible borrowers to purchase the parcels consistent with limits placed on the size of loans made, insured, or guaranteed under the Consolidated Farm and Rural Development Act.
III. The Bank will periodically provide the FmHA or its successor agency under Public Law 103-354 State Director with current inventories of properties that may be eligible for the FCS Demonstration Project.
IV. The Bank, through private sale, will sell land at fair market value, as determined by the Bank, to eligible borrowers.
V. The Bank reserves the right to market and sell its acquired property to any qualified individual until, under the terms of the FCS Demonstration Project, FmHA or its successor agency under Public Law 103-354 has determined the eligibility of the borrower and suitability of the property, and a purchase agreement has been executed between the eligible borrower and the Bank.
VI. The Bank will provide technical assistance to the extent possible in connection with the implementation of the FCS Demonstration Project.
VII. The Bank will dispose of properties listed under the FCS Demonstration Project in a manner consistent with the applicable provisions of Section 4.36 of the Farm Credit Act of 1971, as amended, governing the rights of first refusal of former owners.
VIII. The FmHA or its successor agency under Public Law 103-354 will process applications for participation in the FCS Demonstration Project in accordance with FmHA or its successor agency under Public Law 103-354 regulations, including those set out in 7 CFR part 1980, subparts A and B.
IX. The FmHA or its successor agency under Public Law 103-354 will determine the eligibility of the prospective borrower and the property for the FmHA or its successor agency under Public Law 103-354 guaranteed program.
X. The FmHA or its successor agency under Public Law 103-354 will provide certificates of eligibility to eligible borrowers on a timely basis consistent with the availability of acquired property owned by institutions of the Farm Credit System certified to issue preferred stock under Section 6.27 of the Farm Credit Act of 1971.
XI. The Bank and FmHA or its successor agency under Public Law 103-354 are independently responsible for providing adequate media coverage of the FCS Demonstration Project. Media coverage will include news releases for local newspapers, radio, and television.
This Agreement is effective upon signing by both the Administrator of the Farmers Home Administration or its successor agency under Public Law 103-354 and President of the Farm Credit Bank of
This Agreement is entered into between (Lender's name) (called “Lender”) and (Borrower's name) (called “Borrower”) on (date) and expires on (Date) (maximum term of ten (10) years).
Borrower is indebted to Lender for a loan or line of credit as evidenced by the note(s) or line of credit agreement(s) described below:
This Agreement is attached to the note(s) or line of credit agreement(s) described above. As of the date of this Agreement, before write down, the unpaid principal balance on this note or line of credit agreement was $
The note or line of credit agreement described above is secured by the following real estate security instruments:
Lender agrees to write down $
As a condition to, and in consideration of, Lender writing down the above amounts and restructuring the loan, Borrower agrees to recapture by the Lender an amount according to one of the following schedules:
1. Seventy-five (75) percent of any positive appreciation in the market value of the property securing the loan or line of credit agreement as described in the above security instrument(s) between the date of this Agreement and either the expiration date of this Agreement or the date Borrower pays all guaranteed loan(s) or lines of credit in full, ceases farming or transfers title of the security, if such event occurs four (4) years or less from the date of this Agreement.
2. Fifty (50) percent of any positive appreciation in the market value of the property securing the loan or line of credit agreement above as described in the security instruments between the date of this Agreement
The amount of recapture by Lender will be based on the difference between the value of the security at the time of disposal or cessation by Borrower of farming and the value of the security at the time this Agreement is entered into. Both values will be determined thorough an appraisal conducted by Lender. The amount of recapture will not exceed the amount of write down as stated on this form. Repayment of the recapture amount may be rescheduled or reamortized if the borrower is unable to pay the recapture amount at the expiration date of this agreement.
This exhibit contains policies and procedures modifying the guaranteed operating (OL) loan regulations, Loan Note Guarantees Only, as described in § 1980.175 of this subpart, to implement the provisions of Public Law 101-82, the “Disaster Assistance Act of 1989.” Subparts A and B of part 1980 are applicable to this program, except as modified by this exhibit. OL loan note guarantee requests from lenders, under this Exhibit, must be approved on or before September 30, 1990.
The authorities contained in this exhibit enable FmHA or its successor agency under Public Law 103-354 to guarantee loans made by lenders, as set forth in subparts A and B of part 1980, under subtitle B of the Consolidated Farm and Rural Development Act, as modified by title III, section 302, of the “Disaster Assistance Act of 1989.” The purposes of these OL loans include: refinancing and reamortizing 1989 annual operating loans, and/or 1989 and/or 1990 installments that are or will become due and payable during 1989 and/or 1990 on real estate debt (including buildings and storage facilities), farm equipment debt, livestock debt, or other operating debt of farmers and ranchers that otherwise cannot be repaid due to major production losses sustained as a result of drought or related condition occurring in 1988 or 1989, or excess moisture, freeze, storm or related condition occurring in 1989.
A.
B.
C.
D.
Loan guarantee requests will not be approved until a determination is made by the Agricultural Stabilization and Conservation Service (ASCS) that the applicant is eligible for benefits under an ASCS livestock feed program or disaster payment program, or that the borrower incurred major production losses as determined by ASCS, but for other reasons is not eligible for ASCS disaster program benefits. The use of such benefits must be considered first for reducing the applicant's outstanding financial obligations incurred in the disaster year. This is to ensure that loan guarantees are not approved in excess of the farmer's actual financial needs.
A.
(1) Guarantees will be approved only for those farmers unable to make scheduled payments on their 1989 annual operating loans and/or 1989 and/or 1990 scheduled installments on other farm debts, as a result of the conditions stated in paragraph II of this exhibit. If a request is made to refinance an installment not yet due and payable, the projected plan of operation must show that the applicant will be unable to meet the installment when it comes due.
(2) Farmers must otherwise be current with their obligations to the lender making the guaranteed loan, when the guarantee is approved. If a guarantee is approved to refinance installments due more than one creditor, the applicant must be current with all creditors refinanced, when the guarantee is approved.
(3) The lender's guarantee request package, as prescribed in § 1980.113 and Exhibit A of this subpart, will contain a properly executed (signed by an authorized ASCS official) Form CCC 441, “Application for 1989 Disaster Benefits,” with attached worksheet, “1989 Disaster System Producer Calculated Payment Report,” for each farm. This will establish that the farmer has been determined eligible by ASCS for a disaster program(s) payment(s).
(4) The FmHA or its successor agency under Public Law 103-354 County Committee will certify that the applicant meets the requirements contained in § 1980.175(b).
B.
1. Assistance for haying and grazing CRP acreage, as addressed in subtitle D of title I of the Act;
2. Assistance for orchard farmers, under subtitle B of title I of the Act;
3. Emergency livestock assistance, under title II of the Act;
4. Livestock water assistance, under section 502 of title V of the Act; or
5. Forest crop assistance, under subtitle C of title I of the Act.
C.
1. Refinancing 1989 annual operating loans.
2. Refinancing 1989 loan installments.
3. Refinancing 1990 loan installments.
4. Loans or loan installments to be refinanced must be due or will become due and payable during 1989 or 1990, and must have been incurred for:
(a) real estate debt (including buildings and storage facilities);
(b) farm equipment debt;
(c) livestock debt; or
(d) other operating debt.
5. When a creditor or lender requests refinancing of a promissory note that contains a demand payment feature, and the debt was incurred for more than one purpose, e.g., operating expenses, machinery and/or equipment purchase, debt carryover, and other capital expenditures, only the annual operating expense portion, plus an amount equivalent to an annual installment(s) for each of the other purposes, can be included in the guaranteed loan.
D.
1. This Exhibit does not preclude participation by more than one lender.
2. Different lenders of the same applicant may request separate guarantees when refinancing their installments, provided:
(a) Separate notes are taken and repayment of each note does not exceed 6 years from the original installment due date; and
(b) The security requirements in § 1980.175 (g) and (h) are met, except as stipulated in paragraph IV E of this exhibit.
E.
1. Section 1980.175(d)(5) of this subpart, which requires separate and identifiable security, will not apply. Junior liens on collateral may be accepted when practical and agreeable with the lender proposing the loan.
2. When a lender requests a guarantee for refinancing its own debt secured by chattels, a new financing statement will be required to implement the requirements of § 1980.109(b) (1) and (2). A lien search will be made to show that the proposed collateral is, in fact, encumbered by the lender; and the subsequent filing will give the intended junior lien position. For these loans, the loan agreement, promissory note, and any new security instruments will include language stating:
(a) The security position of the guaranteed loan being made is junior to the lender's original lien, and
(b) The amount of the prior lien.
3. For real estate installments being refinanced, the best lien obtainable on the real estate serving as collateral for the loan, may be accepted, provided the junior lien position will afford sufficient collateral equity to fully secure the guaranteed loan being made. If the junior lien will not fully secure the new loan, lender must obtain additional collateral having sufficient equity to assure the new guaranteed loan will be fully secured. This will be accomplished by either subordination of an existing lien(s) on the real estate in question or a lien on other real estate having sufficient collateral equity to make up the deficiency in security value.
4. When a single loan is made to refinance more than one creditors’ installments, the best lien obtainable may be taken, as a minimum, on the same items of collateral that
F.
2. If it becomes necessary for the lender to make a protective advance to protect or preserve the collateral, or if liquidation becomes necessary, the lender will determine whether a substantial recovery can be made.
G.
(a)
(b)
(c) [Reserved]
(d)
(a) The following definitions are applicable to RH loans:
(1) Is attributable to a mental or physical impairment or a combination of mental and physical impairments;
(2) Is manifested before the person attains age 22;
(3) Is likely to continue indefinitely;
(4) Results in substantial functional limitations in one or more of the following areas of major life activity:
(i) Self-care,
(ii) Receptive and expressive language,
(iii) Learning,
(iv) Mobility,
(v) Self-direction,
(vi) Capacity for independent living, and
(vii) Economic self-sufficiency; and
(5) Reflects the person's need for a combination and sequence of special care, treatment, or other services which are of lifelong or extended duration and are individually planned and coordinated.
(1) A person who is the head, spouse, or sole member of a household and who is 62 years of age or older, or who is disabled and is the applicant/borrower or the coapplicant/coborrower; or
(2) Two or more unrelated elderly (age 62 or older), disabled persons who are living together, at least one of whom is the applicant/borrower or coapplicant/coborrower; or
(3) In the case of a family where a deceased borrower/coborrower or spouse was at least 62 years old or disabled, the surviving household members shall continue to be classified as an “elderly family” for the purpose of determining adjusted income even though the surviving members may not meet the definition of elderly family on their own, provided:
(i) They occupied the dwelling with the deceased family member at the time of his/her death; and
(ii) If one of the surviving members is the spouse of the deceased family member, the surviving family shall be classified as an elderly family only until the remarriage of the surviving spouse; and
(iii) At the time of death, the dwelling of the deceased family member was financed under title V of the Housing Act of 1949, as amended.
(1) The value of equity in real property, savings, individual retirement accounts (IRA), demand deposits, and the market value of stocks, bonds, and other forms of capital investments, but exclude:
(i) Interests in Indian Trust land,
(ii) The value of the dwelling and a minimum adequate site,
(iii) Cash on hand which will be used to reduce the amount of the loan,
(iv) The value of necessary items of personal property such as furniture and automobiles and the debts against them,
(v) The assets that are a part of the business, trade, or farming operation in the case of any member of the household who is actively engaged in such operation, and
(vi) The value of a trust fund that has been established and the trust is
(2) The value of any business or household assets disposed of by a member of the household for less than fair market value (including disposition in trust, but not in a foreclosure or bankruptcy sale) during the 2 years preceding the date of application, in excess of the consideration received therefore. In the case of a disposition as part of a separation or divorce settlement, the disposition shall not be considered to be less than fair market value if the household member receives important consideration not measurable in dollar terms.
(1) From April 6, 1917, through March 31, 1921;
(2) From December 7, 1941, through December 31, 1946;
(3) From June 27, 1950, through January 31, 1955; or
(4) For more than 180 days, any part of which occurred after January 31, 1955, but on or before May 7, 1975.
(b) The following abbreviations are applicable to this subpart:
The loan note guarantee constitutes an obligation supported by the full faith and credit of the United States and is incontestable except for fraud or misrepresentation of which the Lender has actual knowledge at the time it becomes such Lender or which the Lender participates in or condones. Misrepresentation includes negligent misrepresentation. A note which provides for the payment of interest on interest shall not be guaranteed. Any guarantee or assignment of a guarantee attached to or relating to a note which provides for the payment of interest on interest is void. Notwithstanding the prohibition of interest on interest, interest may be capitalized in connection with reamortization over the remaining term with written concurrence of RHS.
(a)
(1) Any state housing agency;
(2) Any Lender approved by HUD as a supervised or nonsupervised mortgagee for submission of one to four family housing applications for Federal Housing Mortgage Insurance or as an issuer of Ginnie Mae mortgage backed securities;
(3) Any Lender approved as a supervised or nonsupervised mortgagee for the VA;
(4) Any Lender approved by Fannie Mae for participation in one to four family mortgage loans;
(5) Any Lender approved by Freddie Mac for participation in one to four family mortgage loans;
(6) An FCS institution with direct lending authority; and
(7) Any Lender participating in other RHS, Rural Business-Cooperative Service, Rural Utilities Service, and/or Farm Service Agency guaranteed loan programs.
(b)
(1) The Lender must provide the following information to RHS:
(i) Evidence of approval, as appropriate, for the criteria under paragraph (a) of this section, which the Lender meets.
(ii) The Lender's Tax Identification Number.
(iii) The name of an official of the Lender who will serve as a contact for RHS regarding the Lender's guaranteed loans.
(iv) A list of names, titles, and responsibilities of the Lender's principal officers.
(v) An outline of the Lender's internal loan criteria for issues of credit history and repayment ability and a copy of the Lender's quality control plan for monitoring production and servicing activities.
(vi) An executed certification regarding debarment, suspension, or other matters—primary covered transactions. The certification will be obtained using a form prescribed by RHS.
(2) The Lender must agree to:
(i) Obtain and keep itself informed of all program regulations and guidelines including all amendments and revisions of program requirements and policies.
(ii) Process and service RHS guaranteed loans in accordance with Agency regulations.
(iii) Permit RHS employees or its designated representatives to examine or audit all records and accounts related to any RHS loan guarantee.
(iv) Be responsible for the servicing of the loan, or if the loan is to be sold, sell only to an entity which meets the provisions of paragraph (a) of this section.
(v) Use forms which have been approved by FHA, Fannie Mae, Freddie
(vi) Maintain its approval if qualification as an RHS Lender was based on approval by HUD, VA, Fannie Mae, or Freddie Mac including maintaining the minimum allowable net capital, acceptable levels of liquidity, and any required fidelity bonding and/or mortgage servicing errors and omissions policies required by HUD, VA, Fannie Mae, or Freddie Mac, as appropriate.
(vii) Operate its facilities in a prudent and business-like manner.
(viii) Assure that its staff is well trained and experienced in loan origination and/or loan servicing functions, as necessary, to assure the capability of performing all of the necessary origination and servicing functions.
(ix) Notify RHS in writing if the Lender:
(A) Ceases to meet any financial requirements of the entity under which the Lender qualified for RHS eligibility;
(B) Becomes insolvent;
(C) Has filed for bankruptcy protection, has been forced into involuntary bankruptcy, or has requested an assignment for the benefit of creditors;
(D) Has taken any action to cease operations or discontinue servicing or liquidating any or all of its portfolio of RHS guaranteed loans;
(E) Has any change in the Lender name, location, address, or corporate structure;
(F) Has become delinquent on any Federal debt or has been debarred, suspended, or sanctioned by any Federal agency or in accordance with any applicable state licensing or certification requirements.
(c) [Reserved]
(d)
(e)
(f)
(1)
(2)
(3)
(4)
(g)
(1)
(2) [Reserved]
(3) [Reserved]
(h)
The purpose of a loan guaranteed under this subpart must be to acquire a completed dwelling and related facilities to be used by the applicant as a primary residence. The loan may be to purchase a new dwelling or an existing dwelling. The guaranteed loan may be for “take out” financing for a loan to construct a new dwelling or improve an existing dwelling when the construction financing is arranged in connection with the loan package. The loan may include funds for the purchase and installation of necessary appliances, energy saving measures, and storm cellars. Incidental expenses for tax monitoring services, architectural, appraisal, survey, environmental, and other technical services may be included. Subject to § 1980.311, eligible loan purposes also include:
(a) Necessary related facilities such as a garage, storage shed, walks, driveway, and water and/or sewage facilities including reasonable connection fees for utilities which the buyer is required to pay.
(b) Special design features or equipment necessary to accommodate a physically disabled member of the household.
(c) The cost of establishing an escrow account for real estate taxes and/or insurance premiums.
(d) Title clearance, title insurance, and loan closing; stock in a cooperative lending agency necessary to obtain the
(e) Provide funds for seller equity and/or essential repairs when an existing guaranteed loan is to be assumed simultaneously.
(a)
(1) Payment of construction draws.
(2) The purchase of furniture or other personal property except for essential equipment and materials authorized in accordance with § 1980.310.
(3) Refinancing RHS debts, debts owed the Lender (other than construction/development, financing incurred in conjunction with the proposed loan), or debts on a manufactured home.
(4) Purchase or improvement of income-producing land, or buildings to be used principally for income-producing purposes, or buildings not essential for RH purposes, or to buy or build buildings which are largely or in part specifically designed to accommodate a business or income-producing enterprise.
(5) Payment of fees, charges, or commissions, such as finder's fees for packaging the applications or placement fees for the referral of a prospective applicant to RHS.
(6) Improving the entry of a homestead entryman or desert entryman prior to receipt of patent.
(7) Purchase a dwelling with an in-ground swimming pool.
(b)
(1) A loan for the acquisition of a newly constructed dwelling that meets the requirements of § 1980.341(b) of this subpart may be made for up to 100 percent of the appraised value or the cost of acquisition and any necessary development including those purposes in § 1980.310, whichever is less.
(2) A loan for the acquisition of an existing dwelling and development, if any, in conjunction with the acquisition of an existing dwelling may be made for up to 100 percent of the appraised value or the cost of acquisition and necessary development including those purposes in § 1980.310, whichever is less.
(3) A loan for the acquisition of a newly constructed dwelling (a dwelling that does not meet the definition for an existing dwelling) that does not meet the requirements of § 1980.341(b) is limited to 90 percent of the present market value.
(c)
A rural area is an area which is identified as rural by RHS in accordance with § 1944.10. Current county maps showing ineligible areas are available in RHS field offices.
(a)
(b)
(c)
(d) [Reserved]
(e)
(f)
(g)
(h)
(i)
(1) Loans may be guaranteed for the following purposes when the security covers both the unit and the lot:
(i) A new unit and related site development work on a site owned or purchased by the applicant which meets the requirements and limitations of this section or a leasehold meeting the provisions of § 1980.314.
(ii) Transportation and set-up costs for a new unit.
(2) Loans may not be guaranteed for:
(i) An existing unit and site unless it is already financed with a Section 502 RH direct or guaranteed loan, is being sold from RHS inventory, or is being sold from the Lender's inventory provided the Lender acquired possession of the unit through a loan guaranteed under this subpart.
(ii) The purchase of a site without also financing the unit.
(iii) Existing debts owed by the applicant/borrower.
(iv) A unit without an affixed certification label indicating the unit was constructed in accordance with the Federal Manufactured Home Construction and Safety Standards.
(v) Alteration or remodeling of the unit when the initial loan is made.
(vi) Furniture, including movable articles of personal property such as
(vii) Any unit not constructed to the RHS thermal standards as identified by an affixed label for the winter degree day zone where the unit will be located.
A loan may be guaranteed if made on a leasehold owned or being acquired by the applicant when the Lender determines that long-term leasing of homesites is a well established practice and such leaseholds are freely marketable in the area provided the Lender determines and certifies to RHS that:
(a)
(b)
When proposed exterior development work cannot be completed because of weather and the work remaining to be done does not affect the livability of the dwelling, an escrow account
(a) A signed contract and bid schedule is in effect for the proposed exterior development work.
(b) The contract for development work must provide for completion within 120 days.
(c) The Lender agrees to obtain a final inspection report and advise RHS when the work has been completed.
(d) The escrow account must be funded in an amount sufficient to assure the completion of the remaining work. This figure should be 150 percent of the cost of completion but may be higher if the Lender determines a higher amount is needed.
The requirements of subpart G of part 1940 apply to loan guarantees made under this subpart. Lenders and applicants must cooperate with RHS in the completion of these requirements. Lenders must become familiar with these requirements so that they can advise applicants and reduce the probability of unacceptable applications being submitted to RHS. RHS may require that Lenders and/or applicants obtain information for completing environmental assessments when necessary. The RHS approval official will utilize adequate, reliable information in completion of environmental review. Sources of information include, but are not limited to, the State Natural Resource Management Guide (available in any RHS office) and, as necessary, the technical expertise available within the Agency as well as other agencies and organizations to assist in the completion of the environmental review.
(a)
(b)
(c)
(1)
(2)
(i) The contractor or subcontractor must submit the Agency Compliance Statement before or as a part of the bid or negotiation.
(ii) An Equal Opportunity Clause must be part of each contract and subcontract.
(iii) With notification of the contract award, the contractor must receive the Agency Notice to Contractors and Applicants signed by RHS, with an attached Equal Employment Opportunity poster. Posters in Spanish must be provided and displayed where a significant portion of the population is Spanish speaking.
(iv) Under Executive Order 11246 and Executive Order 11375, the contractor or subcontractor, subject to the requirements of paragraph (c)(5) of this section, is prohibited from discriminating because of race, color, religion, sex, or national origin to ensure equality of opportunity in all aspects of employment.
(3)
(4)
(5) [Reserved]
(6)
(i) A written complaint of alleged discrimination must be signed by the complainant and should include the following information:
(A) The name and address (including telephone number, if any) of the complainant.
(B) The name and address of the person committing the alleged discrimination.
(C) A description of the acts considered to be discriminatory.
(D) Any other pertinent information that will assist in the investigation and resolution of the complaint.
(ii) Such complaint must be filed not later than 180 days from the date of the alleged discrimination, unless the time for filing is extended by RHS for good cause shown by the complainant.
RHS policy is to discourage lending in designated flood and mudslide hazard areas. Loan guarantees shall not be issued in designated flood/mudslide hazard areas unless there is no practical alternative.
(a)
(1) The community, as a result of such designation by FEMA as a special flood or mudslide prone area, has an approved flood plain area management plan.
(2) The dwelling location and construction plans and specifications for new buildings or improvements to existing buildings comply with an approved flood plain area management plan (see paragraph (a)(1) of this section).
(3) Potential environmental impacts and feasible alternatives have been fully considered by RHS in accordance with the requirements of subpart G of part 1940.
(4) The first floor elevation is above the 100 year flood zone elevation.
(b)
In addition to the specific requirements of this subpart, on all proposals financed with an RHS guarantee, Lenders and/or applicants must coordinate with all appropriate Federal, state, and local agencies. Applicants and/or Lenders will be required to comply with any Federal, state, or local laws, regulatory commission rules, ordinances, and regulations which exist at the time the loan guarantee is issued which affect the dwelling including, but not limited to:
(a) Borrowing money and giving security therefore;
(b) Land use zoning;
(c) Health, safety, and sanitation standards; and
(d) Protection of the environment and consumer affairs.
The interest rate must not exceed the established applicable usury rate. Loans guaranteed under this subpart must bear a fixed interest rate over the life of the loan. The rate shall be agreed upon by the borrower and the Lender and must not be more than the lender's published rate for VA first mortgage loans with no discount points or the current Fannie Mae rate as defined in § 1980.302(a), whichever is higher. The lender must document the rate and the date it was determined.
(a)
(b)
The amount of the loan guarantee is 90 percent of the principal amount of the loan.
(a) The maximum loss payment under the guarantee of Single Family Housing loans is the lesser of:
(1) Any loss of an amount equal to 90 percent of the principal amount actually advanced to the borrower, or
(2) Any loss sustained by the Lender of an amount up to 35 percent of the principal amount actually advanced to the borrower, plus 85 percent of any additional loss sustained by the Lender of an amount up to the remaining 65 percent of the principal amount actually advanced to the borrower.
(b) Loss includes only:
(1) Principal and interest evidenced by the guaranteed loan note;
(2) Any loan subsidy due and owing; and
(3) Any principal and interest indebtedness on RHS approved protective advances for protection and preservation of security.
(c) Interest (including any subsidy) shall be covered by the loan note guarantee to the date of the final loss settlement when the Lender conducts liquidation in an expeditious manner in accordance with the provisions of § 1980.376.
The Lender will pay a nonrefundable fee which may be passed on to the borrower. The amount of the fee is determined by multiplying the figure in exhibit K of FmHA Instruction 440.1
(a)
(b)
(1)
(2)
(3)
(4)
(5)
(a)
(b)
A loan to purchase a new or existing dwelling may be made up to the appraised market value of the security.
(a)
(b)
(c)
(a)
(b)
An appraisal of all property serving as security for the proposed loan will be completed and submitted to RHS for review with the request for loan guarantee. The Lender may pass the cost of the appraisal on to the borrower. The appraisal must have been completed within 6 months of the date the request for a conditional commitment is submitted to RHS.
(a)
(b)
(1)
(i) The “Estimated Reproduction Cost-New of Improvements” section of the form must be completed when the dwelling is less than 1 year old.
(ii) Not less than three comparable sales, which are not more than 12 months old, will be used unless the appraiser provides documentation that such comparables are not available in the area. Comparable sales should be located as close as possible to the subject dwelling. When the need arises to use a comparable sale that is a considerable distance from the subject, the appraiser must use his or her knowledge of the area and apply good judgment in selecting comparable sales that are the best indicators of value for the subject property.
(2)
(3)
(c)
(a)
(b)
(1) Have been built in accordance with building plans and specifications that contain approved building code certifications (eligible certifiers are listed in § 1924.5(f)(1)(iii)).
(2) Conform to RHS thermal standards (exhibit D of subpart A of part 1924).
(i) The builder may certify conformance with RHS thermal standards contained in paragraph IV A of exhibit D of subpart A of part 1924.
(ii) A qualified, registered architect or a qualified, registered engineer must certify conformance with RHS thermal standards contained in paragraph IV C of exhibit D of subpart A of part 1924.
(c)
(1) The applicable development standards are adhered to;
(2) Drawings and specifications are certified and complied with;
(3) Adequate water, electric, heating, waste disposal, and other necessary utilities and facilities are obtained;
(4) Equal opportunity and nondiscrimination requirements are met, (see § 1980.317); and
(5) A builder's warranty is issued when new construction, repair, or rehabilitation is involved, which provides for at least 1 year's warranty from the date of completion or acceptance of the work.
(a)
(b)
(1) For existing dwellings, inspections must be made to determine that the dwelling:
(i) Meets the current requirements of HUD Handbooks 4150.1 and 4905.1 (available from the HUD Ordering Desk 1-800-767-7468).
(ii) Meets the thermal standards per § 1980.313(f).
(2) For a newly constructed dwelling, when construction is planned, the Lender must see that the following inspections are made in addition to any additional inspections the Lender deems appropriate:
(i) When footings and foundations are ready to be poured but prior to back-filling.
(ii) When shell is closed in but plumbing, electrical, and mechanical work are still exposed.
(iii) When construction is completed prior to occupancy.
(iv) Inspections under paragraphs (b)(2) (i) and (ii) of this section are not required when the builder supplies an insured 10 year warranty plan acceptable under the requirements of exhibit L of subpart A of part 1924.
(c)
Applicants who meet the requirements of this section are eligible for a loan guaranteed under this subpart. Applicants desiring loan assistance as provided in this subpart must file loan applications with a Lender that meets the requirements set forth in § 1980.309. The Lender may accept applications filed through its agents, correspondents, branches, or other institutions. The Lender must have at least one personal interview with the applicant to verify the information on the application and to obtain a complete picture of the applicant's financial situation.
(a)
(b)
(1) A farm or nonfarm business loss must be considered in determining repayment ability.
(2) A loss may not be used to offset other income in order to qualify for or increase the amount of RHS assistance.
(c)
(1) Monthly obligation consists of the principal, interest, taxes, and insurance (PITI) for the proposed loan (less any interest assistance under this program or any other assistance from a state or county sponsored program when such payments are made directly to the Lender on the applicant's behalf), homeowner and other assessments, and the applicant's long term obligations. Long term obligations include those obligations such as alimony, child support, and other obligations with a remaining repayment period of more than 6 months and other shorter term debts that are considered to have a significant impact on repayment ability.
(i)
(ii)
(2) Income, for the purpose of determining the total debt ratio, includes the total qualifying income of the applicant, coapplicant, and any other member of the household who will be a party to the note.
(i) An applicant's qualifying income may be different than the “adjusted annual income” which is used to determine program eligibility. In considering qualifying income, the Lender must determine whether there is a historical basis to conclude that the income is likely to continue. Typically, income of less than 24 months duration should not be included in qualifying income. If the applicant is obligated to pay child care costs, the amount of any Federal tax credit for which the applicant is eligible may be added to the applicant's qualifying income.
(ii) In considering income that is not subject to Federal income tax, the amount of tax savings attributable to the nontaxable income may be added for use with the repayment ratios. Adjustments for other than the applicable tax rate are not authorized. The Lender must verify that the income is not subject to Federal income tax and that the income (and its nontax status) is likely to continue. The Lender must fully document and support any adjustment made.
(3) The applicant meets RHS requirements for repayment ability when the applicant's total debt ratio is less than or equal to 41 percent and the ratio of the proposed PITI to income does not exceed 29 percent.
(4) Applicants who do not meet the requirements of this section will be considered ineligible unless another adult in the household has adequate income and wishes to join in the application as a coapplicant. The combined incomes and debts then may be considered in determining repayment ability.
(5) If the applicant's total debt ratio and/or PITI ratio exceed the maximum authorized ratio, the Lender may request RHS concurrence in allowing a higher ratio based on compensating factors. Acceptable compensating factors include but are not limited to the applicant having a history over the previous 12 month period of devoting a similar percentage of income to housing expense to that of the proposed loan, or accumulating savings which, when added to the applicant's housing expense and shows a capacity to make payments on the proposed loan. A low total debt ratio, by itself, does not compensate for a high PITI.
(d)
(1) Any or all of the following are indicators of an unacceptable credit history unless the cause of the problem was beyond the applicant's control and the criteria in paragraph (d)(3) of this section are met:
(i) Incidents of more than one debt payment being more than 30 days late if the incidents have occurred within the last 12 months. This includes more
(ii) Loss of security due to a foreclosure if the foreclosure has occurred within the last 36 months.
(iii) Outstanding tax liens or delinquent Government debts with no satisfactory arrangements for payments, no matter what their age as long as they are currently delinquent and/or due and payable.
(iv) A court-created or affirmed obligation (judgment) caused by non-payment that is currently outstanding or has been outstanding within the last 12 months.
(v) Two or more rent payments paid 30 days or more past due within the last 3 years.
(vi) Accounts which have been converted to collections within the last 12 months (utility bills, hospital bills, etc.).
(vii) Collection accounts outstanding, with no satisfactory arrangements for payments, no matter what their age as long as they are currently delinquent and/or due and payable.
(viii) Any debts written off within the last 36 months.
(2) The following will not indicate an unacceptable credit history:
(i) “No history” of credit transactions by the applicant.
(ii) A bankruptcy in which applicant was discharged more than 36 months before application.
(iii) A satisfied judgment or foreclosure with no loss of security which was completed more than 12 months before the date of application.
(3) The Lender may consider mitigating circumstances to establish the borrower's intent for good credit when the applicant provides documentation that:
(i) The circumstances were of a temporary nature, were beyond the applicant's control, and have been removed (e.g., loss of job; delay or reduction in government benefits or other loss of income; increased expenses due to illness, death, etc.); or
(ii) The adverse action or delinquency was the result of a refusal to make full payment because of defective goods or services or as a result of some other justifiable dispute relating to the goods or services purchased or contracted for.
(e)
(f)
The applicant must:
(a) Be a person who does not own a dwelling in the local commuting area or owns a dwelling which is not structurally sound, functionally adequate;
(b) Be without sufficient resources to provide the necessary housing and be unable to secure the necessary conventional credit without an RHS guarantee upon terms and conditions which the applicant could reasonably be expected to fulfill.
(c) Be a natural person (individual) who resides as a citizen in any of the 50 States, the Commonwealth of Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Marianas, Federated States of Micronesia, and the Republics of the Marshall Islands and Palau, or a noncitizen who resides in one of the foregoing areas after being legally admitted to the U.S. for permanent residence or on indefinite parole.
(d) Possess legal capacity to incur the loan obligation and have reached the legal age of majority in the state or have had the disability of minority removed by court action.
(e) Have the potential ability to personally occupy the home on a permanent basis. Because of the probability of their moving after graduation, full-time students will not be granted loans unless:
(1) The applicant intends to make the home his or her permanent residence and there are reasonable prospects that employment will be available in the area after graduation, and
(2) An adult member of the household will be available to make inspections if the home is being constructed.
Annual income determinations will be thoroughly documented in the Lender's casefile. Historical data based on the past 12 months or previous fiscal year may be used if a determination cannot logically be made. Annual income to be considered includes:
(a) Current verified income, either part-time or full-time, received by any applicant/borrower and all adult members of the household, including any coapplicant/coborrower.
(b) If any other adult member of the household is not presently employed but there is a recent history of such employment, that person's income will be considered unless the applicant/borrower and the person involved sign a statement that the person is not presently employed and does not intend to resume employment in the foreseeable future, or if interest assistance is involved, during the term of the Interest Assistance Agreement.
(c) Income from such sources as seasonal type work of less than 12 months duration, commissions, overtime, bonuses, and unemployment compensation must be computed as the estimated annual amount of such income for the upcoming 12 months. Consideration should be given to whether the income is dependable based on verification by the employer and the applicant's history of such income over the previous 24 months.
(d) The following
(1) The gross amount, before any payroll deductions, of wages and salaries, overtime pay, commissions, fees, tips, bonuses, and other compensation for personal services of all adult members of the household.
(2) The
(i) Expenditures for business or farm expansion and payments of principal on capital indebtedness shall not be used as deductions in determining income. A deduction is allowed in the manner prescribed by IRS regulations only for interest paid in amortizing capital indebtedness.
(ii) Farm and nonfarm business losses are considered “zero” in determining annual income.
(iii) A deduction, based on straight line depreciation, is allowed in the manner prescribed by IRS regulations for the exhaustion, wear and tear, and obsolescence of depreciable property used in the operation of a trade, farm, or business by a member of the household. The deduction must be based on an itemized schedule showing the amount of straight line depreciation that could be claimed for Federal income tax purposes.
(iv) Any withdrawal of cash or assets from the operation of a farm, business, or profession will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested in the operation by a member of the household.
(v) A deduction for verified business expenses, such as for lodging, meals, or fuel, for overnight business trips made by salaried employees, such as long-distance truck drivers, who must meet these expenses without reimbursement.
(3) Interest, dividends, and other net income of any kind from real or personal property, including:
(i) The share received by adult members of the household from income distributed from a trust fund.
(ii) Any withdrawal of cash or assets from an investment except to the extent the withdrawal is reimbursement of cash or assets invested by a member of the household.
(iii) Where the household has net family assets, as defined in § 1980.302(a), in excess of $5,000, the greater of the actual income derived from all net family assets or a percentage of the value of such assets based on the current passbook savings rate.
(4) The full amount of periodic payments received from social security (including social security received by adults on behalf of minors or by minors intended for their own support), annuities, insurance policies, retirement funds, pensions, disability or death benefits, and other similar types of periodic receipts.
(5) Payments in lieu of earnings; such as unemployment, disability and worker's compensation, and severance pay.
(6) Public assistance except as indicated in paragraph (e)(2) of this section.
(7) Periodic allowances, such as:
(i) Alimony and/or child support awarded in a divorce decree or separation agreement, unless the payments are not received and a reasonable effort has been made to collect them through the official entity responsible for enforcing such payments and they are not received as ordered; or
(ii) Recurring monetary gifts or contributions from someone who is not a member of the household.
(8) Any amount of educational grants or scholarships or VA benefits available for subsistence after deducting expenses for tuition, fees, books, and equipment.
(9) All regular pay, special pay (except for persons exposed to hostile fire), and allowances of a member of the armed forces who is the applicant/borrower or coapplicant/coborrower, whether or not that family member lives in the unit.
(10) The income of an applicant's spouse, unless the spouse has been living apart from the applicant for at least 3 months (for reasons other than military or work assignment), or court proceedings for divorce or legal separation have been commenced.
(e) The following are not included in annual income but may be considered in determining repayment ability:
(1) Income from employment of minors (including foster children) under 18 years of age. The applicant and spouse are not considered minors.
(2) The value of the allotment provided to an eligible household under the Food Stamp Act of 1977.
(3) Payments received for the care of foster children.
(4) Casual, sporadic, or irregular cash gifts.
(5) Lump-sum additions to family assets such as inheritances; capital gains; insurance payments from health, accident, hazard, or worker's compensation policies; and settlements for personal or property losses (except as provided in paragraph (d)(5) of this section).
(6) Amounts which are granted specifically for, or in reimbursement of, the cost of medical expenses.
(7) Amounts of education scholarships paid directly to the student or to the educational institution and amounts paid by the Government to a veteran for use in meeting the costs of tuition, fees, books, and equipment. Any amounts of such scholarships or veteran's payments, which are not used for the aforementioned purposes and are available for subsistence, are considered to be income. Student loans are not considered income.
(8) The hazardous duty pay to a service person applicant/borrower or spouse away from home and exposed to hostile fire.
(9) Any funds that a Federal statute specifies must not be used as the basis for denying or reducing Federal financial assistance or benefits. (Listed in exhibit F of FmHA Instruction 1980-D, available in any RHS office.)
(f) Income of live-in aides who are not relatives of the applicant or members of the household will not be counted in calculating annual income and will not be considered in determination of repayment ability.
Adjusted annual income is annual income as determined in § 1980.347 less the following:
(a) A deduction of $480 for each member of the family residing in the household, other than the applicant, spouse, or coapplicant, who is:
(1) Under 18 years of age;
(2) Eighteen years of age or older and is disabled as defined in § 1980.302(a); or
(3) A full-time student aged 18 or older.
(b) A deduction of $400 for any elderly family as defined in § 1980.302(a).
(c) A deduction for the care of minors 12 years of age or under, to the extent necessary to enable a member of the applicant/borrower's family to be gainfully employed or to further his or her education. The deduction will be based only on monies reasonably anticipated to be paid for care services and, if caused by employment, must not exceed the amount of income received from such employment. Payments for these services may not be made to persons whom the applicant/borrower is entitled to claim as dependents for income tax purposes. Full justification for such deduction must be recorded in detail in the loan docket.
(d) A deduction of the amount by which the aggregate of the following expenses of the household exceeds 3 percent of gross annual income:
(1) Medical expenses for any elderly family (as defined in § 1980.302(a)). This includes medical expenses for any household member the applicant/borrower anticipates incurring over the ensuing 12 months and which are not covered by insurance (e.g., dental expenses, prescription medicines, medical insurance premiums, eyeglasses, hearing aids and batteries, home nursing care, monthly payments on accumulated major medical bills, and full-time nursing or institutional care which cannot be provided in the home for a member of the household); and
(2) Reasonable attendant care and auxiliary apparatus expenses for each disabled member of any household to the extent necessary to enable any member of such household (including such disabled member) to be employed.
Upon receipt of a viable loan application and prior to loan underwriting, the Lender may request a reservation of loan guarantee funds for the loan application. The request should be made as follows:
(a) The Lender must have a complete application on file that clearly indicates the borrower has sufficient qualifying income and an adequate credit history.
(b) The reservation shall be valid for 60 days. The Lender must submit a request for a loan guarantee on or before the expiration date of the reservation.
(c) Reservations may be granted only when adequate funding authority is available. Reservations are subject to the availability of funds. Reservations will not exceed 90 percent of the funds available during that quarter.
(d) [Reserved]
(e) All reservations will expire at the end of 60 days or no later than the pooling date published in subpart L of part 1940 whichever occurs first.
(f) [Reserved]
(a)
(b)
(c)
(1) Name, address, telephone number, social security number, age, citizenship status of the applicant, and number of persons in the household.
(2) Amount of loan request and proposed use of loan funds.
(3) Name, address, contact person, and telephone number of the proposed Lender.
(4) Anticipated loan rates and terms, the date and amount of the Fannie Mae or VA rate used to determine the interest rate, and the Lender's certification that the proposed rate is in compliance with § 1980.320.
(5) Statement from the Lender that it will not make the loan as requested by the applicant without the proposed guarantee and that the applicant has been advised in writing that the applicant is subject to criminal action if he or she knowingly and willfully gives false information to obtain a federally guaranteed loan.
(6) If the applicant is not a United States citizen, evidence of being legally admitted for permanent residence or indefinite parole.
(7) The applicant's sex, race, and veteran status and whether applicant is a first-time homebuyer.
(8) An appraisal report including information about the dwelling location with respect to neighborhood and community services and facilities, business and industrial enterprises, and streets or roads serving the housing.
(9) Credit report obtained by the Lender.
(10) An equal opportunity agreement supplied by RHS for construction contracts costing more than $10,000.
(11) Evidence of compliance with the Privacy Act of 1974.
(12) Lender's loan underwriting (repayment ability, creditworthiness, and security value).
(13) A certification from the borrower regarding debarment, suspension, ineligibility, and voluntary exclusion from Federal programs using a form supplied by RHS.
(14) A statement signed by the borrower acknowledging that the borrower understands that RHS approval of the guarantee is required and is subject to the availability of funds.
(15) A copy of a valid verification of income for each adult member of the household.
(16) A copy of the purchase agreement or bid for construction contract.
(d) [Reserved]
(e)
(1)
(i) An RHS approved form or the equivalent HUD/FHA/VA or Fannie Mae form will be used to verify employment income of the loan applicant except when the applicant is self-employed. The form will be signed by the applicant or borrower or accompanied by an authorization for a release of information form signed by the applicant or borrower and sent directly to the employer by the Lender. The Lender should also obtain copies of the three most recent paycheck stubs. The information in the employer verification should be compared to the information in the paycheck stubs for consistency.
(ii) Income information that cannot be obtained by use of this form will be obtained in writing from third parties to the extent possible.
(iii) Alimony and/or child support payments will be verified by obtaining a copy of the divorce decree or other legal document indicating the amount of the payments. When the applicant states that less than the amount awarded is received, the Lender will request documentation from the official entity through which payments are received or other third party able to provide the verification when payment is not made through an official entity indicating the amounts and dates of payments to the applicant during the previous 12 months.
(iv) When it is not feasible to verify income in paragraph (e)(1)(iii) of this section through third parties, the Lender is authorized to accept an affidavit from the applicant stating the effort made to collect the amount awarded and the amounts and dates of payments received during the previous 12 months.
(v) Applicants and borrowers deriving their income from a farming or business enterprise will provide current documentation of the income and expenses of the operation. In addition, historic information from the previous fiscal year must be presented.
(vi) Social Security, pension, and disability income may be verified by obtaining a copy of the most recent award or benefit letter prepared and signed by the authorizing agency. This verification will be considered valid only for 1 year from the date of the award or benefit letter.
(2)
(3)
(4)
(i) Mortgage credit reports shall be used to determine creditworthiness unless the applicant resides in a remote rural area and conclusive or sufficient information would not be available. Information relative to judgments, garnishments, foreclosures, and bankruptcies must be obtained when a credit report is not obtained.
(ii) The credit report must be the most recent revision of the Residential Mortgage Credit Report form and meet the standards prescribed by Fannie Mae, Freddie Mac, HUD, VA, or RHS.
Upon the Lender's review of the conditional commitment, the Lender may determine whether to accept the conditions outlined in it.
(a)
(b)
(a)
(1) No major changes have been made in the Lender's loan conditions and requirements since the issuance of the conditional commitment, except those approved in writing by RHS. In the event the interest rate has not been fixed at the time the conditional commitment is issued, and the interest
(2) All planned property acquisition has been completed and:
(i) All development has been completed; or
(ii) An escrow account has been established in accordance with § 1980.315.
(3) Required insurance coverage is in effect and an escrow account has been established for the payment of taxes and insurance.
(4) Truth-in-lending requirements have been met.
(5) All equal employment opportunity and nondiscrimination requirements have been met.
(6) The loan has been properly closed by a party skilled and experienced in conducting loan closings and the required security instruments, including any required shared equity instruments, have been obtained and recorded in the appropriate office in a timely and accurate manner.
(7) The borrower has a marketable (clean and defensible) title to the property then owned by the borrower, subject to the instrument securing the loan to be guaranteed, and any other exceptions approved in writing by RHS.
(8) Lien priorities are consistent with the requirements of the conditional commitment.
(9) The loan proceeds have been disbursed for purposes and in amounts consistent with the conditional commitment.
(10) There has been no adverse change in the borrower's situation since the conditional commitment was issued by RHS.
(11) All other requirements of the conditional commitment have been met.
(b)
(c)
(d)
(a) When the Lender has certified that all requirements have been met, delivered a completed Loan Closing Report, and paid the guarantee fee, the RHS approval official will concurrently execute the loan note guarantee. The original will be provided to the Lender and be attached to the note.
(b)—(c) [Reserved]
The Lender must provide RHS with documentation that all of the closing conditions have been met within 10 days of issuance of the loan note guarantee. The Lender is responsible for deficiencies regardless of whether RHS discovers them in the loan closing review and/or notifies the Lender at that time. RHS reviews do not constitute any waiver of fraud, misrepresentation, or failure of judgment by the Lender.
(a)
(b)
(c)
(1) The transferee is an eligible applicant.
(2) The transferee will assume the total remaining debt and acquire all of the property securing the guaranteed loan balance.
(3) The transfer and assumption would not be made without the continuation of the loan guarantee.
(4) The market value of the security being acquired by the transferee is at least equal to the secured indebtedness against it.
(5) The priority of the existing lien securing the guaranteed loan will be maintained or improved.
(6) Proper hazard insurance will be obtained.
(7) The transfer and assumption can be properly closed and the conveyance instruments will be filed, registered, or recorded, as appropriate.
(8) The transferor acknowledges continued liability for the debt in writing.
(d)
(1) An explanation of the reasons for the proposed change in the rates and terms.
(2) A statement that the Lender's determinations required by paragraph (c) of this section can be made.
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(1) A conformed copy of the executed assumption agreement.
(2) A statement showing:
(i) Any changes made in the provisions of the promissory note or security instruments.
(ii) That all conditions and requirements of paragraph (b) of this section have been met.
(iii) That the required insertions have been made per paragraph (h) of this section.
(m)
RHS consent is required to continue with the RHS guarantee in the event of a sale or transfer of the property in accordance with § 1980.366. If the property is transferred without RHS consent, the Lender must take one of the following actions:
(a) Obtain RHS consent if the conditions of § 1980.366 can be met;
(b) Satisfy the RHS guarantee and continue with the loan without the loan note guarantee; or
(c) Notify the borrower and the transferee of the default and service the loan in accordance with § 1980.371.
RHS encourages Lenders to provide borrowers with the maximum opportunity to become successful homeowners. Lenders should provide sufficient servicing and counseling to meet the objectives of the loan. Loan servicing should be approached as a preventive action rather than a curative action. Prompt followup by the Lender on delinquent payments and early recognition and solution of problems are keys to resolving many delinquent loan cases. The Lender shall perform those services which a reasonable and prudent Lender would perform in servicing its own portfolio of loans that are not guaranteed.
(a)
(1) Receiving all payments as they fall due and proper application of payments to principal and interest and escrow accounts for taxes (including special assessments) and insurance.
(2) Establishment and maintenance of an escrow account to pay real estate taxes and assessments and required hazard and flood insurance on the security. All escrow accounts must be fully insured by the Federal Deposit Insurance Corporation (FDIC). The Lender is responsible for maintaining escrow funds in a reasonable and prudent manner and for assuring that real estate taxes and assessments and required hazard and flood insurance are paid in a timely manner even if it requires advancing the Lender's own funds. The monthly payment may be adjusted when it is not adequate to meet established charges of the escrow account for the coming year. Escrow funds may be used only for the purpose for which they were collected.
(3) Obtaining compliance with the covenants, loan agreement (if any), security instruments, and any supplemental agreements and notifying the borrower in writing of any violations.
(b)
(1) Insurance loss payments, condemnation awards, or similar proceeds are applied on debts in accordance with lien priorities on which the guarantee was based, or to rebuild or otherwise acquire needed replacement collateral.
(2) The borrower complies with laws and ordinances applicable to the loan and the collateral.
(3) The borrower is not released of liability for the loan except as provided in Agency regulations.
(c)
(d)
(1)
(2)
(e) [Reserved]
Default occurs when the borrower fails to perform under any covenant of the mortgage or Deed of Trust and the failure continues for 30 days. The Lender will negotiate in good faith in an attempt to resolve any problem. The borrower must be given a reasonable opportunity to bring the account current before any foreclosure proceedings are started.
(a) The Lender must make a reasonable attempt to contact the borrower if the payment is not received by the 20th day after it is due.
(b) The Lender must make a reasonable attempt to arrange and hold an interview with the borrower for the purpose of resolving the delinquent account before the loan becomes 60 days delinquent. Reasonable effort consists of not less than one letter sent to the borrower at the property address via certified mail or similar method which the borrower refuses to accept or fails to respond.
(c) If the Lender is unable to make contact with the borrower, the Lender must determine whether the property has been abandoned and the value of the security is in jeopardy before the account becomes two payments delinquent.
(d) When the loan becomes three payments delinquent, the Lender must report borrower delinquencies to credit repositories and make a decision with regard to liquidation of the account. The Lender may proceed with liquidation of the account unless there are extenuating circumstances.
Protective advances must constitute an indebtedness of the borrower to the Lender and be secured by the security instrument. Protective advances are advances made for expenses of an emergency nature necessary to preserve or protect the physical security. Attorney fees are not a protective advance. The Lender will not make protective advances in lieu of an additional loan. In order to assure that a protective advance over $500 will be included in the loss payment, Lenders are encouraged to obtain prior RHS approval.
If the Lender concludes the liquidation of a guaranteed loan account is necessary because of one or more defaults or third party actions that the borrower cannot or will not cure or eliminate within a reasonable period of time, the Lender will notify RHS of the decision to liquidate. Initiation of foreclosure begins with the first public action required by law such as filing a complaint or petition, recording a notice of default, or publication of a notice of sale. Foreclosure must be initiated within 90 days of the date the decision to liquidate is made unless the foreclosure has been delayed by law. When there is a legal delay (such as bankruptcy), foreclosure must be started within 60 days after it becomes possible to do so.
(a)
(b)
(c)
(d)
(1)
(2)
(3)
(4)
(e)
(1) The property is sold at or prior to foreclosure for an amount exceeding the Lender's unpaid balance and costs of foreclosure, or
(2) A junior lienholder takes over the Lender's loan.
The Lender may reinstate an account when all delinquent payments and any funds that were advanced to pay authorized expenses are paid or as required under state law. When the Lender wishes to consider other offers by the borrower to bring the account current, the Lender must obtain RHS concurrence.
Settlement of the guarantee will be processed in accordance with this section.
(a)
(1)
(i) If, at liquidation, title to the property is conveyed to a bona fide third-party purchaser, then final loss payment will be based on the net sales proceeds received for the property.
(ii) If, at liquidation, title to the property is conveyed to the Lender, then the Lender must prepare and submit a property disposition plan to RHS for RHS concurrence. The plan will address the Lender's proposed method for sale of the property, the estimated value and minimum sale price, itemized estimated costs of the sale, and any other information that could impact the amount of loss on the loan. The Lender is allowed up to 6 months from the date the property is acquired to sell the property. Upon the Lender's written request, RHS will authorize one extension not to exceed 30 days to close the sale of a purchase offer accepted near the end of the 6-month period. Net proceeds will be based on the net proceeds received for the property when the sale is conducted in accordance with the plan as approved by RHS. If no sale offer is accepted within the 6-month period, then the RHS approval official will obtain and use a liquidation value appraisal of the property. When an appraisal is obtained, the amount of the net proceeds from the security is then determined by subtracting a cost factor, which is found in exhibit D of FmHA Instruction 1980-D (available in any RHS office), from the current market value.
(iii) If a deficiency judgment is obtained, the Lender must enforce the judgment against the borrower before loss settlement if the current situation provides a reasonable prospect of recovery. A loss payment will be made when the Lender holds a deficiency judgment but there are not current prospects of collection, even if there may be in the future.
(2)
(i) If there is no dispute between RHS and the Lender regarding the amount of the loss and the Lender's eligibility for payment of loss, RHS will pay the loss within the limits of the guarantee.
(ii) If RHS and the Lender do not agree on the amount of the loss, or RHS has determined that part of the loss is not payable to the Lender under the terms of the loan note guarantee, RHS will pay the undisputed portion. The disputed portion of the claim will be treated as an adverse decision and the Lender may appeal.
(iii) When RHS has cause to believe that Lender fraud or other lender actions negating the guarantee exist, no loss payment may be made unless the situation is resolved.
(3) The RHS approval official will conduct an audit of the account and review the loan in its entirety to determine why the loan failed and whether any reason exists for reducing or denying the loss claim. This information will be documented in the RHS casefile.
(4) If a Lender's loss claim is denied or reduced, the RHS approval official will notify the Lender of all of the reasons for the action within 10 days of the decision and the Lender may appeal in accordance with § 1980.399 and subpart B of part 1900.
(5) The RHS approval official is authorized to approve loss payments in amounts of up to 50 percent of his/her delegated loan approval authority in accordance with exhibit D of FmHA Instruction 1901-A (available in any RHS office).
(b)
(1) The Lender has committed fraud. (Denial of claim.)
(2) The Lender claims items not authorized under RHS regulations. (Reduced by amount of unauthorized claim.)
(3) The Lender violated usury laws. (Reduction for amount of loss caused by the violation.)
(4) The Lender failed to obtain required security or maintain the security position. (Reduction for loss attributed to failure.)
(5) Loan funds were used for unauthorized purposes. (Reduction by unauthorized amount.)
(6) The Lender was negligent in loan servicing. Negligent servicing is a failure to perform those services which a reasonably prudent Lender would perform in servicing its own portfolio of loans that are not guaranteed. The term includes a failure to act, a failure to act in a timely manner, or acting in a manner contrary to that in which a reasonably prudent Lender would act. (Reduction for loss amount attributable to Lender negligence.) Examples of negligent servicing include:
(i) A failure to contact the borrower in a timely manner when the borrower's account goes into default.
(ii) A failure to pay real estate taxes or hazard insurance when due.
(iii) A failure to notify RHS within required time limits when the borrower defaults on the loan.
(iv) A failure to request loan subsidy when the borrower was eligible for loan subsidy and loan subsidy was available (subsidized loans only).
(v) A failure to protect security during the liquidation phase.
(7) The Lender delayed filing the loss claim. (Reduction in claim for interest accrued because the claim was not filed.)
The proceeds of any amounts recovered shall be shared in proportion to the amount of loss borne between RHS and the Lender. Although the Lender's actual loss may be different than the amount on which loss settlement was based, the proportion of recovery sharing must be based on the loss percentage upon which the loss payment calculation was based.
In order to assist low-income borrowers in the repayment of the loan, RHS is authorized to provide interest assistance payments subject to the availability of funds. Regardless of what date a borrower's loan payment is due each month, interest assistance payments will be made by RHS directly to the Lender on or before the 15th day of the month in which the borrower's payment is due.
(a)
(b)
(1) RHS will reimburse the Lender in the amounts authorized in exhibit D of FmHA Instruction 1980-D (available in any RHS office) for the cost of processing the agreement. The fee will be paid upon receipt of a valid agreement which has been coded as requiring a processing fee payment. The processing fee is payable when:
(i) A new agreement is made with the borrower except at the time of loan closing.
(ii) The borrower had an agreement for the previous year and a new agreement is made for the current year.
(iii) The borrower is eligible for but not presently on interest assistance and enters into a new interest assistance agreement.
(iv) The borrower has a change in circumstances which requires a revision to the current agreement. When the change in circumstances results in an agreement with less than 90 days remaining, the agreement for the subsequent year will be prepared at the same time. This action is considered one agreement.
(2) A processing fee will not be paid when the revision to an existing agreement is required due to an error on the part of the Lender or the borrower.
(c)
(2) The basis for the amount of interest assistance for each loan is determined by the amount of interest assistance authorized to the Agency as shown in exhibit D of FmHA Instruction 1980-D (available in any RHS office) and the note interest rate.
(3) A borrower receiving a loan in a high cost area will be granted an additional 1 percent interest assistance in order to assist the borrower up to the maximum rate in exhibit D of FmHA Instruction 1980-D (available in any RHS office).
(i) The Administrator may designate an area as a high cost area for interest assistance purposes. Such designation may be granted when the State Director makes a written request for it and provides documentation that low-income borrowers in the area could not afford to purchase a dwelling under the interest assistance table in exhibit D of FmHA Instruction 1980-D (available in any RHS office). The area must also be designated by HUD as a high cost area. The amount of additional interest assistance for high cost areas is 1 percent; however, in no case will more interest assistance be granted than the amount necessary to reach the lowest floor rate in exhibit D of FmHA Instruction 1980-D (available in any RHS office).
(ii) The change in a designation to (or from) a high cost area will not affect existing loans. An individual's loan eligibility for high cost designation is determined at the time of issuance of the conditional commitment for loan guarantee.
(d)
(e)
(1)
(i) The borrower's adjusted income at the time of loan guarantee approval did not exceed the applicable low-income limit, the loan guarantee was funded from interest assisted guaranteed loan funds, and a master interest assistance agreement was completed at closing if the borrower is ever to receive interest assistance.
(ii) The borrower's net family assets do not exceed the maximum allowable amount as per exhibit D of FmHA Instruction 1980-D (available in any RHS office) unless an exception is authorized. The calculation of net family assets will exclude the value of the dwelling and a minimum adequate dwelling site, cash on hand which will be used to reduce the amount of the loan, and household goods and personal automobiles and the debts against them. The Lender may request an exception at the time the initial application is submitted to RHS for a loan guarantee. For the purpose of determining whether an exception is justified, consideration will be given to the nature of the assets upon which a borrower is currently dependent for a livelihood or which could be used to reduce or eliminate the need for interest assistance.
(iii) The loan was approved as a subsidized guaranteed loan on or after April 17, 1991.
(iv) The amount of interest assistance will be $20 or more per month in accordance with the provisions of paragraph (c)(1) of this section. Interest assistance in amounts of less than $20 per month will not be granted.
(2)
(i) The requirements of paragraphs (e)(1)(i), (e)(1)(iii), and (e)(1)(iv) of this section are met.
(ii) The borrower's adjusted annual income does not exceed the low-income limit.
(iii) The borrower requests interest assistance through the Lender or the Lender determines that interest assistance is needed to enable the borrower to repay the loan.
(iv) The Lender processes the interest assistance agreement and submits it to RHS for approval.
(f)
(1)
(i)
(ii)
(2)
(i) The Lender will determine the borrower's adjusted annual income, document the calculations, and complete the interest assistance agreement form.
(ii) The borrower will review the interest assistance agreement form and sign the form signifying that all information is correct as shown.
(iii) If the information contained on the interest assistance agreement appears correct, RHS will approve the agreement and make monthly payments to the Lender on behalf of the borrower.
(iv) When the borrower's income is within the low-income limits but the provisions of paragraphs (e)(1)(ii) or (e)(1)(iv) of this section preclude granting interest assistance, the master interest assistance agreement must be executed if the borrower desires to be considered for interest assistance at a later date due to a change in circumstances.
(g)
(1)
(2)
(i) The borrower's adjusted annual income decreases by more than $100 per month;
(ii) The interest assistance calculation per paragraph (c) of this section indicates that the borrower is eligible for an additional $20 interest assistance per month; and
(iii) There are interest assistance funds available if the amount needed by the borrower exceeds the initial floor rate established at the time the loan was closed per paragraph (c) of this section.
(3)
(i) The remaining coborrower is occupying the dwelling, owns a legal interest in the property, and is liable for the debt;
(ii) The remaining coborrower certifies as to who lives in the house;
(iii) Separation is not due only to work assignment or military orders; and
(iv) The remaining coborrower is informed and agrees that should the coborrower begin to live in the dwelling, that coborrower's income will then be counted toward annual income and interest assistance may be reduced or canceled.
(4)
(5)
(h)
(1) The Lender will obtain written verification of the income of each borrower and all adult members of the borrower's household and conduct the review.
(i)
(A) Report the income of each adult member of the household to the Lender;
(B) Assure that each household member has provided sufficient information on that person's income for the Lender to conduct the review; and
(C) Cooperate in the Lender's efforts to verify income.
(ii) [Reserved]
(2)
(i) The amount of interest assistance will be based on the borrower's current annual income.
(ii) The effective date will be:
(A) The expiration period of the previous interest assistance agreement if the RHS approval official determines failure to renew was the fault of RHS or the Lender.
(B) The next payment due date following approval in all other cases.
(3)
(i)
(i) When the borrower has never occupied the dwelling, the interest assistance will be canceled as of the date of issuance of the guarantee. The Lender will refund all interest assistance payments to RHS.
(ii) The cancellation will be effective on the date on which the earliest action occurs which causes the cancellation or the date the Lender became aware of the situation if the date cannot be determined when:
(A) The borrower ceases to occupy, sells, or conveys title to the dwelling.
(B) The borrower has received improper interest assistance and a corrected agreement will not be submitted.
(C) The borrower has had an increase in income and is no longer eligible for interest assistance.
(D) The security is acquired by the Lender.
(E) The Lender formally declares the loan to be in default and accelerates the loan.
(2) [Reserved]
(j)
(1) The Lender will immediately notify RHS.
(2) The borrower will be notified and the interest assistance agreement will be corrected.
(3) A repayment agreement acceptable to RHS will be reached.
(k)
(l)
(m)
The policy of RHS is to collect all or a portion of interest assistance granted on a guaranteed RH loan when any of the events described in paragraph (a) of this section occur, if any equity exists in the security.
(a)
(1)
(i)
(A) A sales contract which reasonably represents the fair market value based on the Lender's and RHS approval official's knowledge of the property and the area.
(B) Lender's appraisal when the loan will be refinanced provided the appraisal reasonably represents the fair market value.
(C) If the items listed in either paragraph (a)(l)(i)(A) or (a)(1)(i)(B) of this section are not available, another current appraisal, if readily available, when the appraiser meets the qualifications of § 1980.334.
(D) When the account is being paid off from insurance proceeds, the most recent appraisal available if the Lender or RHS can document that it represents an accurate indication of the value at the time the dwelling was damaged or destroyed. If not, the best information available will be used to determine the market value. The RHS approval official will interview the borrower to determine the extent of improvements, if any, and the general condition of the property at the time of loss. The amount of the insurance payment is generally a good indication of value; however, tax records or comparable sales will be considered.
(E) RHS appraisal, with prior approval of the State Director.
(ii)
(iii)
(iv)
(v)
(2)
(ii)
(b)
(2)
(c)
(a)
(1) When the Lender is participating in an MCC program the amount of the tax credit is considered as an additional resource available for repayment of the loan when the credit is taken on a monthly basis from withholding.
(2) The Lender will submit a copy of the MCC and a copy of the applicant's Form IRS W-4, “Employee's Withholding Allowance Certificate,” along with the other materials for the loan guarantee request. The amount of tax credit is limited to the applicant's maximum tax liability.
(i) The MCC must show the rate of credit allowed.
(ii) The Form IRS W-4 must reflect that the borrower is taking the tax credit on a monthly basis.
(iii) The Lender will certify that the borrower has completed and processed all of the necessary documents to obtain the tax credit in accordance with this section.
(b)
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 application of the requirement, or provision, or failure to take action in the case of an omission would adversely affect the Government's financial interest. The Administrator will exercise this authority upon request of the State Director with the recommendation of the Assistant Administrator for Housing. Requests for exception must be made in writing accompanied by the borrower's casefile in cases involving specific borrowers and supported with documentation to explain the adverse effect, propose alternative courses of action, and to show how the adverse effect will be eliminated or minimized if the exception is granted.
(a)
(b)
(1) Submission of false or inaccurate information by the Lender;
(2) Submission of false or inaccurate information by the borrower;
(3) Error by RHS personnel; or
(4) Error by the Lender.
(c) [Reserved]
(d) [Reserved]
(e)
(2)
(3)
(f)
(g)
The borrower and the Lender respectively can appeal an RHS administrative decision that directly and adversely impacts them. Decisions made by the Lender are not covered by this paragraph even if RHS concurrence is required before the Lender can proceed. Appeals will be conducted in accordance with the rules of the National Appeals Division, USDA.
(a)
(2) The Lender only may appeal cases where RHS has denied or reduced the amount of a loss payment to the Lender.
(b)
(2) The Lender's decision to deny servicing relief is not subject to appeal.
(3) The Lender's decision to accelerate the account is not subject to appeal.
(a) Direct Business and Industry (B&I) loans are disbursed by the Agency under this subpart. B&I loan guarantees are to be processed and serviced under the provisions of subparts A and B of part 4279 and subpart B of part 4287 of this title. Any processing or servicing activity conducted pursuant to this subpart involving authorized assistance to relatives, or business or close personal associates, is subject to the provisions of part 1900 subpart D of this chapter. Applicants for this assistance are required to identify any known relationship or association with any Agency employee.
(b) The purpose of the B&I program is to improve, develop or finance business, industry and employment and improve the economic and environmental climate in rural communities, including pollution abatement and control. This purpose is achieved through bolstering the existing private credit
(c) This subpart and its appendices (especially appendix I and appendix K) also contain regulations for Drought and Disaster (D&D) and Disaster Assistance for Rural Business Enterprises (DARBE) guaranteed loans authorized by section 331 of the Disaster Assistance Act of 1988 (Pub. L. 100-387) and section 401 of the Disaster Assistance Act of 1989 (Pub. L. 101-82). D&D loans must be to alleviate distress caused to rural business entities, directly or indirectly, by drought, hail, excessive moisture, or related conditions occurring in 1988, or to provide for the guarantee of loans to such rural business entities that refinance or restructure debt as a result of losses incurred, directly or indirectly, because of such natural disasters and are limited to a guarantee of principal only. DARBE loans must be to alleviate distress caused to rural business entities, directly or indirectly, by drought, freeze, storm, excessive moisture, earthquake, or related conditions occurring in 1988 or 1989, or to provide for the guarantee of loans to such rural business entities that refinance or restructure debt as a result of losses incurred, directly or indirectly, because of such natural disasters and within certain parameters guarantee both principal and interest.
(d) The B&I loan program is administered by the Administrator through a State Director serving each State. The State Director is the focal point for the program and the local contact person for processing and servicing activities, although this subpart refers in various places to the duties and responsibilities of other FmHA or its successor agency under Public Law 103-354 employees.
(e) Throughout this subpart there appear Administrative provisions for the State Director, District Director, and County Supervisor. These provisions establish the internal duties, responsibilities and procedures to carry out the requirements of the program. These provisions are identified as “Administrative” and follow appropriate sections of this subpart.
(f) This subpart and its appendices also contains regulations for Business and Industry Disaster (BID) loans under the authority of the Dire Emergency Supplemental Appropriations Act, 1992, Public Law 102-368. This program provides B&I guarantees for loans needed as a result of natural disasters. Some of the requirements of this subpart are waived or altered for BID loans. The waivers and alterations are provided in § 1980.498 of this subpart.
The following general definitions are applicable to the terms used in this subpart. Additional definitions may be found in § 1980.6 of subpart A of this part.
(1) Has a remaining principal guaranteed loan balance of two-thirds or less of the original aggregate of all existing
(2) Is in compliance with all loan conditions and B&I regulations.
(3) Has been current on the B&I guaranteed loan(s) payments for 24 consecutive months.
(4) Is secured by collateral which is determined to be adequate to insure there will be no loss on the B&I guaranteed loan.
Loans to individuals will be made or guaranteed only to those who are citizens of the United States or reside in the United States after being legally admitted for permanent residence. At least 51 percent of the outstanding interest in any corporation or organization-type applicant must be owned by those who are either citizens of the United States or reside in the United States after being legally admitted for permanent residence.
FmHA or its successor agency under Public Law 103-354 will determine if any area is rural for purposes of the Guaranteed or Insured loan program. The following will be used by FmHA or its successor agency under Public Law 103-354 in making area eligibility determinations when it is not clear from the geographical location of the applicant:
(a) Urbanized area immediately adjacent to a city having a population of 50,000 or more: An urbanized area immediately adjacent to a city having a population of 50,000 or more is an area constituting for general social and economic purposes a single community having a boundary contiguous with that of the city. Such community may be incorporated or unincorporated and will extend from the contiguous boundary(ies) to the recognizable open country, less densely settled areas or natural boundaries such as forests or water. Minor open spaces such as airports, industrial sites, recreational facilities or public parks will be disregarded. Outer boundaries of an incorporated community will extend at least to its legal boundaries. Cities which may have a contiguous border with another city but are located across a river from such city and recognized as a separate community and are not otherwise considered a part of an urbanized or urbanizing area as defined in this section are not in a nonrural area.
(b) Urbanizing area: An urbanizing area is one defined as a community which is not now or within the foreseeable future not likely to be clearly separate from and independent of a city of 50,000 or more population and its immediately adjacent urbanized areas. A community will be considered as “separate from” when it is separated from the city and its immediately adjacent urbanized area by open country, less densely settled areas or natural barriers such as forests or water. Minor open spaces such as airports, industrial sites, recreational facilities or public parks will be disregarded. A community will be considered as “independent of” when its social and economic structure (e.g., government, education, health and recreational facilities; business, industry, tax base and employment opportunities) is not primarily dependent on the city and its immediately adjacent urbanized area.
(c) The State Director will proceed as follows in rural area determinations:
Loans to borrowers with facilities located in both urban and rural areas will be limited to the amount necessary to finance the facility located in the eligible rural area.
(a)
(1) Business and industrial acquisitions, construction, conversion, enlargement, repair, modernization of development cost.
(2) Purchasing and development of land, easements, rights-of-way, buildings, facilities, leases or materials.
(3) Purchasing of equipment, lease-hold improvements machinery or supplies.
(4) Pollution control and abatement including those in connection with farming and ranching operations.
(5) Transportation services incidential to industrial development.
(6) Startup costs and working capital.
(7) The financing of housing development sites located in open country or cities, towns or villages with populations not in excess of those eligible for FmHA or its successor agency under Public Law 103-354 rural housing loans, provided the community demonstrates a need for additional housing to prevent a loss of jobs in the area, or to house families moving to the area as a result of new employment opportunities.
(8) Loans, other than for working capital or debt refinancing, for meat processing facilities and integrated meat and poultry operations. Loans may not be guaranteed for agricultural production as defined in § 1980.412(e); however, applicants who are in the business of processing, marketing or packaging of agricultural products, as well as agricultural production, may be eligible for loan assistance for that portion of the business other than agricultural production provided the agricultural production aspect is separate from the rest of the business; i.e., the production aspects are handled through separate legal business entities or through maintenance of the accounting system in such a manner as to clearly identify the use of and future accounting of the loan proceeds and operation of the business.
(9) Interest (including interest on interim financing) during the period before the first principal payment becomes due or the facility becomes income producing, whichever occurs first.
(10) Feasibility studies.
(11)
(i) It is necessary to spread substantial debt payment over a longer period of time thereby improving the business’ net cash flow and working capital position consistent with the useful life of the asset(s) being refinanced, or
(ii) For payment of short-term debt when required in situations customarily financed over long periods of time (e.g., financing the purchase of real estate, machinery, or equipment with short-term debt or cash expenditures, when lenders would not extend reasonable longer terms to the business), or
(iii) It is necessary to place a permanent loan subsequent to an interim loan for financing the construction of the project.
(12) Reasonable fees and charges only as specifically listed below and disclosed on Form FmHA or its successor agency under Public Law 103-354 449-1, “Application for Loan and Guarantee,” or on an addendum to the application at the time the request is submitted to FmHA or its successor agency under Public Law 103-354 for processing. Authorized fees include professional fees rendered by professionals generally licensed by individual State or accreditation Associations, such as Engineers, Architects, Lawyers, Accountants, and Appraisers. The amount of the fee will be what is reasonable and customary in the community or region where the project is located. For example, Architects and Engineers customarily charge fees based on a percentage of estimated project costs. Lawyers, Accountants, and Appraisers customarily charge for services on an hourly basis. Any fees for professional or expert services are to be fully documented and justified on the Form FmHA or its successor agency under Public Law 103-354 449-1 and are subject to FmHA or its successor agency under Public Law 103-354 review and approval before the application is presented to the FmHA or its successor agency under Public Law 103-354 State Loan Review Board for action. The above approved fees and charges may be funded out of loan proceeds.
(13) FmHA or its successor agency under Public Law 103-354 guarantee fee.
(14) Acquisition of membership and/or stocks, bonds, or debentures necessary to obtain a loan from Production Credit Associations, Banks for Cooperatives, Small Business Investment Companies, and other lenders, provided such acquisition is required of all their borrowers. However, a lender which requires membership fees in such organization or the purchase of securities issued by such organization will not use such proceeds to acquire, lease or improve property which does not benefit its members.
(15) 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 and regulated stock of fish.
(b)
Loans may
(a) To pay off a creditor in excess of the value of the collateral.
(b) For distribution or payment to the owner, partners, shareholders or beneficiaries of the applicant or members of their families when such persons will retain any portion of their equity in the business.
(c) For projects in which such assistance exceeds $1 million and when direct employment increases more than 50 employees which is calculated to or is likely to result in the transfer from one area to another of any employment or business activity provided by the operations of the applicant. This limitation will not prohibit assistance for the expansion of an existing business entity through the establishment of a new branch, affiliate or subsidiary of such entity if the expansion will not result in an increase in the unemployment in the area of original location or in any other area where such entity conducts business operations unless there is reason to believe that such explanation is being established with the intention of closing down the operations of the existing business entity in the area of its original location or in any other area where it conducts such operations.
(d) For projects in which such assistance exceeds $1 million and when direct employment increased more than 50 employees which is calculated to or
(e) For agricultural production which means the cultivation, production (growing), and 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 (including commercial custom feedlots), breeding, hatching, control, and/or management of farm and domestic animals. Exceptions to this definition are:
(1) Aquaculture as identified under eligible purposes.
(2) 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, and the growing of vegetables from seed to the transplant stage.
(3) Forestry which includes establishments primarily engaged in the operation of timber tracts, tree farms, forest nurseries, and related activities such as reforestation.
(4) Loans for livestock and poultry processing as identified under eligible purposes.
(5) The growing of mushrooms or hydroponics.
(f) For the transfer of ownership of a business unless the loan will keep the business from closing, or prevent the loss of employment opportunities in the area, or provide expanded job opportunities.
(g) For financing community antenna television services or facilities.
(h) Charitable and educational institutions, churches, organizations affiliated with or sponsored by churches, and fraternal organizations.
(i) For lending and investment institutions and insurance companies.
(j) For assistance to government employees and military personnel who are directors, officers or have a major ownership of 20 percent or more in the business.
(k) For any legitimate business activity when more than 10 percent of the annual gross revenue is derived from legalized gambling activity.
(l) For any illegal business activity.
(m) For hotels, motels, tourist homes, or convention centers.
(n) For any tourist, recreation or amusement facility.
(o) For any line of credit.
(a) The following transactions will not be guaranteed by FmHA or its successor agency under Public Law 103-354:
(1) The guarantee of lease payments.
(2) The guarantee of loans made by other Federal agencies. This does not preclude the guaranteeing of loans made by the Bank for Cooperatives, Federal Land Bank, or Production Credit Association.
(3) The guarantee or making of any B&I loans(s), to any one borrower, when the total amount of the B&I loans(s) requested plus the outstanding balance of any existing B&I loan(s) is in excess of $10 million.
(b) Guaranteeing of loans involved in tax-exempt obligations under § 1980.23 of Subpart A of this Part.
The State Director will consider the overall State allocations of funding authority in
[See Subpart A, § 1980.22]
(a) All fees and charges must be specifically documented and justified on the Form FmHA or its successor agency under Public Law 103-354 449-1 or on an addendum to the application at the time the loan request is submitted to FmHA or its successor agency under Public Law 103-354 for processing. Allowable fees will be those reasonably and customarily charged borrowers in similar circumstances in the ordinary course of business and are subject to FmHA or its successor agency under Public Law 103-354 review and approval.
(b) Packaging fees include services rendered by the lender or others in connection with preparation of the application and seeing the project through to final decision. These services may or may not be performed by an investment banker. If an investment banker provides needed assistance in addition to the packaging of the loan, additional charges may be added to the packaging fee. The maximum allowable packaging fees are 2 percent of the total principal amount of the loan up to $1 million and on all amounts over $1 million, an additional one-fourth percent up to total maximum fee of $50,000. Packaging fees, investment banker fees and and other fees and charges not specifically provided for in this section are permitted subject to FmHA or its successor agency under Public Law 103-354 review and approval. Loan proceeds may be used to pay fees as specifically authorized under §§ 1980.411(a)(12) and (13). Packaging fees, investment banker fees, and any other fees or charges shall not be paid from loan proceeds.
[See Subpart A, § 1980.13.]
A.
B.
C. With prior written approval of the FmHA or its successor agency under Public Law 103-354 National Office, a new eligible lender may be substituted for the original lender provided the new lender agrees to assume all original loan requirements including liabilities, servicing responsibilities and acquiring legal title to the unguaranteed portion of the loan. Such approval will be granted by the National Office only when a lender discontinues lending operations or other extreme situations require a substitution of lender. If approved by the National Office, the State Director will submit to the Finance Office Form FmHA or its successor agency under Public Law 103-354 1980-42. “Notice of Substitution of Lender.”
The percentage of guarantee, up to the maximum allowed by this section, is a matter of negotiation between the lender and FmHA or its successor agency under Public Law 103-354.
(a) For loans of $2 million or less, the maximum percentage of guarantee is 90 percent.
(b) For loans over $2 million but not over $5 million, the maximum percentage of guarantee is 80 percent.
(c) For loans in excess of $5 million, the maximum percentage of guarantee is 70 percent.
(d) Lenders and borrowers will propose the percentage of guarantee. FmHA or its successor agency under Public Law 103-354 informs lenders and borrowers in writing on Form FmHA or its successor agency under Public Law 103-354 449-14 of any percentage of guarantee less than proposed by the lender and borrower, and the reasons therefore. FmHA or its successor agency under Public Law 103-354 determines the percentage of guarantee after considering all credit factors involved, including but not limited to:
(1)
(2)
(3)
(4)
(5)
(a)
(1) A variable interest rate must be a rate that is tied to a base rate published periodically in a recognized national or regional financial publication specifically agreed to by the lender and borrower. The variable interest rate may be adjusted at different intervals during the term of the loan but the adjustments may not be more often than quarterly. The intervals between interest rate adjustments will be specified in the Loan Agreement. The lender must incorporate within the variable rate promissory note at loan closing, the provision for adjustment of payment installments coincident with an interest rate adjustment. This will assure that the outstanding principal balance is properly amortized within the prescribed loan maturity to eliminate the possibility of a balloon payment at the end of the loan.
(2) Under a Memorandum of Understanding between FmHA or its successor agency under Public Law 103-354 and the Farm Credit Administration dated September 25, 1974, the interest rate on loans made by the Bank for Cooperatives, Federal Land Banks and Production Credit Associations may be a variable rate based on their administrative and borrowing costs.
(3) Any change in the interest rate between the date of issuance of the Form FmHA or its successor agency under Public Law 103-354 conditional Commitment For Guarantee,” and before the issuance of the Loan Note Guarantee must be approved by the State Director. Approval of such change will be shown on an amendment to Form FmHA or its successor agency under Public Law 103-354 449-14.
(4) It is permissible to have one interest rate on the guaranteed portion of the loan and another interest rate on the unguaranteed portion of the loan, provided the lender and borrower agree and:
(i) The rate on the unguaranteed portion does not exceed that currently being charged on loans of similar size and purpose for borrowers under similar circumstances.
(ii) The rate on the guaranteed portion of the loan will not exceed the rate on the unguaranteed portion.
(5) When multi-rates are used, the lender will provide FmHA or its successor agency under Public Law 103-354 with the overall effective interest rate for the entire loan.
(6) The borrower, lender and holder (if any) may collectively effect a permanent reduction in the interest rate of their B&I guaranteed loan at any time during the life of the loan upon written agreement by these parties. FmHA or its successor agency under Public Law 103-354 must be notified by the lender, in writing, within 10 calendar days of the change. If the guaranteed portion has been repurchased by FmHA or its successor agency under Public Law 103-354, then FmHA or its successor agency under Public Law 103-354 is a holder and must affirm or reject interest rate change proposals.
(i) Fixed rates cannot be changed to variable rates to reduce the interest rate to the borrower unless the variable rate has a ceiling which is less than the original fixed rate.
(ii) Variable rates can be changed to reduced fixed rates. In a final loss settlement, when qualifying rate changes were made with the required written agreements and notification, the interest will be calculated for the periods the given rates were in effect, except that interest claimed on a loan which originated at a variable rate can never exceed the amount which would have been eligible for claim had the variable interest remained in force. The lesser cost to the Government will always prevail. The lender must maintain records which adequately document the accrued interest claimed.
(iii) The lender is responsible for the legal documentation of interest changes by an allonge attached to the promissory note(s) or any other legally effective amendment of the rate(s); however, no new note(s) may be issued.
(7) No increases in interest rates will be permitted under the B&I loan guarantee except the normal fluctuations in approved variable interest rate loans.
(b)
(2) Loans to public bodies, nonprofit associations and Indian Tribes used to finance community facilities will bear interest at the rate prescribed in 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).
(a) Principal and interest on the loan will be due and payable as provided in the promissory note except, any interest accrued as the result of the borrower's default on the guaranteed loan(s) over and above that which would have accrued at the normal note rate on the guaranteed loan(s) will not be guaranteed by FmHA or its successor agency under Public Law 103-354. The lender will structure repayments as established in the loan agreement between the lender and borrower. Ordinarily,
(b) The maximum time allowable for final maturity for an FmHA or its successor agency under Public Law 103-354 guaranteed B&I loan will be limited to thirty (30) years for land, buildings and permanent fixtures; the usable life of the machinery and equipment purchased with loan funds, but not to exceed fifteen (15) years; and seven (7) years for the working capital portion of the loan. The term for a loan that is being refinanced may be based on the collateral the lender will take to secure the loan.
(c) The maximum time allowable for final maturity of an FmHA or its successor agency under Public Law 103-354 insured loan for community facilities will not exceed forty (40) years.
(d) FmHA or its successor agency under Public Law 103-354 will not guarantee any loan in which the promissory note or any other document provides for the payment of interest upon interest.
It is permissible for lenders to structure the borrower's financial proposal under the multi-note option as provided for in paragraph III A.2. of Form FmHA or its successor agency under Public Law 103-354 449-35, “Lender's Agreement,” in the following ways:
A. To treat the entire financial package of the borrower as one loan (i.e., loan purposes may include one or any combination of working capital, machinery and equipment or real estate) provided:
1. The loan is amortized to provide repayment of the working capital portion within the 7 years, the machinery and equipment portion within useful life or 15 years, whichever is less, and real estate portion within 30 years.
2. One note represents the unguaranteed portion of the loan. It is permissible to issue as many as 10 notes or the guaranteed portion of the loan.
3. A Form FmHA or its successor agency under Public Law 103-354 449-34, “Loan Note Guarantee,” is attached to all notes, including the unguaranteed note.
4. One interest rate (either variable or fixed) is used for the entire loan or one interest rate is used on the guaranteed portion and a different interest rate is used on the unguaranteed portion, subject to the requirements and conditions found in § 1980.423 of this subpart.
5. One of each of the following Forms: FmHA or its successor agency under Public Law 103-354 449-14, FmHA or its successor agency under Public Law 103-354 1940-3, “Request for Obligation of Funds—Guaranteed Loans,” FmHA or its successor agency under Public Law 103-354 449-35, and FmHA or its successor agency under Public Law 103-354 1980-19, “Guaranteed Loan Closing Report,” is used.
B. To treat the financial package of the borrower as separate loans that are processed as a single application provided:
1. A separate loan is made for each purpose (i.e., working capital, machinery and equipment or real estate). As an example, a working capital loan could be structured as follows:
One note for $XXXX at X% interest due in 7 years representing the unguaranteed portion of the loan, and
Up to 10 notes for $XXXX at X% interest due in 7 years representing the guaranteed portions of the loan.
2. A Form FmHA or its successor agency under Public Law 103-354 449-34 is attached to all notes, including the unguaranteed note.
3. A different interest rate may be used on the guaranteed and unguaranteed portions of the loan, subject to the requirements and conditions found in § 1980.423 of this subpart.
4. Separate Forms FmHA or its successor agency under Public Law 103-354 449-14, 1940-3, 449-35, and 1980-19 are required for each loan. If you have two loans, one for working capital and another for real estate, then a set of these forms will be required for each loan.
C. Form FmHA or its successor agency under Public Law 103-354 449-36, “Assignment Guarantee Agreement,” will never be used when the multi-note option is utilized.
D. Par. (b). The State Director will assure that the loan officer reviewing the application fully evaluates the useful life of the collateral offered for the loan when determining maturities for the loan. Loan requests for the maximum maturities could result in collateral obsolescence prior to full repayment of the indebtedness. The loan file must be
(a) Inability to obtain credit elsewhere is not a requirement for guaranteed assistance under this subpart.
(b) To be eligible for an insured loan under this subpart, the borrower must be unable to obtain the required credit from private or cooperative sources at reasonable rates and terms, taking into consideration prevailing private and cooperative rates and terms in the community in or near the borrower's location(s) for loans for similar purposes and period of time. The borrower's inability to obtain such credit elsewhere will be determined in accordance with subpart A of part 1942 of this chapter.
[See subpart A, § 1980.40 and subpart G of part 1940 of this chapter.]
When required by subpart G of part 1940 of this chapter, the approving official will review Form FmHA or its successor agency under Public Law 103-354 1940-20, “Request for Environmental Information,” submitted by the borrower and the environmental impact assessment prepared by the environmental reviewer. The approving official will indicate his/her decision as part of the assessment when required. If the approving official determines that an EIS is required, he/she will notify the borrower and lender in writing.
(See subpart A, § 1980.42.)
The State Director is responsible for determining if a project is located in a special flood or mudslide hazard area. Refer to subpart B of part 1806 of this chapter [FmHA or its successor agency under Public Law 103-354 Instruction 426.2].
(See subpart A § 1980.41.)
The State Director will assure that equal opportunity and nondiscrimination requirements are met. If there is indication of noncompliance with these requirements, such facts will be reported by the Compliance Reviewing Officer or FmHA or its successor agency under Public Law 103-354 Official in writing to the Administrator, ATTN: Equal Opportunity Officer.
(a) A minimum of 10 percent tangible balance sheet equity will be required for insured loans at loan closing or at the time the Loan Note Guarantee is issued for guaranteed loans. However, balance sheet equity in the amount of at least 20-25 percent will be required under the following circumstances:
(1) For new businesses since they do not have a history of proven operations and such businesses generally experience unforeseen startup expenses which may deplete the available cash resources.
(2) For businesses where the borrower does not or cannot offer a limited or full personal or corporate guarantee as required in § 1980.443 and thereby weakens the financial soundness of the loan.
(3) For energy related businesses since these types of projects may be technically feasible, but in many instances are more susceptible to higher risk. A higher equity position will assure management's commitment to the project.
(b) FmHA or its successor agency under Public Law 103-354 may also require more than a 10 percent equity investment in projects other than those in paragraphs (a)(1), (2) and (3) of this section if the reviewing official makes a written determination that special circumstances necessitate this course of action. Special circumstances are limited to credit factors which negatively affect the financial soundness of the loan, the chances of the project's success or the repayment ability of the borrower. Such determination will be in writing by the reviewing official and explain fully what the special circumstances are and how FmHA or its successor agency under Public Law 103-
(c) FmHA or its successor agency under Public Law 103-354 will require the borrower to contribute all of the equity requirement in the form of either cash or tangible earning assets injected into the business and reflected on the balance sheet. Appraisal surplus and/or subordinated debt cannot be used in the calculation of the equity requirements.
A feasibility study by a recognized independent consultant will be required for all loans, except as provided in this paragraph. The cost of the study will be borne by the borrower and may be paid from funds included in the loan. The loan approval official may make an exception to the requirement of a feasibility study for loans to existing businesses when the financial history of the business, the current financial condition of the business, and guarantees or other collateral offered for the loan are sufficient to protect the interest of the lenders and FmHA or its successor agency under Public Law 103-354. FmHA or its successor agency under Public Law 103-354 will thoroughly document the justification for the exception to the feasibility study for such businesses. An acceptable feasibility study should include but not be limited to:
(a)
(b)
(c)
(d)
(e)
FmHA or its successor agency under Public Law 103-354 loan approval officials will be selective in approving borrowers for new business ventures involved in unproven products, services, or markets. Should such businesses be considered, additional equity will usually be required.
(a)
(2) Collateral must be of such a nature that repayment of the loan is reasonably assured when considered with the integrity and ability of project management, soundness of the project, and applicant's prospective earnings. Collateral may include, but is not limited to the following: Land, buildings, machinery, equipment, furniture, fixtures, inventory, accounts receivable, cash or special cash collateral accounts, marketable securities and cash surrender value of life insurance. Collateral may also include assignments of leases or leasehold interest, revenues, patents, and copyrights.
(3) All collateral must secure the entire loan. The lender will not take separate collateral to secure only that portion of the loan or loss not covered by the guarantee. The lender will not require compensating balances or certificates of deposit as a means of eliminating the lender's exposure on the unguaranteed portion of the loan. However, compensating balances as used in the ordinary course of business may be used.
(4) Release of collateral of a going concern is based on a complete analysis of the proposal.
(i) Release of collateral prior to payment-in-full of the FmHA or its successor agency under Public Law 103-354 guaranteed debt must be requested by the lender and concurred with by the State Director as prescribed in § 1980.469 Administrative D.2 of this subpart subject to the following conditions:
(A) Collateral taken initially or subsequently may not be released prior to the payoff, in full, of the loan balance without adequate consideration for the value of that collateral. Adequate consideration may include, but is not limited to:
(
(
(
(
(B) FmHA or its successor agency under Public Law 103-354 must not be adversely affected by the release of collateral; and
(C) If the release of collateral does not involve a reduction of the FmHA or its successor agency under Public Law 103-354 guaranteed debt equal to the net proceeds of the disposition of the collateral, then it must be determined that the remaining collateral is sufficient to provide for the recovery of the FmHA or its successor agency under Public Law 103-354 guaranteed loan(s).
(ii) Sale of collateral of a going concern to the borrower, borrower's stockholder(s) or officer(s), the lender or lender's stockholder(s) or officer(s) must be based on an arm's-length transaction with the concurrence of FmHA or its successor agency under Public Law 103-354.
(b)
(2) An exception to the requirement for personal or corporate guarantees may be made by FmHA or its successor agency under Public Law 103-354 when requested by the lender and if:
(i) The borrower has a satisfactory and current (not over 90 days old) credit report, proven management, evidence of the market necessary to support projections, profitable historical performance of no less than 3 years, abundant collateral to protect the lender and FmHA or its successor agency under Public Law 103-354, sufficient cash flow to service its debts and meets key industry standards such as those of Robert Morris Associates, Dunn and Bradstreet or the like; or
(ii) The borrower's stock is widely enough held so that no one individual can exercise control. Examples of control would include but are not limited to: Holding sufficient proxies and maintaining sufficient family or special interest voting blocks; or
(iii) A borrower which has a parent, subsidiary, or affiliate which is legally restricted from guaranteeing, or if the guarantee would conflict with existing contractual obligations. Examples of existing contractual obligations include but are not limited to restrictions in loan agreements or in credit lines which may preclude guaranteeing.
(3) No guarantees are required from any partners in a limited partnership.
(4) As a general rule, stockholders of publicly traded corporations will not be required to guarantee. However, such guarantees can be required from some of the stockholders where such guarantees are determined necessary to adequately protect the interest of the Government.
(5) If the guarantee would conflict with existing contractual restrictions, the Administrator will have the authority to grant exceptions to the above restrictions upon a finding by the Administrator that such a guarantee is not necessary to adequately protect the Government's interest. Relief would only be granted as to contractual restrictions existing at the time the lender filed an application with FmHA or its successor agency under Public Law 103-354.
(6) Unsecured personal guarantees, while collateral, will not be considered for purposes of adequacy of security. Personal guarantees will be secured by collateral when business collateral offered is determined by FmHA or its successor agency under Public Law 103-354 to be insufficient or when the borrower's credit does not meet the program's normal requirements or anytime the lender deems such security should be taken.
(7) Guarantors of borrowers will:
(i) In the case of personal guarantees, provide current financial statements (not over 60 days old at time of filing), signed by the guarantors, which make a clear disclosure of community or homestead property.
(ii) in the case of corporate guarantees, provide current financial statements (not over 90 days old at time of filing), certified by an officer of the corporation.
(iii) When applicable, provide written evidence to FmHA or its successor agency under Public Law 103-354 of their inability to provide a guarantee because of existing contractual arrangements or legal restrictions.
(c)
(2) Hazard insurance with a standard mortgage clause naming the lender as beneficiary will be required on every loan in an amount that is at least the lesser of the depreciated replacement value of the property being insured or
(3) Ordinarily, life insurance, which may be decreasing term insurance, is required for the principals and key employees of the borrower and will be assigned or pledged to the lender. A schedule of life insurance available for the benefit of the loan will be included as part of the application.
(4) Workman's compensation insurance is required in accordance with State law.
1. Little or no value will be assigned to unsecured personal or corporate guarantees.
2. A maximum of 80 percent of current market value will be given to real estate. Special purpose real estate should be assigned less value.
3. FmHA or its successor agency under Public Law 103-354 at its option may permit a maximum of 60 percent of book value to be assigned to acceptable accounts receivable; however, all accounts over 90 days past due, contra accounts, affiliated accounts and other accounts deemed, by the FmHA or its successor agency under Public Law 103-354 official, not to be collateral will be omitted. Calculations to determine the percentage to be applied in the analysis are to be based on the realizable value of the accounts receivable taken from a current aging of accounts receivable from the borrower's most recent financial statement.
4. A maximum of 60 percent of book value will be assigned to inventory.
5. Collateral value assigned to machinery and equipment, furniture and fixtures will be based upon its marketability, mobility, useful life and alternative uses, if any.
(a) Appraisal reports prepared by independent qualified fee appraisers will be required on all property that will serve as collateral. In the case of loans two million dollars or less, the State Director may modify this requirement by permitting the appraisal to be made by a qualified appraiser on the lender's staff with experience appraising the type of collateral involved. The appraisers will give their opinion regarding the current market value of the collateral and the purpose for which the appraisal will be used. The lender will be responsible for assuring that appropriate appraisals are made.
(b) The lender will be responsible for determining that appraisers have the necessary qualifications and experience to make the appraisals. The lender will consult with FmHA or its successor agency under Public Law 103-354 for its recommendations before having the appraisal made.
(c) The lender will determine that the fees or charges of appraisers are reasonable.
(d) Independent appraisals will be made in accordance with the accepted format of the industry and those prepared by the lender in accordance with its policy and procedures. All appraisals will become part of the application. (See § 1980.541(i)(6) of this subpart.)
(e) If a subsequent loan request is made within 3 years from the date of the most recent borrower's appraisal report, and there is no significant change in collateral, then the FmHA or its successor agency under Public Law 103-354 State Director in his/her discretion, and if the lender agrees, may use the existing appraisal report in lieu of having a new appraisal prepared.
All borrowers will be required to submit periodic financial statements to the lender. Lenders must forward copies of the financial statements and the lender's analysis of the statements to the Agency.
(a)
(b)
(c)
(d)
(e)
(a)
(b)
(c)
(d)
(1) FmHA or its successor agency under Public Law 103-354 will cooperate fully with appropriate State agencies in guaranteeing and insuring loans in a manner which will assure maximum support of the State's strategies for development of its rural areas.
(2) When applications on hand otherwise have equal priority, the applications from a veteran will have preference. A veteran is a person who has been discharged or released from the active forces of the United States Army, Navy, Air Force, Marine Corps, or Coast Guard under conditions other than dishonorable and who served on active duty in such forces:
(i) During the period April 6, 1917, though March 31, 1921;
(ii) During the period of December 7, 1941, through December 31, 1946;
(iii) During the period of June 27, 1950, through January 31, 1955; or
(iv) For a period of more than 180 days, any part of which occurred after January 31, 1955; but on or before May 17, 1975. Discharges under conditions other than dishonorable include “clemency discharges.”
(3) Priorities will be assigned by FmHA or its successor agency under Public Law 103-354 to eligible applications on the basis of a point system that takes into account project location, the creation and saving of jobs, the cost at which those jobs would be created or saved, seasonal and part-time job impact, and leveraging of FmHA or its successor agency under Public Law 103-354 assistance. The application and supporting information submitted with it will be used to determine an eligible proposed project's priority for available funds or guarantee authority. The priorities described in this paragraph will be used by FmHA or its successor agency under Public Law 103-354 to score projects. A copy of the calculation of the score should be placed in the case file for future reference.
(i)
(A) Located in a city or area under 25,000 population (10 points).
(B) Located in a city or area under 25,000 population that is in an area of high unemployment as of the date of application (20 points).
(C) Located in an area of high unemployment as of the date of application, provided the borrower certifies in writing to the State Director in simple narrative or letter form that the project will employ on a permanent, full-time basis (providing at its own cost such training or retraining as may be needed) persons (numbering no fewer than 25 percent of the project's employment) who are members of displaced farm families which recently derived from farming or ranching the majority of their combined incomes but are no
(ii)
(A) Project will contribute to the overall economic stability of the project area and generate permanent jobs beyond the entrepreneur and the entrepreneur's household (10 points).
(B) Project will contribute to the overall economic stability of the project area and will employ on a permanent, full-time basis a number of persons that is significant in the context of the area's economy (20 points).
(C) Project will contribute to the overall economic stability of the project area, will employ on a permanent, full-time basis a number of persons that is significant in the context of the area's economy, and will retain in that area a significant number of jobs that would otherwise be lost (35 points)
(iii)
(A) Loans on which the result is greater than 1.5 but less than 2.0 (5 points).
(B) Loans on which the result is from 1.0 to 1.5 (15 points).
(C) Loans on which the result is less than 1.0 (25 points).
If the result exceeds 2.0, a high cost per job in that State, no points are received for job cost.
(iv)
(A) FmHA or its successor agency under Public Law 103-354 guaranteed loan is less than 50 percent of project cost (5 points).
(B) Percentage of guarantee is 10 or more percentage points less than the maximum allowable for a loan of its size (5 points).
(C) Project will, in addition to any permanent full-time jobs, create a significant number of part-time or seasonal jobs that will provide additional income to underemployed residents of the project area without their having to give up any present part-time or seasonal jobs (10 points).
(v)
(vi)
(e)
(f)
(1) A letter prepared by the borrower and the lender which shall include:
(i) Borrower's name, address, contact person and telephone number.
(ii) Amount of loan request.
(iii) Name of the proposed lender, address, contact person, and telephone number.
(iv) Brief description of the projects, products and services provided.
(v) Type and number of employment opportunities and unemployment rate where the project will be located.
(vi) Amount of borrower's equity and guarantees offered.
(vii) Anticipated loan maturity and interest rates.
(viii) Availabiity of raw materials and supplies.
(ix) If a corporation, names and addresses of borrower's parent, affiliates and/or subsidiary firms and a brief description of relationship, products and ownership among borrower, parent, affiliates and subsidiary firms.
(2) Form FmHA or its successor agency under Public Law 103-354 449-22, “Certification of Non-Relocation and Market and Capacity Information Report.”
(3) Form FmHA or its successor agency under Public Law 103-354 449-4, “Statement of Personal History,” for a proprietor (owner), each partner, officer, director, key employee and stockholders holding 20 percent or more interest in the borrower except for those corporations listed on a major stock exchange and for those so listed if required by FmHA or its successor agency under Public Law 103-354. Forms FmHA or its successor agency under Public Law 103-354 449-4 are not required to be submitted for elected officials and appointed officials in connection with loan applications from public bodies. Failure to report full, complete and accurate information on the Statement of Personal History may result in FmHA or its successor agency under Public Law 103-354's not making or guaranteeing the loan. Whenever possible, a local, regional, or national credit report, furnished by the lender, will be used to verify data on Form FmHA or its successor agency under Public Law 103-354 449-4.
(4) A record of any pending or final regulatory or legal (civil or criminal) action against the borrower, parent, affiliate, proposed guarantors, subsidiaries, principal stockholders, officers and directors.
(5) For existing businesses, a current balance sheet, and latest profit and loss statement (not more than 60 days old) and financial statements including parent, affiliate and subsidiary firms, for at least the last 3 years or more if necessary for a thorough evaluation.
(6) A detailed projection of gross revenue, net earnings and cash flow statements for 3 years including assumptions upon which such forecasts are based.
(7) Sales projections indicating the percent of the national and local market the business expects to obtain.
(8) Intergovernmental consultation should be carried out in accordance with 7 CFR Part 3015, Subpart V, “Intergovernmental Review of Department of Agriculture Programs and Activities.” See FmHA or its successor agency under Public Law 103-354 Instruction 1940-J, available in any FmHA or its successor agency under Public Law 103-354 Office.
(g)
(h)
(i)
(1) Form FmHA or its successor agency under Public Law 103-354 449-1.
(2) Form FmHA or its successor agency under Public Law 103-354 449-2.
(3) Form FmHA or its successor agency under Public Law 103-354 1940-20, when required by Subpart G of Part 1940 of this chapter.
(4) Architectural or engineering plans, if applicable.
(5) Cost estimates and forecasts of contingency funds to cover inflation or project changes.
(6) Appraisal reports.
(7) For existing businesses a pro forma balance sheet at startup and for at least three additional projected years, indicating the necessary startup capital, operating capital and short-term credit based on financial statements for the last three years, or more (if available); and projected cash flow and earnings statements for at least three years supported by a list of assumptions showing the basis for the projections. The business should submit a current balance sheet with a debt schedule of any debts to be refinanced and an income statement to FmHA or its successor agency under Public Law 103-354, through the lender, every 90 days from the time the application is filed with the lender to the time of issuance of the Loan Note Guarantee. If debt refinancing is requested, a debt schedule is prepared (correlated to the latest balance sheets) reflecting the debts to be refinanced including the name of the creditor, the original loan amount and loan balance, date of loan, interest rate, maturity date, monthly or annual payments, payment status and collateral that secured such loans.
(8) For new businesses, a pro forma balance sheet at startup and for the next three years, project cash flow (monthly first year, quarterly for two additional years) and projected earnings statements for three years supported by a list of assumptions showing the basis for the projections.
(9) Any credit reports obtained by the lender or FmHA or its successor agency under Public Law 103-354 on the borrower, its principals and parent, affiliate and subsidiary firms.
(10) Form FmHA or its successor agency under Public Law 103-354 400-1, “Equal Opportunity Agreement,” if construction costing more than $10,000 is involved.
(11) Copies of building permits, if applicable, and any necessary certifications and recommendations of appropriate regulatory or other agency having jurisdiction over the project including any pollution control agency.
(12) Personal and corporate financial statements of those guarantors named in § 1980.443.
(13) Proposed loan agreement. (See paragraph VII of Form FmHA 449-35). Loan agreements between the borrower and lender will be required. The final executed loan agreement must include the Agency requirements as set forth in the Form FmHA 449-14 including the requirements for periodic financial statements in accordance with § 1980.445. The loan agreement must also include, but is not limited to, the following:
(i) Prohibition against assuming liabilities or obligations of others.
(ii) Restrictions on dividend payments.
(iii) Limitation on purchase or sale of equipment and fixed assets.
(iv) Limitations on compensation of officers and owners.
(v) Minimum working capital requirements.
(vi) Maximum debt to net worth ratio.
(vii) Restrictions concerning consolidations, mergers or other circumstances.
(viii) Limitations on selling the business without concurrence of the lender and FmHA or its successor agency under Public Law 103-354.
(ix) Repayment and amortization of the loan.
(x) List of collateral for the loan including a list of persons and/or corporations guaranteeing the loan with a schedule for providing the lender and FmHA or its successor agency under Public Law 103-354 with personal and/or corporate financial statements. (See § 1980.443)
(14) A complete feasibility study when required. (See § 1980.442)
(15) Any additional information required by FmHA or its successor agency under Public Law 103-354.
(16) For companies listed on major stock exchanges and/or subject to the Securities and Exchange Commission regulations, a copy of Form 10-K, “Annual Report Pursuant to section 13 or 15 D of the Act of 1934.”
(17) Documented evidence that the project is located within or without special flood or mudslide hazard areas.
(18) Notices of compliance with the Privacy Act of 1974.
(i) If the borrower is acting in a personal capacity and not as an entrepreneur for such entities as proprietorships, partnerships, or corporations, and FmHA or its successor agency under Public Law 103-354 solicits personal information for him/her, the individual will be provided Form FmHA or its successor agency under Public Law 103-354 410-9, “Statement Required by the Privacy Act.”
(ii) If FmHA or its successor agency under Public Law 103-354 desires to obtain information concerning an individual from any source, FmHA or its successor agency under Public Law 103-354 will provide such source with Form FmHA or its successor agency under Public Law 103-354 410-10, “Privacy Act Statement to References.”
(19) On any request for refinancing of existing loan(s) as authorized under § 1980.411(a)(11), the lender is required, as a minimum, to obtain the previously held collateral as security for the guaranteed loan(s). Additional collateral will be required by FmHA or its successor agency under Public Law 103-354 when refinancing of unsecured or undersecured loans is unavoidable in order to accomplish the necessary strengthening of the firm's current position.
(j)
(k)
1. Determines if material and information submitted is completed and signed by the appropriate party in the appropriated capacity.
2. May request the comments and recommendations of the County Supervisor and District Director. Such comments will include but are not limited to the following: Community attitude toward project; a summary of comments regarding the proposal by the lender, county leaders and other interested parties; whether the project is likely to result in the need for additional community facilities such as schools, water, sewer and health care services, and if so, the community's plan for providing such facilities; availability of any required additional labor force and training plans for such force, if needed; an economic forecast of the effect on the community should the project fail, if financed.
3. Will furnish all individuals acting in a personal capacity at the time of filing a preapplication or application and two copies of Form FmHA or its successor agency under Public Law 103-354 410-9. The individual will sign both copies, retaining one and providing FmHA or its successor agency under Public Law 103-354 with the other copy which becomes a part of the loan file.
4. Will provide any source whom FmHA or its successor agency under Public Law 103-354 obtains information concerning an individual with two copies of Form FmHA or its successor agency under Public Law 103-354 410-10. The source will sign both copies, retain one and provide FmHA or its successor agency under Public Law 103-354 with the other copy which becomes a part of the loan file.
5. Will input the necessary data via terminal screens into the Rural Community Facility Tracking System (RCFTS). The RCFTS data structure consists of 3 sets: Applicant/Borrower (BOR), Facility (FAC), and Loan/Grant Request (LGR) sets. There are multiple screens for the BOR and LGR sets. The State Director may, if he/she so desires, prepare a Form FmHA or its successor agency under Public Law 103-354 2033-34, “Management System Card—Business and Industry,” in accordance with FmHA or its successor agency under Public Law 103-354 Instruction 2033-F.
6. Will forward immediately to the National Office on all projects.
(a) Form FmHA or its successor agency under Public Law 103-354 449-22 (7 copies) for loans over $1 million and when direct employment increases more than 50 employees.
(b) For insured loans where the borrower leases facilities to another, submit Form FmHA or its successor agency under Public Law 103-354 449-22 for such borrower. The lessor(s) will also be required to provide Form FmHA or its successor agency under Public Law 103-354 449-22. Subsequent loan requests require resubmission of Form FmHA or its successor agency under Public Law 103-354 449-22.
(c) A local, national or regional credit report and Form FmHA or its successor agency under Public Law 103-354 449-4 for all loans over one million dollars or for loans, regardless of size, when the State Director believes a character evaluation check is advisable.
Forms FmHA or its successor agency under Public Law 103-354 449-22 and FmHA or its successor agency under Public Law 103-354 449-4 should
1.
2.
3.
(a) Loan file.
(b) Form FmHA or its successor agency under Public Law 103-354 449-29, “Project Summary—Business Industrial Loan Division,” including State Director's a spread sheets, financial history and projections (use attachments to Project Summary if necessary).
(c) Proposed Form FmHA or its successor agency under Public Law 103-354 449-14.
(d) Copy of FmHA or its successor agency under Public Law 103-354 State Loan Review Board Minutes.
(e) Notification of required financial and other reports, their frequency, due dates and fiscal yearend.
4.
(a) The National Office has a contract to provide credit reports for preapplications, applications, and in instances after the loan(s) is made, where a credit report is needed.
(b) States should first try to have the lender provide such a report because credit reports are the responsibility of the lender.
(c) Any state needing a credit report should telephone the National Office, Director, B&I, and give the name of the business and the city and State location. The report will be mailed to the State the same day, if possible.
5.
The State Director may supplement the Position Guides to include specific legal requirements within their State. If the lender prepares a complete application package, it may accompany the docket provided the docket is organized in a binder, indexed and tabbed. Feasibility studies should be kept separate. It is the responsibility of FmHA or its successor agency under Public Law 103-354 employees who work on applications or servicing actions to add to the correspondence section of the loan file (also known as the running record) a written report of any field visits, meetings, telephone conversations and memorandums covering decisions or reasons for FmHA or its successor agency under Public Law 103-354's actions on the cases. Particular attention must be given to this requirement on cases that become delinquent or problems in order that FmHA or its successor agency under Public Law 103-354 position will be defensible in the event of an adverse action.
6.
7.
FmHA or its successor agency under Public Law 103-354 will evaluate the application and make a determination whether the borrower is eligible, the proposed loan is for an eligible purpose and that there is reasonable assurance of repayment ability, sufficient collateral and sufficient equity and the proposed loan complies with all applicable statutes and regulations. If FmHA or its successor agency under Public Law 103-354 determines it is unable to guarantee the loan, the lender will be informed in writing. Such notification will include the reasons for denial of the guarantee. If FmHA or its successor agency under Public Law 103-354 is able to guarantee the loan, it will provide the lender and the borrower with Form FmHA or its successor agency under Public Law 103-354 449-14, listing all requirements for such guarantees. FmHA or its successor agency under Public Law 103-354 will include in the requirements of the Conditional Commitment for Guarantee a full description of the approved use of guaranteed loan funds as reflected in the Form FmHA or its successor agency under Public Law 103-354 449-1. The Conditional Commitment for Guarantee may not be issued on any loan until the State Director has been notified by the National Officer that the Statements of Personal History(s) have been processed and cleared. FmHA or its successor agency under Public Law 103-354 State Directors are the only persons authorized to execute Form FmHA or its successor agency under Public Law 103-354 449-14.
State Director evaluates the application and considers:
A. Rural area determinations. (See § 1980.405 of this subpart.)
B. Community impact of the proposal which includes:
1. Number of businesses and industries in the town or city.
2. Employment impact upon the community.
3. Availability of skilled and unskilled labor and permanency of employment opportunities.
4. Vocational and educational facilities to provide skilled labor, if applicable.
5. Policies of applicant regarding unemployment, lay-offs, wage scales, etc.
C. If debt refinancing is requested, consider in accordance with § 1980.411(a)(11) of this subpart and:
1. A complete review will be made to determine whether it is essential to restructure the company's debts on a schedule that will allow the business to operate successfully rather than merely guaranteeing an unsound loan.
(a) Obtain a borrower's complete debt schedule. Schedule should agree with borrower's latest balance sheet.
(b) Determine from lender if the borrower's present loan(s) is on the lender's regulatory examiner's report and if so determine the loan classification.
(c) Analyze lender's liability ledger on the borrower, individual customer credit file, installment Loan Ledger Card or Computer printouts and other credit reports.
(d) The percentage of guarantee should be adjuted to assure that the lender does not bring its previously existing unguaranteed exposure under the guarantee.
(e) Any special servicing requirements should be identified and included in the Conditional Commitment for Guarantee.
D. Applications will be analyzed by an FmHA or its successor agency under Public Law 103-354 State Loan Review Board before execution of Form FmHA or its successor agency under Public Law 103-354 449-14. When analyzing the B&I loan request, the State Loan Review Board will specifically address the issue of the guarantee percentage to be approved. Consideration of reducing the maximum guarantee to less than 90 percent is appropriate when the loan has sufficient strength to warrant further participation by the private sector or refinancing of existing lender debts to the borrower is involved. Ordinarily, B&I loan guarantees should be structured so that the lender bears a significant portion of the risk of loss from a default. “Significant” means equal to or greater than 20 percent of the loss stemming from default. All review board meetings will be fully documented, including the review and decision concerning the guarantee percentage, and will be signed by those FmHA or its successor agency under Public Law 103-354 employees serving on the board. A copy of such documentation will be retained in the loan file.
1. Generally, the review board consists of the State Director as Chairperson, Community and Business Program Chief or the Business and Industry Chief (Loan Specialist) and either the Community Programs Chief, Rural Housing Chief, or Farmer Programs Chief, as appropriate.
2. The State Director may wish to contact non-FmHA or its successor agency under Public Law 103-354 sources for expertise, such as banker or other lenders, industrial development specialists from state commissions, academicians, certified public accountants, tax attorneys, successful business and professional lenders, management consultants and officials from other Federal agencies. Outside resource consultants may be reimbursed only for their travel costs (transportation and subsistence). (See FmHA or its successor agency under Public Law 103-354 Instruction 2036-A which is available in any FmHA or its successor agency under Public Law 103-354 Office).
3. The Rural Housing Loan Chief will be a member of the FmHA or its successor agency under Public Law 103-354 State Loan Review Board if a site development loan (see § 1980.411(a)(7) of this subpart) is being considered. The Community and Business Programs Chief (Loan Specialist) will be a member if a loan for facilities of the type financed under the provisions of Subpart A of Part 1942 of this chapter is being considered. The Farmer Programs Chief will be a member of the board if a project, the success of which is dependent on the production of agricultural products, is being considered. If the proposed project covers more than one program area, all the chiefs for those programs involved will be members of the board. If the approval of an application for a B&I loan may result in benefiting or hindering other FmHA or its successor agency under Public Law 103-354 programs, the review board will determine whether the making of such loan or guarantee is likely to result in embarrassment for FmHA or its successor agency under Public Law 103-354 as a result of a possible conflict of interest whereby other parties may accuse the agency of giving loan preference to housing borrowers (in the case of site development) or producers (in the case of agricultural processing plants) or other FmHA or its successor agency under Public Law 103-354 programs.
4. The State Director may request the County Supervisor and/or District Director to attend the review board meeting whenever it is determined they may have special knowledge of the proposed loan which may affect the board's decision.
5. Prior to submission of a B&I guaranteed loan(s) request to the National Office for loan processing review and prior to loan approval, the appropriate loan processing official must visit the project site and discuss
6. The State Director will prepare an original and two copies of Form FmHA or its successor agency under Public Law 103-354 1940-3 for each loan to be obligated. Also, for each initial loan, Form FmHA or its successor agency under Public Law 103-354 1980-50, “Add, Delete, or Change Guaranteed Loan Borrower Information,” will be prepared. The State Director will sign the original and one copy and conform the second copy. Form FmHA or its successor agency under Public Law 103-354 1940-3 will not be mailed to the Finance Office. Notice of approval to lender will be accomplished by providing or sending the lender the signed copy of Form FmHA or its successor agency under Public Law 103-354 1940-3 and Form FmHA or its successor agency under Public Law 103-354 449-14 on the obligation date, unless the Administrator has given prior authorization to the Finance Office to obligate before the 6-day reservation period and directs the State Director to forward Form FmHA or its successor agency under Public Law 103-354 1940-3 to the lender in advance of issuance of Form FmHA or its successor agency under Public Law 103-354 449-14. The State Director or designee will record the actual date of lender notification on the original of the Form FmHA or its successor agency under Public Law 103-354 1940-3 and retain the original of the form as a permanent part of the FmHA or its successor agency under Public Law 103-354 case file. The State Director may retain the remaining conformed copy of Form FmHA or its successor agency under Public Law 103-354 1940-3. The State Director or designee will use the State Office terminal to request reservation/obligation of funds. Use of the telephone for the reservation/obligation of funds is restricted to those instances when the State Office terminal is inoperative. Form FmHA or its successor agency under Public Law 103-354 1980-50 will be prepared and distributed for initial loans only.
a. Immediately after contacting the Finance Office, the requesting official will furnish the requesting office's security identification code. Failure to furnish the security code will result in rejection of the request for reservation of authority. After the security code is furnished, all pertinent information contained on Form FmHA or its successor agency under Public Law 103-354 1940-3 will be furnished to the Finance Office. Upon receipt of the telephone request for reservation of authority, the Finance Office will record all information necessary to process the request for reservation in addition to the date and time of the request.
b. The individual making the telephone request will record the date and time of the telephone request and place his/her signature in section 35 of Form FmHA or its successor agency under Public Law 103-354 1940-3.
c. The Finance Office will terminally process telephone reservation requests. Those requests for reservation received before 2:30 p.m. Central Time, to the extent possible, will be processed on the date received; however, there may be instances in which the reservation will be processed on the next working day.
d. Each working day the Finance Office will notify the State Office by telephone of all projects for which authority was reserved during the previous night's processing cycle and the date of obligation. If authority cannot be reserved for a project, the Finance Office will notify the State Office that authority is not available within the State allocation. The obligation date will be 6 working days from the date of the request for reservation of authority which is being processed in the Finance Office. The Finance Office will mail to the State Director Form FmHA or its successor agency under Public Law 103-354 440-57, “Acknowledgment of Obligated Funds/Check Request,” prepared in duplicate, confirming the reservation of authority with the obligation date inserted as required by item No. 9 on the FMI for Form FmHA or its successor agency under Public Law 103-354 440-57. Immediately after notification by telephone of the reservation of authority, the State Director will call the Legislative Affairs and Public Information staff in the National Office as required by FmHA or its successor agency under Public Law 103-354 Instruction 2015-C (available in any FmHA or its successor agency under Public Law 103-354 office).
e. See FmHA or its successor agency under Public Law 103-354 Instruction 2015-C (available in any FmHA or its successor agency under Public Law 103-354 office) for notification procedures.
7. State Director notifies the lender and borrower if he/she will not issue the Form FmHA or its successor agency under Public Law 103-354 449-14.
(a) Immediately after reviewing the conditions and requirements in Form FmHA or its successor agency under Public Law 103-354 449-14 the lender and applicant should complete and sign the “Acceptance of Conditions,” and
(b) If the lender indicates in the “Acceptance of Conditions” that it desires to obtain a Loan Note Guarantee and subsequently decides at any time after receiving a conditional commitment that it no longer wants a Loan Note Guarantee, the lender will immediately advise the FmHA or its successor agency under Public Law 103-354 State Director.
A. The State Director will negotiate with the lender and proposed borrower any changes made to the initially issued or proposed Form FmHA or its successor agency under Public Law 103-354 449-14. For loans requiring National Office concurrence, a copy of Form FmHA or its successor agency under Public Law 103-354 449-14 and any amendments thereto will be included when the loan file is submitted to the National Office for review. When the National Office recommends modifications or additions to Form FmHA or its successor agency under Public Law 103-354 449-14, the State Director will further negotiate these recommendations with the lender and proposed borrower. If, as a result of these further negotiations, the lender, proposed borrower or State Director presents alternate conditions which would result in a change in the scope of the proposed project and if the loan exceeds the State Director's loan approval authority, the State Director will submit these conditions by memorandum to the National Office for consideration with a copy of the revised Form FmHA or its successor agency under Public Law 103-354 449-14 and any amendments thereto. If the loan is within the State Director's loan approval authority, the State Director may approve such changes.
B. On loan applications within the State Director's loan approval authority, the State Director will submit to the National Office, Business and Industry Division, within 30 days after the Form FmHA or its successor agency under Public Law 103-354 449-14 has been accepted:
1. A copy of Form FmHA or its successor agency under Public Law 103-354 449-29.
2. A copy of Form FmHA or its successor agency under Public Law 103-354 449-14 is accepted by the lender and borrower.
2. A copy of FmHA or its successor agency under Public Law 103-354 State Loan Review Board Minutes.
4. Notification of required financial and other reports, their frequency, due dates and fiscal year-end.
5. A copy of the proposed loan agreement between the lender and the borrower.
6. When debt refinancing is involved, a copy of the justification for the refinancing.
7. The cover memorandum should indicate whether the Form FmHA or its successor agency under Public Law 103-354 449-34 has been issued. If the Loan Note Guarantee has been issued, enclose a copy of the Lender Certification required by § 1980.60(a) of Subpart A of this part, and, if not, a proposed date for issuance of the Form FmHA or its successor agency under Public Law 103-354 449-34.
In addition to compliance with the requirements of § 1980.60 of subpart A of this subpart, compliance with the following provisions are required prior to issuance of the Loan Note Guarantee.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
A.
2. Plans for inspections made on construction projects. These should be coordinated with the lender and borrower. Form FmHA or its successor agency under Public Law 103-354 424-12, “Inspection Reports,” may be used by the State Engineer or Architect who will make an inspection of the projects which involve substantial construction. The inspection shall be completed prior to the issuance of the Loan Note Guarantee to assure all construction is complete. The State Loan Specialist or Chief may also participate in the inspections.
3. Cost overruns, if any, and how they will be met. State Directors may approve cost overruns for projects in any amount or percentage within their loan approval authority
4. Basic credit requirements of all loans.
B. In all cases, the Program Chief or the B&I Loan Specialist will conduct a preguarantee review before issuance of the Loan Note Guarantee to assure that all requirements of the application, Conditional Commitment for Guarantee and Loan Agreement have been met including the required certifications using language specified by the regulations, and will provide such verification in the loan file, including arrangements for annual audit reports. In the conduct of this review, all requirements of § 1980.60(a) of Subpart A of this part will be reviewed and special attention should be paid to reviewing current financial statements of the borrower to assure that no adverse change has taken place. The District Director may participate in the review.
C. The State Director or any other FmHA or its successor agency under Public Law 103-354 personnel shall not sign any documents other than those specifically provided for in Subparts A or E of this part. No certificates shall be signed except the “Certificate of Incumbency and Signature” as set forth as Appendix B of this subpart.
D.
E.
F.
In order to identify the number and types of action taken, the following procedures are to be followed when requests of this type are approved by FmHA or its successor agency under Public Law 103-354.
1. Start with the number 1 when the first modification is approved and enter this number in the upper right hand corner of the Letter of Concurrence and on the related “Modification or Administration Action” sheet.
2. Next to the modified wording on the work copy of the Conditional Commitment for Guarantee and the Term Loan Agreement or any form which has been modified, pencil in a short cross reference to the modification and identify the number given it.
3. File the copies of the “Modification or Administrative Action” sheet and related Letters of Concurrence numerically in the docket directly on top of the affected original documents of conditions.
4. This order of recordkeeping should include any requests which were declined by the National Office.
[See § 1980.61 of Subpart A, of this part]
A.
B.
C.
D. It is imperative that the original loan covered by a Contract of Guarantee is current.
E.
2. Copies of the notes with lender's identification numbers. (All requirements of the Lender's Agreement will be complied with before any new notes are issued.)
3. Certification that the loan is current and in good standing.
4. Certification of outstanding principal amount of the loan.
5. Executed Lender's Agreement. (FmHA or its successor agency under Public Law 103-354 provides form to Lender).
6. Executed Form FmHA or its successor agency under Public Law 103-354 1980-19. (See § 1980.21 of Subpart A of this part for calculation of fee due).
7. Payment for appropriate guarantee fee.
F.
2. Verify the submitted request and if in order, send the guarantee fee and Form FmHA or its successor agency under Public Law 103-354 1980-19 to Finance Office with a notation of the date the new Loan Note guarantee will be issued. (Note: The substitution of a Loan Note Guarantee for the Contract of Guarantee is not to be considered as a new loan for recordkeeping purposes).
3. Complete the Loan Note Guarantee (appropriate number for attachment to each note), date and sign the instrument. The following statement will be entered at the top of the form: “This Loan Note Guarantee is issued in substitution of Contract of Guarantee dated
4. Execute Lender's Agreement.
5. Cancel the original Contract of Guarantee.
6. Transmit to the lender the original Loan Note Guarantee and a copy of executed Lender's Agreement and retain in the loan file copies of the Loan Note Guarantee with attached original cancelled Contract of Guarantee, a copy of Form FmHA or its successor agency under Public Law 103-354 1980-19 and the original Lender's Agreement.
All applicable provisions of this subpart and Subpart A of this part apply to the loan when the Loan Note Guarantee is signed.
G.
H.
I.
J.
K.
L.
2. Deposit the guarantee fee through concentration banking and include the amount in the total collections on the Daily Activity Report.
3. Submit Form FmHA or its successor agency under Public Law 103-354 1980-19, Guaranteed Loan Closing Report with the Daily Activity Report and other attachments to Finance Office in the salmon envelope marked “CR”. This form is used
4. On the Daily Activity Report, Form 1980-19 will be counted as one in the item count as if it were a card or coupon.
5. Ascertain that originals or copies, as appropriate, are retained in the FmHA or its successor agency under Public Law 103-354 Loan file.
The lender is responsible for loan servicing and for notifying the FmHA or its successor agency under Public Law 103-354 of any violations in the Lender's Loan Agreement. (See Paragraph X of Form FmHA or its successor agency under Public Law 103-354 449-35).
(a) All B&I guaranteed loans in the lender's portfolio will be classified by the lender as soon as it is notified by the State Office to do so and again whenever there is a change in the loan which would impact on the original classification. The State Director will notify the lender of this requirement for all existing loan guarantees, when new Loan Note Guarantees are issued to a lender and/or when the State Office becomes aware of a condition that
(1)
(2)
(3)
(b) There is a close relationship between classifications; and no classifications category should be viewed as more important than the other. The uncollectibility aspect of Doubtful and Loss classifications are of obvious importance; however, the function of the Substandard classification is to indicate those loans that are unduly risky which may result in future claims against the B&I guarantee.
(c) Substandard, Doubtful and Loss are adverse classifications. There are other classifications for loans which are not adversely classified but which require the attention and followup of the lenders and FmHA or its successor agency under Public Law 103-354. These classifications are:
(1)
(2)
(ii) Is in compliance with all loan conditions and B&I regulations.
(iii) Has been current on the B&I guaranteed loan(s) payments for 24 consecutive months.
(iv) Is secured by collateral which is determined to be adequate to ensure there will be no loss on the guaranteed loan.
(3)
Refer to Appendix G of this subpart (available in any FmHA or its successor agency under Public Law 103-354 Office) for advice on how to interact with the lender on liquidations and property management.
A. While the lender has the primary responsibility for loan servicing and protecting the collateral, the State Director is responsible for seeing that servicing as required by the Lender's Agreement and regulation is
B.
2. With respect to the negligent servicing and use of loan funds for unauthorized purposes, the Loan Note Guarantee is unenforceable by the lender to the extent any loss is occasioned by negligent servicing and use of loan funds for unauthorized purposes regardless of the time FmHA or its successor agency under Public Law 103-354 acquires knowledge of the negligent servicing or use of loan funds for unauthorized purposes by the lender. Only the amount of the loss caused by negligent servicing or use of loan funds for unauthorized purposes can be withheld from the final loss claim submitted by the lender. The dollar amount withheld from the final loss claim must be ascertainable. In order to determine the final loss amount, the guaranteed loan collateral and any collateral of the guarantor(s) must be liquidated and settled or a settlement with the guarantor(s) reached. In the event there is reason to suspect the lender of negligent servicing or use of loan funds for unauthorized purposes during the life of the loan, the lender should be notified in writing that (a) the acts of negligent servicing and/or use of loan funds for unauthorized purposes will cause the guarantee to be unenforceable by the lender to the extent these acts cause a loss; (b) any decision not to honor any part of the guarantee is not possible until the loan has been liquidated and a loss established; (c) if any loss occurs FmHA or its successor agency under Public Law 103-354 will consider whether negligent acts of the lender caused a loss after the liquidation is complete; and (d) at the time FmHA or its successor agency under Public Law 103-354 determines a loss has occurred as the result of negligent servicing the lender may appeal any adverse decision.
3. When facts or circumstances indicate that criminal violations may have been committed by an applicant, a borrower, or third party purchaser, the State Director will refer the case to the appropriate Regional Inspector General for Investigations, Office of Inspector General (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 for Investigations and the State Director and confirmed in writing. In order to assure protection of the financial and other interest of the government, a duplicate of the notification will be sent to the Office of General Counsel (OGC). 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. A borrower or lender can be sued even though criminal fraud is present. If FmHA or its successor agency under Public Law 103-354 has good reason to believe that, for example, a borrower or a lender made a false statement to obtain a loan or guarantee, or a lender submitted a loss claim to FmHA or its successor agency under Public Law 103-354 which was false or fraudulent, it should promptly call the matter to the attention of OGC—even if no payment of the loss claim has occurred yet. (This would include those situations in which a borrower lied to the lender in order to get the loan, the lender believed the borrower and made the loan—which was guaranteed by FmHA or its successor agency under Public Law 103-354—and then the lender presented a loss claim to FmHA or its successor agency under Public Law 103-354 for payment after the borrower defaulted on the loan.) Sometimes it might be necessary to ask OIG to do an investigation to establish all the aspects of the fraud. If at all possible, this should then be done prior to referral to OGC.
4. There are two methods the Government could use to seek relief for the fraud. One of the ways the Government could seek redress for the fraud is to sue under the False Claims Act (31 U.S.C. sections 3729-3731). If fraud is proven to have occurred, the False Claims Act provides for the recovery of double damages and a $2,000 penalty (and the costs of one civil suit) for each act involving, for example: (a) Knowingly submitting to a Government employee of false or fraudulent claim for payment or approval, (b) knowingly making or using a false record or statement to get a false or fraudulent claim paid or approved, or (c) conspiring to defraud the United States by getting a false or fraudulent claim allowed or paid. Suit under the False Claims Act must be filed within six
5. In order to decide whether to file suit, the Department of Justice will need to know such things as: What was the amount of the loan or the loss paid to the lender or holder? How much did the scheme cost the Government? What is the difference in money between what the Government paid out and what it should have paid out? Does the borrower or lender have enough assets to make it worth suing? If FmHA or its successor agency under Public Law 103-354 can answer these questions before referral to OGC—either on its own or by using OIG—than OGC can refer the matter that much more quickly to the Justice Department.
6. There is also a way to bring suit for civil fraud by alleging that “common law” fraud occurred. This would just involve proving that a borrower or a lender falsely represented by their words or actions, a matter of fact either by alleging something in a false or misleading manner or by concealing something that should have been disclosed; and that FmHA or its successor agency under Public Law 103-354 was deceived by this conduct, and relied on it to its detriment. Under “common law” fraud, only single damages could be recovered, and there would be no $2,000 penalty assessed. The action would generally have to be brought within three years from the date of the discovery of the fraud.
7. Neither the False Claims Act nor the right to bring a “common law” action for fraud precludes the Government from just suing to recover the money wrongfully or mistakenly paid by its employees. If the Justice Department decides not to pursue a civil frauds claim under the False Claims Act or “common law,” it will return the matter to OGC. Depending on what stage the proceedings were in when the matter was first referred, FmHA or its successor agency under Public Law 103-354 could then continue to negotiate with the lender or OGC could re-refer the case to Justice for any contract-based actions, including fraud or misrepresentation based on the terms of the guarantee.
C.
2. A timetable for routine site, borrower and lender visitations by FmHA or its successor agency under Public Law 103-354 personnel is established before the Loan Note Guarantee is issued. As a guide, visits to newly established borrowers with the lender represented should be scheduled monthly. Visits to established, nonproblem borrowers must be made at least annually except for seasoned loans which will be visited at least bi-annually. Special attention problem accounts should be visited as frequently as the need demands. If possible, these visitations should be coordinated with the lender's visits.
3. During or in preparation for field visits, the following functions are to be performed:
(a) Current financial information is obtained in advance and analyzed for trends.
(b) Any issues revealed or problems not resolved from the last visitation are included in the agenda.
(c) Collateral is observed and its condition, maintenance, protection and utilization by the borrower appears to be satisfactory.
(d) A report of the visit is made on Form FmHA or its successor agency under Public Law 103-354 449-39, “Field Visit Review (Business and Industrial Loans),” or otherwise documented and included in the loan file. The report should include an opinion of the borrower's status based upon observations made during the visit.
(e) Any instructions or directions to the lender should be confirmed by letter.
4. The Program Chief or Loan Specialist will conduct an annual meeting with each lender or its agent with whom a Loan Note Guarantee(s) or Contract of Guarantee(s) is outstanding. This cannot be redelegated. These meetings may be scheduled at the time FmHA or its successor agency under Public Law 103-354 makes periodic field inspections to the borrower's place of business. At the meeting, a review will be made of the lender's performance in loan servicing, including enforcement of conditions and covenants in the loan agreements. The observations and results of the meeting will be documented. Form FmHA or its successor agency under Public Law 103-354 449-39 may be used for this purpose. Servicing exceptions on the part of the lender which are noted by FmHA or its successor agency under Public Law 103-354 will be confirmed by letter to the lender.
5. The lender performs an adequate analysis of borrower financial statements for FmHA or its successor agency under Public Law 103-354. FmHA or its successor agency under Public Law 103-354 in turn will evaluate the lender's analysis and follow up with the lender on servicing action(s) required or negative observations not detected through the lender's analysis. The financial statement analysis of the lender, the financial statement and a memorandum reflecting FmHA or its successor agency under Public Law 103-354's analysis, including a comparison to previous and projected performance of the borrower, will be forwarded to the National Office, Attention: Business and Industry Division, only for the following loans:
(a) All loans within the first year of loan closing.
(b) Loans over one year old as determined by the State Director or a National Office assigned loan reviewer who is participating in a field review. In event of a disagreement between the State Director and an assigned loan reviewer as to which loans should be included, the assigned loan reviewer's decision will take precedence.
(c) All problem and delinquent loans.
(d) Loans that the State Director would like reviewed by the National Office.
6. Meetings are arranged between the lender, borrower and FmHA or its successor agency under Public Law 103-354 to resolve any problems of late payment, etc.
D.
2. The State Director may approve B&I guaranteed loan servicing actions as authorized in separate written approval authorities issued in accordance with Subpart A of Part 1901 of this chapter.
3. Servicing actions on loans which exceed the State Director's loan approval authority are to be referred together with the State Director's recommendations to the Director, Business and Industry Division, for prior review and concurrence.
[See § 1980.63 of Subpart A, of this part.]
Refer to Appendix G of FmHA or its successor agency under Public Law 103-354 Instruction 1980-E (available in any FmHA or its successor agency under Public Law 103-354 Office) for advice on how to interact with the lender on liquidations and property management.
A. In case of any monetary or significant non-monetary default under the loan agreement, the lender is responsible for arranging a meeting with the State Director, or its designee, and borrower to resolve the problem. A memorandum of the meeting, individuals who attend, a summary of the problem and proposed solution will be prepared by the FmHA or its successor agency under Public Law 103-354 representative and retained in the loan file. When the State Director receives a notice of default on a loan, he/she will immediately notify the National Office in writing of the details and will subsequently report the problem loan to the National Office on the quarterly status report. The State Director will notify the lender and borrower of any decision reached by FmHA or its successor agency under Public Law 103-354.
B. In considering servicing options, some of which are identified in paragraph X. A of Form FmHA or its successor agency under Public Law 103-354 449-35, the prospects for providing a permanent cure without adversely affecting the risks of the FmHA or its successor agency under Public Law 103-354 and the lender must become the paramount objective. Within the State Director's authority temporary curative actions such as payment deferments, moratoriums on payments or collateral subordination, if approved, must strengthen the loan and be in the best interests of the lender and FmHA or its successor agency under Public Law 103-354. Some of these actions may require concurrence of the holder(s). A deferral, rescheduling, reamortization or moratorium is limited by the period of time authorized by this subpart for the purpose for which the loan(s) is made or the remaining useful life of the collateral securing the loan. For example, if the promissory note on a working captial loan is scheduled to mature in 2 years the loan could be rescheduled for 7 years or the remaining life of the collateral whichever is the lesser of the two.
C. Subsequent loan guarantee requests will be processed in accordance with provisions of § 1980.473 of this subpart.
D. If the loan was closed with the multi-note option, the lender may need to possess all notes to take some servicing actions. In these situations when FmHA or its successor agency under Public Law 103-354 is holder of some of the notes, the State Director may endorse the notes back to the lender after the State Director has sought the advice and guidance of OGC, provided a proper receipt is received from the lender which defines the reason for the transfer. Under no circumstances will FmHA or its successor agency under Public Law 103-354 endorse the original Form FmHA or its successor agency under Public Law 103-354 449-34 to the lender.
E. The State Director's authority to approve servicing actions is defined in § 1980.469, Administrative D.2.
F. Consultant services may be recommended by the State Director to assist FmHA or its successor agency under Public Law 103-354 and the lender in determining which servicing action is appropriate. Requests for consultant services should be made by the State Director and addressed to the Administrator, Attn: Business and Industry Division. A full explanation of the loan history, an evaluation and scope of the proposed study and the need should be included in the request.
G. When the National Office determines it is necessary on individual cases, due to some special servicing requirements, it may, at its option, assume the servicing responsibility on individual cases.
H. The State Director will report all delinquent and problem loans quarterly to the Director, Business and Industry Division, by the 10th day of January, April, July and October.
I. The State Director will notify the Finance Office by memorandum of any change in payment terms such as reamortizations or interest rate adjustments and effective dates of any changes resulting from servicing actions.
(See § 1980.64 of subpart A of this part.)
Refer to appendix G of this subpart (available in any FmHA or its successor agency under Public Law 103-354 Office) for advice on how to interact with the lender on liquidations and property management.
(a) Collateral acquired by the lender can only be released after a complete review of the proposal.
(1) There may be instances when the lender acquires the collateral of a business where the cost of liquidation exceeds the potential recovery value of the collection. Whenever this occurs the lender with the concurrence of FmHA or its successor agency under Public Law 103-354on the collateral in lieu of liquidation.
(2) Sale of acquired collateral to the former borrower, former borrower's stockholder(s) or officer(s), the lender or lender's stockholder(s) or officer(s) must be based on an arm's length transaction with the concurrence of FmHA or its successor agency under Public Law 103-354.
A. The State Director determines which FmHA or its successor agency under Public Law 103-354 personnel will attend meetings with the lender.
B. Introduction to Paragraph XI and Paragraph XI B of the Lender's Agreement. FmHA or its successor agency under Public Law 103-354 will exercise the option to liquidate only when there is reason to believe the lender is not likely to initiate liquidation efforts that will result in maximum recovery. When there is reason to believe the lender will not initiate efforts that will maximize recovery through liquidation, the State Director will forward the lender's liquidation plan, if available with appropriate recommendations, along with the State Director's exceptions to the lender's plan, if any, to the Director, Business and Industry Division, for evaluation and approval or rejection of the State Director's recommendation regarding liquidation. Only when compromise cannot be reached between FmHA or its successor agency under Public Law 103-354 and the lender on the best means of liquidation will FmHA or its successor agency under Public Law 103-354 consider conducting the liquidation. The State Director has no authority to exercise the option to liquidate without National Office approval. When FmHA or its successor agency under Public Law 103-354 liquidates, reasonable liquidation expenses will be assessed against the proceeds derived from the sale of the collateral. In such instances the State Director will send to the Finance Office Form FmHA or its successor agency under Public Law 103-354 1980-45, “Notice of Liquidation Responsibility.”
C. State Directors are authorized to approve lender liquidation plans as authorized on separate written approval authorities issued in accordance with Subpart A of Part 1901 of this chapter. Within delegated authorities, the State Director may approve a written partial liquidation plan submitted by the lender covering collateral that must be immediately protected or cared for in order to preserve or maintain its value. Approval of the partial liquidation plan must be in the best interest of the government. The approved partial liquidation plan is only good for those actions necessary to immediately preserve and protect the collateral and must be followed by a complete liquidation plan prepared by the lender in accordance with the requirements of paragraph XII A of the Lender's Agreement.
D. Paragraph XI D. State Directors are responsible for review and acceptance of accounting reports as submitted by lenders and for submission of such reports to lenders when FmHA or its successor agency under Public Law 103-354 is conducting liquidation, after they have been submitted with the State's recommendations to the Director, Business and Industry Division for prior review.
E. Paragraph XI E 2. State Directors are authorized to approve final reports of loss from the lender in separate written approval authorities issued in accordance with Subpart A of Part 1901 of this chapter. The State Director will submit to the Finance Office for payment any loss claims of the lender on Form FmHA or its successor agency under Public Law 103-354 499-30, “Loan Note Guarantee Report of Loss.” The Finance Office forwards loss payment checks to the State Director for delivery to lender. When a loss claim is involved on a particular loan guarantee, ordinarily one “Estimated Loss Report” will be authorized. Only one final “Report of Loss” will be authorized. A final Form FmHA or its successor agency under Public Law 103-354 449-30 must be filed with the Finance Office at the completion of all
F. Paragraph XI E 3. Final loss payments will be made within the 60 days required but only after a review by FmHA or its successor agency under Public Law 103-354 to assure that all collateral for the loan has been properly accounted for and liquidation expenses are reasonable and within approved limits. State Directors are responsible to see that such reviews are accomplished by the State within 30 days and final loss claims in excess of the State Director's approval authority are forwarded to be accepted or otherwise resolved by the Director, Business and Industry Division within the 60-day period. Any estimated loss payments made to the lender must be taken into consideration when paying a final loss on the FmHA or its successor agency under Public Law 103-354 guaranteed loan. The estimated loss payment must be treated as a deduction from the principal amount of the loan and interest cannot be accrued on the principal amount of the loan that is equal to the estimated loss payment. Community and Business Program Chiefs (C&BP), Business and Industry Chiefs or Loan Specialists will conduct such reviews. The State Director may request National Office assistance in the conduct of any review. All reviews for final loss claim in excess of the State Director's approval authority (See Subpart A of Part 1901 of this Chapter) will be submitted to the National Office, Business and Industry Division, for concurrence prior to the State Director's approval of the claim. Close scrutiny of liquidation proceeds and their application in accordance with lien priorities is required. Before final loss payments are approved and to assist in the required review, the C&BP Chief, B&I Chief or Loan Specialist will prepare a narrative history of the guarantee transaction which will serve as the summary of occurrence which led to failure of the borrower and actions taken to maximize loan recovery. The original of this report will be filed in the loan case file. A copy of this report together with the review of the final loss claim will be included in the material sent to the Director, B&I Division, for review prior to approval of final loss payments.
[See § 1980.65 Subpart A of this Part.]
Refer to Appendix G of this subpart (available in any FmHA or its successor agency under Public Law 103-354 Office) for advice on how to interact with the lender on liquidations and property management.
A. Protective advances will not be made in lieu of additional loans, in particular, working capital loans. Protective advances are advances made by the lender for the purpose of preserving and protecting the collateral where the debtor has failed to and will not or cannot meet its obligations. Ordinarily, protective advances are made when liquidation is contemplated or in process. A precise rule of when a protective advance should be made is impossible to state. A common, but by no means the only, period when protective advances might be needed is during liquidation. At this point, the borrower and success of the project are no longer of paramount importance, but preserving collateral for maximum recovery is of vital importance. Elements which should always be considered include how close the project is to liquidation or default, how much control the borrower will have over the funds, what danger is there that collateral may be destroyed and whether there will be a good chance of saving the collateral later if a protective advance in contemplation of liquidation is made immediately. A protective advance
B. The State Director must approve, in writing, all protective advances on loans within his/her loan approval authority which exceed a total commulative advance of $500 to the same borrower. Protective advances must be reasonable when associated with the value of collateral being preserved.
C. When considering protective advances, sound judgment must be exercised in determining that the additional funds advanced will actually preserve collateral interests and recovery is actually enhanced by making the advance.
(Refer to paragraph XIII of Form FmHA or its successor agency under Public Law 103-354 449-35.)
Only the State Director shall approve within his/her loan approval authority additional nonguaranteed loans or advances prior to or subsequent to the issuance of the Loan Note Guarantee. The State Director shall determine that there will be no adverse changes in the borrower's financial situation and that such loan or advance is not likely to adversely affect the collateral or the guaranteed loan.
(a) It is the lender's responsibility to protect the guaranteed loan debt and all the collateral securing it in bankruptcy proceedings. These responsibilities include but are not limited to the following:
(1) The lender will file a proof of claim where necessary and all the necessary papers and pleadings concerning the case.
(2) The lender will attend and where necessary participate in meetings of the creditors and all court proceedings.
(3) The lender, whose collateral is subject to being used by the trustee in bankruptcy, will immediately seek adequate protection of the collateral.
(4) Where appropriate, the lender should seek involuntary conversion of a pending Chapter 11 case to a liquidating proceeding under Chapter 7 or under Section 1123(b) (4) or seek dismissal of the proceedings.
(5) When permitted by the Bankruptcy Code, the lender will request modification of any plan of reorganization whenever it appears that additional recoveries are likely.
(6) FmHA or its successor agency under Public Law 103-354 will be kept adequately and regularly informed in writing of all aspects of the proceedings.
(b) In a Chapter 11 reorganization, if an independent appraisal of collateral is necessary in FmHA or its successor agency under Public Law 103-354's opinion, FmHA or its successor agency under Public Law 103-354 and the lender will share such appraisal fee equally.
(c) Expenses on Chapter 11 reorganization, liquidating Chapter 11 or Chapter 7 (unless the lender is directly handling the liquidation) cases are not to be deducted from the collateral proceeds.
(d)
Refer to Appendix G of this subpart (available in any FmHA or its successor agency under Public Law 103-354 office) for advice on how to interact with the lender on liquidation and property management.
A. It is the responsibility of the State Program Chief to see that FmHA or its successor agency under Public Law 103-354 is being fully informed by the lender in all bankruptcy cases.
B. All bankruptcy cases should be reported immediately to the National Office by utilizing and completing a problem/delinquent status report. The Regional Attorney must be informed promptly of the proceedings.
C. Chapter 11 pertains to a reorganization of a business contemplating an ongoing business rather than a termination and dissolution of the business where legal protection is afforded to the business as defined under Chapter 11 of the Bankruptcy Code. Consequently, expenses incurred by the lender in a Chapter 11 reorganization can never be liquidation expenses unless the proceeding becomes a Liquidating 11. If the proceeding should become a Liquidating 11, reasonable and customary liquidation expenses may be deducted from proceeds of collateral provided the lender is doing the actual liquidation of the collateral as provided by the Lender's Agreement. Chapter 7 pertains to a liquidation of the borrower's assets. If and when liquidation of the borrower's assets under Chapter 7 is conducted by the bankruptcy trustee, the lender cannot claim expenses.
D. The State Director may approve the repurchase of the unpaid guaranteed portion of the loan from the holder(s) to reduce interest accruals during Chapter 7 proceedings or after a Chapter 11 proceeding becomes a liquidation proceeding. On loans in bankruptcy, any loss payment must be halted in accordance with the Lender's Agreement and carry the approval of the State Director.
E. The State Director must approve in advance and in writing the lender's estimated liquidation expenses on loans in liquidation bankruptcy. These expenses must be reasonable and customary and not in-house expenses of the lender.
F. The lender is responsible for advising FmHA or its successor agency under Public Law 103-354 of the completion of the Chapter 11 reorganization plan; however, the FmHA or its successor agency under Public Law 103-354 servicing office will monitor the lender's files to ensure timely notification of servicing actions.
G. If an estimated loss claim is paid during the operation of the reorganization plan, and the borrower repays in full the remaining balance of the loan as set forth in the plan without an additional loss sustained by the lender, a Final Report of Loss is not necessary. The Finance Office will close out the estimated loss account as a Final Loss at the time notification of payment in full is received.
H. If the bankruptcy court attempts to direct that loss payments will be applied to the account other than the unsecured principal first and then to unsecured accrued interest, the lender is responsible for notifying the FmHA or its successor agency under Public Law 103-354 servicing office immediately. The FmHA or its successor agency under Public Law 103-354 servicing office will then obtain advice from OGC on what actions FmHA or its successor agency under Public Law 103-354 should take.
I. Protective Advances—Authorized protective advances may be included with the estimated loss payment associated with the Chapter 11 reorganization provided they were incurred in connection with liquidation of the account prior to the borrower filing bankruptcy.
J. Adequate Protection—The bankruptcy court can order protection of the collateral while the borrower is in a reorganization bankruptcy. The lender whose collateral is subject to being used by the trustee in bankruptcy should immediately seek adequate protection of the collateral, including petitioning for a super priority.
(a) All transfers and assumptions will be approved in writing by FmHA or its successor agency under Public Law 103-354. Such transfers and assumptions will be to an eligible applicant.
(b) Transfers and assumptions will be considered without regard to § 1980.451 (d) of this subpart.
(c) The borrower will submit to FmHA or its successor agency under Public Law 103-354 Form FmHA or its successor agency under Public Law 103-354 449-4 for the required character evaluation prior to the execution of the Assumption Agreement.
(d) Available transfer and assumption options to eligible borrowers include the following:
(1) The total indebtedness may be transferred to another borrower on the same terms.
(2) The total indebtedness may be transferred to another borrower on different terms not to exceed those terms for which an initial loan can be made.
(3) Less than the total indebtedness may be transferred to another borrower on the same terms.
(4) Less than the total indebtedness may be transferred to another borrower on different terms.
(e) In any transfer and assumption case, the transferor, including any guarantor(s), may be released from liability by the lender with FmHA or its successor agency under Public Law 103-354 written concurrence only when the value of the collateral being transferred is at least equal to the amount of the loan or part of the loan being assumed. If the transfer is for less than the entire debt:
(1) FmHA or its successor agency under Public Law 103-354 must determine that the transferor and any guarantors have no reasonable debt-paying ability considering their assets and income at the time of transfer.
(2) The FmHA or its successor agency under Public Law 103-354 County Committee must certify that the transferor has cooperated in good faith, used due diligence to maintain the collateral against loss, and has otherwise fulfilled all of the regulations of this subpart to the best of borrower's ability.
(f) Any proceeds received from the sale of secured property before a transfer and assumption will be credited on the transferor's guaranteed loan debt in inverse order of maturity before the transfer and assumption transaction is closed.
(g) When the transferee makes any cash downpayment in connection with the transfer and assumption:
(1) The lender will employ an independent appraiser, subject to concurrence of both the transferor and transferee, to make an appraisal to determine the fair market value of all the collateral securing the loan. Such appraisal report fee and any other costs related thereto will be paid by the transferor and the transferee as they mutually agree.
(2) The market value of the secured property being acquired by the transferee, plus any additional security the transferee proposes to give to secure the debt, will be adequate to secure the balance of the total guaranteed loan owed, plus any prior liens. If any cash downpayment is made, it may be paid directly to the transferor as payment for equity in the project provided:
(i) The lender recommends and FmHA or its successor agency under Public Law 103-354 approves the case downpayment be released to the transferor. The lender and FmHA or its successor agency under Public Law 103-354 may require that an amount be retained for an established period of time in escrow as a reserve account as security for use against any future default on the loan. Any interest accruing on such an escrow account may be paid periodically to the transferor.
(ii) Any payments that are to be made by the transferee to the transferor in respect to the downpayment do not suspend the transferee's obligation to continue to meet the guaranteed loan payments as they come due under the terms of the assumption.
(iii) The transferor will agree not to take any actions against the transferee in connection with such transfer in the future without first obtaining the written approval of FmHA or its successor agency under Public Law 103-354 and the lender.
(iv) The lender determines that there is repayment ability for the guaranteed debt assumed and any other indebtedness of the transferee.
(h) The lender will make, in all cases, a complete credit analysis to determine viability of the project, subject to FmHA or its successor agency under Public Law 103-354 review and approval, including any requirement for deposits in an escrow account as security to meet its determined equity requirements for the project.
(i) The lender will issue a statement to FmHA or its successor agency under Public Law 103-354 that the transaction can be properly transferred and the conveyance instruments will be filed, registered, or recorded as appropriate and legally permissible.
(j) FmHA or its successor agency under Public Law 103-354 will not guarantee any additional loans to provide equity funds for a transfer and assumption.
(k) The assumption will be made on the lender's form of assumption agreement.
(l) The assumption agreement will contain the FmHA or its successor agency under Public Law 103-354 case number of the transferor and transferee.
(m) Loan terms cannot be changed by the Assumption agreement unless previously approved in writing by FmHA or its successor agency under Public Law 103-354, with the concurrence of any holder(s) and concurrence of the transferor (including guarantors) if they have not been released from personal liability. Any new loan terms cannot exceed those authorized in this subpart. The lender's request will be supported by:
(1) An explanation of the reasons for the proposed change in the loan terms.
(2) Certification that the lien position securing the guaranteed loan will be maintained or improved, proper hazard insurance will be continued in effect and all applicable Truth in Lending requirements will be met.
(n) In the case of a transfer and assumption, it is the lender's responsibility to see that all such transfers and assumptions will be noted on all originals of the Loan Note Guarantee(s). The lender will provide FmHA or its successor agency under Public Law 103-354 a copy of the transfer and assumption agreement. Notice must be given by the lender to FmHA or its successor agency under Public Law 103-354 before any borrower or guarantor is released from liability.
(o) The holder(s), if any, need not be consulted on a transfer and assumption case unless there is a change in loan terms.
(p) If a loss should occur upon consummation of a complete transfer of assets and assumption for less than the full amount of the debt and the transferor-debtor (including personal guarantor) is released from personal liability, as provided in paragraph (e) of this section, the lender, if it holds the guaranteed portion, may file an estimated “report of Loss” on Form FmHA or its successor agency under Public Law 103-354 449-30 to recover its pro rata share of the actual loss at that time. In completing Form FmHA or its successor agency under Public Law 103-354 449-30, the amount of the debt assumed will be entered on Line 24 as Net Collateral (Recovery). Approved protective advances and accrued interest thereon made during the arrangement of a transfer and assumption, if not assumed by the transferee, will be entered on Form 449-30, lines 13 and 14.
Refer to Appendix G of this subpart (available in any FmHA or its successor agency under Public Law 103-354 Office) for advice on how to interact with the lender on liquidations and property management.
A. The State Director may approve all transfer and assumption provisions if the guaranteed loan debt balance is within his/her individual loan approval authority including:
1. Consent in writing to the release of the transferor and guarantors from liability.
2. Any changes in loan terms.
B. A copy of the Assumption Agreement will be retained in the FmHA or its successor agency under Public Law 103-354 file. The State Director will notify the Finance Office of all approved transfer and assumption cases on Form FmHA or its successor agency under Public Law 103-354 1980-7, “Notice of Transfer and Assumption of a Guaranteed Loan,” and submit Form FmHA or its successor agency under Public Law 103-354 1980-50 for all new borrowers and Form FmHA or its successor agency under Public Law 103-354 1980-51, “Add, Change, or Delete Guaranteed Loan Record,” in order that Finance records may be adjusted accordingly.
C. Any transfer and assumption of less than the total indebtedness must be submitted to the Director, Business and Industry Division, for review and concurrence.
D. If the guaranteed loan debt balance is in excess of the State Director's loan approval authority, the State Director will forward the file, together with his/her recommendations, to the National Office for approval, ATTN: Business and Industry Division.
Applications from private parties for whom FmHA or its successor agency under Public Law 103-354 and such borrowers agree that a guarantee lender is not available and from public bodies shall be processed as insured loans in accordance with the applicable provisions of this subpart and Subpart A of Part 1942 of this chapter, including the credit elsewhere requirement, except as provided in § 1980.488 of this subpart which provides for the guarantee of taxable bond issues of public bodies. Loans to public bodies will be used only to finance:
(a) Community facilities as defined in § 1980.402 of this subpart, and
(b) Constructing and equipping industrial plants for lease to private businesses (not including loans for operating such businesses) when the requesting loan is not available under Subpart A of Part 1942 of this chapter.
A. Without specific written delegated authority, all insured loans require National Office concurrence prior to approval.
B. Applications from private parties for insured loans will not be encouraged.
C. Loan closings on insured loans will be in accordance with this subpart, the Regional Attorney and applicable provisions of Subpart A of Part 1942 of this chapter.
(a) Loans to public bodies will be guaranteed only in connection with the issuance of any class or series of industrial development bonds (as defined in section 103(c)(2) of the Internal Revenue Code of 1954, as amended (IRC)), the interest on which is included in gross income under IRC. No part of the loan guaranteed by FmHA or its successor agency under Public Law 103-354 may extend to any class or series of industrial development bonds the interest on which is excludable from gross income under section 103(a)(1) of such Code. Before the execution of any Loan Note Guarantee, the lender will furnish FmHA or its successor agency under Public Law 103-354 evidence regarding interest on bonds being taxable for Federal income tax purposes. Such evidence may be in the form of an unqualified opinion of a recognized bond counsel or a ruling from the Internal Revenue Service. Guaranteed loans to public bodies can only be used for constructing and equipping industrial plants for lease to private businesses engaged in industrial manufacturing and does not provide funds for debt refinancing, working capital and other miscellaneous fees, charges or services. The lessee will have to provide necessary capital and sufficient financial strength to provide for a sound project.
(b) If FmHA or its successor agency under Public Law 103-354 and the applicant agree that a guaranteed lender is not available, the application may be considered for an insured loan under the provisions of § 1980.481 of this subpart.
The lender is responsible for notifying the FmHA or its successor agency under Public Law 103-354 of the taxability of the proposed bond issue.
(a)
(b)
(c)
(2) The note rate for a BIB loan must be the same for the entire loan, including both the guaranteed and unguaranteed portion.
(d)
(2) During the first year after a Loan Note Guarantee is issued for a BIB loan, FmHA or its successor agency under Public Law 103-354 will pay one percentage point of interest on the loan directly to the lender, thereby reducing the interest due from the borrower by this amount. This interest payment shall be applied to both the guaranteed and unguaranteed portion of the loan pro ratably according to FmHA or its successor agency under Public Law 103-354 regulations.
(3) Interest payments by FmHA or its successor agency under Public Law 103-354 may continue in subsequent years if the borrower's cash flow is insufficient to pay all obligations including the required payments on the proposed loan at the note rate. On or about each yearly anniversary of the promissory note the lender may submit a request to FmHA or its successor agency under Public Law 103-354 for continued interest payments, along with current profit and loss and cash flow statements and cash flow projections to show that the continued payments are needed for another year. FmHA or its successor agency under Public Law 103-354 will promptly review the material submitted, determine whether the continued interest payments by FmHA or its successor agency under Public Law 103-354 are needed to provide for sufficient cash flow in the coming year, and notify the lender in writing of the determination. Once interest payments by FmHA or its successor agency under Public Law 103-354 are terminated because the borrower's cash flow is determined to be sufficient to pay the note rate, such payments will not be made in subsequent years even if the cash flow decreases.
(4) This section does not authorize interest payments by FmHA or its successor agency under Public Law 103-354 on B&I loans other than those approved under this section. To be eligible for interest payments by FmHA or its successor agency under Public Law 103-354, the loan must be designated as a BIB loan when approved and funded from funds authorized by Public Law 103-50.
(e)
(f)
(2) FmHA or its successor agency under Public Law 103-354 will identify a loan as a BIB loan by notation in the top margin of Form FmHA or its successor agency under Public Law 103-354 449-29 and by the “type of assistance” code listed on Form FmHA or its successor agency under Public Law 103-354 1940-3, in accordance with the Forms Manual Insert.
(3) FmHA or its successor agency under Public Law 103-354 will set out the interest buydown provisions in accordance with this section in the Conditional Commitment for Guarantee. When the Loan Note Guarantee is issued, the lender and FmHA or its successor agency under Public Law 103-354 will execute Form FmHA or its successor agency under Public Law 103-354 1980-48, “Business and Industry Interest Rate Buydown Agreement.”
(4) The lender will request the interest payment from FmHA or its successor agency under Public Law 103-354 by submitting Form FmHA or its successor agency under Public Law 103-354 1980-23, “Request for Business and Industry Interest Buydown Payment,” to the FmHA or its successor agency under Public Law 103-354 servicing office. Each request must cover exactly 1 year and be filed within 30 days after the anniversary date of the promissory note, except when interest buydown is terminated between anniversary dates. The FmHA or its successor agency under Public Law 103-354 servicing office will review each request for consistency with FmHA or its successor agency under Public Law 103-354 regulations and the Form FmHA or its successor agency under Public Law 103-354 1980-48 and, if the claim is valid, will approve it and forward it to the Finance Office for issuance of the payment to the lender.
(g)
(h)
(2)
(3)
(i) 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, and the growing of vegetables from seed to the transplant stage.
(ii) Forestry which includes establishments primarily engaged in the operation of timber tracts, tree farms, forest nurseries, and related activities such as reforestation.
(iii) The growing of mushrooms or hydroponics.
(4)
(5)
(i)
(j)
(k)
(l)
(m)
(n)
(1) The lender and/or borrower demonstrates to the Government's satisfaction that it has a need for a prompt indication of the availability of the proposed loan guarantee and the conditions under which a guarantee are available;
(2) The specific items missing from the application package will take considerable time to obtain;
(3) The lender requests a commitment prior to providing the items;
(4) The attachment to Form FmHA or its successor agency under Public Law 103-354 449-14 clearly states that the commitment is conditioned on satisfactory completion of the missing item(s) and a guarantee will not be issued unless all conditions of these regulations are met; and
(5) No Form FmHA or its successor agency under Public Law 103-354 449-14 will be issued prior to the obligation date established with the Finance Office.
(o)
(1) For nonagricultural borrowers with a B&I indebtedness of $500,000 or less, an annual compilation by an independent certified public accountant or by an independent public accountant licensed and certified on or before December 31, 1970.
(2) For nonagricultural borrowers with a B&I indebtedness of $500,001 through $1 million, an annual review by an independent certified public accountant or by an independent public accountant licensed and certified on or before December 31, 1970.
(3) For nonagricultural borrowers with a B&I indebtedness of more than $1 million, an annual audited financial statement by an independent certified public accountant or by an independent public accountant licensed and certified on or before December 31, 1970.
(4) All agricultural loans will require annual financial statements per § 1980.113 of subpart B of this part.
(p)
(1)
(2)
(3)
(4)
(i) Lines of credit will not be guaranteed.
(ii) If the application is submitted solely for a farm as defined in § 1980.106(b) of subpart B of this part, Form FmHA or its successor agency under Public Law 103-354 1980-25, “Farmer Programs Application,” or Form FmHA or its successor agency under Public Law 103-354 449-1, will be used as an application for assistance.
(5)
(i) Timeframe requirements for the evaluation of applications and references to the Approved Lender Program are not applicable.
(ii) County Committee reviews of applications processed under this section will not be required. If the loan approval official finds the applicant is not eligible, the applicant will be notified in writing of the reasons for disapproval and his/her rights through inclusion of the Equal Credit Opportunity Act (ECOA) statement. An opportunity will be given for an appeal as set out in subpart B of part 1900 of this chapter.
(iii) When applied to BIB applications, references in § 1980.114 of this part to “County Office” shall normally be construed to mean “State Office.” References to “County Supervisor” shall be construed to mean “Business and Industry Chief or Community and Business Programs Chief, or other appropriate FmHA or its successor agency under Public Law 103-354 official as designated by the State Director.”
(6)
(ii) The lender must ensure that loan repayment is scheduled to eliminate the possibility of a balloon payment at the end of the loan.
(7)
(i) Operating purposes as outlined in § 1980.175 (c)(1) of Subpart B of this part except for those stipulated in § 1980.175(c)(1)(iv) and (vii).
(ii) Real estate purposes as outlined in § 1980.180 (c) of Subpart B of this part except for those stipulated in § 1980.180 (c)(1) and (4).
(iii) Refinancing in accordance with paragraph (h)(1) of this section and §§ 1980.411 (a)(11), 1980.451 (i)(19), and 1980.452 Administrative C. (except § 1980.452 Administrative C. 1. (d) of this subpart.
(8)
The following FmHA or its successor agency under Public Law 103-354 forms and guides, as applicable, are used in connection with processing B&I, D&D, and DARBE loan guarantees; they are incorporated in this subpart and made a part hereof:
(a) Form FmHA or its successor agency under Public Law 103-354 449-1. “Application for Loan and Guarantee,” is referred to as “Appendix A,”
(b) The “Certificate of Incumbency and Signature” is referred to as “Appendix B,”
(c) “Guidelines for Loan Guarantees for Alcohol Fuel Production Facilities” is referred to as “Appendix C,”
(d) “Alcohol Production Facilities Planning, Performing, Development and Project Control” is referred to as “Appendix D,”
(e) “Environmental Assessment Guidelines” is referred to as “Appendix E.”
(f) Form FmHA or its successor agency under Public Law 103-354 449-14, “Conditional Commitment for Guarantee” is referred to as “Appendix F,” and
(g) “Liquidation and Property Management Guide” is referred to as “Appendix G.”
(h) “Suggested Format for the Opinion of the Lender's Legal Counsel” is referred to as “Appendix H.”
(i) “Instructions for Loan Guarantees for Drought and Disaster Relief” and Forms FmHA or its successor agency under Public Law 103-354 1980-68, “Lender's Agreement—Drought and Disaster Guaranteed Loans,” 1980-69, “Loan Note Guarantee—Drought and Disaster Guaranteed Loans,” and 1980-70, “Assignment Guarantee Agreement—Drought and Disaster Guaranteed Loans,” are referred to as “Appendix I.”
(j) [Reserved]
(k) “Regulations for Loan Guarantees for Disaster Assistance for Rural Business Enterprises” and Forms FmHA or its successor agency under Public Law 103-354 1980-71, “Lender's Agreement—Disaster Assistance for Rural Business Enterprises Guaranteed Loans,” 1980-72 “Loan Note Guarantee—Disaster Assistance for Rural Business Enterprises Guaranteed Loans,” and 1980-73 “Assignment Guarantee Agreement—Disaster Assistance for Rural Business Enterprises Guaranteed Loans” are referred to as “Appendix K.”
The Administrator may in individual cases grant an exception to any requirement or provision of this subpart which is not inconsistent with any applicable law or opinion of the Comptroller General, provided the Administrator determines that application of the requirement or provision would adversely affect the Government's interest. Requests for exceptions must be in writing by the State Director and submitted through the Assistant Administrator, Community and Business Programs. Requests must be supported with documentation to explain the adverse effect on the Government's interest, propose alternative courses of action, and show how the adverse effect will be eliminated or minimized if the exception is granted.
Refer to appendix G of this subpart (available in any FmHA or its successor agency under Public Law 103-354 Office) for advice on how to interact with the OGC on liquidations and property management.
(a)
(b)
(1)
(2)
(i)
(ii)
(iii)
(iv)
(3)
(c)
(d)
(1) Letter from FmHA or its successor agency under Public Law 103-354 National Office authorizing loan guarantee containing conditions (if applicable);
(2) Form FmHA or its successor agency under Public Law 103-354 449-14, including any amendments;
(3) Loan Agreement;
(4) Promissory Notes;
(5) Security documents—Real Estate Mortgage, Security Agreement, Financing Statements, and Leases (if applicable);
(6) Personal or corporation guarantees with related security documents;
(7) Proposed Form FmHA or its successor agency under Public Law 103-354 449-35.
(8) Proposed Form FmHA or its successor agency under Public Law 103-354 449-34.
(9) Proposed Form FmHA or its successor agency under Public Law 103-354 449-36, if any;
(10) Proposed Lender's Certification (§ 1980.60 of subpart A of this part); and
(11) Opinion of Lender's Counsel in form prescribed by OGC.
(e)
(f)
(g)
(a)
(b)
(2) Eligible borrowers’ businesses must be located within the area covered by the Presidential declaration except for those with qualifying losses from microburst wind in accordance with paragraph (a) of this section.
(c)
(1)
(2)
(3)
(4)
(i) 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, and the growing of vegetables from seed to the transplant stage.
(ii) Forestry which includes establishments primarily engaged in the operation of timber tracts, tree farms, forest nurseries, and related activities such as reforestation.
(iii) The growing of mushrooms or hydroponics.
(5)
(6)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(1) The lender and/or borrower demonstrates to the Government's satisfaction that it has a need for a prompt indication of the availability of the proposed loan guarantee and the conditions under which a guarantee are available;
(2) The specific items missing from the application package will take considerable time to obtain;
(3) The lender requests a commitment prior to providing the items;
(4) The attachment to Form FmHA or its successor agency under Public Law 103-354 449-14 clearly states that the commitment is conditioned on satisfactory completion of the missing item(s) and a guarantee will not be issued unless all conditions of these regulations are met; and
(5) No Form FmHA or its successor agency under Public Law 103-354 449-14 will be issued prior to the obligation date established with the Finance Office.
(l)
(1) For nonagricultural borrowers with a B&I indebtedness of $500,000 or less, an annual compilation by an independent certified public accountant or by an independent public accountant licensed and certified on or before December 31, 1970.
(2) For nonagricultural borrowers with a B&I indebtedness of $500,001 through $1,000,000, an annual review by an independent certified public accountant or by an independent public accountant licensed and certified on or before December 31, 1970.
(3) For nonagricultural borrowers with a B&I indebtedness of more than $1 million, an annual audited financial statement by an independent certified public accountant or by an independent public accountant licensed and certified on or before December 31, 1970.
(4) All agricultural loans will require annual financial statements per § 1980.113 of subpart B of part 1980 of this chapter.
(m)
(1)
(2)
(3)
(ii) Loan guarantees may be made under the BID program without regard to the size of the farming operation.
(4)
(5)
(i) Lines of credit will not be guaranteed.
(ii) Timeframes for applicant/lender notification in § 1980.113 of subpart B of part 1980 of this chapter do not apply.
(iii) If the application is submitted solely for a farm as defined in § 1980.106(b) of subpart B of part 1980 of this chapter, 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,” or Form FmHA or its successor agency under Public Law 103-354 449-1, “Application for Loan and Guarantee,” will be used as an application for assistance.
(6)
(i) Timeframe requirements for the evaluation of applications and references to the Approved Lender Program are not applicable.
(ii) County Committee reviews of applications processed under this section will not be required. If the loan approval official finds the applicant is not eligible, the applicant will be notified in writing of the reasons for disapproval and the opportunity given for an appeal as set out in subpart B of part 1900 of this chapter.
(7)
(ii) The lender must ensure that loan repayment is scheduled to eliminate the possibility of a balloon payment at the end of the loan.
(8)
(i) Operating purposes as outlined in § 1980.175(c)(1) of subpart B of part 1980 of this chapter except for those stipulated in paragraphs (c)(1) (iv) and (vii) of that section.
(ii) Real estate purposes as outlined in § 1980.180(c) of subpart B of part 1980 of this chapter except for those stipulated in paragraphs (c) (1) and (4) of that section.
(iii) Refinancing in accordance with paragraphs (c)(1) and (c)(2) of this section and §§ 1980.411(a)(11), 1980.451(i)(19) and 1980.452 ADMINISTRATIVE C [except 1980.452 ADMINISTRATIVE C 1(d)] of this subpart.
(9)
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 0575-0029. Public reporting burden for this collection of information is estimated to vary from 5 minutes to 58 hours per response, with an average of 4 hours per response including time for
I, (Name)
1. Form(s) FmHA or its successor agency under Public Law 103-354 449-34, “Loan Note Guarantee,” dated
2. Form(s) FmHA or its successor agency under Public Law 103-354 449-35, “Lender's Agreement,” dated
3. Form(s) FmHA or its successor agency under Public Law 103-354 449-36, “Assignment Guarantee Agreement,” dated
Signature
In witness whereof, I have hereunto signed my name this
(1)
(2) The alcohol production facility includes all facilities necessary for the production and storage of alcohol and the processing of the by-products of alcohol production. The intent is to limit the alcohol and by-products processing facilities to those facilities which are necessary to yield marketable products and necessary for the financial success of the project. Further refinements, such as gasoline blending or the construction of facilities which use the alcohol or by-products in another manufacturing process, are not considered part of the alcohol production facility.
(3) Application will be reviewed by both B&I personnel and the State Office engineer and forwarded to the National Office if approval is recommended.
(4) The applicant should have a startup
(5) Loan maturity maximums will be as follows:
(6) Farmers Home Administration or its successor agency under Public Law 103-354 will ordinarily only finance new facilities and will not get involved in the refinancing of existing ones.
(7) Priority consideration will be given to the use of primary fuel other than petroleum or natural gas.
(8) A positive energy balance must be indicated and supported by appropriate data; i.e., the energy content of the alcohol produced at the alcohol production facility must be greater than the energy used to produce the alcohol and by-products.
(9) Plant location, in relation to feedstocks, primary fuel and markets for product and by-products, will be an important consideration.
(10) Debt refinancing will only be considered in modest amounts and only when necessary to provide a satisfactory lien position.
(11) Feasibility studies are very important and required and will be prepared by competent and knowledgeable independent parties.
(12) Participating lenders must either have expertise or the availability of expertise in this field.
(13) The proposed operating managers must have experience in this or a related field.
(14) Alcohol Fuel Production Facilities are eligible for assistance underthe Drought and Disaster (D&D) Guaranteed Loan and Disaster Assistance for Rural Business Enterprises (DARBE) programs described in this
(I)
(A) All project facilities are designed utilizing accepted engineering practices and are conformed to applicable Federal, State and local codes and requirements.
(B) Proven equipment and processes are employed in all project facilities unless an exception is granted by the Administrator or designee of the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354) (“Administrator”) in accordance with paragraph (B)(2) hereof and pilot equipment or processes are used instead.
(1) Equipment and processes shall be considered “proven” if they have been successfully employed in other commercial facilities.
(2) Equipment and processes shall be considered pilot if they have not been used in a commercial operation but have been operated on a scale such that all design and material problems have been identified and resolved and operations maintained to demonstrate that the equipment and process may be successfully applied to the proposed commercial operation. Pilot equipment and processes may be considered for use in the project subject to the following:
(a) The plans, specifications, and operational data for the applicable facilities are reviewed by the Administrator or designee and lender. If, in the opinion of FmHA or its successor agency under Public Law 103-354, the proposed processes or equipment are insufficiently developed to assure reliable and successful operation of the project, proven processes and equipment will be utilized.
(b) If pilot processes or equipment are used, the Administrator or designee will also require that:
(i) Reasonable provision is made in the project for conversion to proven equipment or processes; and
(ii) The borrower agrees to convert to proven equipment or processes if conversion is necessary to protect the interest of the Government in the project. A reserve account for this conversion may be required. This account will not be an eligible loan purpose.
(C) Facility and equipment design incorporates cost-effective primary fuel systems, energy recovery systems and conservation measures to the maximum extent that this is feasible and consistent with paragraphs (I), (A), and (B) of this appendix.
(II)
(A) The borrower is responsible for selecting engineering consultants with suitable experience, training and professional competence in the design and construction of the project to assure that the completed project will operate at the prescribed levels of performance. In discharging its responsibility the borrower will obtain or cause to be obtained:
(1) Full engineering services for design and construction inspection for all project facilities. Resident inspection by qualified persons will be required.
(2) Agreements for engineering or design/build services which describe the project facilities in terms of the parameters critical to the successful operation of the project. The parameters shall include input quantities, conversion efficiency, rate of production and fuel consumption and product quality under normal operating conditions. The design parameters will be mutually agreed upon by the borrower, lender, the State Director and the project engineer, and may not be modified without the written concurrence of each of these parties. These agreements for engineering or design/build services will require, or the borrower will otherwise obtain, assurance satisfactory to the State Director that:
(a) The project engineer will maintain adequate insurance to protect the borrower, lender and the Government from incurring expenses resulting from errors and omissions of the engineer in performance of engineering services.
(b) The project engineer will certify that only proven equipment and processes will be utilized in the proposed development. The State Director may request evidence of successful operations of such proven equipment and process. If proven equipment or processes are not used in the project, the project engineer will identify these items and provide the information necessary for acceptance by the Administrator, borrower and lender in accordance with paragraph (I)(B)(2) of this appendix.
(c) If used equipment or existing facilities are incorporated into the project, they must be inspected by the project engineer or by another qualified engineer of the borrower. This engineer will prepare a report describing the proposed facilities or equipment and will comment on their suitability for use in the project. The report will also identify the modifications necessary for successful integration into the project. A cost estimate will also be included comparing new equipment and facilities to the proposed existing facilities or used equipment. Consideration must
(d) The project engineer or qualified individuals representing the manufacturer of principal equipment (or the designer/builder if the contractor has designed the plant) will visit the plant site at reasonable intervals for a period of one year after substantial completion of the project. Such personnel will be experienced in the proper operation and maintenance of applicable plant components. A report will be presented to the borrower within two weeks of each site visit advising the borrower of operation and maintenance deficiencies. A copy of each report will be forwarded to the State Director and lender by the borrower.
(e) The project engineer will prepare or supervise the preparation of a record drawing of all facilities. One copy will be submitted to the lender and the borrower.
(f) The project engineer or another group acceptable to the State Director and lender will prepare an operation and maintenance manual and assist the borrower in the start-up of the project. The operation and maintenance manual will describe the specific operation and maintenance procedures which must be performed for the project to operate at its rated capacity and efficiency and outline product testing, quality control, plant safety and emergency shut-down procedures.
(g) The project engineer will assist the borrower in determining acceptability of materials, equipment and construction during the construction period, review shop drawings, payment estimates and change orders, and assist in determining substantial completion of the project and final completion of individual contracts.
(1) The project is substantially complete when:
(i) Construction is sufficiently completed in accordance with plans and specifications so that the project may be used for its intended purpose, and;
(ii) The project is producing products of the quantity and quality and at the conversion and energy efficiencies proposed in the completed application submitted by the lender and borrower and approved by the FmHA or its successor agency under Public Law 103-354.
(2) The State Director must concur that the project is substantially complete. The following evidence, in form and substance satisfactory to the State Director and lender, must be submitted prior to such concurrence:
(i) A certificate from the project engineer stating that all facilities are substantially complete. Engineers who design specialized equipment or processes must also certify that construction/fabrication is acceptable in accordance with plans and specifications previously approved by them. The certification of the project engineer must be based upon a project start-up procedure where the complete project operates continuously to reach steady-state operating conditions. During this period contractors and engineers will identify and correct problems in operations, malfunctions in equipment, failure in materials and defects in workmanship. After this pre-startup, the certifying engineers will monitor project operations for a continuous period of at least 72 hours or 3 consecutive batch runs as appropriate to assure that all equipment is operating satisfactorily at rated capacity and efficiency.
(ii) Copies of system operation and performance data obtained during project start-up.
(iii) Exceptions to substantial completion and a list of nonsubstantial items which must be completed prior to release of any contractor's retainage.
(3) If the project is not producing products of the required quantity or quality at the prescribed conversion efficiencies, even though the project is otherwise physically complete in accordance with paragraph (1)(i) of this subparagraph, the project engineer will prepare a report identifying the corrective actions including an estimate of costs and additional time necessary to meet established performance criteria.
(4) The project must be certified to be substantially complete by an independent engineer if any portion of the project has been designed or constructed by the borrower or the project engineer has participated in any portion of the construction.
(B) Modification of plans and specifications will not be made without the written authorization of the project engineer.
(C) The Administrator, State Director or their representative's acceptance or concurrence in feasibility studies, preliminary engineering reports, plans, specifications, contract documents and payment estimates will not be construed as a representation of the adequacy of same, reliability of cost estimates or quality of construction, nor will such acceptance or concurrence be deemed a waiver of any of the Government's rights or remedies against any person or party. Reviews and construction inspections by the Administrator, State Director or their representatives are solely for the benefit of the Government and do not relieve the lender or borrower of their obligation to conduct project reviews and inspections.
(III)
(A) Borrower will not award contracts for the construction of any project facilities unless and until:
(1) The borrower obtains applicable construction permits, right-of-ways, licenses and approvals of Federal, State and local authorities for the construction of such facilities.
(2) The State Director concurs in applicable plans, specifications and contract documents. Standard contract documents prescribed for use in Federally assisted projects may be used as a guide for determining the minimum standards for contract acceptability. These standard documents are contained in Guides 18 and 19 of subpart A of part 1942 of this chapter (available in any FmHA or its successor agency under Public Law 103-354 office).
(B) The borrower has the responsibility, without recourse to the Government, for the settlement and satisfaction of all contractual and administrative issues arising out of procurements. This includes, but is not limited to, disputes, claims, protests of awards, or other matters of a contractual nature. Matters concerning violation of laws are to be referred to such local, State, or Federal authority as may have proper jurisdiction.
(C) The borrower's attorney will review executed contract documents including applicable performance and payment bonds and provide a certificate to the borrower and lender that they have been properly executed and that the persons executing these documents have been properly authorized to do so.
(D) In all contracts for construction or facility improvement awarded in excess of $100,000, the borrower will require bonds and a bank letter of credit or cash deposit in escrow, assuring performance and payment of 100 percent of the contract cost. The surety will normally be in the form of performance and payment bonds. Such assurance shall remain in full force and effect through any warranty period. Companies providing performance and payment bonds must hold a certificate of authority as an acceptable security on Federal bonds and eligible for listing in Treasury circular 510 as amended and be legally doing business in the State the project is located.
(E) Project Changes. Any change in the project which may affect collateral, its ultimate financial viability or compliance with the conditional commitment must have prior approval of the lender and FmHA or its successor agency under Public Law 103-354.
(1) Construction contracts will require that change orders receive prior approval from the lender when such changes:
(a) Increase or decrease contract price,
(b) Materially modify contract provisions,
(c) Increase or decrease time of completion,
(d) Affect project performance.
(2) All change orders will be recorded on a chronologically numbered contract change order as they occur. Change orders will not be included in payment estimates until approved by the borrower, project engineer, the lender and concurred in by FmHA or its successor agency under Public Law 103-354.
(F) Warranty.
(1) All major equipment must be guaranteed by the manufacturer to be free from defects in workmanship and materials for a period of one year after start-up of equipment.
(2) Equipment purchased by a construction contractor or design builder and all other work shall be further warranted to be free from defect in material and workmanship by the contractor or the design builder for a period of one year after substantial completion of the contract.
(3) Applicable provisions to this effect shall be included in equipment purchase orders or construction contracts.
(G) Lease agreements. Where the right of use or control of any property or equipment not owned by the borrower is essential to the successful operation of the project during the life of the loan, such right will be evidenced by written agreements or contracts between the owner(s) of the property or equipment and the borrower. Lease agreements shall not contain provisions for restricted use of the site or facility, forfeiture or similiar cancellation clauses and shall provide for the right to transfer and lease without restriction. Such lease contracts or agreements shall be approved by the lender and FmHA or its successor agency under Public Law 103-354.
(IV)
(A) Lender will adopt project control procedures to assure that loan funds are applied for costs or expenses properly attributable to the project (“Eligible Project Costs”) as proposed in the completed application submitted by the lender and borrower and approved by the FmHA or its successor agency under Public Law 103-354. A project monitoring account (“Project Monitoring Account”) will be developed by lender for this purpose and concurred in by the State Director. This account will be divided into sufficient budget categories to permit adequate control of expenditures and identification of potential budget overruns.
(B) The first advance (“First Advance”) of loan funds to the borrower will not commence from the Project Monitoring Account prior to lender's receipt of evidence that:
(1) The borrower has made adequate provisions for compliance with measures established by FmHA or its successor agency under Public Law 103-354 to mitigate adverse historical and environmental impacts.
(2) Applicable engineering, design/build, construction management, inspection and plant start-up service agreements have been obtained and accepted by the State Director and lender.
(3) The project engineer has prepared a detailed cost estimate and construction schedule for all facilities related to the project. This estimate must indicate that the project can be completed with the funds available as shown on the Form FmHA or its successor
(4) All funds necessary for construction of project facilities will be available when needed.
(5) The borrower has retained a project manager with sufficient experience and training to supervise project construction and engineering services on behalf of the borrower.
(C) After the first advance, future advances may be made from the Project Monitoring Account, in accordance with prudent lender practice, for all Eligible Project Costs established in the Project Monitoring Account, provided these payments are made in accordance with the terms of applicable contracts and are approved by the borrower and, when applicable, recommended by the project engineer.
(D) Payments for Eligible Project Costs incurred by the borrower prior to satisfaction of the conditions precedent to the first advance shall be made with borrower's funds or other nonguaranteed loan funds only. These payments however, may be reimbursed through the Project Monitoring Account as authorized by the State Director after compliance with Paragraph (IV)(B) hereof. The lender will not advance and the borrower will not be entitled to loan funds for reimbursement if such costs or expenses incurred by the borrower prior to the first advance, or at anytime thereafter, were for costs or expenses other than Eligible Project Costs. Costs and expenses accruing from but not limited to, interest charges imposed by construction, equipment, material or service contracts, penalty payments, damage claims, awards or settlements are not Eligible Project Costs unless specifically approved by the State Director.
(E) The lender will monitor the progress of construction and undertake the reviews and project inspections necessary to reasonably assure that funds are paid for Eligible Project Costs and that problems in project development are expeditiously reported to the State Director.
(F) The lender will prepare a monthly report showing the expenditures made from each budget category of the Project Monitoring Account. This report will include a review of construction progress including proposed and approved contract change orders and, to the extend possible, identify problems or delays in construction or other matters which might affect successful startup of project. This report may be based upon information received from the project engineer and borrower and/or independent observations of the lender. The report will be initialed by the borrower and project engineeer and submitted to the State Director.
(G) Transfer of loan funds between established or new categories of the Project Monitoring Account or any change in the total amount of funds committed to the project will be reported by the lender to the State Director as these changes occur.
In completing an assessment, it is important to understand the comprehensive nature of the impacts which must be analyzed. Consideration must be given to all potential impacts associated with the construction of the project and its operation and maintenance. The attainment of the project's major objectives often induces or supports changes in population densities, land uses, community services, transportation systems and resource consumption. The impacts of these activities must also be assessed.
The environmental reviewer should consult with appropriate experts from Federal, State and local agencies, universities and other organizations or groups whose views could be helpful in the assessment of potential impacts. In so doing, each discussion which is utilized in reaching a conclusion with respect to the degree of an impact should be summarized in the assessment as accurately as possible and include name, title, phone number, and organization of the individual contacted, plus the date of contact. Related correspondence should be attached to the assessment.
The Farmers Home Administration or its successor agency under Public Law 103-354 assessment should be prepared in the following format; it should address the listed items and questions and contain as attachments the indicated descriptive materials, as well as the environmental information submitted by the applicant.
These assessment guidelines have been designed to cover the wide variety of impacts which may be encountered. Consequently, not every issue or potential impact raised in these guildlines may be relevant to each project. The purpose of the format is to give the preparer an understanding of a standard range of impacts, environmental factors and issues which may be encountered. In preparing an assessment, each topic heading identified by a roman numeral and each environmental factor listed under topic heading IV,
The amount of analysis and material that must be provided will depend upon the type and size of the project, the environment in which it is located and the range and complexity of the potential impacts. The amount of analysis and detail provided, therefore, must be commensurate with the magnitude of the expected impact. The analysis of each environmental factor (i.e., water quality) must be taken to the point that a conclusion can be reached and supported concerning the degree of the expected impact with respect to that factor.
(I)
(II) Primary beneficiaries and related activities.
Identify any existing businesses or major developments that will benefit from the project and those which will expand or locate in the area because of the project. Specify by name, product, service, and operations involved.
Identify any related activities which are defined as interdependent parts of an FmHA or its successor agency under Public Law 103-354 action. Such undertakings are considered interdependent parts whenever they either make possible or support the FmHA or its successor agency under Public Law 103-354 action or are themselves induced or supported by the FmHA or its successor agency under Public Law 103-354 action or another related activity. These activities may have been completed in the very recent past and are now operational or they may reasonably be expected to be accomplished in the near future. Related activities may or may not be Federally permitted or assisted. When they are, identify the involved Federal agency(s).
In completing the remainder of the assessment, it must be remembered that the impacts to be addressed are those which stem from the project, the primary beneficiaries, and the related activities.
(III)
Attach adequate location maps of the project area, as well as (1) a U.S. Geological Survey “15 minute” (“7
(IV)
(1) Air Quality—Discuss, in terms of the amounts and types of emissions to be produced, all aspects of the project including beneficiaries’ operations and known indirect effects (such as increased motor vehicle traffic) which will affect air quality. Indicate the existing air quality in the area. Indicate if topographical or meteorological conditions hinder or affect the dispersals of air emissions. Evaluate the impact on air quality given the types and amounts of projected emissions, the existing air quality and topographical and meteorological conditions. Discuss the project's consistency with the State's air quality implementation plan for the area, the classification of the air quality control region within which the project is located, and the status of compliance with air quality standards within that region. Cite any contacts with appropriate experts and agencies which must issue necessary permits.
(2) Water Quality—Discuss, in terms of amounts and types of effluents all aspects of the project, including primary beneficiaries’ operations and known indirect effects which will affect water quality. Indicate the existing water quality of surface and/or underground water to be affected. Evaluate the impacts of the project on this existing water quality. Indicate if an aquifer recharge area is to be adversely affected. If the project lies within or will affect a sole source aquifer recharge area as designated by the Environmental Protection Agency (EPA), contact the appropriate EPA regional office to determine if its review is necessary. If it is, attach the results of its review.
Indicate the source and available supply of raw water and the extent to which the additional demand will affect the raw water supply. Describe the wastewater treatment system(s) to be used and indicate their capacity and their adequacy in terms of the degree of treatment provided. Discuss the characteristics and uses of the receiving waters for any
Discuss the project's consistency with the water quality planning for the area, such as EPA's Section 208 areawide waste treatment management plan. Describe how surface runoff is to be handled and the effect of erosion on streams.
Evaluate the extent to which the project may create shortages for or otherwise adversely affect the withdrawal capabilities of other present users of the raw water supply, particularly in terms of possible human health, safety, or welfare problems.
For projects utilizing a groundwater supply, evaluate the potential for the project to exceed the safe pumping rate for the aquifer to the extent that it would (1) adversely affect the pumping capability of present users, (2) increase the likelihood of brackish or saltwater intrusion, thereby decreasing water quality, or (3) substantially increase surface subsidence risks.
For projects utilizing a surface water supply, evaluate the potential for the project to (1) reduce flows below the minimum required for the protection of fish and wildlife or (2) reduce water quality standards below those established for the stream classification at the point of withdrawal or the adjacent downstream section.
Cite contacts with appropriate experts and agencies that must issue necessary permits.
(3) Solid Waste Management—Indicate all aspects of the project, including primary beneficiaries’ operations, and known indirect effects which will necessitate the disposal of solid wastes. Indicate the kinds and expected quantities of solid wastes involved and the disposal techniques to be used. Evaluate the adequacy to these techniques especially in relationship to air and water quality. Indicate if recycling or resource recovery programs are or will be used. Cite any contacts with appropriate experts and agencies that must issue necessary permits.
(4) Land Use—Given the description of land uses as previously indicated, evaluate (a) the effect of changing the land use of the project site and (b) how this change in land use will affect the surrounding land uses and those within the project's area of environmental impact. Particularly address the potential impacts to the unique or sensitive areas discussed under Section III, Description of Project Area. Also address any changes in land use which may result from demand for feedstock for the plant's operation. Describe the existing land use plan and zoning restrictions for the project area. Evaluate the consistency of the project and its impacts with these plans.
(5) Transportation—Describe available facilities such as highways and rail. Discuss whether the project will result in an increase in motor vehicle traffic and the existing roads’ ability to safely accommodate this increase. Indicate if additional traffic control devices are to be installed. Describe new traffic patterns which will arise because of the project. Discuss how these new traffic patterns will affect the land uses described above, especially residential, hospitals, schools, and recreational. Describe the consistency of the project's transportation impacts with the transportation plans for the area and any air quality control plans. Cite any contact with appropriate experts.
(6) Natural Environment—Indicate all aspects of the project, including construction, beneficiaries’ operations, and known indirect effects which will affect the natural environment including wildlife, their habitats, and unique natural features. Cite contacts with appropriate experts. If an area listed on the National Registry of Natural Landmarks may be affected, consult with the Department of Interior and document these consultations and any agreements reached regarding avoidance or mitigation of potential adverse impacts.
(7) Human Population—Indicate the number of people to be relocated and arrangements being made for this relocation. Discuss how impacts resulting from the project such as changes in land use, transportation changes, air emissions, noise, odor, etc., will effect nearby residents and their lifestyles or users of the project area and surrounding areas. Cite contacts with appropriate experts.
(8) Construction—Indicate the potential effects of construction of the project on air quality, water quality noise levels, solid waste disposal, soil erosion and siltation. Describe the measures that will be employed to limit adverse effects. Give particular consideration to erosion, stream siltation, and clearing operations.
(9) Energy Impacts—Indicate the project's and its primary beneficiaries’ effects on the area's existing energy supplies. This discussion should address not only the direct energy utilization, but any major indirect utilization resulting from the siting of the project. Describe the availability of these supplies to the project site. Discuss whether the project will utilize a large share of the remaining capacity of an energy supply or will create a shortage of such supply. Discuss any steps to be taken to conserve energy.
(10) Discuss any of the following areas which may be relevant: noise, vibrations, safety, seismic conditions, fire prone locations, radiation, and aesthetic considerations. Cite any discussions with appropriate experts.
(V)
Indicate if the project is within or will impact a coastal area defined as such by the state's approved Coastal Zone Management Program. If so, consult with the State agency responsible for the Program to determine the project's consistency with it. The results of this coordination shall be included in the assessment and considered in completing the environmental impact determination and environmental findings,
(VI) Compliance with Advisory Council on Historic Preservation's regulations.
In this section, the environmental reviewer shall detail the steps taken to comply with the above regulations as specified in Subpart F of Part 1901 of this Chapter. First, indicate that the National Register of Historic Places, including its monthly supplements, has been reviewed and whether there are any listed properties located within the area to be affected by the project. Second, indicate the steps taken such as historical/archeological surveys to determine if there are any properties eligible for listing located within the affected area. Summarize the results of the consultation with the State Historic Preservation Officer (SHPO) and attach appropriate documentation of the SHPO's views. Discuss the views of any other experts contacted. Based upon the above review process and the views of the SHPO, state whether or not an eligible or listed property will be affected.
If there will be an effect, discuss all of the steps and protective measures taken to complete the Advisory Council's regulations. Describe the affected property and the nature of the effect. Attach to the asessment the results of the coordination process with the Advisory Council on Historic Preservation.
(VII) Compliance with the Wild and Scenic Rivers Act.
Indicate whether the project will affect a river or portion of it which is either included in the National Wild and Scenic Rivers System or designated for potential addition to the System. This analysis shall be conducted through discussions with the appropriate regional office of the National Park Service or the Forest Service when its lands are involved, as well as the appropriate State agencies having implementation authorities. A summary of discussions held or any required formal coordination shall be included in the assessment.
(VIII) Compliance with the Endangered Species Act.
Indicate whether the project will either (1) affect a listed endangered or threatened species or critical habitat or (2) adversely affect a proposed critical habitat for an endangered or threatened species or jeopardize the continued existence of a proposed endangered or threatened species. This analysis shall be conducted in consultation with the Fish and Wildlife Service and the National Marine Fisheries Service, when appropriate.
The results of any required coordination shall be included in the assessment along with any completed biological opinion and mitigation measures to be required for the project. These factors shall be considered in completing the environmental impact determination.
(IX) Compliance with Executive Order 11988, Floodplain Management, and Executive Order 11990, Protection of Wetlands.
Indicate whether the project is either located within a 100-year floodplain (500-year floodplain for a critical action) or a wetland or will impact a floodplain or wetland. If so, determine if there is a practicable alternative project or location. If there is no such alternative, determine whether all practicable mitigation measures are included in the project and document as an attachment these determinations and the steps taken to inform the public, locate alternatives, and mitigate potential adverse impacts. See the U.S. Water Resource Council's
(X) State Environmental Policy Act.
Indicate if the proposed project is subject to a State environmental policy act or similar regulation. Summarize the results of compliance with these requirements and attach available documentation.
(XI) Consultation requirements.
Attach the comments of any State or local agency received through the implementation of Executive Order 12372, Intergovernmental Review of Federal Programs.
(XII) Environmental analysis of participating Federal agency.
Indicate if another federal agency is participating in the project either through the provision of additional funds, a companion project, or a permit review authority. Summarize the results of the involved agency's environmental impact analysis and attach available documentation.
(XIII) Reaction to project.
Discuss any negative comments or public views raised about the project and the consideration given to these comments. Indicate whether a public hearing or public information meeting has been held either by the applicant or FmHA or its successor agency under Public Law 103-354 to include a summary of the results and any objections raised. Indicate any other examples of the community's awareness of the project, such as newspaper articles or public notifications.
(XIV) Cumulative impacts.
Summarize the cumulative impacts of this project and the related activities. Give particular attention to land use changes and air and water quality impacts. Summarize the results of the environmental impact analysis done for any of these related activities and/
(XV) Adverse impact.
Summarize the potential adverse impacts of the proposal as pointed out in the above analysis.
(XVI) Alternatives.
Discuss the feasibility of alternatives to the project and their environmental impacts. These alternatives should include (a) alternative location, (b) alternative designs, (c) alternative projects having similar benefits, and (d) no project.
(XVII) Mitigation measures.
Describe any measures which will be taken or required by FmHA or its successor agency under Public Law 103-354 to avoid or mitigate the identified adverse impacts. Such measures shall be included as special requirements or provisions to the offer of financial assistance.
From an examination of information supplied by the Lender on the above proposed loan, the county committee certification or recommendation, if required, and other relevant information deemed necessary, it appears that the transaction can properly be completed.
Therefore, 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) hereby agrees that, in accordance with applicable provisions of the FmHA or its successor agency under Public Law 103-354 regulations published in the Federal Register and related forms, it will execute Form(s) FmHA or its successor agency under Public Law 103-354 449-34, “Loan Note Guarantee,” subject to the conditions and requirements specified in said regulations and below.
The Loan Note Guarantee fee payable by the Lender to FmHA or its successor agency under Public Law 103-354 will be the amount as specified in the regulations on the date of this Conditional Commitment for Guarantee. The interest rate for the loan is
A Loan Note Guarantee will not be issued until the Lender certifies as required in 7 CFR 1980.60 that there has been no adverse change(s) in the Borrower's financial condition, nor any other adverse change in the Borrower's condition during the period of time from FmHA or its successor agency under Public Law 103-354's issuance of the Conditional Commitment for Guarantee to issuance of the Loan Note Guarantee. The Lender's certification must address all adverse changes and be supported by financial statements of the Borrower and its guarantors not more than 60 days old at the time of certification. As used in this paragraph only, the term “Borrower” includes any parent, affiliate, or subsidiary of the Borrower.
This agreement becomes null and void unless the conditions are accepted by the Lender and Borrower within 60 days from date of issuance by FmHA or its successor agency under Public Law 103-354. Any negotiations concerning these conditions must be completed by that time.
Except as set out below, the purposes for which the loan funds will be used and the amounts to be used for such purposes are set out on the Request for Loan Note Guarantee, the Request for Guarantee Operating Loan Line of Credit, Emergency Livestock Loan, or Economic Emergency Loan, or the Application for Loan and Guarantee. Once this instrument is executed and returned to FmHA or its successor agency under Public Law 103-354, no major change of conditions or approved loan purpose as listed on the forms will be considered. Additional Conditions and Requirements including Source and Use of Funds:
This conditional commitment will expire on
I/We have acted as counsel to (Lender)
In connection with this loan, I/we have examined:
1. The corporate records of Borrower, including its Articles of Incorporation, By-Laws and Resolutions of its Board of Directors.
2. The Loan Agreement between the Lender and Borrower.
3. The Security Agreement executed by Borrower on (date)
4. The Guaranty (where applicable) executed on (date)
5. Financing Statements executed by Borrower and the Lender.
6. Real Estate Mortgages dated
7. Real Estate Mortgages dated
8. The appropriate title and/or lien searches relating to Borrower's property.
9. The pledge of stock and instruments related thereto.
10. Such other materials, including relevant provisions of the laws of this state as I/we have deemed pertinent as a basis for rendering the opinion hereafter set forth.
11. Lease(s) between Borrower and (lessor's name)
Based on the foregoing examinations, I am/we are of the opinion and advise you that:
1. Borrower is a duly organized corporation in good standing under the laws of the Commonwealth/State of (State)
2. Borrower has the necessary corporate power to authorize and has taken the necessary corporate action to authorize the Loan Agreement and to execute and deliver the Note, Security Agreement, Financing Statement, and Mortgage. Said instruments hereinafter collectively referred to as the “Loan Instruments.”
3. The Loan Instruments were all duly authorized, executed, and delivered and constitute the valid and legally binding obligation of the Borrower and collectively create and valid (first) lien upon or valid security interest in favor of the Lender, in the security covered thereby, and are enforceable in accordance with their terms except to the extent that the enforceability (but not the validity) thereof may be limited by laws of bankruptcy, insolvency, or other laws generally affecting creditors’ rights.
4. The execution and delivery of the Loan Instruments and compliance with the provisions thereof under the circumstances contemplated thereby did not, do not and will not in any material respect conflict with, constitute default under, or contravene any
5. All applicable Federal, State and local tax returns and reports as required have been duly filed by Borrower and all Federal, State and local taxes, assessments and other governmental charges imposed upon Borrower or its respective assets, which are due and payable, have been paid.
6. The guaranty has been duly executed by the Guarantors and is a legal, valid and binding joint and several obligations of the Guarantors, enforceable in accordance with its terms, except to the extent that the enforceability (but not the validity) thereof may be limited by laws of bankruptcy, insolvency, or other laws generally affecting creditors’ rights.
7. All necessary consents, approvals, or authorizations of any governmental agency or regulatory authority or of stockholders which are necessary have been obtained. The improvements and the use of the property comply in all respects with all Federal, State, and local laws applicable thereto.
8. (In cases involving subordinate or other than first lien position) That the mortgage/deed of trust on Borrower's real estate and (fixtures, e.g., machinery and equipment) and the security interest on (type of collateral, e.g., machinery and equipment, accounts, receivables and inventory) both given as security to the Lender for the Loan, will be subordinate to (first mortgagee)
9. That there are no liens, as of the date hereof, on record with respect to the property of Borrower other than those set forth above.
10. There are no actions, suits or proceedings pending or, to the best of our knowledge, threatened before any court or administrative agency against Borrower which could materially adversely affect the financial condition and operations of Borrower.
11. Borrower has good and marketable title to the real estate security free and clear of all liens and encumbrances other than those set forth above. I/we have no knowledge of any defect in the title of the Borrower to the property described in the Loan Instruments.
12. Borrower is the absolute owner of all property given to secure the repayment of the loan, free and clear of all liens, encumbrances, and security interests.
13. Duly executed and valid functioning statements have been filed in all offices in which it is necessary to file financing statements to fully perfect the security interests granted in the Loan Instruments.
14. Duly executed real estate mortgages/deeds of trust have been recorded in all offices in which it is necessary to record to fully perfect the security interests granted in the Loan Instruments.
15. (IN SOME OTHER CIRCUMSTANCES) The Indemnification Agreemnt has been duly executed by the Indemnitors and is a legal, valid and binding joint and several obligation of the Indemnitors, enforceable in accordance with its terms, except to the extent that the enforceability (but not the validity) thereof may be limited by laws of bankruptcy, insolvency, or other laws generally affecting creditors’ rights.
16. That the lease contains a valid and enforceable right of assignment and right of reassignment, enforceable in accordance with its terms, except to the extent the enforceability (but not the validity) thereof may be limited by laws of bankruptcy, insolvency, or other laws generally affecting creditors’ rights.
17. The Lender's lien has been duly noted on all motor vehicle titles, stock certificates or other instruments where such notations are required for proper perfection of security interests therein.
18. That a valid pledge of the outstanding and unissued stock and/or shares of Borrower has been obtained and the Lender has a validly perfected and enforceable security interest in the shares/stock of Borrower, except to the extent the enforceability thereof may be limited by laws of bankruptcy, insolvency, or other laws generally affecting creditors rights.
A.
(1) Form FmHA or its successor agency under Public Law 103-354 1980-68, “Lender's Agreement—Drought and Disaster Guaranteed Loans,” will be used instead of Form FmHA or its successor agency under Public Law 103-354 449-35, “Lender's Agreement.”
(2) Form FmHA or its successor agency under Public Law 103-354 1980-69, “Loan Note Guarantee—Drought and Disaster Guaranteed Loans,” will be used instead of Form FmHA or its successor agency under Public Law 103-354 449-34, “Loan Note Guarantee.”
(3) Form FmHA or its successor agency under Public Law 103-354 1980-70, “Assignment Guarantee Agreement—Drought and Disaster Guaranteed Loans,” will be used instead of Form FmHA or its successor agency under Public Law 103-354 449-36, “Assignment Guarantee Agreement.”
B.
C.
(1) Business expansion, acquisition of real estate, machinery, equipment, inventory, other goods or services, or for any other purpose unless related directly to the financial distress or loss that is the basis for the D&D guaranteed loan.
(2) Any eligible agricultural production purpose if annual tillage of the soil is involved.
(3) Refinancing or restructuring debt(s) which are or were in payment default more than 60 consecutive days during the 12 months preceding the date of the adverse financial effect of the natural disaster of 1988 upon the borrower.
D.
(1) D&D guaranteed loan(s) to any borrower if the total cumulative principal amount of D&D guaranteed loan(s) to that borrower would exceed $500,000, or
(2) Any D&D guaranteed loan if the completed application is not received by FmHA or its successor agency under Public Law 103-354 on or before September 30, 1991.
E.
F.
(1) The causal relationship between a 1988 natural disaster and the financial distress or loss upon which the preapplication or application is based; and,
(2) That the amount of the loan requested is not greater than the amount necessary for curing the problems caused by the natural disaster. Financial distress or loss shall be determined on the basis of a comparison of financial data for comparable periods of time and need not necessarily be based on data at the year's end. Evidence submitted may include, but is not limited to, the following:
(a) Evidence of financial loss or distress (including loss or distress caused by business interruption) resulting from physical damage caused by natural disaster, or
(b) Evidence that the financial loss and/or distress of the business is the direct or indirect result of loss of sales, business interruption, loss of markets, shortage of raw materials, or decline in patronage or customers caused by a natural disaster. It must be shown that business operations were damaged as a result of such natural disaster.
G.
H.
I.
J.
(Lender) of
has made a loan(s) to
(Borrower)
The Parties Agree:
I. The maximum loss covered under the Loan Note Guarantee will not exceed
II. Full Faith and Credit. The Loan Note Guarantee constitutes an obligation supported by the full faith and credit of the United States and is incontestable except for fraud or misrepresentation of which the Lender has actual knowledge at the time it became such Lender or which Lender participates in or condones. Any note which provides for the payment of interest on interest shall not be guaranteed. Any Loan Note Guarantee or Assignment Guarantee Agreement Drought and Disaster Guaranteed Loan (Assignment Guarantee Agreement) attached to or relating to a note which provides for payment of interest on interest is void.
The Loan Note Guarantee will be unenforceable by the Lender to the extent any loss is occasioned by violation of usury laws, negligent servicing, or failure to obtain the required security regardless of the time at which FmHA or its successor agency under Public Law 103-354 acquires knowledge of the foregoing. Any losses will be unenforceable by the Lender to the extent that loan funds are used for purposes other than those specifically approved by FmHA or its successor agency under Public Law 103-354 in its Conditional Commitment for Guarantee. Negligent servicing is defined as the failure to perform those services which a reasonably prudent Lender would perform in servicing its own portfolio of loans that are not guaranteed. The term includes not only the concept of failure to act but also not acting in a timely manner or acting in a manner contrary to the manner in which a reasonably
III. Lender's Sale or Assignment of Guaranteed Loan. A. The Lender may retain all of the guaranteed loan. The Lender is not permitted to sell or participate any amount of the guaranteed or unguaranteed portion(s) of the loan(s) to the applicant or Borrower or members of their immediate families, their officers, directors, stockholders, other owners, or any parent, subsidiary or affiliate. If the Lender desires to market all or part of the guaranteed portion of the loan at or subsequent to loan closing, such loan must not be in default as set forth in the terms of the notes. The Lender may proceed under the following options:
1.
2.
a.
b.
(a) The Borrower agrees and executes the new notes.
(b) The interest rate does not exceed the interest rate in effect when the loan was closed.
(c) The maturity of the loan is not changed.
(d) FmHA or its successor agency under Public Law 103-354 will not bear any expenses that may be incurred in reference to such reissue of notes.
(e) There is adequate collateral securing the note(s).
(f) No intervening liens have arisen or have been perfected and the secured lien priority remains the same.
(2) FmHA or its successor agency under Public Law 103-354 will issue the appropriate Loan Note Guarantees—Drought and Disaster Guaranteed Loan to be attached to each of the notes then extant in exchange for the original Loan Note Guarantee—Drought and Disaster Guaranteed Loan which will be cancelled by FmHA or its successor agency under Public Law 103-354.
3.
b. The Lender is required to hold in its portfolio or retain a minimum of 5 percent of the total guaranteed loan(s) amount. The amount required to be retained must be of the unguaranteed portion of the loan and cannot be participated to another. The Lender may sell the remaining amount of the unguaranteed portion of the loan only through participation. However, the Lender will always retain the responsibility for loan servicing and liquidation.
B. When a guaranteed portion of a loan is sold by the Lender to a Holder(s), the Holder(s) shall thereupon succeed to all rights of Lender under the Loan Note Guarantee—Drought and Disaster Guaranteed Loan to the extent of the portion of loan purchased. Lender will remain bound to all the obligations under the Loan Note Guarantee—Drought and Disaster Guaranteed Loan, and this agreement, and the FmHA or its successor agency under Public Law 103-354 program regulations found in the applicable Subpart of Title 7 CFR Part 1980, and to future FmHA or its successor agency under Public Law 103-354 program regulations not inconsistent with the express provisions hereof.
C. The Holder(s) upon written notice to the Lender may resell the unpaid guaranteed portion of the loan sold under provision III A.
IV. The Lender agrees loan funds will be used for the purposes authorized in the applicable Subpart of Title 7 CFR Part 1980 and in accordance with the terms of Form FmHA or its successor agency under Public Law 103-354 449-14.
V. The Lender certifies that none of its officers or directors, stockholders or other owners has a substantial financial interest in the borrower. The Lender certifies that neither the Borrower nor its officers or directors, stockholders, or other owners has a substantial financial interest in the Lender.
VI. The Lender certifies that it has no knowledge of any material adverse change, financial or otherwise, in the Borrower. Borrower's business, or any parent, subsidiaries, or affiliates since it requested a Loan Note Guarantee.
VII. Lender certifies that a loan agreement and/or loan instruments concurred in by FmHA or its successor agency under Public Law 103-354 has been or will be signed with the Borrower.
VIII. Lender certifies it has paid the required guarantee fee.
IX. Servicing. A. The Lender will service the entire loan and will remain mortgagee and/or secured party of record, not withstanding the fact that another may hold a portion of the loan. The entire loan will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of the loan. Lender may charge Holder a servicing fee. The unguaranteed portion of a loan will not be paid first nor given any preference or priority over the guaranteed portion of the loan.
B. Disposition of the guaranteed portion of a loan may be made prior to full disbursement, completion of construction and acquisitions only with the prior written approval of FmHA or its successor agency under Public Law 103-354. Subsequent to full disbursement completion of construction, and acquisition, the guaranteed portion of the loan may be disposed of as provided herein.
It is the Lender's responsibility to see that all construction is properly planned before any work proceeds; that any required permits, licenses or authorizations are obtained from the appropriate regulatory agencies; that the Borrower has obtained contracts through acceptable procurement procedures; that periodic inspections during construction are made and that FmHA or its successor agency under Public Law 103-354's concurrence on the overall development schedule is obtained.
C. Lender's servicing responsibilities include, but are not limited to:
1. Obtaining compliance with the covenants and provisions in the note, loan agreement, security instruments, and any supplemental agreements and notifying in writing FmHA or its successor agency under Public Law 103-354 and the Borrower of any violations. None of the aforesaid instruments will be altered without FmHA or its successor agency under Public Law 103-354's prior written concurrence. The Lender must service the loan in a reasonable and prudent manner.
2. Receiving all payments on principal and interest (including any loan subsidy) on the loan as they fall due and promptly remitting and accounting to any Holder(s) of their pro rata share thereof determined according to their respective interests in the loan, less only Lender's servicing fee. The loan may be reamortized or renewed only with agreement of the Lender and Holder(s) of the guaranteed portion of the loan and only with FmHA or its successor agency under Public Law 103-354's written concurrence. It is the Lender's responsibility to maximize the collection of interest due on the loan. The Holder(s) remain entitled to all interest due up to the point of repurchase by the Lender or purchase from the Holder(s) by FmHA or its successor agency under Public Law 103-354 if such interest can be collected. If FmHA or its successor agency under Public Law 103-354 has repurchased, FmHA or its successor agency under Public Law 103-354 is equally so entitled.
3. Inspecting the collateral as often as necessary to properly service the loan.
4. Assuring that adequate insurance is maintained. This includes hazard insurance obtained and maintained with a loss payable clause in favor of the Lender as the mortgagee or secured party.
5. Assuring that: taxes, assessment or ground rents against or affecting collateral are paid; the loan and collateral are protected in foreclosure, bankruptcy, receivership, insolvency, condemnation, or other litigation, insurance loss payments, condemnation awards, or similar proceeds are applied on debts in accordance with lien priorities on which the guarantee was based, or to rebuilding or otherwise acquiring needed replacement collateral with the written approval of FmHA or its successor agency under Public Law 103-354; proceeds from the sale or other disposition of collateral are applied in accordance with the lien priorities on which the guarantee is based, except that proceeds from the disposition of collateral, such as machinery, equipment, furniture or fixtures, may be used to acquire property of similar nature in value up to $
6. Assuring that if personal or corporate guarantees are part of the collateral, current financial statements from such loan guarantors will be obtained and copies provided to FmHA or its successor agency under Public Law 103-354 at such time and frequency as required by the loan agreement or Conditional Commitment for Guarantee. In the case of guarantees secured by collateral, assuring the security is properly maintained.
7. Obtaining the lien coverage and lien priorities specified by the Lender and agreed to by FmHA or its successor agency under Public Law 103-354, properly recording or filing lien or notice instruments to obtain or maintain such lien priorities during the existence of the guarantee by FmHA or its successor agency under Public Law 103-354.
8, Assuring that the Borrower obtains marketable title to the collateral.
9. Assuring that the Borrower (any party liable) is not released from liability for all or any part of the loan, except in accordance with FmHA or its successor agency under Public Law 103-354 regulations.
10. Providing FmHA or its successor agency under Public Law 103-354 Finance Office with loan status reports semiannually as of June 30 and December 31 on Form FmHA or its successor agency under Public Law 103-354 1980-41, “Guaranteed Loan Status Report.”
11. Obtaining from the Borrower periodic financial statements under the following schedule:
Lender is responsible for analyzing the financial statements, taking any servicing actions and providing copies of statements and record of actions to the FmHA or its successor agency under Public Law 103-354 office immediately responsible for the loan.
12. Monitoring the use of loan funds to assure they will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in 7 CFR Part 1940, Subpart G, Exhibit M.
X. Default. A. The Lender will notify FmHA or its successor agency under Public Law 103-354 when a Borrower is thirty (30) days past due on a payment or if the Borrower has not met its responsibilities of providing the required financial statements to the Lender or is otherwise in default. The Lender will notify FmHA or its successor agency under Public Law 103-354 of the status of a Borrower's default on Form FmHA or its successor agency under Public Law 103-354 1980-44. “Guaranteed Loan Borrower Default Status.” A meeting will be arranged by the Lender with the Borrower and FmHA or its successor agency under Public Law 103-354 to resolve the problem. Actions taken by the Lender with written concurrence of FmHA or its successor agency under Public Law 103-354 will include but are not limited to the following or any combination thereof:
1. Deferment of principal payments (subject to rights of any Holder(s)).
2. An additional temporary loan by the Lender to bring the account current.
3. Reamortization of or rescheduling the payments on the loan (subject to rights of any Holder(s)).
4. Transfer and assumption of the loan in accordance with the applicable Subpart of Title 7 CFR Part 1980.
5. Reorganization.
6. Liquidation.
7. Subsequent loan guarantees.
8. Changes in interest rates with FmHA or its successor agency under Public Law 103-354's, Lender's, and the Holders(s) approval; provided, such interest rate is adjusted proportionally between the guaranteed and unguaranteed portion of the loan and the type of rate remains the same.
B. The Lender will negotiate in good faith in an attempt to resolve any problem to permit the Borrower to cure a default, where reasonable.
C. The Lender has the option to repurchase the unpaid guaranteed portion of the loan from the Holder(s) within 30 days of written demand by the Holder(s) when: (a) the Borrower is in default not less than 60 days in payment of principal or interest due on the loan or (b) the Lender has failed to remit to the Holder(s) its pro rata share of any payment made by the Borrower or any loan subsidy within 30 days of its receipt thereof. The repurchase by the Lender will be for an amount equal to the unpaid guaranteed portion of the principal and accrued interest less the Lender's servicing fee. The loan note guarantee will not cover the note interest to the Holder on the guaranteed loan(s). Holder(s) will concurrently send a copy of demand to FmHA or its successor agency under Public Law 103-354. The lender will accept an assignment without recourse from the Holder(s) upon repurchase. The Lender is encouraged to repurchase the loan to facilitate the accounting for funds, resolve the problem, and to permit the borrower to cure the default, where reasonable. The Lender will notify the Holder(s) and FmHA or its successor agency under Public Law 103-354 of its decision.
D. If Lender does not repurchase as provided by paragraph C, FmHA or its successor agency under Public Law 103-354 will purchase from Holder(s) the unpaid principal balance of the guaranteed portion within 30 days after written demand to FmHA or its successor agency under Public Law 103-354 from the Holder(s). The loan note guarantee will not cover the note interest to the Holder on the guaranteed loan(s). Such demand will include a copy of the written demand made upon the Lender.
The Holder(s) or its duly authorized agent will also include evidence of its right to require payment from FmHA or its successor agency under Public Law 103-354. Such evidence will consist of either the originals of the Loan Note Guarantee and note properly endorsed to FmHA or its successor agency under Public Law 103-354 or the original of
The Holder will also inform FmHA or its successor agency under Public Law 103-354 of the amount of past interest and capitalized interest it is owed. Such interest is not guaranteed. The Holder(s) remain entitled to all interest due up to the point of repurchase by the Lender or purchase by FmHA or its successor agency under Public Law 103-354 from the Holder(s) if such interest is or can be collected. If FmHA or its successor agency under Public Law 103-354 has purchased, FmHA or its successor agency under Public Law 103-354 is equally entitled.
The FmHA or its successor agency under Public Law 103-354 office serving the Borrower will promptly notify the Lender of the Holder(s) demand for payment. The Lender will promptly provide the FmHA or its successor agency under Public Law 103-354 office servicing the Borrower with the information necessary for FmHA or its successor agency under Public Law 103-354's determination of the appropriate amount due the Holder(s). Any discrepancy between the amount claimed by the Holder(s) and the information submitted by the Lender must be resolved before payment will be approved. FmHA or its successor agency under Public Law 103-354 will notify both parties who must resolve the conflict before payment by FmHA or its successor agency under Public Law 103-354 will be approved. Such a conflict will suspend the running of the 30 day payment requirement. Upon receipt of the appropriate information, the FmHA or its successor agency under Public Law 103-354 office servicing the Borrower will review the demand and submit it to the State Director for verification. After reviewing the demand, the State Director will transmit the request to the FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of the appropriate check. Upon issuance, the Finance Office will notify the office serving the Borrower and State Director and remit the check(s) to the Holder(s).
E. Lender consents to the purchase by FmHA or its successor agency under Public Law 103-354 and agrees to furnish on request by FmHA or its successor agency under Public Law 103-354 a current statement certified by an appropriate authorized officer of the Lender of the unpaid principal and interest then owed by the Borrower on the loan and the amount due to the Holder(s). Lender agrees that any purchase by FmHA or its successor agency under Public Law 103-354 does not change, alter or modify any of the Lender's obligations to FmHA or its successor agency under Public Law 103-354 arising from said loan or guarantee, nor does such purchase waive any of FmHA or its successor agency under Public Law 103-354's rights against Lender, and FmHA or its successor agency under Public Law 103-354 will have the right to set-off against Lender all rights inuring to FmHA or its successor agency under Public Law 103-354 from the Holder against FmHA or its successor agency under Public Law 103-354's obligation to Lender under the Loan Note Guarantee. To the extent FmHA or its successor agency under Public Law 103-354 holds a portion of a loan, loan subsidy will not be paid the Lender.
F. Servicing fees assessed by the Lender to a Holder are collectible only from payment installments received by the Lender from the Borrower. When FmHA or its successor agency under Public Law 103-354 repurchases from a Holder, FmHA or its successor agency under Public Law 103-354 will pay the Holder only the amounts due the Holder. FmHA or its successor agency under Public Law 103-354 will not reimburse the Lender for servicing fees assessed to a Holder and not collected from payments received from the Borrower. No servicing fee shall be charged FmHA or its successor agency under Public Law 103-354 and no such fee is collectible from FmHA or its successor agency under Public Law 103-354.
G. Lender may also repurchase the guaranteed portion of the loan consistent with paragraph 10 of the Loan Note Guarantee.
XI. Liquidation. If the Lender concludes that liquidation of a guaranteed loan account is necessary because of one or more defaults or third party actions that the Borrower cannot or will not cure or eliminate within a reasonable period of time, a meeting will be arranged by the Lender with FmHA or its successor agency under Public Law 103-354. When FmHA or its successor agency under Public Law 103-354 concurs with the Lender's conclusion or at any time concludes independently that liquidation is necessary, it will notify the Lender and the matter will be handled as follows:
The Lender will liquidate the loan unless FmHA or its successor agency under Public Law 103-354, at its option, decides to carry out liquidation.
When the decision to liquidate is made, the Lender may proceed to purchase from Holder(s) the guaranteed portion of the loan. The Holder(s) will be paid according to the provision in the Loan Note Guarantee or the Assignment Guarantee Agreement.
If the Lender does not purchase the guaranteed portion of the loan, FmHA or its successor agency under Public Law 103-354 will be notified immediately in writing. FmHA or its successor agency under Public Law 103-
A.
1. Such proof as FmHA or its successor agency under Public Law 103-354 requires to establish the Lender's ownership of the guaranteed loan promissory note(s) and related security instruments.
2. Information lists concerning the Borrower's assets including real and personal property, fixtures, claims, contracts, inventory (including perishables), accounts receivable, personal and corporate guarantees, and other existing and contingent assets, advice as to whether or not each item is serving as collateral for the guaranteed loan.
3. A proposed method of making the maximum collection possible on the indebtedness.
4. If the outstanding loan balance including accrued interest is less than $200,000, the Lender will obtain an estimate of the market and potential liquidated value of the collateral. On loan balances in excess of $200,000, the Lender will obtain an independent appraisal report on all collateral securing the loan, which will reflect the current market value and potential liquidation value. The appraisal report is for the purpose of permitting the Lender and FmHA or its successor agency under Public Law 103-354 to determine the appropriate liquidation actions. Any independent appraiser's fee will be shared equally by FmHA or its successor agency under Public Law 103-354 and the Lender.
B.
1. The Lender will transfer to FmHA or its successor agency under Public Law 103-354 all rights and interests necessary to allow FmHA or its successor agency under Public Law 103-354 to liquidate the loan. In this event, the Lender will not be paid for any loss until after the collateral is liquidated and the final loss is determined by FmHA or its successor agency under Public Law 103-354.
2. FmHA or its successor agency under Public Law 103-354 will attempt to obtain the maximum amount of proceeds from liquidation.
3. Options available to FmHA or its successor agency under Public Law 103-354 include any one or combination of the usual commercial methods of liquidation.
C.
D.
E.
1. Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” will be used for calculations of all estimated and final loss
2. When the Lender is conducting the liquidation, and owns any of the guaranteed portion of the loan, it may request a tentative loss estimate by submitting to FmHA or its successor agency under Public Law 103-354 an estimate of the loss that will occur in connection with liquidation of the loan. FmHA or its successor agency under Public Law 103-354 will agree to pay an estimated loss settlement to the Lender provided the Lender applies such amount due to the outstanding principal balance owed on the guaranteed debt. Such estimate will be prepared and submitted by the Lender on Form FmHA or its successor agency under Public Law 103-354 449-30, using the basic formula as provided on the report except that the appraisal value will be used in lieu of the amount received from the sale of collateral.
After the Report of Loss estimate has been approved by FmHA or its successor agency under Public Law 103-354, and within 30 days thereafter, FmHA or its successor agency under Public Law 103-354 will send the original Report of Loss estimate to FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of a Treasury check in payment of the estimated amount due the Lender.
After liquidation has been completed, a final loss report will be submitted on Form FmHA or its successor agency under Public Law 103-354 449-30 by the Lender to FmHA or its successor agency under Public Law 103-354.
3. After the Lender has completed liquidation, FmHA or its successor agency under Public Law 103-354 upon receipt of the final accounting and report of loss, may audit and will determine the actual loss. If FmHA or its successor agency under Public Law 103-354 has any questions regarding the amounts set forth in the final Report of Loss, it will investigate the matter. The Lender will make its records available to and otherwise assist FmHA or its successor agency under Public Law 103-354 in making the investigation. If FmHA or its successor agency under Public Law 103-354 finds any discrepancies, it will contact the Lender and arrange for the necessary corrections to be made as soon as possible. When FmHA or its successor agency under Public Law 103-354 finds the final Report of Loss to be proper in all respects, it will be tentatively approved in the space provided on the form for that purpose.
4. When the Lender has conducted liquidation and after the final Report of Loss has been tentatively approved:
a. If the loss is greater than the estimated loss payment, FmHA or its successor agency under Public Law 103-354 will send the original of the final Report of Loss to the Finance Office for issuance of a Treasury check in payment of the additional amount owed by FmHA or its successor agency under Public Law 103-354 to the Lender.
b. If the loss is less than the estimated loss, the Lender will reimburse FmHA or its successor agency under Public Law 103-354 for the overpayment plus interest at the note rate from date of payment.
5. If FmHA or its successor agency under Public Law 103-354 has conducted liquidation, it will provide an accounting and Report of Loss to the Lender and will pay the Lender in accordance with the Loan Note Guarantee.
F.
G.
H.
I.
J.
K.
XII. Protective Advances. Protective advances will not be covered by the guarantee.
XIII. Additional Loans or Advances. The Lender will not make additional expenditures or new loans without first obtaining the written approval of FmHA or its successor agency under Public Law 103-354 even though such expenditures or loans will not be guaranteed.
XIV. Future Recovery. After a loan has been liquidated and a final loss has been paid by FmHA or its successor agency under Public Law 103-354, any future funds which may be recovered by the Lender, will be pro-rated between FmHA or its successor agency under Public Law 103-354 and the Lender. FmHA or its successor agency under Public Law 103-354 will be paid such amount recovered in proportion to the percentage it guaranteed for the loan and the Lender will retain such amounts in proportion to the percentage of the unguaranteed portion of the loan.
XV. Transfer and Assumption Cases. Refer to the applicable Subpart of Title 7 of CFR Part 1980.
If a loss should occur upon consummation of a complete transfer and assumption for less than the full amount of the debt and the transferor-debtor (including personal guarantees) is released from personal liability, the Lender, if it holds the guarantee portion, may file an estimated Report of Loss on Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to recover its pro rata share of the actual loss at that time. In completing Form FmHA or its successor agency under Public Law 103-354 449-30, the amount of the debt assumed will be entered on line 24 as Net Collateral (Recovery).
XVI. Other Requirements. This agreement is subject to all the requirements of the applicable Subpart of Title 7 CFR Part 1980, and any future amendments of these regulations not inconsistent with this agreement. Interested parties may agree to abide by future FmHA or its successor agency under Public Law 103-354 regulations not inconsistent with this agreement.
XVII. Execution of Agreements. If this agreement is executed prior to the execution of the Loan Note Guarantee, this agreement does not impose any obligation upon FmHA or its successor agency under Public Law 103-354 with respect to execution of such contract. FmHA or its successor agency under Public Law 103-354 in no way warrants that such a contract has been or will be executed.
XVIII. Notices. All notices and actions
The guaranteed portion of the loan is $
In consideration of the making of the subject loan by the above named Lender, the United States of America, acting through the Farmers Home Administration or its successor agency under Public Law 103-354 of the United States Department of Agriculture (herein called “FmHA or its successor agency under Public Law 103-354”), pursuant to
The Lender the lesser of 1. or 2. below:
1. Any loss sustained by such Lender on the guaranteed portion including principal indebtedness as evidenced by said note(s) or by assumption agreement(s), or
2. The guaranteed principal advanced to or assumed by the Borrower under said note(s) or assumption agreement(s) (Maximum -$). No capitalized interest is guaranteed.
1. Loan Servicing. Lender will be responsible for servicing the entire loan, and Lender will remain mortgagee and/or secured party of record not withstanding the fact that another party may hold a portion of the loan. When multiple notes are used to evidence a loan, Lender will structure repayments as provided in the loan agreement.
2. Priorities. The entire loan will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of the loan. The unguaranteed portion of the loan will not be paid first nor given any preference or priority over the guaranteed portion.
3. Full Faith and Credit. The Loan Note Guarantee constitutes an obligation supported by the full faith and credit of the United States and is incontestable except for fraud or misrepresentation of which Lender or any Holder has actual knowledge at the time it became such Lender or Holder or which Lender or any Holder participates in or condones. If the note to which this is attached or relates provides for payment of interest on interest, then this Loan Note Guarantee is void. In addition, the Loan Note Guarantee will be unenforceable by Lender to the extent any loss is occasioned by the violation of usury laws, negligent servicing, or failure to obtain the required security regardless of the time at which FmHA or its successor agency under Public Law 103-354 acquires knowledge of the foregoing. Any losses occasioned will be unenforceable to the extent that loan funds are used for purposes other than those specifically approved by FmHA or its successor agency under Public Law 103-354 in its Conditional Commitment for Guarantee. Negligent servicing is defined as the failure to perform those services which a reasonably prudent lender would perform in servicing its own portfolio of loans that are not guaranteed. The term includes not only the concept of a failure to act but also not acting in a timely manner or acting in a manner contrary to the manner in which a reasonably prudent lender would act up to the time of loan maturity or until a final loss is paid.
4. Rights and Liabilities. The guarantee and right to require purchase will be directly enforceable by Holder notwithstanding any fraud or misrepresentation by Lender or any unenforceability of this Loan Note Guarantee by Lender. Nothing contained herein will constitute any waiver by FmHA or its successor agency under Public Law 103-354 of any rights it possesses aganinst the Lender. Lender will be liable for and will promptly pay to FmHA or its successor agency under Public Law 103-354 any payment made by FmHA or its successor agency under Public Law 103-354 to Holder which if such Lender had held the guaranteed portion of the loan, FmHA or its successor agency under Public Law 103-354 would not be required to make.
5. Payments. Lender will receive all payments of principal, or interest, on account of the entire loan and will promptly remit to Holder(s) its pro rata share thereof determined according to its respective interest in the loan, less only Lender's servicing fee.
6. Protective Advances. Protective advances made by Lender will not be guaranteed.
7. Repurchase by Lender. The Lender has the option to repurchase the unpaid guaranteed portion of the loan from the Holder(s) within 30 days of written demand by the Holder(s) when: (a) the borrower is in default not less than 60 days on principal or interest due on the loan or (b) the Lender has failed to remit to the Holder(s) its pro rata share of any payment made by the borrower or any loan subsidy within 30 days of its receipt thereof. The repurchase by the Lender will be for an amount equal to the unpaid guaranteed portion of principal and accrued interest less the Lender's servicing fee. The Loan Note Guarantee will not cover the note interest on the guaranteed loan(s). Holder(s) will concurrently send a copy of demand to FmHA or its successor agency under Public
8. FmHA or its successor agency under Public Law 103-354 Purchase. If Lender does not repurchase as provided by paragraph 7 hereof, FmHA or its successor agency under Public Law 103-354 will purchase from Holder the unpaid principal balance of the guaranteed portion less Lender's servicing fee, within thirty (30) days after written demand to FmHA or its successor agency under Public Law 103-354 from Holder. The Loan Note Guarantee will not cover the note interest to the Holder on the guaranteed loan(s). Such demand will include a copy of the written demand made upon the Lender. The Holder(s) or its duly authorized agent will also include evidence of its right to require payment from FmHA or its successor agency under Public Law 103-354. Such evidence will consist of either the original of the Loan Note Guarantee properly endorsed to FmHA or its successor agency under Public Law 103-354 or the original of the Assignment Guarantee Agreement properly assigned to FmHA or its successor agency under Public Law 103-354 without recourse including all rights, title, and interest in the loan. FmHA or its successor agency under Public Law 103-354 will be subrogated to all rights of Holder(s). The Holder(s) will include in its demand the amount of unpaid principal due (no capitalized interest).
The Holder will also inform FmHA or its successor agency under Public Law 103-354 of the amount of past interest and capitalized interest it is owed. Such interest is not guaranteed. The Holder(s) remain entitled to all interest due to the point of repurchase by the Lender or purchase by FmHA or its successor agency under Public Law 103-354 from the Holder(s) if such interest is or can be collected. If FmHA or its successor agency under Public Law 103-354 has purchased, FmHA or its successor agency under Public Law 103-354 is equally entitled.
The FmHA or its successor agency under Public Law 103-354 will promptly notify the Lender of its receipt of the Holder(s)'s demand for payment. The Lender will promptly provide the FmHA or its successor agency under Public Law 103-354 with the information necessary for FmHA or its successor agency under Public Law 103-354 determination of the appropriate amount due the Holder(s). Any discrepancy between the amount claimed by the Holder(s) and the information submitted by the Lender must be resolved before payment will be approved. FmHA or its successor agency under Public Law 103-354 will notify both parties who must resolve the conflict before payment of FmHA or its successor agency under Public Law 103-354 will be approved. Such conflict will suspend the running of the 30 day payment requirement. Upon receipt of the appropriate information, FmHA or its successor agency under Public Law 103-354 will review the demand and submit it to the State Director for verification. After reviewing the demand the State Director will transmit the request to the FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of the appropriate check. Upon issuance, the Finance Office will notify the office servicing the borrower and State Director and remit the check(s) to the Holder(s).
9.
10.
a. The lender will not repurchase from the Holder(s) for arbitrage purposes or other purposes to further its own financial gain.
b. Any repurchase will only be made after the Lender obtains FmHA or its successor agency under Public Law 103-354 written approval.
c. If the Lender does not repurchase the portion from the Holder(s), FmHA or its successor agency under Public Law 103-354 at its option may purchase such guaranteed portions for servicing purposes.
11.
12.
13.
14.
1. The principal amount of the loan now outstanding is $
2.
The Lender will receive all payments on account of principal of, or interest (including any loan subsidy) on, the entire loan and shall promptly remit to the Holder its pro rata share thereof determined according to their respective interests in the loan, less only Lender's servicing fee.
3.
4.
5.
6.
Disaster Assistance for Rural Business Enterprises (DARBE) guaranteed loans are authorized by Section 401 of the Disaster Assistance Act of 1989, which provides for guarantees of up to 90 percent of the unpaid principal and interest amount of qualifying loans, or $2,500,000 whichever is less, to any one borrower. DARBE guaranteed loans may be either to assist in alleviating financial distress caused to rural business entities, directly or indirectly, by drought, freeze, storm, excessive moisture, earthquake, or related conditions occurring in 1988 or 1989, or to assist such entities that refinance or restructure debt as a result of losses incurred, directly or indirectly, because of such natural disasters. Where used in this appendix, the term “natural disaster(s)” refers only to drought, freeze, storm, excessive moisture, earthquake, and related conditions occurring in 1988 or 1989. All provisions of subparts A and E of part 1980 of this chapter apply to DARBE loans, except as provided in this appendix. All forms used in connection with a DARBE loan will be those used in connection with a Business and Industrial (B&I) guaranteed loan, except for the following three forms that are incorporated in this appendix K of this subpart E, made a part hereof, and appear in the
(1) Form FmHA or its successor agency under Public Law 103-354 1980-71, “Lender's Agreement—Disaster Assistance for Rural Business Enterprise Guaranteed Loans,” will be used instead of Form FmHA or its successor agency under Public Law 103-354 449-35, “Lender's Agreement.”
(2) Form FmHA or its successor agency under Public Law 103-354 1980-72, “Loan Note Guarantee—Disaster Assistance for Rural Business Enterprise Guaranteed Loans,” will be used instead of Form FmHA or its successor agency under Public Law 103-354 449-34, “Loan Note Guarantee.”
(3) Form FmHA or its successor agency under Public Law 103-354 1980-73, “Assignment Guarantee Agreement—Disaster Assistance for Rural Business Enterprise Guaranteed Loans,” will be used instead of Form FmHA or its successor agency under Public Law 103-354 449-36, “Assignment Guarantee Agreement.”
Loan proceeds may be used for purposes described in § 1980.411(a), except in lieu of the debt refinancing requirements in
(1) 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, and the growing of vegetables from seed to the transplant stage.
(2) Forestry which includes establishments primarily engaged in the operation of timber tracts, tree farms, forest nurseries, and related activities such as reforestation.
(3) Loans for livestock and poultry processing as identified under eligible purposes.
(4) The growing of mushrooms or hydroponics.
In addition, those business enterprises which qualify for assistance as agricultural production must be ineligible entities for FmHA or its successor agency under Public Law 103-354 farmer program loans because the entity exceeds the definition of a family-size farm as defined by FmHA or its successor agency under Public Law 103-354 Instruction 1941-A, § 1941.4(d).
FmHA or its successor agency under Public Law 103-354 Instruction 1980-E, § 1980.412 are ineligible purposes for DARBE guaranteed loans except for hotels, motels, tourist, recreation facilities and agricultural production (production agriculture) as defined in § 1980.412(e), DARBE guaranteed loans may not be used for:
(1) Business expansion, acquisition of real estate, machinery, equipment, inventory, other goods or services, or for any other purpose unless related directly to the financial distress or loss that is the basis for the DARBE guaranteed loan.
(2) Alleviating financial distress of entities engaged in agricultural production that are eligible for other FmHA or its successor agency under Public Law 103-354-type farm loan programs.
In addition to transactions listed in FmHA or its successor agency under Public Law 103-354 Instruction 1980-E, § 1980.413, except for § 1980.413(a)(3), FmHA or its successor agency under Public Law 103-354 will not make DARBE guaranteed loans if the completed application is not received by FmHA or its successor agency under Public Law 103-354 on or before September 30, 1991, nor will FmHA or its successor agency under Public Law 103-354 make subsequent DARBE guarantee loans.
See FmHA or its successor agency under Public Law 103-354 Instruction 1980-E, § 1980.441. In lieu of the borrower equity requirements in § 1980.441, paragraphs (a) and (b), the following applies to DARBE loans. Tangible balance sheet equity must be positive when the Loan Note Guarantee is issued. Equity must be such that, when considered with other credit factors, repayment of the loan and the continued success of the business operation are reasonably assured. Requirements of § 1980.441(c) apply to DARBE guaranteed loans.
See FmHA or its successor agency under Public Law 103-354 Instruction 1980-E, § 1980.451. All requirements of § 1980.451 remain in effect. In addition to the information required as part of a preapplication under § 1980.451(f), and unless previously submitted as a part of an application under § 1980.451(i) evidence is required which demonstrates to FmHA or its successor agency under Public Law 103-354's satisfaction:
(1) The causal relationship between a 1988 or 1989 natural disaster and the financial distress or loss upon which the preapplication or application is based; and,
(2) That the amount of the loan requested is not greater than the amount necessary for curing the problems caused by the natural disaster. Financial distress or loss shall be determined on the basis of a comparison of financial data for comparable periods of time and need not necessarily be based on data at the year's end. Evidence submitted may include, but is not limited to, the following:
(a) Evidence of financial loss or distress (including loss or distress caused by business interruption) resulting from physical damage caused by natural disaster, or
(b) Evidence that the financial loss and/or distress of the business is the direct or indirect result of loss of sales, business interruption, loss of markets, shortage of raw materials, or decline in patronage or customers caused by a nautral disaster. It must be shown that business operations were damaged as a result of such natural disaster.
(3) Evidence of compliance with Sodbuster and Swampbuster requirements as referenced in paragraph K below.
G.
H.
The provisions of § 1980.452 ADMINISTRATIVE C. 1(d) do not apply.
FmHA or its successor agency under Public Law 103-354 Instruction 1980-E, §§ 1980.423(b), 1980.488(b), 1980.481, 1980.411(b), and other provisions of this subpart dealing with insured or direct loans do not apply to DARBE loans. All DARBE loans are FmHA or its successor agency under Public Law 103-354 guaranteed loans. FmHA or its successor agency under Public Law 103-354 has no authority to make DARBE loans directly to borrowers.
The provisions of FmHA or its successor agency under Public Law 103-354 Instruction 1940-G, exhibit M, will apply to loans made to rural business enterprises engaged in agricultural production.
The Loan Note Guarantee—DARBE constitutes an obligation supported by the full faith and credit of the United States and is incontestable except for fraud or misrepresentation of which the Lender has actual knowledge at the time it became such Lender or which Lender participates in or condones. Any note which provides for the payment of interest on interest shall not be guaranteed. Any Loan Note Guarantee—DARBE or Assignment Guarantee Agreement—DARBE attached to or relating to a note which provides for payment of interest on interest is void.
The Loan Note Guarantee—DARBE will be unenforceable by the Lender to the extent any loss is occasioned by violation of usury laws, negligent servicing, or failure to obtain the required security regardless of the time at which FmHA or its successor agency under Public Law 103-354 acquires knowledge of the foregoing. Any losses will be unenforceable by the Lender to the extent that loan funds are used for purposes other than those specifically approved by FmHA or its successor agency under Public Law 103-354 in its Conditional Commitment for Guarantee. Negligent servicing is defined as the failure to perform those services which a reasonably prudent Lender would perform in servicing its own portfolio of loans that are not guaranteed. The term includes not only the concept of a failure to act but also not acting in a timely manner or acting in a manner contrary to the manner in which a reasonably prudent Lender would act up to the time of loan maturity or until a final loss is paid.
A. The Lender may retain all of the guaranteed loan. The Lender is not permitted to sell or participate in any amount of the guaranteed or unguaranteed portion(s) of the loan(s) to the applicant or Borrower or members of their immediate families, their officers, directors, stockholders, other owners, or any parent, subsidiary or affiliate. If the Lender desires to market all or part of the guaranteed portion of the loan at or subsequent to loan closing, such loan must not be in default as set forth in the terms of the notes. The Lender may proceed under the following options:
1. Assignment. Assign all or part of the guaranteed portion of the loan to one or more Holders by using Form FmHA or its successor agency under Public Law 103-354 1980-73, “Assignment Guarantee Agreement—DARBE.” Holder(s), upon written notice to Lender and FmHA or its successor agency under Public Law 103-354, may reassign the unpaid guaranteed portion of the loan sold thereunder. Upon such notification the assignee shall succeed to all rights and obligations of the Holder(s) thereunder. If this option is selected, the Lender may not at a later date cause to be issued any additional notes.
2. Multi-Note System. When this option is selected by the Lender, upon disposition the Holder will receive one of the Borrower's executed notes and Form FmHA or its successor agency under Public Law 103-354 1980-72, “Loan Note Guarantee—DARBE,” attached to the Borrower's note. However, all rights under the security instruments (including personal and/or corporate guarantees) will remain with the Lender and in all cases inure to its and the Government's benefit notwithstanding any contrary provisions of state law.
a. At Loan Closing: Provide for no more than 10 notes, unless the Borrower and FmHA or its successor agency under Public Law 103-354 agree otherwise, for the guaranteed portion and one note for the unguaranteed portion. When this option is selected, FmHA or its successor agency under Public Law 103-354 will provide the Lender with a Form FmHA or its successor agency under Public Law 103-354 1980-72, for each of the notes.
b. After Loan Closing:
(1) Upon written approval by FmHA or its successor agency under Public Law 103-354, the Lender may cause to be issued a series of new notes, not to exceed the total provided in 2.a. above, as replacement for previously issued guaranteed note(s) provided:
(a) The Borrower agrees and executes the new notes.
(b) The interest rate does not exceed the interest rate in effect when the loan was closed.
(c) The maturity of the loan is not changed.
(d) FmHA or its successor agency under Public Law 103-354 will not bear any expenses that may be incurred in reference to such reissue of notes.
(e) There is adequate collateral securing the note(s).
(f) No intervening liens have arisen or have been perfected and the secured lien priority remains the same.
(2) FmHA or its successor agency under Public Law 103-354 will issue the appropriate Loan Note Guarantees—DARBE to be attached to each of the notes then extant in exchange for the original loan Note Guarantee—DARBE which will be cancelled by FmHA or its successor agency under Public Law 103-354.
3. Participations.
a. The Lender may obtain participation in its loan under its normal operating procedures. Participation means a sale of an interest in the loan wherein the Lender retains the note, collateral securing the note, and all responsibility for loan servicing and liquidation.
b. The Lender is required to hold in its own portfolio or retain a minimum of 5% for Disaster Assistance for Rural Business Enterprises loans of the total guaranteed loan(s) amount. The amount required to be retained must be of the unguaranteed portion of the loan and cannot be participated to another. The Lender may sell the remaining amount of the unguaranteed portion of the loan only through participation. However, the Lender will always retain the responsibility for loan servicing and liquidation.
B. When a guaranteed portion of a loan is sold by the Lender to a (Holder(s), the Holder(s) shall thereupon succeed to all rights of Lender under the Loan Note Guarantee—DARBE to the extent of the portion of the loan purchased. Lender will remain bound to all the obligations under the Loan Note Guarantee—DARBE, and this agreement, and the FmHA or its successor agency under Public Law 103-354 program regulations found in the applicable subpart of title 7 CFR part 1980, and to future FmHA or its successor agency under Public Law 103-354 program regulations not inconsistent with the express provisions hereof.
C. The Holder(s) upon written notice to the lender may resell the unpaid guaranteed portion of the loan sold under provision III A.
A. The Lender will service the entire loan and will remain mortgagee and/or secured party of record, notwithstanding the fact that another may hold a portion of the loan. The entire loan will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of the loan. Lender may charge Holder a servicing fee. The unguaranteed portion of a loan will not be paid first nor given any preference or priority over the guaranteed portion of the loan.
B. Disposition of the guaranteed portion of a loan may be made prior to full disbursement, completion of construction and acquisitions only with the prior written approval of FmHA or its successor agency under Public Law 103-354. Subsequent to full disbursement, completion of construction, and acquisition, the guaranteed portion of the loan may be disposed of as provided herein.
It is the Lender's responsibility to see that all construction is properly planned before any work proceeds; that any required permits, licenses or authorizations are obtained from the appropriate regulatory agencies; that the Borrower has obtained contracts through acceptable procurement procedures;
C. Lender's servicing responsibilities include, but are not limited to:
1. Obtaining compliance with the convenants and provisions in the note, loan agreement, security instruments, and any supplemental agreements and notifying in writing FmHA or its successor agency under Public Law 103-354 and the Borrower of any violations. None of the aforesaid instruments will be altered without FmHA or its successor agency under Public Law 103-354's prior written concurrence. The Lender must service the loan in a reasonable and prudent manner.
2. Receiving all payments on principal and interest (including any loan subsidy) on the loan as they fall due and promptly remitting and accounting to any Holder(s) of their pro rata share thereof determined according to their respective interests in the loan, less only Lender's servicing fee. The loan may be reamortized, renewed, rescheduled or (for Farm Ownership, Soil and Water, and Operating loans only) written down only with agreement of the Lender and Holder(s) of the guaranteed portion of the loan and only with FmHA or its successor agency under Public Law 103-354's written concurrence. For loans covered by 7 CFR part 1980, subpart H, the Holder may designate the payee when an Individual Certificate is issued.
3. Inspecting the collateral as often as necessary to properly service the loan.
4. Assuring that adequate insurance is maintained. This includes hazard insurance obtained and maintained with a loss payable clause in favor of the Lender as the mortgagee or secured party.
5. Assuring that: taxes, assessment or ground rents against or affecting collateral are paid; the loan and collateral are protected in foreclosure, bankruptcy, receivership, insolvency, condemnation, or other litigation, insurance loss payments, condemnation awards, or similar proceeds are applied on debts in accordance with lien priorities on which the guarantee was based, or to rebuilding or otherwise acquiring needed replacement collateral with the written approval of FmHA or its successor agency under Public Law 103-354; proceeds from the sale or other disposition of collateral are applied in accordance with the lien priorities on which the guarantee is based, except that proceeds from the disposition of collateral, such as machinery, equipment, furniture or fixtures, may be used to acquire property of similar nature in value up to $
6. Assuring that if personal or corporate guarantees are part of the collateral, current financial statements from such loan guarantors will be obtained and copies provided to FmHA or its successor agency under Public Law 103-354 at such time and frequency as required by the loan agreement or Conditional Commitment for Guarantee. In the case of guarantees secured by collateral, assuring the security is properly maintained.
7. Obtaining the lien coverage and lien priorities specified by the Lender and agreed to by FmHA or its successor agency under Public Law 103-354, properly recording or filing lien or notice instruments to obtain or maintain such lien priorities during the existence of the guarantee by FmHA or its successor agency under Public Law 103-354.
8. Assuring that the Borrower obtains marketable title to the collateral.
9. Assuring that the Borrower (any party liable) is not released from liability for all or any part of the loan, except in accordance with FmHA or its successor agency under Public Law 103-354 regulations.
10. Providing FmHA or its successor agency under Public Law 103-354 Finance Office with loan status reports semiannually as of June 30 and December 31 on Form FmHA or its successor agency under Public Law 103-354 1980-41, “Guaranteed Loan Status Report.”
11. Obtaining from the Borrower periodic financial statements under the following schedule:
12. Monitoring the use of loan funds to assure they will not be used for any purpose that will contribute to excessive erosion of highly erodible land or to the conversion of wetlands to produce an agricultural commodity, as further explained in 7 CFR part 1940, subpart G, exhibit M.
A. The Lender will notify FmHA or its successor agency under Public Law 103-354 when a Borrower is thirty (30) days (90 days for guaranteed rural housing loan) past due on a payment or if the Borrower has not met its responsibilities of providing the required financial statements to the Lender or is otherwise in default. The Lender will notify FmHA or its successor agency under Public Law 103-354 of the status of a Borrower's default on Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status.” A meeting will be arranged by the Lender with
1. Deferment of principal payments (subject to rights of any Holder(s)).
2. An additional temporary loan by the Lender to bring the account current.
3. Reamortization of or rescheduling the payments on the loan (subject to rights of any Holder(s)).
4. Transfer and assumption of the loan in accordance with the applicable subpart of title 7 CFR part 1980.
5. Reorganization.
6. Liquidation.
7. Subsequent loan guarantees.
8. Changes in interest rates with FmHA or its successor agency under Public Law 103-354's Lender's, and the Holder’(s) approval; provided, such interest rate is adjusted proportionally between the guaranteed and unguaranteed portion of the loan and the type of rate remains the same.
9. Principal and interest write down in accordance with 7 CFR part 1980, subpart B, § 1980.125.
B. The Lender will negotiate in good faith in an attempt to resolve any problem to permit the Borrower to cure a default, where reasonable.
C. The Lender has the option to repurchase the unpaid guaranteed portion of the loan from the Holder(s) within 30 days of written demand by the Holder(s) when: (a) the Borrower is in default not less than 60 days in payment of principal or interest due on the loan or (b) the Lender has failed to remit to the Holder(s) its pro rata share of any payment made by the Borrower or any loan subsidy within 30 days of its receipt thereof. The repurchase by the Lender will be for an amount equal to the unpaid guaranteed portion of the principal and accrued interest less the Lender's servicing fee. The loan note guarantee will not cover the note interest to the Holder on the guaranteed loan(s) accruing after 90 days from the date of the demand letter to the Lender requesting the repurchase. Holder(s) will concurrently send a copy of demand to FmHA or its successor agency under Public Law 103-354. The Lender will accept an assignment without recourse from the Holder(s) upon repurchase. The Lender is encouraged to repurchase the loan to facilitate the accounting for funds, resolve the problem, and to permit the borrower to cure the default, where reasonable. The Lender will notify the Holder(s) and FmHA or its successor agency under Public Law 103-354 of its decision. As per the terms of the Loan Note Guarantee—DARBE the maximum loss payment will not exceed $2,500,000 for principal, interest and approved protective advances.
D. If Lender does not repurchase as provided by paragraph C, FmHA or its successor agency under Public Law 103-354 will purchase from Holder(s) the unpaid principal balance of the guaranteed portion herein together with accrued interest (including any loan subsidy) to date of repurchase, within 30 days after written demand to FmHA or its successor agency under Public Law 103-354 from the Holder(s). The loan note guarantee will not cover the note interest to the Holder on the guaranteed loan(s) accruing after 90 days from the date of original demand letter of the Holder(s) to the Lender requesting the repurchase. Such demand will include a copy of the written demand upon the Lender. Under the Disaster Assistance for Rural Business Enterprise Guaranteed Loan program, the maximum cumulative payment to the holder(s) of the guaranteed portion of the loan is limited to $2,500,000 or the percentage of guarantee multiplied by the principal and accrued interest together with protective advances, whichever is less.
The Holder(s) or its duly authorized agent will also include evidence of its right to require payment from FmHA or its successor agency under Public Law 103-354. Such evidence will consist of either the originals of the Loan Note Guarantee—DARBE and note properly endorsed to FmHA or its successor agency under Public Law 103-354 or the original of the Assignment Guarantee Agreement properly assigned to FmHA or its successor agency under Public Law 103-354 without recourse including all rights, title, and interest in the loan. FmHA or its successor agency under Public Law 103-354 will be subrogated to all rights of Holder(s). The Holder(s) will include in its demand the amount due including unpaid principal, unpaid interest (including any loan subsidy) to date of demand and interest subsequently accruing from date of demand to proposed payment date. Unless otherwise agreed to by FmHA or its successor agency under Public Law 103-354, such proposed payment will not be later than 30 days from the date of the demand.
The FmHA or its successor agency under Public Law 103-354 office serving the Borrower will promptly notify the Lender of the Holder(s) demand for payment. The Lender will promptly provide the FmHA or its successor agency under Public Law 103-354 office servicing the Borrower with the information necessary for FmHA or its successor agency under Public Law 103-354's determination of the appropriate amount due the Holder(s). Any discrepancy between the amount claimed by the Holder(s) and the information submitted by the Lender must be resolved before payment will be approved. FmHA or its successor agency under Public Law 103-354 will notify both parties who must resolve the conflict before payment by FmHA or its
E. Lender consents to the purchase by FmHA or its successor agency under Public Law 103-354 and agrees to furnish on request by FmHA or its successor agency under Public Law 103-354 a current statement certified by an appropriate authorized officer of the Lender of the unpaid principal and interest then owed by the Borrower on the loan and the amount due the Holder(s). Lender agrees that any purchase by FmHA or its successor agency under Public Law 103-354 does not change, alter or modify any of the Lender's obligations to FmHA or its successor agency under Public Law 103-354 arising from said loan or guarantee, nor does such purchase waive any of the FmHA or its successor agency under Public Law 103-354's rights against Lender, and FmHA or its successor agency under Public Law 103-354 will have the right to set-off against Lender all rights insuring to FmHA or its successor agency under Public Law 103-354 from the Holder against FmHA or its successor agency under Public Law 103-354's obligation to Lender under the Loan Note Guarantee—DARBE. To the extent FmHA or its successor agency under Public Law 103-354 holds a portion of a loan, loan subsidy will not be paid the Lender.
F. Servicing fees assessed by the Lender to the Holder are collectible only from payment installments received by the Lender from the Borrower. When FmHA or its successor agency under Public Law 103-354 repurchases from a Holder, FmHA or its successor agency under Public Law 103-354 will pay the Holder only the amounts due the Holder, FmHA or its successor agency under Public Law 103-354 will not reimburse the Lender for servicing fees assessed to a Holder and not collected from payments received from the Borrower. No servicing fee shall be charged FmHA or its successor agency under Public Law 103-354 and no such fee is collectible from FmHA or its successor agency under Public Law 103-354.
G. Lender may also repurchase the guaranteed portion of the loan consistent with paragraph 10 of the Loan Note Guarantee—DARBE.
If the Lender concludes that liquidation of a guaranteed loan account is necessary because of one or more defaults or third party actions that the Borrower cannot or will not cure or eliminate within a reasonable period of time, a meeting will be arranged by the Lender with FmHA or its successor agency under Public Law 103-354. When FmHA or its successor agency under Public Law 103-354 concurs with the Lender's conclusion or at any time concludes independently that liquidation is necessary, it will notify the Lender and the matter will be handled as follows:
The Lender will liquidate the loan unless FmHA or its successor agency under Public Law 103-354, at its option, decides to carry out liquidation.
When the decision to liquidate is made, the Lender may proceed to purchase from Holder(s) the guaranteed portion of the loan. The Holder(s) will be paid according to the provisions in the Loan Note Guarantee—DARBE or the Assignment Guarantee Agreement—DARBE.
When the decision to liquidate is made, the Lender may proceed to purchase from Holder(s) the guaranteed portion of the loan. The Holder(s) will be paid according to the provisions in the Loan Note Guarantee—DARBE or the Assignment Guarantee Agreement—DARBE.
If the Lender does not purchase the guaranteed portion of the loan FmHA or its successor agency under Public Law 103-354 will be notified immediately in writing. FmHA or its successor agency under Public Law 103-354 will then purchase the guaranteed portion of the loan from the Holder(s). If FmHA or its successor agency under Public Law 103-354 holds any of the guaranteed portion, FmHA or its successor agency under Public Law 103-354 will be paid first its pro rata share of the proceeds from liquidation of the collateral.
A. Lender's proposed method of liquidation. Within 30 days after the decision to liquidate, the Lender will advise FmHA or its successor agency under Public Law 103-354 in writing of its proposed detailed method of liquidation called a liquidation plan and will provide FmHA or its successor agency under Public Law 103-354 with:
1. Such proof as FmHA or its successor agency under Public Law 103-354 requires to establish the Lender's ownership of the guaranteed loan promissory note(s) and related security instruments.
2. Information lists concerning the Borrower's assets including real and personal property, fixtures, claims, contracts, inventory (including perishables), accounts receivable, personal and corporate guarantees, and other existing and contingent assets, advice as to
3. A proposed method of making the maximum collection possible on the indebtedness.
4. If the outstanding principal DARBE loan balance including accrued interest is less than $200,000, the Lender will obtain an estimate of the market and potential liquidated value of the collateral. On DARBE loan balances in excess of $200,000, the Lender will obtain an independent appraisal report on all collateral securing the loan, which will reflect the current market value and potential liquidation value. The appraisal report is for the purpose of permitting the Lender and FmHA or its successor agency under Public Law 103-354 to determine the appropriate liquidation actions. Any independent appraiser's fee will be shared equally by FmHA or its successor agency under Public Law 103-354 and the Lender.
B. FmHA or its successor agency under Public Law 103-354's response to Lender's liquidation plan. FmHA or its successor agency under Public Law 103-354 will inform the Lender in writing whether it concurs in the Lender's liquidation plan within 30 days after receipt of such notification from the Lender. If FmHA or its successor agency under Public Law 103-354 needs additional time to respond to the liquidation plan, it will advise the Lender of a definite time for such response. Should FmHA or its successor agency under Public Law 103-354 and the Lender not agree on the Lender's liquidation plan, negotiations will take place between FmHA or its successor agency under Public Law 103-354 and the Lender to resolve the disagreement. The Lender will ordinarily conduct the liquidation; however, should FmHA or its successor agency under Public Law 103-354 opt to conduct the liquidation, FmHA or its successor agency under Public Law 103-354 will proceed as follows:
1. The Lender will transfer to FmHA or its successor agency under Public Law 103-354 all rights and interest necessary to allow FmHA or its successor agency under Public Law 103-354 to liquidate the loan. In this event, the Lender will not be paid for any loss until after the collateral is liquidated and the final loss is determined by FmHA or its successor agency under Public Law 103-354.
2. FmHA or its successor agency under Public Law 103-354 will attempt to obtain the maximum amount of proceeds from liquidation.
3. Options available to FmHA or its successor agency under Public Law 103-354 include any one or combination of the usual commercial methods of liquidation.
C. Acceleration. The Lender or FmHA or its successor agency under Public Law 103-354, if it liquidates, will proceed as expeditiously as possible when acceleration of the indebtedness is necessary including giving any notices and taking any other legal actions required by the security instruments. A copy of the acceleration notice or other acceleration document will be sent to FmHA or its successor agency under Public Law 103-354 or the Lender, as the case may be.
D. Liquidation. Accounting and Reports. When the Lender conducts the liquidation, it will account for funds during the period of liquidation and will provide FmHA or its successor agency under Public Law 103-354 with periodic reports on the progress of liquidation, disposition of collateral, resulting costs and additional procedures necessary for successful completion of liquidation. The Lender will transmit to FmHA or its successor agency under Public Law 103-354 any payments received from the Borrower and/or pro rata share of liquidation or other proceeds, etc. when FmHA or its successor agency under Public Law 103-354 is the holder of a portion of the guaranteed loan using Form FmHA or its successor agency under Public Law 103-354 1980-43, “Lender's Guaranteed Loan Payment to FmHA or its successor agency under Public Law 103-354.” When FmHA or its successor agency under Public Law 103-354 liquidates, the Lender will be provided with similar reports on request.
E. Determination of Loss and Payment. In all liquidation cases, final settlement will be made with the Lender after the collateral is liquidated. FmHA or its successor agency under Public Law 103-354 will have the right to recover losses paid under the guarantee from any party liable.
1. Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” will be used for calculations of all estimated and final loss determinations. Estimated loss payments may be approved by FmHA or its successor agency under Public Law 103-354 after the Lender has submitted a liquidation plan approved by FmHA or its successor agency under Public Law 103-354. Payments will be made in accordance with applicable FmHA or its successor agency under Public Law 103-354 regulations.
2. When the Lender is conducting the liquidation, and owns any of the guaranteed portion of the loan, it may request a tentative loss estimate by submitting to FmHA or its successor agency under Public Law 103-354 an estimate of loss that will occur in connection with liquidation of the loan. FmHA or its successor agency under Public Law 103-354 will agree to pay an estimated loss settlement to the Lender provided the lender applies such amount due to the outstanding principal balance owed on the guaranteed debt. Such estimate will be prepared and submitted by the Lender on Form FmHA or its successor agency under Public Law 103-354 449-30, using the basic formula as provided on the report except that the appraisal
After the Report of Loss estimate has been approved by FmHA or its successor agency under Public Law 103-354, and within 30 days thereafter, FmHA or its successor agency under Public Law 103-354 will send the original Report of Loss estimate to FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of a Treasury check in payment of the estimated amount due the Lender.
After liquidation has been completed, a final loss report will be submitted on Form FmHA or its successor agency under Public Law 103-354 449-30 by the Lender to FmHA or its successor agency under Public Law 103-354.
3. After the Lender has completed liquidation, FmHA or its successor agency under Public Law 103-354 upon receipt of the final accounting and report of loss, may audit and will determine the actual loss. If FmHA or its successor agency under Public Law 103-354 has any questions regarding the amounts set forth in the final Report of Loss, it will investigate the matter. The Lender will make its records available to and otherwise assist FmHA or its successor agency under Public Law 103-354 in making the investigation. If FmHA or its successor agency under Public Law 103-354 finds any discrepancies, it will contact the Lender and arrange for the necessary corrections to be made as soon as possible. When FmHA or its successor agency under Public Law 103-354 finds the final Report of Loss to be proper in all respects, it will be tentatively approved in the space provided on the form for that purpose.
4. When the Lender has conducted liquidation and after the final Report of Loss has been tentatively approved:
a. If the loss is greater than the estimated loss payment, FmHA or its successor agency under Public Law 103-354 will send the original to the final Report of Loss to the Finance Office for issuance of a Treasury check in payment of the additional amount owed by FmHA or its successor agency under Public Law 103-354 to the Lender.
b. If the loss is less than the estimated loss, the Lender will reimburse FmHA or its successor agency under Public Law 103-354 for the overpayment plus interest at the note rate from date of payment.
5. If FmHA or its successor agency under Public Law 103-354 has conducted liquidation, it will provide an accounting and Report of Loss to the Lender and will pay the Lender in accordance with the Loan Note Guarantee—DARBE.
6. In those instances where the Lender has made authorized protective advances, it may claim recovery for the guaranteed portion of any loss of monies advanced as protective advances and interest resulting from such protective advances as provided above, and such payment will be made by FmHA or its successor agency under Public Law 103-354 when the final Report of Loss is approved.
F. Maximum amount of interest loss payment. Notwithstanding any other provisions of this agreement, the amount payable by FmHA or its successor agency under Public Law 103-354 to the Lender cannot exceed the limits set forth in the Loan Note Guarantee—DARBE. If FmHA or its successor agency under Public Law 103-354 conducts the liquidation, loss occasioned by accruing interest will be covered by the guarantee only to the date FmHA or its successor agency under Public Law 103-354 accepts this responsibility. Loss occasioned by accruing interest will be covered to the extent of the Loan Note Guarantee—DARBE to the date of final settlement when the liquidation is conducted by the Lender provided it proceeds expeditiously with the liquidation plan approved by FmHA or its successor agency under Public Law 103-354. The balance of allowable accrued interest payable to the Lender, if any, will be calculated on the final Report of Loss form.
G. Application of FmHA or its successor agency under Public Law 103-354 loss payment. The estimated loss payment shall be applied as of the date of such payment. The total amount of the loss payment remitted by FmHA or its successor agency under Public Law 103-354 will be applied by the Lender on the guaranteed portion of the loan debt. However, such application does not release the Borrower from liability. In all cases a final Form FmHA or its successor agency under Public Law 103-354 449-30 prepared and submitted by the Lender must be processed by FmHA or its successor agency under Public Law 103-354 in order to close out the files at the FmHA or its successor agency under Public Law 103-354 Finance Office.
H. Income from collateral. Any net rental or other income that has been received by the Lender from the collateral will be applied on the guaranteed loan debt.
I. Liquidation costs. Certain reasonable liquidation costs will be allowed during the liquidation process. The liquidation costs will be submitted as a part of the liquidation plan. Such costs will be deducted from gross proceeds from the disposition of collateral
J. Foreclosure. The parties owning the guaranteed portion and unguaranteed portions of the loan will join the institute foreclosure action or, in lieu of foreclosure, to take a deed of conveyance to such parties. When the conveyance is received and liquidated, net proceeds will be applied to the guaranteed loan debt.
K. Payment. Such loss will be paid by FmHA or its successor agency under Public Law 103-354 within 60 days after the review of the accounting of the collateral.
Protective advances must constitute an indebtedness of the Borrower to the Lender and be secured by the security instrument(s). FmHA or its successor agency under Public Law 103-354 written authorization is required on all protective advances in excess of $500. Protective advances include, but are not limited to, advances made for taxes, annual assessments, ground rent, hazard or flood insurance premiums affecting the collateral, and other expenses necessary to preserve or protect the security. Attorney fees are not a protective advance.
The Lender will not make additional expenditures or new loans without first obtaining the written approval of FmHA or its successor agency under Public Law 103-354 even though such expenditures or loans will not be guaranteed.
After a loan has been liquidated and a final loss has been paid by FmHA or its successor agency under Public Law 103-354, any future funds which may be recovered by the Lender, will be pro-rated between FmHA or its successor agency under Public Law 103-354 and the Lender. FmHA or its successor agency under Public Law 103-354 will be paid such amount recovered in proportion to the percentage it guaranteed for the loan and the Lender will retain such amounts in proportion to the percentage of the unguaranteed portion of the loan.
Refer to the applicable subpart of title 7 of CFR part 1980.
If a loss should occur upon consummation of a complete transfer and assumption for less than the full amount of the debt and the transferor-debtor (including personal guarantees) is released from personal liability, the Lender, if it holds the guaranteed portion, may file an estimated Report of Loss on Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to recover its pro rata share of the actual loss at that time. In completing Form FmHA or its successor agency under Public Law 103-354 449-30, the amount of the debt assumed will be entered on line 24 as Net Collateral (Recovery). Approved protective advances and accrued interest thereon made during the arrangement of a transfer and assumption, if not assumed by the Transfer, will be entered on Form FmHA or its successor agency under Public Law 103-354 449-30, line 13 and 14.
A. The Lender is responsible for protecting the guaranteed loan debt and all collateral securing the loan in bankruptcy proceedings. When the loan is involved in a reorganization bankruptcy proceeding under chapters 11, 12 or 13 of the Bankruptcy Code, payment of loss claims may be made as provided in this paragraph XVI. For a chapter 7 bankruptcy or liquidation plan in a chapter 11 bankruptcy, only paragraphs XVI B3 and B6 are applicable.
B. Loss Payments.
1. Estimated Loss Payments.
a. If a borrower has filed for protection under a reorganization bankruptcy, the Lender will request a tentative estimated loss payment of accrued interest and principal written off. This request can only be made after the bankruptcy plan is confirmed by the court. Only one estimated loss payment is allowed during the reorganization bankruptcy. All subsequent claims during reorganization will be considered revisions to the initial estimated loss. A revised estimated loss payment may be processed by FmHA or its successor agency under Public Law 103-354, at its option, in accordance with any court approved changes in the reorganization plan. At the time the performance under the confirmed reorganization plan has been completed, the Lender is responsible for providing FmHA or its successor agency under Public Law 103-354 with the documentation necessary to review and adjust the estimated loss claim to (a) reflect the actual principal and interest reduction on any part of the guaranteed debt determined to be unsecured and (b) to reimburse the Lender
b. The Lender will use Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss,” to request an estimated loss payment and to review estimated loss payments during the course of the reorganization plan. The estimated loss claim as well as any revisions to this claim will be accompanied by applicable legal documentation to support the claim.
c. Upon completion of the reorganization plan, the Lender will complete Form FmHA or its successor agency under Public Law 103-354 1980-44, “Guaranteed Loan Borrower Default Status,” and forward this form to the Finance Office.
2. Interest Loss Payments.
a. Interest loss payments sustained during the period of the reorganization plan will be processed in accordance with paragraph XVI B1.
b. Interest loss payments sustained after the reorganization plan is completed will be processed annually when the Lender sustains a loss as a result of a permanent interest rate reduction which extends beyond the period of the reorganization plan.
c. Form FmHA or its successor agency under Public Law 103-354 449-30 will be completed to compensate the Lender for the difference in interest rates specified on the Loan Note Guarantee—DARBE or Interest Rate Buydown Agreement and the rate of interest specified by the bankruptcy court.
3. Final Loss Payments.
a. Final Loss Payments will be processed when the loan is liquidated.
b. If the loan is paid in full without an additional loss, the Finance Office will close out the estimated loss account at the time notification of payment in full is received.
4. Payment Application. The Lender must apply estimated loss payments first to the unsecured principal of the guaranteed portion of the debt and then to the unsecured interest of the guaranteed portion of the debt. In the event the bankruptcy court attempts to direct the payments to be applied in a different manner, the Lender will immediately notify the FmHA or its successor agency under Public Law 103-354 servicing office.
5. Overpayments. Upon completion of the reorganization plan, the Lender will provide FmHA or its successor agency under Public Law 103-354 with the documentation necessary to determine whether the estimated loss paid equals the actual loss sustained. If the actual loss sustained, as a result of the reorganization, is greater than the estimated loss payment, the Lender will submit a revised estimated loss in order to obtain payment of the additional amount owed by FmHA or its successor agency under Public Law 103-354 to the Lender. If the actual loss payment is less than the estimated loss, the Lender will reimburse FmHA or its successor agency under Public Law 103-354 for the overpayment plus interest at the note rate from the date of the payment of the estimated loss.
6. Protective Advances. If approved protective advances were made prior to the borrower having filed bankruptcy, as a result of prior liquidation action, these protective advances and accrued interest will be entered on Form FmHA or its successor agency under Public Law 103-354 449-30.
This agreement is subject to all the requirements of the applicable subpart of title 7 CFR part 1980, and any future amendments of these regulations not inconsistent with this agreement. Interested parties may agree to abide by future FmHA or its successor agency under Public Law 103-354 regulations not inconsistent with this agreement.
If this agreement is executed prior to the execution of the Loan Note Guarantee—DARBE, this agreement does not impose any obligation upon FmHA or its successor agency under Public Law 103-354 with respect to the execution of such contract. FmHA or its successor agency under Public Law 103-354 in no way warrants that such a contract has been or will be executed.
All notices and actions will be initiated through FmHA or its successor agency under Public Law 103-354 for
The guaranteed portion of the loan is
In consideration of the making of the subject loan by the above named Lender, the United States of America, acting through the Farmers Home Administration or its successor agency under Public Law 103-354 of the United States Department of Agriculture (herein called “FmHA or its successor agency under Public Law 103-354”), pursuant to the Disaster Assistance Act of 1989 does hereby agree that in accordance with and subject to the conditions and requirements herein, it will pay to:
A. Holders:
1. Any loss sustained by the Holder on the guaranteed portion and interest due on such portion up to a maximum aggregate amount of $2,500,000. On loans with multiple Holders and/or a Lender who owns part of the guaranteed portion, if the aggregate losses exceed $2,500,000, each Holder's loss will be prorated by the percentage of the guaranteed portion of the loan the holder owns.
B. The Lender the lesser of 1, or 2 below:
1. Any loss sustained by the Lender on the guaranteed portion including:
a. Principal and interest indebtedness as evidenced by said note(s) or by assumption agreement(s), and
b. Principal and interest indebtedness on secured protective advances for protection and preservation of collateral made with FmHA or its successor agency under Public Law 103-354's authorization, including but not limited to advances for taxes, annual assessments, any ground rents, and hazard or flood insurance premiums affecting the collateral, but only to the extent that inclusion of such protective advances would not cause
2. The guaranteed principal advanced to or assumed by the Borrower under said note(s) or assumption agreement(s) and any interest due thereon.
The Holder is the person or organization other than the Lender who holds all or part of the guaranteed portion of the loan with no servicing responsibilities. Holders are prohibited from obtaining any part(s) of the guaranteed portion of the loan with proceeds from any obligation, the interest on which is excludable from income, under section 103 of the Internal Revenue Code of 1954, as amended (IRC). When the Lender assigns a part(s) of the guaranteed loan to an assignee, the assignee becomes a Holder only when Form FmHA or its successor agency under Public Law 103-354 1980-73, “Assignment Guarantee Agreement—DARBE,” is used. Loan evidenced by a single note may be assigned only by using Form FmHA or its successor agency under Public Law 103-354 1980-73.
The Lender is the person or organization making and servicing the loan which is guaranteed under the provisions of the applicable subpart 7 CFR part 1980. The Lender is also the party requesting a loan guarantee.
Lender will be responsible for servicing the entire loan, and the Lender will remain mortgagee and/or secured party of record not withstanding the fact that another party may hold a portion of the loan. When multiple notes are used to evidence a loan, Lender will structure repayments as provided in the loan agreement.
The entire loan will be secured by the same security with equal lien priority for the guaranteed and unguaranteed portions of the loan. The unguaranteed portion of the loan will not be paid first nor given any preference or priority over the guaranteed portion.
The Loan Note Guarantee—DARBE constitutes an obligation supported by the full faith and credit of the United States and is incontestable except for fraud or misrepresentation of which Lender or any Holder has actual knowledge at the time it became such Lender or Holder or which Lender or any Holder participates in or condones. If the note to which this is attached or relates provides for payment of interest on interest, then this Loan Note Guarantee—DARBE is void. In addition, the Loan Note Guarantee—DARBE will be unenforceable by Lender to the extent any loss is occasioned by the violation of usury laws, negligent servicing, or failure to obtain the required security regardless of the time at which FmHA or its successor agency under Public Law 103-354 acquires knowledge of the foregoing. Any losses occasioned will be unenforceable to the extent that loan funds are used for purposes other than those specifically approved by FmHA or its successor agency under Public Law 103-354 in its Conditional Commitment for Guarantee. Negligent servicing is defined as the failure to perform those services which a reasonably prudent lender would perform in servicing its own portfolio of loans that are not guaranteed. The term includes not only the concept of a failure to act but also not acting in a timely manner or acting in a manner contrary to the manner in which a reasonably prudent lender would act up to the time of loan maturity or until a final loss is paid.
The guarantee and right to require purchase will be directly enforceable by Holder notwithstanding any fraud or misrepresentation by Lender or any unenforceability of this Loan Note Guarantee—DARBE by Lender. Nothing contained herein will constitute any waiver by FmHA or its successor agency under Public Law 103-354 of any rights it possesses against the Lender. Lender will be liable for and will promptly pay to FmHA or its successor agency under Public Law 103-354 any payment made by FmHA or its successor agency under Public Law 103-354 to Holder which if such Lender had held the guaranteed portion of the loan, FmHA or its successor agency under Public Law 103-354 would not be required to make.
Lender will receive all payments of principal, or interest, and will promptly remit to Holder(s) its pro rata share thereof determined according to its respective interest in the loan, less only Lender's servicing fee.
Protective advances made by Lender pursuant to the regulations will be guaranteed against a percentage of loss to the extent provided in this Loan Note Guarantee—DARBE notwithstanding the guaranteed portion of the loan that is held by another.
The Lender has the option to repurchase the unpaid guaranteed portion of the loan from the Holder(s) within 30 days of written demand by the Holder(s) when: (a) the borrower is in default not less than 60 days on principal or interest due on the loan or (b) the Lender has failed to remit to the Holder(s) its pro rata share of any payment made by the borrower or any loan subsidy within 30 days of its receipt thereof. The repurchase by the Lender will be for an amount equal to the unpaid guaranteed portion of principal and accrued interest less the Lender's servicing fee. The Loan Note Guarantee—DARBE will not cover the note interest to the Holder on the guaranteed loan(s) accruing after 90 days from the date of the demand letter to the Lender requesting the repurchase. Holder(s) will concurrently send a copy of demand to FmHA or its successor agency under Public Law 103-354. The Lender will accept an assignment without recourse from the Holder(s) upon repurchase. The Lender is encouraged to repurchase the loan to facilitate the accounting for funds, resolve the problem, and to permit the borrower to cure the default, where reasonable. The Lender will notify the Holder(s) and FmHA or its successor agency under Public Law 103-354 of its decision. As per the terms of this guarantee the maximum loss payment will not exceed $2,500,000 for principal, interest, and approved protective advances.
If Lender does not repurchase as provided by paragraph 7 hereof, FmHA or its successor agency under Public Law 103-354 will purchase from Holder the unpaid principal balance of the guaranteed portion together with accrued interest to date of repurchase less Lender's servicing fee, within thirty (30) days after written demand to FmHA or its successor agency under Public Law 103-354 from Holder. The Loan Note Guarantee-DARBE will not cover the note interest to the Holder on the guaranteed loan(s) accruing after 90 days from the date of the original demand letter of the Holder to the Lender requesting the repurchase. Such demand will include a copy of the written demand made upon the Lender. The Holder(s) or its duly authorized agent will also include evidence of its right to require payment from FmHA or its successor agency under Public Law 103-354. Such evidence will consist of either the original of the Loan Note Guarantee—DARBE properly endorsed to FmHA or its successor agency under Public Law 103-354 or the original of the Assignment Guarantee Agreement—DARBE properly assigned to FmHA or its successor agency under Public Law 103-354 without recourse including all rights, title, and interest in the loan. FmHA or its successor agency under Public Law 103-354 will be subrogated to all rights of Holder(s). The Holder(s) will include in its demand the amount due including unpaid principal, unpaid interest to date of demand and interest subsequently accruing from date of demand to proposed payment date or $2,500,000, whichever is less. Unless otherwise agreed to by FmHA or its successor agency under Public Law 103-354, such proposed payment will not be later than 30 days from the date of demand. On loans with multiple Holders and/or a Lender who owns part of the guaranteed portion, if the aggregate unpaid principal and unpaid interest on the guaranteed portion exceeds $2,500,000, the Holder will be paid on a prorated basis—prorated by the percentage of the guaranteed portion of the loan the Holder owns.
The FmHA or its successor agency under Public Law 103-354 will promptly notify the Lender of its receipt of the Holder(s)'s demand for payment. The Lender will promptly provide the FmHA or its successor agency under Public Law 103-354 with the information necessary for FmHA or its successor agency under Public Law 103-354 determination of the appropriate amount due the Holder(s). Any discrepancy between the amount claimed by the Holder(s) and the information submitted by the Lender must be resolved before payment will be approved. FmHA or its successor agency under Public Law 103-354 will notify both parties who must resolve the conflict before payment by FmHA or its successor agency under Public Law 103-354 will be approved. Such conflict will suspend the running of the 30 day payment requirement. Upon receipt of the appropriate information, FmHA or its successor agency under Public Law 103-354 will review the demand and submit it to the State Director for verification. After reviewing the demand the State Director will transmit the request to the FmHA or its successor agency under Public Law 103-354 Finance Office for issuance of the appropriate check. Upon issuance, the Finance Office will notify the office servicing the borrower and State Director and remit the check(s) to the Holder(s).
Lender consents to the purchase by FmHA or its successor agency under Public Law 103-354 and agrees to furnish on request by FmHA or its successor agency under Public Law 103-354 a current statement certified by an appropriate authorized officer of the Lender of the unpaid principal and interest then owed by Borrowers on the loan and the amount including any loan subsidy then owed to any Holder(s). Lender agrees that any purchase by FmHA or its successor agency under Public Law 103-354 does not change, alter or modify any of the Lender's obligations to FmHA or its successor agency under Public Law 103-354 arising from said loan or guarantee nor does it waive any of FmHA or its successor agency under Public Law 103-354's rights against Lender, and that FmHA or its successor agency under Public Law 103-354 will have the right to set-off against Lender all rights inuring to FmHA or its successor agency under Public Law 103-354 as the Holder of this instrument against FmHA or its successor agency under Public Law 103-354's obligation to Lender under the Loan Note Guarantee—DARBE.
If, in the opinion of the Lender, repurchase of the guaranteed portion of the loan is necessary to adequately service the loan, the Holder will sell the portion of the loan to the Lender for an amount equal to the unpaid principal and interest on such portion. The Lender's servicing fee will be subtracted from these amounts. The Loan Note Guarantee—DARBE will not cover the note interest to the Holder on the guaranteed loans accruing after 90 days from the date of the demand letter of the Lender or FmHA or its successor agency under Public Law 103-354 to the Holder(s) requesting the Holder(s) to tender their guaranteed portion(s).
a. The Lender will not repurchase from the Holder(s) for arbitrage purposes or other purposes to further its own financial gain.
b. Any repurchase will only be made after the Lender obtains FmHA or its successor agency under Public Law 103-354 written approval.
c. If the Lender does not repurchase the portion from the Holder(s), FmHA or its successor agency under Public Law 103-354 at its option may purchase such guaranteed portions for servicing purposes.
The Lender may retain, or sell the unguaranteed portion of the loan only through participation. Participation, as used in this instrument, means the sale of an interest in the loan wherein the Lender retains the note, collateral securing the note, and all responsibility for loan servicing and liquidation.
This Loan Note Guarantee—DARBE will terminate automatically (a) upon full payment of the guaranteed loan; or (b) upon full payment of any loss obligation hereunder; or (c) upon written notice from the Lender to FmHA or its successor agency under Public Law 103-354 that the guarantee will terminate 30 days after the date of notice, provided the Lender holds all of the guaranteed portion and the Loan Note Guarantee(s) are returned to be cancelled by FmHA or its successor agency under Public Law 103-354.
The amount due under this instrument will be determined and paid as provided in the applicable Subpart of Part 1980 of Title 7 CFR in effect on the date of this instrument.
All notice and actions will be initiated through the FmHA or its successor agency under Public Law 103-354
1. The principal amount of the loan now outstanding is $
2
The Lender will receive all payments on account of principal of, or interest on, the entire loan and shall promptly remit to the Holder its pro rata share thereof determined according to their respective interests in the loan, less only Lender's servicing fee.
3
4
5
6
7
8
On loans with multiple Holders and/or a Lender who owns part of the guaranteed portion, if the aggregate unpaid principal and unpaid interest on the guaranteed portion exceeds $2,500,000, the Holder will be paid on a prorated basis—prorated by the percentage of the guaranteed portion of the loan the Holders owns.
The FmHA or its successor agency under Public Law 103-354 will promptly notify the Lender of its receipt of the Holder's demand for payment. The Lender will promptly provide the FmHA or its successor agency under Public Law 103-354 with the information necessary for FmHA or its successor agency under Public Law 103-354's determination of the appropriate amount due the Holder(s). Any discrepancy between the amount claimed by the Holder(s) and the information submitted by the Lender must be resolved before payment will be approved. FmHA or its successor agency under Public Law 103-354 will notify both parties who must resolve the conflict before payment will be approved. Such a conflict will suspend the running of the 30 day payment requirement. Upon receipt of the appropriate information, FmHA or its successor agency under Public Law
9
10
a. The Lender will not repurchase from the Holder(s) for arbitrage purpose or other purposes to further its own financial gain.
b. Any repurchase will only be made after the Lender obtains FmHA or its successor agency under Public Law 103-354 written approval.
c. If the Lender does not repurchase the portion from the Holder(s), FmHA or its successor agency under Public Law 103-354 at its option may purchase such guaranteed portions for servicing purposes.
11
12
13
(a) This subpart, supplemented by subpart A of this part, contains the regulations for Community Programs (CP) loans guaranteed by the Farmers Home Administration or its successor agency under Public Law 103-354 (FmHA or its successor agency under Public Law 103-354), and applies to lenders, holders, borrowers, and other parties involved in making, guaranteeing, holding, servicing, or liquidating such loans. Any processing or servicing activity conducted pursuant to this subpart involving authorized assistance to FmHA or its successor agency under Public Law 103-354 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 FmHA or its successor agency under Public Law 103-354 employee.
(b) The purpose of the CP Guaranteed Loan Programs is to improve, develop, or finance water or waste disposal and other essential community facilities in rural areas. This purpose is achieved through bolstering the existing private credit structure through the guarantee of quality loans which will provide lasting community benefits. It is NOT intended that the guarantee authority be used for marginal or substandard loans or to “bail out” lenders having such loans.
(c) The CP loan program is administered by the Administrator through a State Director serving each State. The District Director is the focal point for the program and the local contact person for processing and servicing activities, although this subpart refers in various places to the duties and responsibilities of other FmHA or its successor agency under Public Law 103-354 employees.
The following general definitions are applicable to the terms used in this subpart. Additional definitions may be found in § 1980.6 of subpart A of this part.
Facilities financed through FmHA or its successor agency under Public Law 103-354 guarantee must primarily serve rural residents. For water or waste disposal facilities, the terms “rural” and “rural area” will not include any areain any city or town with a population in excess of 10,000 inhabitants according to the latest decennial census of the United States. For essential community facilities, the terms “rural” and “rural area” will not include any area in any city or town with a population in excess of 20,000 inhabitants according to the latest decennial census of the United States. Facilities must be located in rural areas except for utility-type services, such as water, sewer, natural gas, or hydroelectric serving both rural and nonrural areas. In such cases, funds guaranteed by FmHA or its successor agency under Public Law 103-354 may be used to finance only that portion serving rural users, regardless of facility location. Loans for water or waste disposal facilities will not be made to any city or town with a population in excess of 10,000. Loans for essential community facilities will not be made to any city or town with a population in excess of 20,000.
To be eligible for a guaranteed loan under this subpart, the borrower must be unable to obtain the required credit without the CP loan guarantee from private, commercial, or cooperative sources at reasonable rates and terms for loans for similar purposes and period of time. The borrower must certify in writing and FmHA or its successor agency under Public Law 103-354 shall determine the credit is not available from other sources at reasonable rates and terms without the CP loan guarantee. The lender also must certify that it would not make the loan without the guarantee. These certifications shall become a part of the FmHA or its successor agency under Public Law 103-354 case file.
Each borrower must have or will obtain the legal authority necessary for constructing, operating, and maintaining the proposed facility or service and for obtaining, giving security for, and repaying the proposed loan. The borrower shall be responsible for operating, maintaining, and managing the facility, and providing for its continued availability and use at reasonable rates and terms. This responsibility shall be exercised by the borrower even though the facility may be operated, maintained, or managed by a third party under contract, management agreement, or written lease. Leases may be used when this is the only feasible way to provide the service and is the customary practice to provide such service in the state. Management agreements should provide for at least those items listed in Guide 24 of FmHA or its successor agency under Public Law 103-354 Instruction 1942-A (available in any FmHA or its successor agency under Public Law 103-354 office.) Such contracts, management agreements, or leases must not contain options or other provisions for transfer of ownership.
Section 1942.17(c) of subpart A of part 1942 of this chapter shall apply to loans to be guaranteed under this subpart.
(a) Funds may be used to construct, enlarge, extend, or otherwise improve water or waste disposal, and other essential community facilities providing essential service primarily to rural residents and rural businesses. Rural businesses would include facilities such as educational and other publicly owned facilities.
(1) Water or waste disposal facilities include water, sanitary sewerage, solid waste disposal, and storm wastewater facilities.
(2) Essential community facilities are those public improvements requisite to the beneficial and orderly development of a community operated on a nonprofit basis including but not limited to:
(i) Fire, rescue, and public safety;
(ii) Health services;
(iii) Community, social, or cultural services;
(iv) Transportation facilities such as streets, roads, and bridges;
(v) Hydroelectric generating facilities and related connecting systems and appurtenances, when not eligible for Rural Electrification Administration (REA) financing;
(vi) Supplemental and supporting structures for other rural electrification or telephone systems (including facilities such as headquarters and office buildings, storage facilities, and maintenance shops) when not eligible for REA financing; and
(vii) Natural gas distribution systems; and
(viii) Industrial park sites, but only to the extent of land acquisition and necessary site preparation, including access ways and utility extensions to and throughout the site. Funds may not be used in connection with industrial parks to finance on-site utility systems, or business and industrial buildings.
(3) Otherwise improve includes but is not limited to the following:
(i) The purchase of major equipment, such as solid waste collection trucks and X-ray machines, which will in themselves provide an essential service to rural residents;
(ii) The purchase of existing facilities when it is necessary either to improve or to prevent a loss of service; and
(iii) Payment of tap fees and other utility connection charges as provided in utility purchase contracts.
(b) Funds also may be used:
(1) To construct or relocate public buildings, roads, bridges, fences, or utilities, and to make other public improvements necessary to the successful operation or protection of facilities authorized in paragraphs (a) (1) and (2) of this section.
(2) To relocate private buildings, roads, bridges, fences, or utilities, and other private improvements necessary to the successful operation or protection of facilities authorized in paragraph (a) of this section.
(3) To pay the following expenses, but only when such expenses are a necessary part of a loan to finance facilities authorized in paragraphs (a), (b)(1), and (b)(2) of this section.
(i) Reasonable fees and costs such as origination fee, legal, engineering, architectural, fiscal advisory, recording, environmental impact analyses, archaeological surveys and possible salvage or other mitigation measures, planning, and establishing or acquiring rights.
(ii) Interest on loans until the facility is self-supporting, but not for more than three years unless a longer period is approved by the FmHA or its successor agency under Public Law 103-354 National Office; interest on loans secured by general obligation bonds until tax revenues are available for payment, but not for more than two years unless a longer period is approved by the FmHA or its successor agency under Public Law 103-354 National Office; and interest on interim financing.
(iii) Costs of acquiring interest in land; rights, such as water rights, leases, permits, rights-of-way; and other evidence of land or water control necessary for development of the facility.
(iv) Purchasing or renting equipment necessary to install, maintain, extend, protect, operate, or utilize facilities.
(v) Initial operating expenses for a period ordinarily not exceeding one year when the borrower is unable to pay such expenses.
(vi) Refinancing debts incurred by, or on behalf of, a community when all of the following conditions exist:
(A) The debts being refinanced are a secondary part of the total loan;
(B) The debts are incurred for the facility or service being financed or any part thereof;
(C) Arrangements cannot be made with the creditors to extend or modify the terms of the debts so that a sound basis will exist for making a loan.
(4) To pay obligations for construction incurred before issuance of the conditional commitment. Construction work should not be started and obligations for such work or materials should not be incurred before the conditional commitment is issued. However, if there are compelling reasons for proceeding with construction before the conditional commitment is issued, applicants may request FmHA or its successor agency under Public Law 103-354 approval to pay such obligations. Such requests may be approved if FmHA or its successor agency under Public Law 103-354 determines that:
(i) Compelling reasons exist for incurring obligations before issuance of conditional commitment; and
(ii) The obligations will be incurred for authorized loan purposes; and
(iii) Contract documents have been approved by the lender; and
(iv) All environmental requirements applicable to the applicant and the borrower have been met; and
(v) The borrower has the legal authority to incur the obligations at the time proposed, and payment of the debts will remove any basis for any mechanics, material, or other liens that may attach to the security property. FmHA or its successor agency under Public Law 103-354 may authorize payment of such obligations at the time of loan closing. FmHA or its successor agency under Public Law 103-354's authorization to pay such obligations is on the condition that it is not committed to make the loan guarantee. FmHA or its successor agency under Public Law 103-354 assumes no responsibility for any obligations incurred by the borrower; and the borrower must subsequently meet all loan guarantee approval requirements. The lender's request and FmHA or its successor agency under Public Law 103-354 authorization for paying such obligations shall be in writing. If construction is started without FmHA or its successor agency under Public Law 103-354 approval, post approval in accordance with this section may be considered.
Loan funds may not be used to finance:
(a) On-site utility systems or business and industrial buildings in connection with industrial parks.
(b) Facilities to be used primarily for recreation purposes.
(c) Community antenna television services or facilities.
(d) Electric generation or transmission facilities or telephone systems, except as provided in § 1980.813 (a)(2)(v) or (a)(2)(vi) of this subpart; or extensions to serve a particular essential community facility as provided in § 1980.813 (b)(1) or (b)(2) of this subpart.
(e) Facilities which are not modest in size, design, and cost.
(f) Finder's and packager's fees.
(g) Projects located within the Coastal Barriers Resource System that do not qualify for an exception as defined in Section 6 of the Coastal Barriers Resource Act, Pub. L. 97-348 (available in any FmHA or its successor agency under Public Law 103-354 office).
(h) New combined sanitary and storm water sewer facilities.
(a) Loans made by any Federal or State agencies. This does not preclude guaranteeing loans made by the Bank for Cooperatives or Federal Land Bank.
(b) Loans involved in tax-exempt obligations according to § 1980.23 of subpart A of this part.
(c) Loans for a water or waste disposal facility involving an FmHA or its successor agency under Public Law 103-354 grant.
The parameters for “facilities for public use,” as defined at § 1942.17(e) of Subpart A of Part 1942 of this chapter, are applicable as well for this subpart. In addition:
(a) The term “Applicant/Borrower,” as used in § 1942.17(e), shall mean the lender and the borrower for purposes of this subpart.
(b) The term “FmHA or its successor agency under Public Law 103-354 Fundings,” as used in § 1942.17(e), shall mean FmHA or its successor agency under Public Law 103-354 guarantee for purposes of this subpart.
(a) Allowable fees and charges by the lender are shown under § 1980.22 of Subpart A of this part.
(b) Guarantee fees are as shown under § 1980.21 of Subpart A of this Part.
(a) Eligible lenders as defined in this section may participate in the FmHA or its successor agency under Public Law 103-354 CP loan guarantee program. These lenders must be subject to credit examination and supervision by either an agency of the United States or a state. Only those lenders listed in this section are eligible to make and service guaranteed loans, and such lenders must be in good standing with their licensing authority and have met licensing, loan making loan servicing, and other requirements of the state in which the collateral will be located, and the loan making and/or loan servicing office requirements of § 1980.13 of Subpart A of this Part. A lender must have the capability to adequately service loans for which a guarantee is requested. Eligible lenders include:
(1) Any Federal or State chartered:
(i) Bank, or
(ii) Savings and loan association.
(2) Any mortgage company that is a part of a bank holding company,
(3) Farm Credit Bank of the Federal Land Bank Association or other Farm Credit System institution with direct lending authority authorized to make loans of the type guaranteed by this subpart.
(4) An insurance company regulated by a State or National insurance regulatory agency, and
(5) Other lenders that possess the legal powers necessary and incidental to making and servicing guaranteed loans involving community development type projects. These lenders must also be subject to credit examination and supervision by either an agency of the United States or a state, and other requirements as set forth in paragraph (a) of this section. These types of lenders must be approved by the FmHA or its successor agency under Public Law 103-354 Administrator prior to the issuance of the loan guarantee.
(b) With written concurrence of FmHA or its successor agency under Public Law 103-354, another eligible lender may be substituted for a lender who holds an outstanding Form FmHA or its successor agency under Public Law 103-354 449-14, “Conditional Commitment for Guarantee,” provided the borrower, loan purposes, scope of the project, and loan terms remain unchanged. After issuance of the Loan Note Guarantee and with prior written approval of the FmHA or its successor agency under Public Law 103-354 Administrator, a new eligible lender may be substituted for the original lender provided the new lender agrees to assume all original loan requirements including liabilities, servicing responsibilities, and acquiring legal title to the unguaranteed portion of the loan. Such approval will be granted by the FmHA or its successor agency under Public Law 103-354 Administrator only when a lender discontinues lending operations or other extreme situations require a substitution of lender. If approved by the FmHA or its successor agency under Public Law 103-354 Administrator, the State Director will submit to the Finance Office Form FmHA or its successor agency under Public Law 103-354 1980-42, “Notice of Substitution of Lender.”
The percentage of guarantee, up to the maximum allowed by this section, is a matter for negotiation between the lender and FmHA or its successor agency under Public Law 103-354.
(a) Normally, guarantees will not exceed 80 percent unless extraordinary circumstances exist. The State Director will document these circumstances in the case file. National Office concurrence is required when the requested guarantee exceeds 80 percent. The maximum allowable guarantee will be 90 percent.
(b) Lenders and borrowers will propose the percentage of guarantee. FmHA or its successor agency under Public Law 103-354 informs lenders and borrowers in writing on Form FmHA or its successor agency under Public Law 103-354 449-14, of any percentage of guarantee less than proposed by the lender and borrower, and the reasons therefore. FmHA or its successor agency under Public Law 103-354 determines the percentage of guarantee after considering all credit factors involved, including but not limited to:
(1) Borrower's management.
(2) Collateral.
(3) Financial condition.
(4) Lender's exposure (retain a minimum of 5% of the total guaranteed loan(s) amount. The amount required to be retained must be of the unguaranteed portion of the loan and cannot be participated to another.)
(5) Current trends and economic conditions.
(a) Rates will be negotiated between the lender and the borrower. They may be either fixed or variable rates as long as they are legal. Interest rates will be those rates customarily charged borrowers in similar circumstances in the ordinary course of business and are subject to FmHA or its successor agency under Public Law 103-354 review and approval. FmHA or its successor agency under Public Law 103-354 will take into consideration in approving the lender's interest rate, the rate at which guaranteed loans are being sold or traded in the secondary market.
(b) A variable interest rate must be tied to a base rate published periodically in a recognized national or regional financial publication specifically agreed to by the lender and borrower. Notice of any interest rate change proposed by the lender should allow a sufficient time period for the borrower to obtain any required state or other regulatory approval and to implement any user rate adjustments necessary as a result of the interest rate change. The interest rate will not be raised more than one percent per year. The intervals between interest rate adjustments will be specified in the loan agreement but not more often than annually. During the life of the loan, the interest rate will not be increased more than 5 percentage points over the interest rate at loan closing. The lender must incorporate within the variable rate promissory note or bond at loan closing, the provision for adjustment of payment installments coincident with an interest rate adjustment. This will assure the outstanding principal balance is properly amortized within the prescribed loan maturity to eliminate the possibility of a balloon payment at the end of the loan.
(c) Any change in the interest rate between the date of issuance of the Form FmHA or its successor agency under Public Law 103-354 449-14 and before the issuance of the Loan Note Guarantee (Form FmHA or its successor agency under Public Law 103-354 449-34) must be approved by the State Director. Approval of such change will be shown on an amendment to Form FmHA or its successor agency under Public Law 103-354 449-14.
(d) It is permissible to have one interest rate on the guaranteed portion of the loan and another interest rate on the unguaranteed portion of the loan, provided the lender and borrower agree and:
(1) The rate on the unguaranteed portion does not exceed that currently being charged on loans of similar purpose for borrowers under similar circumstances.
(2) The rate on the guaranteed portion of the loan will not exceed the rate on the unguaranteed portion.
(e) When multi-rates are used, the lender will provide FmHA or its successor agency under Public Law 103-354 with the overall effective interest rate for the entire loan. Multi-rate loans must be either fixed or variable, but not both.
(f) The borrower, lender and holder (if any) may collectively effect a permanent reduction in the interest rate on their CP guaranteed loan at any time during the life of the loan upon written agreement by these parties. FmHA or its successor agency under Public Law 103-354 must be notified by the lender, in writing, within 10 calendar days of the change. If the guaranteed portion has been repurchased by FmHA or its successor agency under Public Law 103-354, then FmHA or its successor agency under Public Law 103-354 is a holder, and must affirm or reject interest rate change proposals. When FmHA or its successor agency under Public Law 103-354 is a holder, it will concur in such interest rate change only when it is demonstrated to FmHA or its successor agency under Public Law 103-354 that the change is a more viable alternative than initiating or proceeding with liquidation of the loan or continuing with the loan in its present state and that the Government's financial interests are not adversely affected. Factors which will be considered in making such determination will include whether the proposed interest rate will be below the Government's cost of borrowing money; whether continuing with the loan would realistically promote or enhance rural development, whether the monetary recovery would be increased by proceeding immediately to liquidation, if applicable; or allowing the borrower to continue at a reduced interest rate; and whether an in-depth financial analysis by the lender reasonably indicates that the project would be successful at a lower interest rate and reasonably indicates that the borrower could make the reduced payment and pay off amounts in arrears, if any. The FmHA or its successor agency under Public Law 103-354 file will reflect the documentation of the interest rate change decision.
(1) Fixed rates cannot be changed to variable rates to reduce the interest rate to the borrower unless the variable rate has a ceiling which is less than the original fixed rate.
(2) Variable rates can be changed to a lower fixed rate. In a final loss settlement, when qualifying rate changes are made with the required written agreements and notification, the interest will be calculated for the periods the given rates were in effect, except that interest claimed on a loan which originated at a variable rate, can never exceed the amount which would have been eligible for claim, had the variable rate remained in force. The lesser cost to the Government will always prevail. The lender must maintain records e which adequately document the accrued interest claimed.
(3) The lender is responsible for the legal documentation of interest changes by a rider attached to the promissory note(s) or any other legally effective amendment of the rate(s); however, no new note(s) may be issued.
(g) No increases in interest rates will be permitted under the CP loan guarantee except the normal fluctuations in approved variable interest rate loans.
(h) FmHA or its successor agency under Public Law 103-354 will notify the Finance Office of any interest rate reduction by using Form FmHA or its successor agency under Public Law 103-354 1980-47, “Guaranteed Loan Borrower Adjustments.” The District Director will make corrections to the Rural Community Facility Tracking System (RCFTS) reflecting the interest rate change. The FmHA or its successor agency under Public Law 103-354 loan file, as well as the attachments to the copy of the promissory note in the file, will be documented by the District Director to reflect any change in the interest rate.
(a) Principal and interest on the loan will be due and payable as provided in the debt instrument except, any interest accrued as the result of the borrower's default on the guaranteed loan(s) over and above that which would have accrued at the debt instrument rate on
(b) The maximum time allowable for final maturity for an FmHA or its successor agency under Public Law 103-354 guaranteed CP loan will be limited to the useful life of the facility, not to exceed forty (40) years.
(c) FmHA or its successor agency under Public Law 103-354 will not guarantee any loan in which the bond, promissory note or any other document provides for the payment of interest upon interest.
The environmental requirements for this subpart are set out at § 1980.40 of subpart A of this part and subpart G of part 1940 of this chapter.
The flood or mudslide hazard area precuations required for this subpart are set out at § 1980.42 of subpart A of this part.
The equal opportunity and nondiscrimination requirements for this subpart are set out at § 1980.41 of subpart A of this part.
The economic feasibility requirements for this subpart are set out at § 1942.17(h) of subpart A and/or at § 1942.116 of subpart C of part 1942 of this chapter.
(a) The lender is responsible for seeing that proper and adequate security is obtained and maintained in existence and of record to protect the interest of the lender, the holder, and FmHA or its successor agency under Public Law 103-354.
(b) Security must be of such a nature that repayment of the loan is reasonably assured when considered with the integrity and ability of project management, soundness of the project, and the applicant's prospective earnings. The security may include but is not limited to the following: General Obligation Bonds, pledge of taxes or assessments, facility revenue, land, easements, rights-of-way, water rights, buildings, machinery, equipment, accounts receivable, contracts, and cash or other accounts. Security may also include assignments of leases or leasehold interest.
(c) All security must secure the entire loan. The lender will not take separate security to secure only the unguaranteed portion of the loan. The lender will not require compensating balances or certificates of deposit as a means of eliminating the lender's exposure on the unguaranteed portion of the loan.
(a)
(2) The lender will require that appraisals be conducted at a minimum in accordance with generally accepted appraisal standards as reflected in the “Uniform Standards of Professional Appraisals Practices” as promulgated by the Appraisal Standards Board of the Appraisal Foundation.
(3) The lender will determine that the fees or charges of appraisers are reasonable.
(4) Independent appraisals will be made in accordance with the accepted format of the industry and those prepared by the lender in accordance with its policy and procedures. All appraisals will become part of the application.
(5) If a subsequent loan request is made within 3 years from the date of the most recent borrower's appraisal report, and there is no significant change in the collateral, then the FmHA or its successor agency under Public Law 103-354 State Director at his/her discretion, and if the lender agrees, may use the existing appraisal report in lieu of having a new appraisal prepared.
(b)
(a)
(i) Eligibility determination and recommendations.
(ii) One copy of SF-424.
(iii) State intergovernmental review comments and recommendations for the borrower's project (clearinghouse comments.)
(iv) Priority recommendations.
(v) Supporting documentation necessary to make an eligibility determination, such as financial statements, audits, or copies of organizational documents or existing debt instruments.
(vi) Information on applicant.
(2) The State Director will review each SF-424 along with other information that is deemed necessary to determine whether financing from commercial sources at reasonable rates and terms is available without a guarantee. If credit elsewhere is indicated, the State Director will instruct the District Director to so inform the applicant.
(3) If preapplication information indicates the project is ineligible, does not have sufficient priority, or that funds or guarantee authority are not available for the project, FmHA or its successor agency under Public Law 103-354 will so inform the applicant. The applicant will be notified in writing with all reasons for the decision indicated. If it appears that the project is eligible, has sufficient priority, is economically feasible, and loan guarantee authority is available, FmHA or its successor agency under Public Law 103-354 will inform the applicant and borrower in writing and request that they complete the application. The applicant must be informed that an environmental review has not been conducted and no major commitment should be made that could affect the consideration of alternatives.
(b)
(2)
(ii) Form FmHA or its successor agency under Public Law 103-354 1910-11, “Applicant Certification Federal Collection Policies for Consumer or Commercial Debts.”
(iii) Form FmHA or its successor agency under Public Law 103-354 1940-20, “Request for Environmental Information.”
(iv) Preliminary architectural or engineering report as appropriate, in accordance with Guides 6, 7, and 8 of subpart A of part 1942 (available in any FmHA or its successor agency under Public Law 103-354 office).
(v) Cost estimates.
(vi) Appraisal reports (as appropriate).
(vii) Credit reports obtained by the lender or FmHA or its successor agency under Public Law 103-354 on the borrower.
(viii) Form FmHA or its successor agency under Public Law 103-354 400-1, “Equal Opportunity Agreement.”
(ix) Copies of building permits, if applicable, and any necessary certifications and recommendations of appropriate regulatory or other agencies having jurisdiction over the project.
(x) Financial feasibility study, when required.
(xi) Proposed loan agreement.
(xii) Complete environmental review.
(xiii) Any additional information as may be required.
(3)
(a) FmHA or its successor agency under Public Law 103-354 will complete Form FmHA or its successor agency under Public Law 103-354 1942-45, “Project Summary—Water and Waste Disposal and other Utility-type Projects,” or Form FmHA or its successor agency under Public Law 103-354 1942-43, “Project Summary Community Facilities (Other Than Utility-type Projects),” as appropriate. The application will be evaluated and a determination made as to whether the borrower is eligible, the proposed loan is for an eligible purpose, and there is reasonable assurance of repayment ability, sufficient collateral and equity, the proposed loan complies with all applicable statutes and regulations, and adequate funds are available. The FmHA or its successor agency under Public Law 103-354 Architect/Engineer will review the Preliminary Architect/Engineer reports and provide technical analysis and recommendations on the appropriate Project Summary. If FmHA or its successor agency under Public Law 103-354 determines it is unable to guarantee the loan, the lender will be informed in writing. Such notification will include the reasons for denial of the guarantee. If FmHA or its successor agency under Public Law 103-354 conditionally commits to guaranteeing the loan after the receipt of a completed application in accordance with § 1980.47 of subpart A of this part, it will provide the lender and the borrower with Form FmHA or its successor agency under Public Law 103-354 449-14, listing all conditions for such guarantees. FmHA or its successor agency under Public Law 103-354 will include in the requirements of the Conditional Commitment for Guarantee a full description of the approved use of guaranteed loan funds as reflected in the Form FmHA or its successor agency under Public Law 103-354 1980-10.
(b) Within 30 days after the Form FmHA or its successor agency under Public Law 103-354 449-14 has been accepted, the State Director will send to the National Office, Attention: Community Facilities Division or Water and Waste Disposal Division, as appropriate, the following documents:
(1) A copy of Form FmHA or its successor agency under Public Law 103-354 1942-43 or FmHA or its successor agency under Public Law 103-354 1942-45.
(2) A copy of Form FmHA or its successor agency under Public Law 103-354 449-14 (with attachments) as accepted by the lender and borrower.
(3) A copy of the proposed loan agreement between the lender and the borrower.
(4) A copy of Form FmHA or its successor agency under Public Law 103-354 1980-10.
The cover memorandum should indicate whether the Form FmHA or its successor agency under Public Law 103-354 449-34 has been issued. If the Loan Note Guarantee has been issued, enclose a copy of the Lender Certification required by § 1980.60(a) of subpart A of this part, and, if not, a proposed date for issuance of the Form FmHA or its successor agency under Public Law 103-354 449-34.
The State Director will prepare an original and two copies of Form FmHA or its successor agency under Public Law 103-354 1940-3, “Request for Obligation of Funds—Guaranteed Loans” for each loan to be obligated. Also, for each initial loan, Form FmHA or its successor agency under Public Law 103-354 1980-50, “Add, Delete, or Change Guaranteed Loan Borrower Information,” will be prepared. The State Director will sign the original and one copy and conform the second copy. Form FmHA or its successor agency under Public Law 103-354 1940-3 will not
(a) Immediately after contacting the Finance Office, the requesting official will furnish the requesting office's security identification code. Failure to furnish the security code will result in rejection of the request for reservation of authority. After the security code is furnished, all pertinent information contained on Form FmHA or its successor agency under Public Law 103-354 1940-3 will be furnished to the Finance Office. Upon receipt of the telephone request for reservation of authority, the Finance Office will record all information necessary to process the request for reservation in addition to the date and time of the request.
(b) The individual making the telephone request will record the date and time of the telephone request and place his/her signature in section 41 of Form FmHA or its successor agency under Public Law 103-354 1940-3.
(c) The Finance Office will terminally process telephone reservation requests. Those requests for reservations received before 2:30 p.m. Central Time, to the extent possible, will be processed on the date received; however, there may be instances in which the reservation will be processed on the next working day.
(d) Each working day the Finance Office will notify the State Office by telephone of all projects for which authority was reserved during the previous night's processing cycle and the date of obligation. If authority cannot be reserved for a project, the Finance Office will notify the State Office that authority is not available within the State allocation. The obligation date will be 6 working days from the date of the request for reservation of authority which is being processed in the Finance Office. Immediately after notification by telephone of the reservation of authority, the State Director will call the Legislative Affairs and Public Information Staff in the National Office as required by FmHA or its successor agency under Public Law 103-354 Instruction 2015-C (available in any FmHA or its successor agency under Public Law 103-354 office).
(a) The following will be submitted to the National Office when the loan guarantee is not within the State Director's approval authority.
(1) Transmittal memorandum including:
(i) Recommendation.
(ii) Date of expected obligation.
(iii) Any unusual circumstances.
(2) Preapplication package.
(3) Application package.
(4) Project Summary (Form FmHA or its successor agency under Public Law 103-354 1942-45 or 1942-43).
(b) For applications to be reviewed in the field, at least those items in paragraphs (a)(2) through (4) of this section, should be available.
(a) Immediately after reviewing the conditions and requirements in Form FmHA or its successor agency under Public Law 103-354 449-14, the lender and borrower should complete and sign the “Acceptance of Conditions,” and return a copy to the FmHA or its successor agency under Public Law 103-354 District Director. If certain conditions cannot be met, the lender and borrower may propose alternate conditions to FmHA or its successor agency under Public Law 103-354.
(b) If the lender indicates in the “Acceptance of Conditions” that it desires to obtain a Loan Note Guarantee (Form FmHA or its successor agency under Public Law 103-354 449-34), and subsequently decides at any time after receiving a conditional commitment that it no longer wants a guarantee, the lender will immediately advise the FmHA or its successor agency under Public Law 103-354 District Director.
In addition to compliance with the requirements of § 1980.60 of subpart A of this part, compliance with the following provisions are required prior to issuance of the Loan Note Guarantee:
(a)
(b)
(c)
(d)
(e)
(1) A legal opinion relative to the title to rights-of-way and easements. Lenders are responsible for ensuring that borrowers have obtained valid, continuous, and adequate rights-of-way and easements needed for the construction, operation, and maintenance of a facility. Ordinarily, an opinion of counsel relative to rights-of-way similar to Form FmHA or its successor agency under Public Law 103-354 442-22, “Opinion of Counsel Relative to Right-of-Way,” is sufficient documentation for rights-of-way.
(2) A title report by the borrower's attorney showing ownership of the land and all mortgages or other lien defects, restrictions, or encumbrances, if any. It is the responsibility of the lender to obtain and record such releases, consents, or subordinations to such property rights from holders of outstanding liens or other instruments as may be necessary for the construction, operation, and maintenance of the facility and to provide the required security. For example, when a site is for major structures for utility-type facilities, such as a reservoir or pumping station, and the lender is able to obtain only a right-of-way or easement on such a site rather than a fee simple title, such a title report should be requested.
(f)
(g)
(1) Letter from FmHA or its successor agency under Public Law 103-354 National Office authorizing loan guarantee containing conditions (if applicable);
(2) Form FmHA or its successor agency under Public Law 103-354 449-14, including any amendments;
(3) Loan agreement;
(4) Promissory notes and/or bond transcript;
(5) Security documents—real estate mortgage, security agreement, financing statements, and leases (if applicable);
(6) Proposed Forms FmHA or its successor agency under Public Law 103-354 449-34, 449-35, “Lender's Agreement,” and 449-36 “Assignment Guarantee Agreement,” if any;
(7) Proposed lender's certification (§ 1980.60 of Subpart A of this part); and
(8) Opinion of lender's counsel in form prescribed by OGC.
(h)
Compliance with § 1980.61 of subpart A of this part is required for this subpart.
Specifications for design and construction provided at § 1942.18(d), (j)(1) and (2), and (n)(1), (2), (4), (5), (6), and (11) of subpart A of part 1942 of this chapter also apply to this subpart. The lender will provide FmHA or its successor agency under Public Law 103-354 with a written certification at the end of construction that all funds were utilized for authorized purposes. The lender will also certify that the FmHA or its successor agency under Public Law 103-354 design policies have been met. The lender will monitor the progress of construction and undertake the reviews and project inspections necessary to reasonably assure that funds are used for eligible project costs and that problems in project development are expeditiously reported to the District Director.
The lender will be responsible for servicing the entire loan in accordance with the lender's loan agreement. The lender will notify FmHA or its successor agency under Public Law 103-354 of any violations of the lender's loan agreement.
(a) The lender will require, at a minimum, annual audited financial statements which will be reviewed by the lender and a copy forwarded to the FmHA or its successor agency under Public Law 103-354 District Office with a summary evaluation by the lender. After receipt of the evaluation, the District Director will determine if a joint FmHA or its successor agency under Public Law 103-354 lender and borrower site visit will be necessary. Site visits will be conducted at least once every three years but may be scheduled more frequently if conditions warrant. Delinquent borrowers will be visited at least annually. The State Director may waive the audit requirement for financial statements for borrowers with gross annual income of less than $100,000.
(b) The District Director or his/her designated representative will meet annually with each lender or his/her agent with whom a CP loan guarantee is outstanding. At this meeting, a review will be made of the lender's performance in loan servicing and a determination of any future actions needed. This meeting will be documented in the running record for each borrower serviced by the lender and followed by a letter to the lender. The letter shall be placed in each borrower's case file.
All CP guaranteed loans 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. The loans will be classified as set out at § 1904.104 of subpart C of part 1904 of this chapter.
(a) In case of any monetary or significant non-monetary default under the loan agreement, the lender is responsible for arranging a meeting with the District Director or designated representative and borrower to resolve the problem. A memorandum of the meeting listing the individuals in attendance and summarizing the problem and proposed solution will be prepared by the FmHA or its successor agency under Public Law 103-354 representative and retained in the loan file. When the District Director receives a notice of default on a loan, he/she will immediately notify the State Office in writing of the details. The District Director will notify the lender and borrower of any decision reached by FmHA or its successor agency under Public Law 103-354.
(b) In considering servicing options, some of which are identified in paragraph X. A of Form FmHA or its successor agency under Public Law 103-354 449-35, the prospects for providing a permanent cure without adversely affecting the risks to FmHA or its successor agency under Public Law 103-354 and the lender must become the paramount objective. Within the State Director's authority, temporary curative actions such as payment deferments or collateral subordination, must
(c) If the loan was closed with the multi-note option, the lender may need to possess all notes to take some servicing action. In these situations when FmHA or its successor agency under Public Law 103-354 is holder of some of the notes, the State Director may endorse the notes back to the lender after the State Director has sought the advice and guidance of the Office of the General Counsel (OGC), provided a proper receipt is received from the lender which defines the reason for the transfer. Under no circumstances will FmHA or its successor agency under Public Law 103-354 endorse the original Form FmHA or its successor agency under Public Law 103-354 449-34 to the lender.
(d) When the State Office determines it is necessary on individual cases, due to some special servicing requirements, it may, at its option, assume the servicing responsibility.
(e) The State Director will report all deliquent and problem loans quarterly to the appropriate National Office program division by the 20th day of January, April, July, and October.
(f) The District Director will notify the Finance Office on Form FmHA or its successor agency under Public Law 103-354 1980-47 of any change in payment terms such as reamortizations or interest rate adjustments and effective dates of any changes resulting from servicing actions.
Liquidation will be conducted in accordance with the lender's loan agreement and § 1980.64 of subpart A of this part.
(a) State Directors are authorized to approve lender liquidation plans as authorized on separate written approval authorities issued in accordance with subpart A of part 1901 of this chapter. Within delegated authorities, the State Director may approve a written partial liquidation plan submitted by the lender covering collateral that must be immediately protected or cared for in order to preserve or maintain its value. Approval of the partial liquidation plan must be in the best interest of the government. The approved partial liquidation plan is only good for those actions necessary to immediately preserve and protect the collateral and must be followed by a complete liquidation plan prepared by the lender in accordance with the requirements of the lender's agreement.
(b) Collateral acquired by the lender can only be released after a complete review of the proposal.
(1) There may be instances when the lender acquires the collateral of a borrower where the cost of liquidation exceeds the potential recovery value of the security. Whenever this occurs, the lender with the concurrence of FmHA or its successor agency under Public Law 103-354, can abandon the collateral in lieu of liquidation.
(2) Sale of acquired collateral to the former borrower, former borrower's stockholder(s) or officer(s), or the lender or lender's stockholder(s) or officer(s), will require the concurrence of FmHA or its successor agency under Public Law 103-354.
(c) FmHA or its successor agency under Public Law 103-354 will exercise the option to liquidate only when there is reason to believe the lender is not likely to initiate liquidation efforts that will result in maximum recovery. When there is reason to believe the lender will not initiate efforts that will maximize recovery through liquidation, the State Director will forward the lender's liquidation plan, if available, with appropriate recommendations along with the State Director's exceptions to the lender's plan to the Director of the appropriate program division for evaluation and approval or rejection of the State Director's recommendation. The State Director has no authority to exercise the option to liquidate without National Office approval. When FmHA or its successor agency under Public Law 103-354 liquidates, reasonable liquidation expenses will be assessed against the proceeds derived from the sale of the collateral. In such instances the State Director will send to the Finance Office Form FmHA or its successor agency
(d) State Directors are responsible for review and acceptance of accounting reports as submitted by lenders and for submission of such reports to lenders when FmHA or its successor agency under Public Law 103-354 is conducting liquidation.
(e) State Directors are authorized to approve final reports of loss from the lender in separate written approval authorities issued in accordance with subpart A of part 1901 of this chapter. The State Director will submit to the Finance Office for payment any loss claims of the lender on Form FmHA or its successor agency under Public Law 103-354 449-30, “Loan Note Guarantee Report of Loss.” The Finance Office forwards loss payment checks to the State Director for delivery to the lender. When a loss claim is involved on a particular loan guarantee, ordinarily one estimated “Report of Loss” will be authorized. In the case of bankruptcy, more than one estimated “Report of Loss” may be authorized. Only one final filed with the Finance Office at the completion of all liquidations. The Finance Office will use this form to close out the account.
(f) Final loss payments will be made within the 60 days required, but only after a review by FmHA or its successor agency under Public Law 103-354 to assure that all collateral for the loan has been properly accounted for and liquidation expenses are reasonable and within approved limits. State Directors are responsible to see that such reviews are accomplished by the State within 30 days, and final loss claims in excess of the State Director's approval authority are forwarded to be accepted or otherwise resolved by the appropriate National Office program division within the 60-day period. Any estimated loss payments made to the lender must be taken into consideration when paying a final loss on the FmHA or its successor agency under Public Law 103-354 guaranteed loan. The estimated loss payment must be treated as a deduction from the principal amount of the loan that is equal to the estimated loss payment. The State Director may request National Office assistance in the conduct of any review. All reviews for final loss claim in excess of the State Director's approval authority (See subpart A of part 1901 of this chapter) will be submitted to the appropriate National Office program division for concurrence prior to the State Director's approval of the claim. Close scrutiny of liquidation proceeds and their application in accordance with lien priorities is required. Before final loss payments are approved and to assist in the required review, the State Director will prepare a narrative history of the guarantee transaction which will serve as the summary of occurrences which led to failure of the borrower and actions taken to maximize loan recovery. The original of this report will be filed in the loan case file.
Protective advances may be made in accordance with the lender's loan agreement and § 1980.65 of subpart A of this part.
(a) The State Director must approve in writing, all protective advances on loans within his/her loan approval authority which exceed a total cumulative advance of $500 to the same borrower. Protective advances must be reasonable when associated with the value of collateral being preserved.
(b) When considering protective advances, sound judgement must be exercised in determining that the additional funds advanced will actually preserve collateral interests and recovery is actually enhanced by making the advance.
The State Director may approve within his/her loan approval authority additional nonguaranteed loans or advances prior to or subsequent to the
(a) It is the lender's responsibility to protect the guaranteed loan debt and all the collateral securing it in bankruptcy proceedings. These responsibilities include but are not limited to the following:
(1) The lender will file a proof of claim where necessary and all the necessary papers and pleadings concerning the case.
(2) The lender will attend and where necessary participate in meetings of the creditors and all court proceedings.
(3) The lender, whose collateral is subject to being used by the trustee in bankruptcy, will immediately seek adequate protection of the collateral.
(4) Where appropriate, the lender should seek involuntary conversion of a pending chapter 11 case to a liquidation proceeding under chapter 7 or under section 1123(b)(4), or seek dismissal of the proceedings.
(5) FmHA or its successor agency under Public Law 103-354 will be kept adequately and regularly informed in writing of all aspects of the proceedings.
(b) In a chapter 9 or chapter 11 reorganization, if an independent appraisal in necessary in FmHA or its successor agency under Public Law 103-354's opinion, FmHA or its successor agency under Public Law 103-354 and the lender will share such appraisal fee equally.
(c) Expenses on chapter 11 reorganizations, chapter 11 or chapter 7 liquidations (unless the lender is directly the liquidator) are not to be deducted from the collateral proceeds.
(d) All bankruptcy cases should be reported immediately to the National Office by utilizing and completing a problem/delinquent status report. The Regional Attorney must be informed promptly of the proceedings.
(e) FmHA or its successor agency under Public Law 103-354 or the lender, with the approval of the State Director, may initiate the repurchase of the unpaid guaranteed portion of the loan from the holder(s) to reduce interest accruals during certain bankruptcy proceedings. The State Director may approve the repurchase of the unpaid guaranteed portion of the loan from the holder(s) to reduce interest accrual during chapter 7 proceedings or after a chapter 11 proceeding becomes a liquidation proceeding. If the lender is the holder, an estimated loss payment may be filed at the initiation of a chapter 7 proceeding or after a chapter 11 proceeding becomes a liquidation proceeding. On loans in bankruptcy, any loss payment must be handled in accordance with the lender's agreement (Form FmHA or its successor agency under Public Law 103-354 449-35) and carry the approval of the State Director.
(f) The State Director must approve in advance and in writing the lender's estimated liquidation expenses on loans in liquidation bankruptcy. These expenses must be reasonable and customary and not in-house expenses of the lender.
(a)
(1) When the transaction is to a member of the borrower's organization at a price which will not result in a loss to the lender.
(2) Transfers to eligible borrowers will receive preference over transfers to ineligible borrowers, if recovery to the lender from the sale price is not less than it would be if the transfer was to an ineligible borrower.
(3) The present borrower is unable or unwilling to accomplish the objectives
(4) If the debt(s) is not equal to the present market value, the transferee will assume an amount at least equal to either the present market value or the debt, whichever is less. The percentage of FmHA or its successor agency under Public Law 103-354's guarantee will be based on the new debt or the current market value, whichever is less.
(5) The lender concurs in the plans for dispositon of funds in the transferor's debt service, reserve, and operation and maintenance account.
(b)
(2) The total indebtedness may be transferred to another borrower on different terms not to exceed those terms for which an initial guaranteed loan can be made.
(3) Less than the total indebtedness may be transferred to another borrower on the same or different terms.
(4) A guaranteed loan for which the transferee is eligible may be made in connection with a transfer subject to the policies and procedures governing the kind of loan being made.
(5) If the transferor is to receive a payment for its equity, the total FmHA or its successor agency under Public Law 103-354 debt must be assumed.
(c)
(1) All transfers to ineligible borrowers will include a one-time nonrefundable transfer fee. Transfer fees will be collected and payments applied in accordance with paragraph (d) of this section.
(2) For all loans covered by this subpart, the State Director, is authorized to approve a transfer of indebtedness to, and assumption of, a loan by a transferee who does not meet the eligibility requirements for the kind of loan being assumed when the ineligible borrower will:
(i) Make a significant downpayment.
(ii) Agree to pay the remaining balance within not more than 15 years. Installments will be at least equal to the amount amortized over a period not greater than the remaining life of the debt being transferred and the balance will be due the fifteenth year.
(3) Interest rates to ineligible transferees will be the rate specified in the note of the transferor or the rates customarily charged borrowers in similar circumstances in the ordinary course of business and are subject to FmHA or its successor agency under Public Law 103-354 review and approval. The rates may be either fixed or variable.
(i) Transferees must have the ability to repay the debt according to the assumption agreement and must have the legal authority to enter into the contract. The borrower will submit a current balance sheet. The lender will obtain and analyze the credit history of the borrower. In all transfers, consideration will be given to obtaining individual liability agreements from members of the transferee organization.
(ii) This subpart does not preclude the transferor from receiving equity payments when the full amount of the debt is assumed. However, equity payments will not be made on more favorable terms than those on which the balance of the debt will be paid.
(d)
(1)
(2)
(3)
(e)
(i) FmHA or its successor agency under Public Law 103-354 must determine that the transferor and any guarantors have no reasonable debt-paying ability considering their assets and income at the time of transfer.
(ii) The District Director must certify that the transferor has cooperated in good faith, used due diligence to maintain the collateral against loss, and has otherwise fulfilled all of the regulations of this subpart to the best of the borrower's ability.
(2) The lender will make, in all cases, a complete credit analysis to determine viability of the project, subject to FmHA or its successor agency under Public Law 103-354 review and approval, including any requirement for deposits in an escrow account as security to meet its determined equity requirements for the project.
(3) The lender will issue a statement to FmHA or its successor agency under Public Law 103-354 that the transaction can be properly transferred and the conveyance instruments will be filed, registered, or recorded as appropriate and legally permissible.
(4) The State Director may approve all transfer and assumption provisions if the guaranteed loan debt balance is within his/her loan approval authority including:
(i) Consent in writing to the release of the transferor and guarantors from liability.
(ii) Any changes in loan terms.
The assumption will be reviewed as if it were a new loan. The Loan Note Guarantee(s) (Form FmHA or its successor agency under Public Law 103-354 449-34) will be endorsed in the space provided on the form(s).
(5) The assumption will be made on the lender's form of assumption agreement and will contain the FmHA or its successor agency under Public Law 103-354 case number of the transferor and transferee.
(6) If the guaranteed loan debt balance is in excess of the State Director's loan approval authority, the State Director will forward the file, together with his/her recommendations, to the appropriate National Office program division for approval.
(7) A copy of the Assumption Agreement will be retained in the FmHA or its successor agency under Public Law 103-354 file. The District Director will notify the Finance Office of all approved transfer and assumption cases on Form FmHA or its successor agency under Public Law 103-354 1980-7, “Notification of Transfer and Assumption of a Guaranteed Loan,” and submit Form FmHA or its successor agency under Public Law 103-354 1980-50, for all new borrowers and Form FmHA or its successor agency under Public Law 103-354 1980-51, “Add, Change, or Delete Guaranteed Loan Record,” in order that Finance Office records may be adjusted accordingly.
(8) Loan terms cannot be changed by the Assumption Agreement unless previously approved in writing by FmHA or its successor agency under Public Law 103-354, with the concurrence of any holder(s) and the transferor (including guarantors) if they have not been released from personal liability. Any new loan terms cannot exceed those authorized in this subpart. The lender's request will be supported by:
(i) An explanation of the reasons for the proposed change in the loan terms.
(ii) Certification that the lien position securing the guaranteed loan will be maintained or improved, proper hazard insurance will be continued in effect, and all applicable Truth in Lending requirements will be met.
(9) In the case of a transfer and assumption, it is the lender's responsibility to see that all such transfers and
(10) The holder(s), if any, need not be consulted on a transfer and assumption case unless there is a change in loan terms.
(11) If a loss should occur upon consummation of a complete transfer of assets and assumption for less than the full amount of the debt and the transferor-debtor (including personal guarantor) is released from personal liability, as provided in paragraph (e) of this section, the lender, if it holds the guaranteed portion, may file an estimated “Report of Loss” on Form FmHA or its successor agency under Public Law 103-354 449-30 to recover its pro rata share of the actual loss at that time. In completing Form FmHA or its successor agency under Public Law 103-354 449-30, the amount of the debt assumed will be entered on line 24 as Net Collateral (Recovery). Approved protective advances and accrued interest thereon made during the arrangement of a transfer and assumption, if not assumed by the transferee, will be entered on Form FmHA or its successor agency under Public Law 103-354 449-30, lines 13 and 14.
(f)
(i) Where a loss to the Government will result; or
(ii) The prospective transferee is a member of the present borrower's organization; or
(iii) Proposals for transfer or assumption are made on more liberal terms than set forth in paragraphs (b) and (c) of this section; or
(iv) Proposals for cash downpayment to the present borrower in an amount which exceeds that actual sales expenses; or
(v) The transfer fee is to be waived for a prospective transferee.
(2) All submissions to the National Office will contain:
(i) Transfer case file.
(ii) OGC comments on the proposed transfer or assumption.
(iii) Appropriate forms to complete the transfer prepared by the transferee.
(iv) Completed environmental review.
(v) Any other necessary supporting information.
(a)
(1) The merger is in the best interest of the Government and the merging borrower.
(2) The resulting borrower can meet all required conditions as set forth in specific loan note agreements.
(3) All property can be legally transferred to the resulting borrower.
(4) The membership of each organization involved is made aware of the proposed merger.
(b)
(a) When the lender acquires title to the collateral through a voluntary basis or foreclosure means, and the FmHA or its successor agency under Public Law 103-354 final loss claim is not paid until final disposition, the lender should proceed as quickly as possible to develop a plan to see that the collateral is fully protected and a program to dispose of the collateral is commenced.
(b) Any collateral accepted by the lender on a voluntary basis or through foreclosure means
(c) The first step the lender should take after acquiring the collateral is to see that the collateral is protected from deterioration (weather, vandalism). Hazard insurance in an amount necessary to cover the fair market value of the collateral should be maintained by the lender.
(d) The lender will prepare and submit to the District Director a plan on the best method of sale keeping in mind any prospective purchasers. The District Director will review and recommend action on the plan and forward the plan to the State Director for concurrence. Concurrence or non-concurrence of the plan shall be made in writing to the lender. If an existing liquidation plan addressed the disposition of acquired property, no further review is required unless modification of the plan is needed.
(e) Methods of liquidation.
(1) Direct sale by lender.
(2) Commercial broker.
(i) Broker should be experienced in the type of property involved.
(ii) The written agreement with the broker should include an agreement which allows that if the lender finds a purchaser, no commission would be paid to the broker.
(iii) A maximum of 120 days should be allowed on the contract. The contract should be renewable if all parties agree.
(3) Public auction.
(i) An experienced professional auctioneer should be engaged.
(ii) Adequate advertising should be obtained.
(iii) The lender with FmHA or its successor agency under Public Law 103-354 concurrence shall determine a minimum sale price for the collateral.
(f) Abandonment of the collateral.
(1) The primary purpose of collateral is to afford a net return on the loan balance. However, there will be times when FmHA or its successor agency under Public Law 103-354 will be faced with situations when converting the collateral to cash would result in a loss.
(2) Situations when this type of action could exist are:
(i) Senior lien claims held by other parties against the guaranteed loan collateral and the senior lien claims are more than the collateral value.
(ii) Collateral on the loan has deteriorated to the point where the net sale value (after expenses) of the collateral would not produce any funds that could be applied to the outstanding debt.
(iii) Specialized collateral which has little or no value or demand, taking into consideration the expenses of the sale.
(3) Anytime there is a case when the conversion of collateral to cash can reasonably be expected to result in a negative net recovery amount, abandonment of the collateral should be strongly considered. When a decision to abandon the property is made, the District Director will document the decision in the file and will advise the State Director of the decision.
All proposed servicing actions which the State Director or lender is not authorized by this subpart to approve will be referred to the National Office.
Appeals are handled in accordance with § 1980.80 of subpart A of this part
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 0575-0137. Public reporting burden for this collection of information is estimated to vary from 1 to 50 hours with an average of 20 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 Office, OIRM, room 404-W, Washington, DC 20250; and to the Office of Management and Budget, Paperwork Reduction Project (OMB #0575-0137), Washington, DC 20503.