[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2000 Edition]
[From the U.S. Government Printing Office]
7
Agriculture
[[Page i]]
PARTS 1950 TO 1999
Revised as of January 1, 2000
CONTAINING
A CODIFICATION OF DOCUMENTS
OF GENERAL APPLICABILITY
AND FUTURE EFFECT
AS OF JANUARY 1, 2000
With Ancillaries
Published by
the Office of the Federal Register
National Archives and Records
Administration
as a Special Edition of
the Federal Register
[[Page ii]]
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2000
For sale by U.S. Government Printing Office
Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328
[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 7:
Subtitle B--Regulations of the Department of Agriculture--
Continued:
Chapter XVIII--Rural Housing Service, Rural
Business-Cooperative Service, Rural Utilities
Service, and Farm Service Agency, Department of
Agriculture (Continued) 5
Finding Aids:
Table of CFR Titles and Chapters........................ 665
Alphabetical List of Agencies Appearing in the CFR...... 683
List of CFR Sections Affected........................... 693
[[Page iv]]
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Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 7 CFR 1950.101
refers to title 7, part
1950, section 101.
----------------------------
[[Page v]]
EXPLANATION
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Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
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collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
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[[Page vii]]
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Raymond A. Mosley,
Director,
Office of the Federal Register.
January 1, 2000.
[[Page ix]]
THIS TITLE
Title 7--Agriculture is composed of fifteen volumes. The parts in
these volumes are arranged in the following order: parts 1-26, 27-52,
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1899, 1900-1939, 1940-1949, 1950-1999, and part 2000 to end.
The contents of these volumes represent all current regulations codified
under this title of the CFR as of January 1, 2000.
The Food and Nutrition Service current regulations in the volume
containing parts 210-299, include the Child Nutrition Programs and the
Food Stamp Program. The regulations of the Federal Crop Insurance
Corporation are found in the volume containing parts 400-699.
All marketing agreements and orders for fruits, vegetables and nuts
appear in the one volume containing parts 900-999. All marketing
agreements and orders for milk appear in the volume containing parts
1000-1199. Part 900--General Regulations is carried as a note in the
volume containing parts 1000-1199, as a convenience to the user.
Redesignation tables appear in the Finding Aids section of the
volumes containing parts 210-299 and parts 1600-1899.
For this volume, Ruth Reedy Green was Chief Editor. The Code of
Federal Regulations publication program is under the direction of
Frances D. McDonald, assisted by Alomha S. Morris.
[[Page x]]
[[Page 1]]
TITLE 7--AGRICULTURE
(This book contains parts 1950 to 1999)
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Part
SUBTITLE B--Regulations of the Department of Agriculture--(Continued)
chapter xviii--Rural Housing Service, Rural Business--
Cooperative Service, Rural Utilities Service, and Farm
Service Agency, Department of Agriculture (Continued)..... 1950
[[Page 3]]
Subtitle B--Regulations of the Department of Agriculture (Continued)
[[Page 5]]
CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS--COOPERATIVE
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF
AGRICULTURE (CONTINUED)
--------------------------------------------------------------------
SUBCHAPTER H--PROGRAM REGULATIONS--CONTINUED
Part Page
1950 General..................................... 7
1951 Servicing and collections................... 10
1955 Property management......................... 212
1956 Debt settlement............................. 296
1957 Asset sales................................. 322
1962 Personal property........................... 323
1965 Real property............................... 361
1980 General..................................... 468
Editorial Note: Chapter XVIII--Rural Housing Service, Rural Business-
Cooperative Service, Rural Utilities Service, and Farm Service Agency,
Department of Agriculture, is continued in the volume containing 7 CFR
part 2000 to end.
Editorial Note: Nomenclature changes to chapter XVIII appear at 59 FR
66443, Dec. 27, 1994, 61 FR 1109, Jan. 16, 1996 and 61 FR 2899, Jan. 30,
1996.
[[Page 7]]
SUBCHAPTER H--PROGRAM REGULATIONS--Continued
PART 1950--GENERAL--Table of Contents
Subparts A-B [Reserved]
Subpart C--Servicing Accounts of Borrowers Entering the Armed Forces
Sec.
1950.101 Purpose.
1950.102 General.
1950.103 Borrower owing FmHA or its successor agency under Public Law
103-354 loans which are secured by chattels.
1950.104 Borrower owing FmHA or its successor agency under Public Law
103-354 loans which are secured by real estate.
1950.105 Interest rate.
Subparts A-B [Reserved]
Subpart C--Servicing Accounts of Borrowers Entering the Armed Forces
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.
Sec. 1950.101 Purpose.
Borrowers with accounts serviced by the Farmers Home Administration
or its successor agency under Public Law 103-354 (FmHA or its successor
agency under Public Law 103-354) who have entered or who are entering
military service will require special treatment. This subpart prescribes
the authorities, policies, and routines for servicing such cases in
addition to those contained in other FmHA or its successor agency under
Public Law 103-354 regulations.
[45 FR 43152, June 26, 1980]
Sec. 1950.102 General.
(a) FmHA or its successor agency under Public Law 103-354 will do
everything possible to assist borrowers entering the armed forces to
adjust their affairs in contemplation of military service. It is not the
policy FmHA or its successor agency under Public Law 103-354 to renew,
postpone, or modify annual installments due under a promissory note
because of the borrower's entry into the armed services. However, under
the Soldiers' and Sailors' Civil Relief Act of 1940, the property of a
borrower in the armed forces cannot validly be seized or sold by
foreclosure or otherwise during the borrower's tenure of service, or for
three months thereafter, except (1) pursuant to an agreement entered
into by the borrower after having been accepted for service, or (2) by
order of the Court. Any person causing an invalid sale to be made is
guilty of a misdemeanor. Regardless of the foregoing, the long-time
interest of the borrower can best be served by prompt and satisfactory
arrangements for the use and protection, or disposition, of the security
property in accordance with the policies expressed herein. Upon request,
OGC will inform the State Director with respect to relief which may be
secured by a borrower under the Soldiers' and Sailors' Civil Relief Act
of 1940.
(b) In connection with Multiple Housing loans to individuals,
references to County Supervisor and County Office in this subpart will
be read as District Director and District Office.
[50 FR 45763, Nov. 1, 1985]
Sec. 1950.103 Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by chattels.
(a) Policy. (1) Borrowers who owe loans other than Farm Ownership
(FO), Operating (OL), Soil and Water (SW), Recreation (RL), Emergency
(EM), Economic Emergency (EE), Economic Opportunity (EO), Special
Livestock (SL), Softwood Timber (ST) loans, and/or Rural Housing loans
for farm service buildings (RHF). When information is received that a
borrower is entering the armed forces, the County Supervisor will be
responsible for contacting the borrower immediately for the purpose of
reaching an understanding concerning the actions to take in connection
with the FmHA or its successor agency under Public Law 103-354 loan
indebtedness. The borrower will be permitted to retain the chattel
security if arrangements can be worked out which are satisfactory to the
borrower and FmHA or its successor agency under Public Law 103-354.
However, because
[[Page 8]]
of the nature of chattel security, the borrower will be informed of the
usual depreciation of such property and will be encouraged to sell the
property and apply the proceeds to the loan(s). In most cases, the
interests of both the borrower and the Government can best be served by
arranging for a voluntary sale of the security. A borrower retaining
security will be expected to make payments on the loan(s) equal to the
scheduled payments.
(2) Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, and/or RHF
loans. If the borrower is delinquent in accordance with subpart S of
part 1951 of this chapter, or otherwise in default, the County
Supervisor will send exhibit A and the appropriate attachments, as
outlined in subpart S of part 1951 of this chapter. If the borrower is
not delinquent, the County Supervisor will explain the options set out
in paragraph (b) of this section.
(b) Methods of handling. In carrying out the above policy, the cases
of borrowers entering the armed forces will be handled in accordance
with one of the following methods:
(1) Voluntary sale of security. This will be accomplished in
accordance with Sec. 1962.41 of subpart A of part 1962 of this chapter.
Any necessary forms will be signed:
(i) Before being accepted for service in the armed forces, if the
sale is to be completed before the borrower is accepted for service, or
(ii) After being accepted for service, if the sale cannot be
completed before the borrower is so accepted. For this purpose, an
individual will be considered as accepted for service after being
ordered to report for induction, or, if in the enlisted reserve, after
being ordered to report for service in the armed forces.
(2) Assumption of indebtedness. This will be accomplished in
accordance with Sec. 1962.34 of subpart A of part 1962 of this chapter.
(3) Arrangements with third persons. When the borrower arranges with
a relative or other reliable person to maintain the security in a
satisfactory manner and to make scheduled payments, the State Director
is authorized to approve the arrangement. In such a case, the borrower
will be required to execute a power of attorney, prepared or approved by
OGC, authorizing an attorney-in-fact to act for the borrower during the
latter's absence.
(4) Possible legal actions. If the borrower fails or refuses to
cooperate in the servicing of the loan indebtedness secured by chattels
in accordance with one of the methods set forth in this section, the
borrower's case folder will be forwarded to the State Director for
referral to OGC for legal advice as to the steps to be taken in
protecting the Government's interest.
(c) Statements of accounts and transfers. Borrowers entering the
armed forces will be requested to designate mailing addresses for the
delivery of statements of account. Any changes in these addresses will
be processed on Form FmHA or its successor agency under Public Law 103-
354 450-10, ``Advice of Borrower's Change of Address or Name,'' with
appropriate explanations. Under this procedure, a statement of account
may be mailed to a location other than where the account is maintained
and serviced. This is a deviation from the established procedure. These
cases will not be transferred unless the security, when retained by the
borrower in accordance with paragraph (b)(3) of this section, is moved
into another County Office territory. Then the transfer will be
processed through the use of Form FmHA or its successor agency under
Public Law 103-354 450-5, ``Application to Move Security Property and
Verification of Address,'' and Form FmHA or its successor agency under
Public Law 103-354 450-10 with appropriate explanations. In cases when
assumption agreements have been executed, statements of account will be
mailed to the assuming borrower. Cases involving assumption agreements
will be transferred when the assuming borrower moves from one County
Office territory to another.
[45 FR 43152, June 26, 1980, as amended at 50 FR 45763, Nov. 1, 1985; 52
FR 26133, July 13, 1987; 55 FR 40646, Oct. 4, 1990]
[[Page 9]]
Sec. 1950.104 Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by real estate.
County Supervisors, to the greatest extent possible, should keep
themselves informed of the plans of borrowers with FmHA or its successor
agency under Public Law 103-354 loans secured by real estate who may
enter the armed forces. They should encourage any borrower who is
definitely entering the armed forces to consult with them before the
borrower's military service begins concerning the most advantageous
arrangements that can be made regarding the security. County Supervisors
will assist these borrowers in working out mutually satisfactory
arrangements. Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, ST, and/
or RHF loans and who are delinquent or otherwise in default must be sent
exhibit A and the appropriate attachments, as outlined in subpart S of
part 1951 of this chapter. The County Supervisor will follow the
directions in subpart A of part 1965 of this chapter for liquidating
real estate security. FO, SW, RL, OL, EE, EM, SL, EO, ST and/or RHF
borrowers who are not delinquent will have their accounts handled as set
out in the following paragraphs.
(a) Power of attorney. Borrowers entering the armed forces who
retain ownership of the security should be encouraged to execute a power
of attorney authorizing the person of their choice to take any actions
necessary to insure proper use and maintenance of the security, payment
of insurance and taxes, and repayment of the loan. No FmHA or its
successor agency under Public Law 103-354 employee will act as attorney-
in-fact for a borrower. The State Director will consult with OGC
concerning any limitations upon the use of a power of attorney under
local law and the circumstances under which the power of attorney should
be exercised. In general, either spouse may act as attorney-in-fact for
the other spouse, but, in a few States, a spouse cannot exercise the
power of attorney in connection with a sale or encumbrance of the
homestead. In a majority of States, a power of attorney is revoked by
the death of a person granting the power, but, in some States, the power
of attorney executed by a person in the armed services remains valid
until actual notice is received of the death of the person granting the
power. A power of attorney should not be used in conveying title to the
farm except in those States where the power is good until actual notice
of death. The State Director will request OGC to prepare a satisfactory
form of power of attorney which may be duplicated in the State Office
and furnished to County Supervisors with a State supplement concerning
its use.
(b) Borrower retains ownership of the security. When a borrower
retains ownership of the security, FmHA or its successor agency under
Public Law 103-354 will assist in making arrangements for the use of the
security which will protect the interests of both the Government and the
borrower.
(1) Leasing. It will be more satisfactory if the security is leased
under a written lease in accordance with equitable leasing policies and
applicable FmHA or its successor agency under Public Law 103-354
procedures. The borrower should make arrangements for the rental income
to be used for regular payments on the loan in order to avoid the
accumulation of unpaid interest. The borrower also should make
arrangements for the payment of taxes and insurance and maintenance of
the security to avoid having these charges paid by the Government and
then charged to the account. It would be desirable to provide that the
lease will continue for the duration of the borrower's military service
unless either party gives written notice of earlier cancellation of the
lease.
(2) Operation by family. When a borrower wishes to have the farm
occupied and operated by family members or relatives without a written
lease, the County Supervisor should advise the borrower as to whether or
not the proposed arrangements will be in the best interests of the
borrower and the Government. When the farm is to be operated by
relatives, the hazards and disadvantages to the borrower and the
Government which are inherent in unwritten contracts will be discussed,
and every effort will be made to induce the
[[Page 10]]
borrower to enter into formal contractual arrangements whenever possible
to do so.
(c) Borrower does not retain ownership of the security. The security
may be transferred to another approved applicant or sold in accordance
with applicable procedure.
(d) Borrower abandons the security or fails to make satisfactory
arrangements. This paragraph does not apply to borrowers with FO, SW,
RL, OL, EE, EM, SL, EO, ST and/or RHF loans. Those borrowers should be
sent exhibit A and the appropriate attachments as outlined in subpart S
of part 1951 of this chapter. When a borrower abandons the security or
fails to make satisfactory arrangements for maintenance of the security
and payment of taxes, insurance, and installments on the loan, the
County Supervisor will send a complete report on the case to the State
Director. The report will include all the information that can be
obtained regarding the borrower's plans for the security and any
evidence to indicate that abandonment has, in fact, taken place. In
these instances, it must be recognized that the borrower may have
entered into verbal arrangements for the care of the security without
properly advising the County Supervisor. Whether such cases may be
construed to be in violation of the provisions of the mortgage, so as to
support foreclosure by order of the Court under the provisions of the
Soldiers' and Sailors' Civil Relief Act of 1940, will need to be
determined on an individual case basis by the State Director and OGC.
Clear-cut abandonment cases or instances in which the borrower fails to
take action to transfer or sell the property, while evidencing no
interest in it or desire to retain it, will be processed in accordance
with applicable procedures.
(e) Statement of account. Borrowers entering the armed forces who
retain ownership of the security will be requested to designate mailing
addresses for the delivery of statements of account. Any changes in
addresses will be processed on Form FmHA or its successor agency under
Public Law 103-354 450-10 with appropriate explanations.
[45 FR 43152, June 26, 1980, as amended at 50 FR 45764, Nov. 1, 1985; 52
FR 26134, July 13, 1987; 55 FR 40646, Oct. 4, 1990]
Sec. 1950.105 Interest rate.
(a) The Soldiers and Sailors Relief Act requires that the effective
interest rate charged a borrower who enters active military duty after a
loan is closed will not exceed 6 percent. This applies only to full-time
active military duty and does not include military reserve status or
National Guard participation.
(b) As soon as the County Supervisor verifies that a borrower is on
active duty, the County Supervisor will send the borrower a letter which
states that the interest rate on the borrower's FmHA or its successor
agency under Public Law 103-354 loans will not exceed 6 percent. At the
same time, the County Supervisor will send the Finance Office a
memorandum which states that the borrower is on active duty and that
interest of not more than 6 percent should accrue on the borrower's
loans, effective as of the date of the memorandum or as of the date of
the last payment, whichever is later, until further notice. If a
borrower's interest rate on any loan is less than 6 percent, the loan
will continue to accrue interest at the lower rate. The assistance under
this section may not be retroactively applied.
(c) As soon as the County Supervisor verifies that a borrower is no
longer on active duty, the County Supervisor will send the Finance
Office a memorandum advising them to terminate the 6 percent interest
rate. The rate will revert to the note rate (or the payment assistance
rate), effective with the next scheduled payment. The 6 percent interest
rate will not be cancelled retroactively.
(d) Additional directions for handling Single Family Housing Loans
are contained in subpart G of part 1951 of this chapter.
[52 FR 26134, July 13, 1987, as amended at 60 FR 55122, Oct. 27, 1995]
PART 1951--SERVICING AND COLLECTIONS--Table of Contents
Subpart A--Account Servicing Policies
Sec.
1951.1 Purpose.
1951.2 Policy.
1951.3 Authorities and responsibilities.
1951.4--1951.5 [Reserved]
[[Page 11]]
1951.6 Handling payments.
1951.7 Accounts of borrowers.
1951.8 Types of payments.
1951.9 Distribution of payments when a borrower owes more than one type
of FmHA or its successor agency under Public Law 103-354 loan.
1951.10 Application of payments on production type loan accounts.
1951.11 Application of payments on real estate accounts.
1951.12 Changes in the application of loan payments.
1951.13 Overpayments and refunds.
1951.14 Recoverable and nonrecoverable cost charges.
1951.15 Return of paid-in-full or satisfied notes to borrower.
1951.16 Other servicing actions on real estate type loan accounts.
1951.17--1951.24 [Reserved]
1951.25 Review of limited resource FO, OL, and SW loans.
1951.26--1951.49 [Reserved]
1951.50 OMB control number.
Exhibits to Subpart A
Exhibit A--Notice to FmHA or its successor agency under Public Law 103-
354 Borrowers
Exhibit B--Notice of Change in Interest Rate
Subpart B--Collections
1951.51 General.
1951.52--1951.53 [Reserved]
1951.54 Authority.
1951.55 Receiving and processing collections.
Subpart C--Offsets of Federal Payments to USDA Agency Borrowers
1951.101 General.
1951.102 Administrative offset.
1951.103--1951.110 [Reserved]
1951.111 Salary offset.
1951.112--1951.120 [Reserved]
1951.121 Internal Revenue Service (IRS) offset.
1951.122 Finance Office screening.
1951.123 Field office screening.
1951.124 Notice to borrowers.
1951.125 Processing borrowers' requests not to exercise IRS offset.
1951.126 Final referral to IRS.
1951.127 Processing of amounts offset.
1951.128 Receipt of Finance Office/IRS offset reports and listings.
1951.129 Borrowers eligible for offset (prior to 60-day notice).
1951.130 Borrowers sent due process notices for IRS/Credit Bureau
referrals.
1951.131 Form FmHA or its successor agency under Public Law 103-354
389-833, Borrower Accounts Submitted to IRS for Offset Report,
RC 865.
1951.132 Form FmHA or its successor agency under Public Law 103-354
389-760, Annual Unprocessable Report IRS Offset, RC 822-C.
1951.133 Form FmHA or its successor agency under Public Law 103-354
389-761, Annual No Match Report IRS Offset, RC 822-D.
1951.134 Form FmHA or its successor agency under Public Law 103-354
389-764, Weekly Offset Report (Cash Collections) IRS Offset,
RC 222-C.
1951.135 Form FmHA or its successor agency under Public Law 103-354
389-763, Weekly Claims Report IRS Offset, RC 222-D.
1951.136--1951.149 [Reserved]
1951.150 OMB control number.
Subpart D--Final Payment on Loans
1951.151 Purpose.
1951.152 Definition.
1951.153 Chattel security or note-only cases.
1951.154 Satisfaction and release of documents.
1951.155 County and/or District Office actions.
1951.156--1951.200 [Reserved]
Subpart E--Servicing of Community and Direct Business Programs Loans and
Grants
1951.201 Purposes.
1951.202 Objectives.
1951.203 Definitions.
1951.204 Nondiscrimination.
1951.205 Redelegation of authority.
1951.206 Forms.
1951.207 State supplements.
1951.208--1951.209 [Reserved]
1951.210 Environmental requirements.
1951.211 Refinancing requirements.
1951.212 Unauthorized financial assistance.
1951.213 Debt settlement.
1951.214 Care, management, and disposal of acquired property.
1951.215 Grants.
1951.216 Nonprogram (NP) loans.
1951.217 Public bodies.
1951.218--1951.219 [Reserved]
1951.220 General servicing actions.
1951.221 Collections, payments, and refunds.
1951.222 Subordination of security.
1951.223 Reamortization.
1951.224 Third party agreements.
1951.225 Liquidation of security.
1951.226 Sale or exchange of security property.
1951.227 Protective advances.
1951.228--1951.229 [Reserved]
1951.230 Transfer of security and assumption of loans.
1951.231 Special provisions applicable to Economic Opportunity (EO)
Cooperative Loans.
1951.232 Water and waste disposal systems which have become part of an
urban area.
[[Page 12]]
1951.233--1951.239 [Reserved]
1951.240 State Director's additional authorizations and guidance.
1951.241 Special provision for interest rate change.
1951.242--1951.249 [Reserved]
1951.250 OMB control number.
Exhibits to Subpart E
Exhibit A--Report on Servicing Action
Exhibit B--Agreement for New Member (With or Without Withdrawing Member)
Exhibit C--Agreement for Withdrawal of Member (Without New Member)
Exhibit D--Items to be Included in Transfer and Assumption Dockets (if
applicable)
Exhibit E--Interest Rate Requirements and Effective Dates
Exhibit F--Instruction to FmHA or its successor agency under Public Law
103-354 Personnel to Implement Public Law 100-233
Exhibit G--Letter to Borrower Notifying of Choice of Interest Rate
Exhibit H--Rescheduling Agreement--Public Bodies
Subpart F--Analyzing Credit Needs and Graduation of Borrowers
1951.251 Purpose.
1951.252 Definitions.
1951.253 Objectives.
1951.254 [Reserved]
1951.255 Nondiscrimination.
1951.256-1951.261 [Reserved]
1951.262 Farm Credit Programs-graduation of borrowers.
1951.263 Graduation on non-Farm Credit programs borrowers.
1951.264 Action when borrower fails to cooperate, respond or graduate.
1951.265 Application for subsequent loan, subordination, or consent to
additional indebtedness from a borrower who has been requested
to graduate.
1951.266 Special requirements for MFH borrowers.
1951.267-1951.299 [Reserved]
1951.300 OMB control number.
Exhibits to Subpart F
Exhibit A [Reserved]
Exhibit B--Suggested Outline for Seeking Information From Lenders on
Credit Criteria for Graduation of Single Family Housing Loans
Subparts G--I [Reserved]
Subpart J--Management and Collection of Nonprogram (NP) Loans
1951.451 General.
1951.452 Policy.
1951.453 [Reserved]
1951.454 Review of adverse decisions.
1951.455 NP loan making for Single Family Housing (SFH) and farm
property (real and chattel).
1951.456 [Reserved]
1951.457 Payments.
1951.458 Servicing real estate taxes.
1951.459 Preservation of security.
1951.460 Release of security property or sale or lease of related
property rights.
1951.461 Release of valueless FmHA or its successor agency under Public
Law 103-354 lien without monetary consideration.
1951.462 Deceased borrower.
1951.463 Transfer of security and assumption of indebtedness.
1951.464--1951.467 [Reserved]
1951.468 Liquidation.
1951.469 Actions after liquidation of property.
1951.470--1951.478 [Reserved]
1951.479 Pilot projects.
1951.480 [Reserved]
1951.481 FmHA or its successor agency under Public Law 103-354
Instructions.
1951.482--1951.500 [Reserved]
Subpart K--Predetermined Amortization Schedule System (PASS) Account
Servicing
1951.501 General.
1951.502 [Reserved]
1951.503 Authorities and responsibilities.
1951.504 Definitions and statements of policy.
1951.505 [Reserved]
1951.506 Processing payments.
1951.507 Maintaining borrower accounts.
1951.508-1951.509 [Reserved]
1951.510 Payment application.
1951.511 [Reserved]
1951.512 Changes in the application of loan payments.
1951.513 Overpayments and refunds to borrowers.
1951.514 Recoverable and non-recoverable cost charges.
1951.515 Promissory notes for borrowers who convert to PASS.
1951.516 [Reserved]
1951.517 Conversion from DIAS to PASS.
1951.518 Determining current loan balances for transfer.
1951.519--1951.547 [Reserved]
1951.548 Exception authority.
1951.549 [Reserved]
1951.550 OMB control number.
Subpart L--Servicing Cases Where Unauthorized Loan or Other Financial
Assistance Was Received--Farmer Programs
1951.551 Purpose.
1951.552 Definitions.
1951.553 Policy.
1951.554--1951.555 [Reserved]
1951.556 Initial determination that unauthorized assistance was
received.
[[Page 13]]
1951.557 Notification to borrower.
1951.558 Decision on servicing actions.
1951.559--1951.560 [Reserved]
1951.561 Servicing options in lieu of liquidation or legal action.
1951.562--1951.567 [Reserved]
1951.568 Account adjustments and reporting requirements.
1951.569 Exception authority.
1951.570--1951.599 [Reserved]
1951.600 OMB control number.
Subpart M [Reserved]
Subpart N--Servicing Cases Where Unauthorized Loan or Other Financial
Assistance Was Received--Multiple Family Housing
1951.651 Purpose.
1951.652 Definitions.
1951.653 Policy.
1951.654 Categories of unauthorized assistance.
1951.655 [Reserved]
1951.656 Initial determination that unauthorized assistance was
received.
1951.657 Notification to recipient.
1951.658 Decision on servicing actions.
1951.659--1951.660 [Reserved]
1951.661 Servicing options in lieu of liquidation or legal action to
collect.
1951.662--1951.667 [Reserved]
1951.668 Servicing unauthorized assistance accounts.
1951.669 Exception authority.
1951.670--1951.699 [Reserved]
1951.700 OMB control number.
Subpart O--Servicing Cases Where Unauthorized Loan(s) or Other Financial
Assistance Was Received--Community and Insured Business Programs
1951.701 Purpose.
1951.702 Definitions.
1951.703 Policy.
1951.704--1951.705 [Reserved]
1951.706 Initial determination that unauthorized assistance was
received.
1951.707 Notification to recipient.
1951.708 Decision on servicing actions.
1951.709--1951.710 [Reserved]
1951.711 Servicing options in lieu of liquidation or legal action to
collect.
1951.712--1951.714 [Reserved]
1951.715 Account adjustments and reporting requirement.
1951.716 Exception authority.
1951.717--1951.749 [Reserved]
1951.750 OMB Control number.
Subparts P-Q--[Reserved]
Subpart R--Rural Development Loan Servicing
1951.851 Introduction.
1951.852 Definitions and abbreviations.
1951.853 Loan purposes for undisbursed RDLF loan funds from HHS.
1951.854 Ineligible assistance purposes.
1951.855--1951.858 [Reserved]
1951.859 Terms of loans.
1951.860 Interest on loans.
1951.861--1951.865 [Reserved]
1951.866 Security.
1951.867 Conflict of interest.
1951.868--1951.870 [Reserved]
1951.871 Post award requirements.
1951.872 Other regulatory requirements.
1951.873--1951.876 [Reserved]
1951.877 Loan agreements.
1951.878--1951.880 [Reserved]
1951.881 Loan servicing.
1951.882 Field visits.
1951.883 Reporting requirements.
1951.884 Non-Federal funds.
1951.885 Loan classifications.
1951.886--1951.888 [Reserved]
1951.889 Transfer and assumption.
1951.890 Office of Inspector General and Office of General Counsel
referrals.
1951.891 Liquidation; default.
1951.892--1951.893 [Reserved]
1951.894 Debt settlement.
1951.895 [Reserved]
1951.896 Appeals.
1951.897 Exception authority.
1951.898--1951.899 [Reserved]
1951.900 OMB control number.
Subpart S--Farmer Program Account Servicing Policies
1951.901 Purpose.
1951.902 General.
1951.903 Authorities and responsibilities.
1951.904 Mediation, reviews and appeals.
1951.905 [Reserved]
1951.906 Definitions.
1951.907 Notice of Loan Service Programs.
1951.908 Servicing financially distressed current borrowers.
1951.909 Processing primary loan service programs requests.
1951.910 Consideration of borrower's other assets for new applications.
1951.911 Homestead protection.
1951.912 Mediation.
1951.913 Servicing Net Recovery Buyout Recapture Agreements.
1951.914 Servicing of accounts restructured under Primary Loan Service
Program.
1951.915 [Reserved]
1951.916 Exception authority.
1951.917--1951.949 [Reserved]
1951.950 OMB control number.
Exhibits to Subpart S
Exhibit A--Notice of the Availability of Loan Servicing and Debt
Settlement
[[Page 14]]
Programs for Delinquent Farm Borrowers
Exhibit B--Notification of Offer to Restructure Debt for Financially
Distressed Borrowers Current on Their Loan Payments
Exhibit C--Net Recovery Buyout Recapture Agreement
Exhibit C-1--Net Recovery Buyout Recapture Agreement
Exhibit D [Reserved]
Exhibit E--Notification of Adverse Decision for Primary Loan Servicing,
Mediation or Meeting of Creditors and Other Options
Exhibit F--Notification of Offer to Restructure Debt
Exhibit G--Deferral, Reamortization, and Reclassification of Distressed
Farmer Program (FP) Loans for Softwood Timber Production (ST)
Loans
Exhibit H--Conservation Contract Program
Exhibit I--Guidelines for Determining Adjustments for Net Recovery Value
of Collateral
Exhibit J--The Debt and Loan Restructuring System (DALR$)
Exhibit J-1--The Debt and Loan Restructuring System (DALR$) (For
applications filed for primary loan servicing on or after
November 28, 1990)
Exhibit K--Notification of Consideration for Homestead Protection
Exhibit L--Homestead Protection Program Agreement
Exhibit M--Notice of the Availability of Homestead Protection
Subpart T--Disaster Set-Aside Program
1951.951 Purpose.
1951.952 General.
1951.953 Notification and request for DSA.
1951.954 Eligibility and loan limitation requirements.
1951.955--1951.956 [Reserved]
1951.957 Eligibility determination and processing.
1951.958 Cancellation and reversal of DSA.
1951.959 Exception authority.
1951.960--1951.999 [Reserved]
1951.1000 OMB control number.
Authority: 5 U.S.C. 301; 7 U.S.C. 1932 Note, 7 U.S.C. 1989, 42
U.S.C. 1480.
Editorial Note: Some of the exhibits referenced in this part 1951
are not published in the Code of Federal Regulations. Exhibits are
available in any FmHA or its successor agency under Public Law 103-354
office.
Subpart A--Account Servicing Policies
Source: 50 FR 45764, Nov. 1. 1985, unless otherwise noted.
Sec. 1951.1 Purpose.
This subpart sets forth the policies and procedures to use in
servicing Farmer Program loans (FP) which include Softwood Timber (ST),
Operating Loan (OL), Farm Ownership (FO), Soil and Water (SW),
Recreation Loan (RL), Emergency Loan (EM), Economic Emergency Loan (EE),
Special Livestock Loan (SL), Economic Opportunity Loan (EO), and Rural
Housing Loan for farm service buildings (RHF) accounts. This subpart
also applies to Rural Rental Housing Loan (RRH), Rural Cooperative
Housing Loan (RCH), Labor Housing Loan (LH), Rural Housing Site Loan
(RHS), and Site Option Loan (SO) accounts not covered under the
Predetermined Amortization Schedule System (PASS). Loans on PASS will be
administered under subpart K of part 1951 of this chapter. Cases
involving unauthorized assistance will be serviced under Subparts L and
N of this part. Cases involving graduation of borrowers to other sources
of credit will be serviced under Subpart F of this part.
[52 FR 26134, July 13, 1987]
Sec. 1951.2 Policy.
Borrowers are expected to pay their debts to the Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) in accordance with their
agreements and ability to pay. They will be encouraged to pay ahead of
schedule, consistent with sound financial management. When borrowers
have acted in good faith and have exercised due diligence in an effort
to pay their indebtedness but cannot pay on schedule because of
circumstances beyond their control, servicing actions will be consistent
with the best interests of the borrower and the Government. It is the
policy of this agency to service borrower loan account without regard to
[[Page 15]]
race, color, religion, sex, marital status, national origin, age,
physical or mental handicap (borrower must possess the capacity to enter
into a legal contract for services).
Sec. 1951.3 Authorities and responsibilities.
County Supervisors and District Directors are responsible for
servicing all FmHA or its successor agency under Public Law 103-354
accounts serviced by the County and District Offices as prescribed by
this subpart under the general guidance and supervision of District
Directors and State Office personnel. Full use will be made of the
County Office Management System in account servicing. For the purposes
of this Subpart, all references to ``County Supervisor'' shall be
construed to mean ``District Director'' for all loans serviced by the
District Office.
Secs. 1951.4--1951.5 [Reserved]
Sec. 1951.6 Handling payments.
(a) Payments on Rural Housing (RH) loans. Payments on RH loans will
be handled in accordance with subparts B and G of this part.
(b) Payments for other than RH, FO and SW loans. These payments will
be handled in accordance with part 1951, subpart B.
(c) Payments for FO and SW loans. (1) Payments made through the
County Office without direct payment coupons for FO and SW loans will be
handled in accordance with part 1951, subpart B.
(2) Payments for FO and SW individual loans made through the County
Office with Form FmHA or its successor agency under Public Law 103-354
370-46A, Expanded Direct Payment Coupon, will be handled as follows:
(i) County Supervisors may put FO and SW individual borrowers on the
Expanded Direct Payment Coupon system if the borrower only needs limited
credit counseling or only makes one annual installment payment per year
on the loan.
(ii) For new loans, the County Supervisor will indicate by checking
the appropriate block on Form FmHA or its successor agency under Public
Law 103-354 1940-1, ``Request For Obligation of Funds,'' that for
selected borrowers Expanded Direct Payment Coupons are to be mailed to
the County Office.
(iii) An existing loan borrower may be put on or taken off this
Expanded Direct Payment Coupon system by filling out Form FmHA or its
successor agency under Public Law 103-354 1951-34, ``Direct Payment Plan
Change,'' in accordance with the Forms Manual Insert (FMI) and entering
it via the field office terminal system.
(iv) Payments must be made by check or money order payable to the
Farmer Home Administration. If a field office is on concentration
banking, the checks and/or money orders are deposited in the
concentrator bank. The coupons are forwarded directly to the Finance
Office in accordance with concentration banking procedures. If a field
office is not on concentration banking, the coupons and checks and/or
money orders are placed in one envelope and mailed to the Finance Office
with any other items being mailed that day.
(v) The Finance Office, upon receipt of the payment coupon and check
or money order, will credit the borrower's account with payment as of
the date the payment is received in the field office.
(vi) When the Finance Office received payment coupon number 10, a
new supply of coupons will be mailed to the County Office. All 12
payment coupons should be used before using the new supply.
(3) Direct payment for FO and SW loans mailed directly to the
Finance Office by the borrower are handled as follows:
(i) The County Supervisor will select the FO and SW borrowers who,
in the Supervisor's opinion, are capable of making direct payments to
the Financing Office. The County Supervisor will not select borrowers
who (A) will need frequent credit counseling, (B) because of the lack of
education or other reasons, are not capable of assuming responsibility
for making payments directly to the Finance Office, or (C) have payments
directly assigned to FmHA or its successor agency under Public Law 103-
354, such as milk assignments. The fact that a borrower does not
maintain a checking account
[[Page 16]]
will not, however, prevent selection for direct payments.
(ii) For new loans the County Supervisor will indicate on Form FmHA
or its successor agency under Public Law 103-354 1940-1 the selected
borrowers by checking the appropriate box. The payment coupon packet
will be forwarded to the County Office at the time the loan is
obligated. It will be delivered to the borrower at loan closing, at
which time the use of the payment coupons will be explained to the
borrower.
(iii) For Assumption Agreements, the packet will be mailed to the
borrower at the time the Assumption Agreement is processed in the
Finance Office.
(iv) The payment coupons and pre-addressed envelopes, together with
instructions on how to use the coupons and a record keeping card, will
be asembled into an envelope in which the borrower may retain the
records. The Form FmHA or its successor agency under Public Law 103-354
370-46, ``Direct Payment Coupon,'' will be numbered 1-12, even though
the borrower may have less or more than 12 payments scheduled during the
year.
(v) The Finance Office, upon receipt of Form FmHA or its successor
agency under Public Law 103-354 370-46 and a check or money order, will
credit the borrower's account with payment as of the date the payment is
received by the Finance Office.
(vi) When the Finance Office receives Form FmHA or its successor
agency under Public Law 103-354 370-46 for payment number 10, a new
supply of Forms FmHA or its successor agency under Public Law 103-354
370-46 will be prepared and mailed to the borrower. All 12 copies of
Form FmHA or its successor agency under Public Law 103-354 370-46 should
be used before using the new supply.
(vii) If a borrower is on direct payment and receives a subsequent
FO or SW loan, the Finance Office will send a set of Form FmHA or its
successor agency under Public Law 103-354 370-46 with ``FO'' or ``SW''
in the loan number block. This indicates the borrower has more than one
loan of the particular type. The borrower will be instructed by the
County Office to send a Form FmHA or its successor agency under Public
Law 103-354 370-46 showing the amount and a check or money order for the
total payment.
(d) County Office handling of direct payment accounts. Form FmHA or
its successor agency under Public Law 103-354 1905-1, ``Management
System Card--Individual,'' and Form FmHA or its successor agency under
Public Law 103-354 1905-1, ``Management System Card--Individual (Rural
Housing only),'' will be used in the County Office Management System
Box. These forms and the transaction records will be maintained as
prescribed in FmHA or its successor agency under Public Law 103-354
Instruction 1905-A (available in any FmHA or its successor agency under
Public Law 103-354 office). In addition, an orange signal will be placed
to the left of Position A on Form FmHA or its successor agency under
Public Law 103-354 1905-1 to denote that the borrower is on the direct
payment system. If a borrower fails to make payments as agreed, or
becomes delinquent in taxes or insurance so that it is necessary for
FmHA or its successor agency under Public Law 103-354 to pay taxes or
insurance by voucher, the County Supervisor may request the Finance
Office to remove the borrower from the direct payment method. If this
decision is made, the County Supervisor will contact the borrower and
collect the remaining supply of Forms FmHA or its successor agency under
Public Law 103-354 370-46 which will be destroyed. The borrower will be
informed that payments after that date should be made to the County
Office. If at a later date the borrower is making payments on schedule,
the County Supervisor may request the Finance Office to put the borrower
back on the direct payment method and provided a new set of Forms FmHA
or its successor agency under Public Law 103-354 370-46. These changes
are made by filling out Form FmHA or its successor agency under Public
Law 103-354 1951-34 in accordance with the FMI and entering it via the
field office terminal system.
(e) Account servicing actions retained by the County Office. For
those borrowers who make direct payments to the Finance Office, the
County Supervisor will continue to handle the following servicing
actions:
[[Page 17]]
(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) Borrowers receiving other type loans. If a borrower is on direct
payment and subsequently receives another type loan, the original loan
may remain on the direct payment system.
(g) Borrowers with RRH, RCH, or LH, loans on a Predetermined
Amortization Schedule System (PASS). Loans or PASS will be administered
under Subpart K of this part.
(h) Borrowers with RRH, RCH, LH, RHS and SO loans administered under
this subpart. RRH, RCH, LH, RHS and SO loans on a daily interest accrual
system (DIAS) for applying payments administered under this subpart are
subject to the direct billing and payment requirements in Sec. 1951.506
of Subpart K of this part. All payments are due on the first day of the
months following the date shown on the promissory note, except loans
with principal and interest bonds issued before May 1, 1985. All
payments are considered delinquent for reporting purposes on the 15th
day of the month following the payment due date if the unpaid portion of
the payment exceeds $15.00.
[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 29175, Aug. 6, 1987; 54
FR 46844, Nov. 8, 1989]
Sec. 1951.7 Accounts of borrowers.
(a) Accounts of active borrowers. The foundation for proper and
timely debt payment is sound farm and home planning or budgeting,
including plans for debt payment, supplemented by effective followup
management assistance. Account servicing, therefore, must begin with
initial planning and must be an integral part of analysis and subsequent
planning, as well as follow-up management assistance.
(b) Accounts of collection-only borrowers. (1) Collection-only
borrowers are expected to pay debts to FmHA or its successor agency
under Public Law 103-354 in accordance with their ability to pay.
Efforts to collect such debts, including use of collection letters and
account servicing visits, must be coordinated with other program
activities. If these borrowers are unable to pay in full, appropriate
debt settlement policies should be promptly applied.
(2) Envelopes addressed to collection-only borrowers will bear the
legend ``DO NOT FORWARD.'' When an envelope is returned indicating the
borrower has moved, appropriate steps will be taken to determine the
borrower's correct address.
(3) Regular County Office employees are generally expected to
service the collection-only caseload when it is of moderate size. State
Directors may assign additional employees to County Offices having large
collection-only caseloads when necessary to service such cases to a
prompt conclusion. State Directors may inform the National Office of the
need for employing special collection personnel in urban areas having
large collection-only caseloads when employees are not available to
assign to such areas.
(4) The following actions will be taken in servicing accounts owed
by collection-only borrowers:
[[Page 18]]
(i) District Directors will review, yearly, all collection-only
cases in each County Office with the County Supervisor as early in each
fiscal year as possible. They will jointly agree on the actions to take
and will complete Form FmHA or its successor agency under Public Law
103-354 451-27, ``Review of Collection-Only Accounts.''
(ii) District Directors will establish with County Supervisors a
systematic plan for collecting the accounts or initiating appropriate
debt settlement actions during the year.
(iii) County Supervisors will include in their monthly calendars
plans for servicing these accounts.
(iv) On visits to County Offices, District Directors will review the
progress being made by County Supervisors to insure that goals will be
reached.
(v) For collection-only accounts in District Offices, the State
Director will review the accounts as required in paragraphs (b)(4)(i)
through (b)(4)(iv) of this section and the District Director will
service the account.
(c) Notifying borrowers of payments. County Supervisors will notify
borrowers of the dates and amounts of payments that have been agreed on
for all types of accounts. Form FmHA or its successor agency under
Public Law 103-354 451-3, ``Reminder of Payment to be Made,'' or similar
form approved by the State Director, will be used. The form will not
contain any language indicating that an account is delinquent. These
notices will be timed to reach borrowers immediately before the receipt
of the income from which the payments should be made or before the
installment due date on the note, as appropriate, and may include other
pertinent information such as a reference to agreements reached during
the year and sources of income from which the payment was planned. Such
notices need not be sent when frequent payments are scheduled and the
borrower customarily makes the payments when due.
(d) Subsequent servicing. (1) When a Farmer Program borrower fails
to make a payment as agreed, the County Supervisor will notify the
borrower in accordance with subpart S of part 1951 of this chapter.
(2) When a borrower other than a Farmer Program borrower fails to
make a payment as agreed, the County Supervisor will contact the
borrower to discuss the reasons why the payment was not made and to
develop specific plans, for making the payment. Form FmHA or its
successor agency under Public Law 103-354 451-32, ``Notice of Payment
Due,'' may be used to notify borrowers who make payments directly to the
Finance Office that their payment has not been received. Form FmHA or
its successor agency under Public Law 103-354 450-13, ``Request for
Assignment of Income From Trust Property,'' may be used when other
methods of loan collection fail and debt repayment is possible from
trust income. In the event the borrower refuses to make the payment when
income is available, or if it is determined that income will not be
available to make the payment within a reasonable length of time and
will not be available to make future payments, action will be taken to
protect the Government's interest in accordance with applicable
regulations. Followup actions of subsequent servicing will be noted on
appropriate Management System Cards.
(e) Maintaining records of accounts in County Offices. Records of
the accounts of FmHA or its successor agency under Public Law 103-354
borrowers will be maintained in the County Office on Forms FmHA or its
successor agency under Public Law 103-354 1905-1, FmHA or its successor
agency under Public Law 103-354 1905-5, FmHA or its successor agency
under Public Law 103-354 1905-10, ``Management System Card-
Association,'' as provided in FmHA or its successor agency under Public
Law 103-354 Instruction 1905-A (available in any FmHA or its successor
agency under Public Law 103-354 office).
(f) Inquiry for Multiple Family Housing (MFH) loans. Inquiry for all
RRH, RCH, LH, RHS and SO loans and grants will be made through field
terminals using procedures in the ``MFH Users Procedures'' manual or by
contacting the MFH Unit in the Finance Office.
(g) Inquiry for other than Multiple Family Housing (MFH) loans.
Inquiry for these loan programs will be made
[[Page 19]]
through field terminals using procedures in the ``Automated Discrepancy
Processing System (ADPS)'' manuals.
(h) Loan Summary Statements. Upon request of a borrower, FmHA or its
successor agency under Public Law 103-354 issues a loan summary
statement that shows the account activity for each loan made or insured
under the Consolidated Farm and Rural Development Act. The field office
will post on the bulletin board a notice informing the borrower of the
availability of the loan summary statement. See Exhibit A for a sample
of the required notice.
(1) The loan summary statement period is from January 1 through
December 31. The Finance Office forwards a copy of Form FmHA or its
successor agency under Public Law 103-354 1951-9, ``Annual Statement of
Loan Account,'' to field offices to be retained in borrower files as a
permanent record of borrower activity for the year.
(2) Quarterly Forms FmHA or its successor agency under Public Law
103-354 1951-9 are retained in the Finance Office on microfiche. These
quarterly statements reflect cumulative data from the beginning of the
current year through the end of the most recent quarter. If a borrower
requests a loan summary statement with data through the most recent
quarter, county supervisors may request copies of these quarterly or
annual statements by sending Form FmHA or its successor agency under
Public Law 103-354 1951-57, ``Request for Loan Summary Statement,'' to
the Finance Office.
(3) When a loan summary statement is requested by the borrower, the
field office will copy the applicable annual or quarterly Forms FmHA or
its successor agency under Public Law 103-354 1951-9. A copy(ies) of
Form FmHA or its successor agency under Public Law 103-354 1951-9; a
copy of Form FmHA or its successor agency under Public Law 103-354 1951-
58, ``Basis for Loan Account Payment Application for Farmer Program
Loans;'' and a copy of the promissory note showing borrower installments
will constitute the loan summary statement provided to the borrower.
[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 11457, Apr. 9, 1987; 53
FR 35716, Sept. 14, 1988; 54 FR 10269, Mar. 13, 1989]
Sec. 1951.8 Types of payments.
(a) Regular payments. Regular payments are all payments other than
extra payments and refunds. Usually, regular payments are derived from
farm income, as defined Sec. 1962.4 of subpart A of part 1962 of this
chapter. Regular payments also include payments derived from sources
such as Agricultural Stabilization and Conservation Service payments
(other than those referred to in paragraph (b) of this section), off-
farm income, inheritances, life insurance, mineral royalties and income
from mineral leases (see Sec. 1965.17 (c) of subpart A of part 1965 of
this chapter), including income from leases or bonuses. Regular payments
in the case of a Section 502 RH loan to an applicant involved in a
mutual self-help project will include loan funds advanced for the
payment of any part of the first and second installments. All payments
to the lock box facility(s) by direct payment borrowers are considered
regular payments.
(b) Extra payments. Extra payments are payments derived from:
(1) Sale of chattels other than chattels which will be sold to
produce farm income or real estate security, including rental or lease
of real estate security of a depreciating or depleting nature.
(2) Refinancing of the real estate debt.
(3) Cash proceeds of real property insurance as provided in subpart
A of part 1806 of this chapter (FmHA or its successor agency under
Public Law 103-354 Instruction 426.1).
(4) A sale of real estate not mortgaged to the Government, pursuant
to a condition of loan approval.
(5) Agricultural Conservation Program payments as provided in
subpart A of part 1941 of this chapter.
(6) Transactions of a similar nature which reduce the value of
security other than chattels which will be sold to produce farm income.
(c) Refunds. Refunds are payments derived from the return of unused
loan or grant funds, except that the term ``refunds'' as used in Form
1940-17, ``Promissory Note,'' will be construed to mean the return of
funds advanced
[[Page 20]]
for capital goods, when a loan is made for operating purposes.
[50 FR 45764, Nov. 1. 1985, as amended at 51 FR 4137, Feb. 3, 1986; 53
FR 35717, Sept. 14, 1988; 58 FR 52646, Oct. 12, 1993]
Sec. 1951.9 Distribution of payments when a borrower owes more than one type of FmHA or its successor agency under Public Law 103-354 loan.
``Distribution'' means dividing a payment into parts according to
the rules set out in this section. This section only applies after the
County Supervisor determines the amount of proceeds that will be
released for other purposes in accordance with the annual plan (Form
FmHA or its successor agency under Public Law 103-354 431-2, ``Farm and
Home Plan'') and Form FmHA or its successor agency under Public Law 103-
354 1962-1, ``Agreement for the Use of Proceeds/Release of Chattel
Security.''
(a) Distribution of regular payments. (1) When a borrower owes more
than one type of FmHA or its successor agency under Public Law 103-354
loan, regular payments received from each crop year's income will be
distributed in accordance with the following priorities:
(i) First, to an amount equal to any advances made by FmHA or its
successor agency under Public Law 103-354 for the crop year's living and
operating expenses. If no advances were made, distribute the payment
according to paragraph (a)(1)(ii) of this section. If the amount of the
payment was greater than the amount of any advances, the excess should
be distributed according to paragraph (a)(1)(ii) of this section.
(ii) Second, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the approximate amounts due on each for the
year. In determining the amounts due for the year, deduct an amount
equal to any advances for the year's living and operating expenses. If
the amount of the payment exceeds the amount of any advances plus the
amount due on each loan for the year, the excess should be distributed
according to paragraph (a)(1)(iii) of this section.
(iii) Third, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the delinquencies existing on each. If the
amount of the payment exceeds the amount of any advances plus the amount
due on each loan for the year plus any delinquencies, the excess should
be distributed according to paragraph (a)(1)(iv) of this section.
(iv) Fourth, as advance payments on FmHA or its successor agency
under Public Law 103-354 loans. In making such distribution consider the
principal balance outstanding on each loan, the security position of the
liens securing each loan, the borrower's request, and related
circumstances.
(2) When the County Supervisor determines it is reasonable to expect
that the income which will be available for payment on FmHA or its
successor agency under Public Law 103-354 debts will be sufficient to
pay the installments scheduled for the year under the first and second
priorities, collections may be distributed so as to avoid unnecessary
delinquencies, and regular payments derived from rental or lease of real
estate security after approval of foreclosure or voluntary conveyance
will be distributed to the real estate lien of the highest priority.
(3) Payments will be distributed differently than the priorities
provided in this section if accounts are out of balance or a different
distribution is needed to protect the government's interest.
(4) Any income received from the sale of softwood timber on marginal
land converted to the production of softwood timber must be applied on
the ST loan(s).
(b) Distribution of extra payments. Extra payments will be
distributed first to the FmHA or its successor agency under Public Law
103-354 loan having highest priority of lien on the security from which
the payment was derived. When the payment is in excess of the unpaid
balance of the FmHA or its successor agency under Public Law 103-354
lien having the highest priority, the balance of such payment will be
distributed to the FmHA or its successor agency under Public Law 103-354
loan having the next highest priority.
(c) Application of payments. After the decision is reached as to the
amount of each payment that is to be distributed to the different loan
types, application
[[Page 21]]
of the payment will be governed by Secs. 1951.10 or 1951.11 of this
subpart as appropriate.
[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 26134, July 13, 1987; 53
FR 35717, Sept. 14, 1988]
Sec. 1951.10 Application of payments on production type loan accounts.
Employees receiving payments on OL, EO, SW codes ``24,'' EM for
subtitle B purposes, EE operating-type, and other production-type loan
accounts will select, in accordance with the provisions of this section,
the account(s) to which such payment will be applied. All payments on OL
and EM loans approved on or before December 31, 1971, will be credited
first to any administrative costs, then to noncapitalized interest, then
to the amount of accrued deferred interest, and then to principal. All
payments on all other loans including OL and EM loans approved after
December 31, 1971, will be credited first to any administrative costs,
then to noncapitalized interest, then to the amount of accrued deferred
interest, then to interest accrued to the date of the payment and then
to principal, in accordance with the terms of the note. This section
only applies after the County Supervisor determines the amount of
proceeds that will be released for other purposes in accordance with the
annual plan (Form FmHA or its successor agency under Public Law 103-354
431-2) and Form FmHA or its successor agency under Public Law 103-354
1962-1.
(a) Rules for selection of accounts. The following rules will govern
the selection of accounts and installments to which payments will be
applied. As used in this section, ``recoverable costs'' are those which
the loan agreement documents say the borrower is primarily responsible
for paying and which the government can charge to the borrower's
account.
(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,
[[Page 22]]
such payments generally will be applied in the following order:
(i) To accounts with small balances, including recoverable costs.
(ii) To accounts with the oldest unsecured note(s).
(iii) To accounts with the oldest delinquencies.
(iv) To accounts with the oldest secured note or notes.
(6) Employees receiving collections are authorized to make
exceptions to paragraphs (a)(1), (2), and (6) of this section when it is
necessary to apply a part of a payment to delinquent accounts to prevent
the Federal Statute of Limitations from being asserted as a defense in
suits on FmHA or its successor agency under Public Law 103-354 claims.
(b) Payments in full. Errors of a significant amount in computation
or collection will be called to the attention of the collection official
by the Finance Office. The borrower's note will not be returned until
the balance on the loan account is paid in full. Claims by or on behalf
of the borrowers that the amounts owed have been computed incorrectly
will be referred to the Finance Office.
[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988;
54 FR 46844, Nov. 8, 1989; 57 FR 18680, Apr. 30, 1992]
Sec. 1951.11 Application of payments on real estate accounts.
(a) Regular payments. If a borrower owes more than one type of real
estate loan, or has received initial and subsequent real estate loans on
which separate accounts are maintained, payments on such accounts should
be applied so as to maintain the note accounts approximately in balance
at the end of the year with respect to installments due on the notes,
other charges, and delinquencies.
(b) Refunds and extra payments. (1) Refunds will be applied to the
note representing the loan from which the advance was made.
(2) Extra payments will be applied to the note secured by the
earliest mortgage on the property from which the extra payment was
obtained.
(3) Funds remaining from an RH grant or a combination loan and
grant, after completion of development, will be refunded. If the
borrower received a combination loan and grant, the remaining funds up
to the amount of the grant are considered to be grant funds.
(c) County Office actions. (1) The collecting official will complete
Form FmHA or its successor agency under Public Law 103-354 451-1,
``Acknowledgment of Cash Payment,'' in accordance with the FMI when cash
or money orders are received as a payment.
(2) The collection official will complete Form FmHA or its successor
agency under Public Law 103-354 451-2, ``Schedule of Remittances,'' in
accordance with the FMI.
(d) Finance Office handling. (1) Regular payment will be handled as
follows.
(i) Payments will be applied first to satisfy any administrative
costs such as a charge for an uncollectible check. (The amounts of any
such charges are available from any FmHA or its successor agency under
Public Law 103-354 office.)
(ii) Amounts paid on direct loan accounts will be credited to the
borrower's account as of the date of Form FmHA or its successor agency
under Public Law 103-354 451-2 or for direct payments the date payment
is received in the Finance Office, and will be applied first to a
portion of any interest which accrues during the deferral period, second
to interest accrued to the date received and third to principal, in
accordance with the terms of the note.
(iii) Amounts paid on insured loan accounts will be credited to the
borrower's account as of the date of Form FmHA or its successor agency
under Public Law 103-354 451-2 or for direct payments the date payment
is received in the Finance Office, and will be applied in the following
order:
(A) Advances from the insurance funds as shown on the latest Form
FmHA or its successor agency under Public Law 103-354 389-404,
``Analysis of Accounts Maturing.'' (If the collection is intended for
final payment of the loan, or to pay the insurance account in connection
with an assumption agreement, the collection will be applied first to
the interest accrued on the advance to the date of the payment.)
(B) Principal advanced from the insurance fund.
[[Page 23]]
(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.
[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 46845, Nov. 8, 1989]
Sec. 1951.12 Changes in the application of loan payments.
(a) Authority to change payments. County Supervisors and Assistant
County Supervisors are hereby authorized to approve requests for changes
in the application of payments between loan accounts when payments have
been applied in error and such requests conform to the policies
expressed in this Subpart. However, no change will be made if the
payment applied in error resulted in the payment in full of any FmHA or
its successor agency under Public Law 103-354 loan and the canceled note
or notes have been returned to the borrower.
(b) Form FmHA or its successor agency under Public Law 103-354 1951-
7, ``Request for Change in Application.'' Requests for changes in
application of payments will be made on Form FmHA or its successor
agency under Public Law 103-354 1951-7. For requests which County
Supervisors or Assistant County Supervisors are authorized to approve,
the County Supervisor or Assistant County Supervisor will sign the
original of Form FmHA or its successor agency under Public Law 103-354
1951-7 and forward it to the Finance Office. The Finance Office will
send Form FmHA or its successor agency under Public Law 103-354 451-26
to the County Office when the change is made on Finance Office records.
(c) Changes by the Finance Office in application of remittances. (1)
When reapplication of collection is made by the Finance Office Form FmHA
or its successor agency under Public Law 103-354 451-8, ``Journal
Voucher for Loan Account Adjustments,'' will be prepared. Form FmHA or
its successor agency under Public Law 103-354 451-26 will be forwarded
to the County Office to show the reapplication.
(2) When necessary, the Finance Office will correct Form FmHA or its
successor agency under Public Law 103-354 451-2 as prepared by the
County Office.
[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 18883, May 3, 1989]
Sec. 1951.13 Overpayments and refunds.
(a) The Finance Office will mail any overpayment refund check to the
County Supervisor, who will verify that the refund is due before
delivering the check.
[[Page 24]]
(b) Borrower requests for overpayment refunds must be in writing.
Borrowers will be discouraged from requesting refunds when the County
Office records show that a refund is not due, however, the County
Supervisor will forward any request to the Finance Office. Finance
Office computations will control in determining the amount of any
refund.
(c) Underpayments or overpayments of less than $10 will not be
collected or refunded (except as provided in paragraph (b) of this
section) since the expense of processing the action would be more than
the amount involved.
Sec. 1951.14 Recoverable and nonrecoverable cost charges.
(a) The County Supervisor will:
(1) Prepare vouchers for recoverable and nonrecoverable cost charges
according to the applicable instruction for the type of advance being
made. (``Recoverable costs'' is defined in Sec. 1951.10(a) of this
subpart).
(2) If a recoverable cost, show on the voucher the fund code to
which the advance is to be charged.
(3) If the cost item relates to security for more than one type of
account, show the code for the loan secured by the earliest promissory
note (if lien secures more than one note).
(b) The Finance Office will forward Form FmHA or its successor
agency under Public Law 103-354 451-26, to the County Office when the
recoverable cost charge is processed.
Sec. 1951.15 Return of paid-in-full or satisfied notes to borrower.
(a) Notes not held in County Office. When the original of the note
is not held in the County Office the County Supervisor will request the
Finance Office to acquire and forward the note to the County Office.
(b) Return of notes after collection. When a note (or loan-type
account) evidencing an OL, EM, EE, EO, special livestock (SL), SW loan
coded ``24'', or other production-type loan has been satisfied by
payment in full, the County Supervisor will examine the borrower's
records in the County Office and determine that the account has been
satisfied before delivering the note to the borrower (See Sec. 1962.27
of subpart A of part 1962 on the satisfaction of chattel security
instruments). The note(s) will be returned to the borrower immediately
except that:
(1) When the final payment is made in a form other than currency and
coin, Treasury check, cashier's check, certified check, Postal or bank
money order, bank draft, or a check issued by a responsible lending
institution or a responsible title insurance or title and trust company,
the note or notes will not be surrendered until 30 days after the date
of final payment, and
(2) When notes are needed in making marginal releases or
satisfactions or security instruments, the notes will be held until the
instruments are satisfied.
(c) Surrender of notes to effect collection. (1) County Supervisors
are authorized to surrender notes to borrowers when final payment of the
amount due is made in the form of currency and coin, Treasury check,
cashier's check, certified check, Postal or bank money order, bank
draft, or a check issued by a responsible lending institution or a
responsible title insurance or title trust company.
(2) The amount due on the note(s) to be surrendered will be
confirmed with the Finance Office. County Supervisors will request the
original note(s) from the Finance Office if it is not in the County
Office.
(d) Return of notes reduced to judgment. Notes which have been
reduced to judgment are a part of the court records and ordinarily
cannot be withdrawn and returned to the borrower even after satisfaction
of the judgment. Therefore, no effort will be made to obtain and return
such notes except on the written request of the judgment debtor or
debtor's attorney. Such requests will be referred to the Office of the
General Counsel (OGC).
(e) Debt settlement case. See subparts B or C of part 1956 of this
chapter for the handling of notes in debt settlement cases.
(f) Lost notes. (1) All promissory notes dated on or after 11-1-73
are held in the County Office. A few notes (with the exception of OL
notes) are still held by investors. If a note dated prior to 11-1-73
cannot be located in the County Office and it is needed for servicing
the
[[Page 25]]
case, the County Supervisor will write a memorandum to the Finance
Office explaining why the note is needed. The request should give the
name and case number of the borrower, date and original amount of the
loan, type of loan and loan code.
(2) If a promissory note is lost in the County Office and it is
needed for servicing a case, the State Director may authorize the County
Supervisor to execute an appropriate affidavit regarding the lost note.
The form of such an affidavit will be provided by OGC.
[50 FR 45764, Nov. 1, 1985, as amended at 51 FR 45432, Dec. 18, 1986; 53
FR 13100, Apr. 21, 1988; 56 FR 10147, Mar. 11, 1991]
Sec. 1951.16 Other servicing actions on real estate type loan accounts.
(a) Installment on note and other charges--(1) Direct loan accounts.
For a borrower with a direct loan, the term ``installation on note and
other charges,'' as used in this Subpart, will be the sum of the
following:
(i) Annual installment for the year as provided in the promissory
note(s).
(ii) Any recoverable cost charges paid for the borrower during the
year. (``Recoverable costs'' is defined in Sec. 1951.10(a) of this
Subpart.)
(2) Insured loan accounts. ``Loan insurance charge'' means a
separate insurance charge applying to FO and SW insured loans evidenced
by promissory note forms bearing a form date before January 8, 1959. For
all insured loans evidenced by note forms bearing a form date of January
8, 1959, or later, the insurance charge is called ``annual charge'' and
is included in the interest position of the annual installment in the
note. For a borrower with an insured loan, the term ``Installment on
note and other charge'' means the sum of the following:
(i) Annual installment for the year as provided in the promissory
note.
(ii) Amounts owed the Agricultural Credit Insurance Fund. These
amounts are covered by the general term ``Insurance Account'' and
consist of the following:
(A) Unpaid loan insurance charges from prior years.
(B) Loan insurance charge for the current year. The loan insurance
charge is computed on the basis of the amount of the unpaid principal
obligation as of the installment due date and is due and payable on or
before the next installment due date.
(C) Any unpaid balance on advances from the insurance fund,
including any recoverable cost charges paid for the borrower during the
year.
(D) Any accrued interest on advances from the insurance fund.
(iii) The amounts owned on the insurance account must be paid by
regular payments each year whether or not the note account is ahead of
schedule.
(b) Schedule status. For direct and insured loans, a borrower will
be on schedule when the sum of regular payments through the last
preceding due date of the note equals the sum of installments on the
note and other charges due through the same date. Such a borrower will
be ahead of schedule or behind schedule when the sum of such regular
payments is larger or smaller, respectively, than the sum of such
installments on the note and other charges.
(c) Real estate payments. A borrower may make regular payments ahead
of schedule at any time and use them later to forego payments or to
supplement the amount available during any year for payment on the
annual installment on the note and other charges. Refunds and extra
payments will not be used in this way.
Secs. 1951.17--1951.24 [Reserved]
Sec. 1951.25 Review of limited resource FO, OL, and SW loans.
(a) Frequency of reviews. OL, FO, and SW loans will be reviewed each
year at the time the analysis is conducted in accordance with subpart B
of part 1924 of this chapter and any time a servicing action such as
consolidation, rescheduling, reamortization or deferral is taken. The
interest rate may not be changed more often than quarterly.
(b) Method of review. (1) Each loan will be considered on its own
merit.
(2) The County Supervisor should consider:
(i) The borrower's income and repayment record during the preceding
years;
(ii) The projections shown on the most recent Farm and Home Plan or
[[Page 26]]
other similar plan or operation acceptable to FmHA or its successor
agency under Public Law 103-354, in light of the previous year's
projected figures and actual figures; (See subpart B of part 1924 of
this chapter)
(iii) Whether improved production practices have been or need to be
implemented;
(iv) The borrower's progress as a farmer; and
(v) All other factors which the County Supervisor believes should be
considered.
(3) The Farm and Home Plan projections for the coming year must show
that the ``balance available to pay debts'' exceeds the amount needed to
pay debts by at least 10 percent before an increase in interest rate is
put into effect. Borrowers that continually purchase unplanned items
without the County Supervisor's approval will have the interest rate on
their loans increased to the current rate for that loan type. Borrowers
that fail to provide the County Supervisor with the information needed
to conduct the analysis required in subpart B of part 1924 of this
chapter will have their interest rate on their loan increased to the
current rate for the OL, FO, or SW loan as applicable. The rate may
increase in increments of whole numbers to the current regular interest
rate for borrowers. In the borrower's case file, the County Supervisor
must document the unplanned purchases and the failure to provide
information in a timely manner. The County Supervisor must write the
borrower a letter which sets out the facts documented in the case file
and advises the borrower that the interest rate will be increased unless
the unplanned purchases cease or unless the borrower provides
information in a timely manner. Whenever it appears that the borrower
has a substantial increase in income and repayment ability or ceases
farming, either the interest rate may be increased to the current rate
for FO, OL or SW loans, as applicable, or the borrower will be graduated
from the program as provided in subpart F of this part.
(4) The County Office will be responsible for scheduling and
completing the reviews.
(5) Borrowers who have received a deferral under Subpart S of this
part will not have the interest rate increased on their limited resource
loans during the deferral period.
(c) Processing. (1) If, after the review, the interest rate is to
remain the same, no further action needs to be taken.
(2) When the interest rate is increased to the current rate, the
loan will be recorded as a regular loan and will no longer be considered
a limited resource loan. The borrower must be notified in writing at
least 30 days prior to the date of the change. Exhibit B of this subpart
may be used as a guide. The effective date of the change in interest
rate will be the effective date on Exhibit B. The borrower must be
informed of the following for each loan:
(i) The authorization for the change,
(ii) Reason for change (repayment ability, etc.),
(iii) The effective date and rate of the increase in interest,
(iv) Amount of the new installments and dates due,
(v) Right to appeal.
(3) It is not necessary to obtain a new promissory note for this
change in interest rate.
[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988;
56 FR 3395, Jan. 30, 1991; 58 FR 15074, Mar. 19, 1993]
Secs. 1951.26--1951.49 [Reserved]
Sec. 1951.50 OMB control number.
The collection of information requirements in Subpart A of part 1951
have been approved by the Office of Management and Budget and assigned
OMB control number 0575-0075.
[52 FR 26137, July 13, 1987]
Exhibits to Subpart A
Exhibit A--Notice to FmHA or its successor agency under Public Law 103-
354 Borrowers
FmHA or its successor agency under Public Law 103-354 borrowers with
farmer program and community program loan types made under the
Consolidated Farm and Rural Development Act may request a loan summary
statement which shows the calendar year account activity for each loan.
Interested borrowers may request these statements through their local
FmHA or its
[[Page 27]]
successor agency under Public Law 103-354 office.
[54 FR 10270, Mar. 13, 1989]
Exhibit B--Notice of Change in Interest Rate
(insert date)
Notice of Change in Interest Rate
_______________________________________________________________________
(insert borrower's address)
Re: {time} {time}
Fund code
{time} {time}
Loan number
{time} {time}
Kind code
Dear (insert borrower's name and case number): Your promissory note
dated ______, for the original amount of ______ dollars ($______)
provides for a change in interest rate for a limited resource loan in
accordance with the Farmers Home Administration or its successor agency
under Public Law 103-354 regulations.
Effective (insert date) the interest rate on this loan will be ____
percent ( %) on the unpaid principal balance. Your installment due
January 1, 19 , will be ______ dollars ($______). This change in
interest rate is for the reason indicated below.
{time} Increase in repayment ability as per Farm and Home Plan
dated ______.
{time} (insert reason if other than above for increase in interest
rate).
You may appeal this action by writing to (hearing officer),
(address), within 30 calendar days of the date of this letter, giving
the reason why you believe this matter should be decided differently.
This time may be extended if you cannot notify the hearing officer
within 30 days for reasons beyond your control.
[56 FR 3396, Jan. 30, 1991]
Subpart B--Collections
Source: 53 FR 26591, July 14, 1988, unless otherwise noted.
Sec. 1951.51 General.
This subpart prescribes the policies and procedures of the Farmers
Home Administration or its successor agency under Public Law 103-354
(FmHA or its successor agency under Public Law 103-354) for collection
of loan payments and depositing payments through the Concentration
Banking System (CBS). Under CBA, FmHA or its successor agency under
Public Law 103-354 field offices select a local financial institution to
maintain a Treasury Limited Account (TLA) for depositing FmHA or its
successor agency under Public Law 103-354 loan collections. Deposits to
these accounts are withdrawn daily by the concentrator bank for transfer
to the Treasury. Under these procedures, the local FmHA or its successor
agency under Public Law 103-354 office will deposit the daily office
collections in a participating local financial institution and report
the amount deposited to a data service facility that is under contract
to the concentrator bank. The data service facility will inform the
concentrator bank of the amount available in each local financial
institution and the concentrator bank will use this information to
transfer the funds to the concentrator bank and then to the Treasury.
Secs. 1951.52--1951.53 [Reserved]
Sec. 1951.54 Authority.
The provisions of this subpart are applicable to FmHA or its
successor agency under Public Law 103-354 employees who are authorized
to receive collections. Employees listed in Exhibit B of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office) are hereby authorized to receive, receipt for, exchange for
money orders or bank drafts, and transmit collections or deposit
collections in a TLA.
Sec. 1951.55 Receiving and processing collections.
FmHA or its successor agency under Public Law 103-354 offices
receive borrower payments either through the mail or in person in the
form of checks, money orders, and cash. Payments are recorded on the
appropriate accounting forms which are Form FmHA or its successor agency
under Public Law 103-354 451-2, Form FmHA or its successor agency under
Public Law 103-354 1944-9, Form FmHA or its successor agency under
Public Law 103-354 1951-55, or a payment coupon. Forms FmHA or its
successor agency under Public Law 103-354 451-2 and FmHA or its
successor agency under Public Law 103-354 1944-9 are used to transmit
accounting information to the Finance Office. Form
[[Page 28]]
FmHA or its successor agency under Public Law 103-354 1951-55 is used to
assemble payment information which the District Offices use to transmit
MFH account information through field office terminals. In addition, the
FmHA or its successor agency under Public Law 103-354 office records
payments on a management system card, a servicing card, or a payment
tracking form, as appropriate.
[56 FR 28038, June 19, 1991]
Subpart C--Offsets of Federal Payments to USDA Agency Borrowers
Sec. 1951.101 General.
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 Sec. 1951.102 of this subpart. This subpart does not
apply to direct single family housing loans.
[62 FR 41798, Aug. 1, 1997]
Sec. 1951.102 Administrative offset.
Action to effect administrative offset to recover delinquent claims
may be taken in accordance with the procedures in 7 CFR part 3, subpart
B.
[62 FR 41799, Aug. 1, 1997]
Secs. 1951.103--1951.110 [Reserved]
Sec. 1951.111 Salary offset.
Salary offset may be used to collect debts arising from delinquent
USDA Agency loans and other debts which arise through such activities as
theft, embezzlement, fraud, salary overpayments, under withholding of
amounts payable for life and health insurance, and any amount owed by
former employees from loss of federal funds through negligence and other
matters. Salary offset may also be used by other Federal agencies to
collect 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.
[[Page 29]]
(a) Authorities. The following authorities are granted to USDA
Agency employees in order that they may initiate and implement salary
offset:
(1) Certifying Officials are authorized to certify to the debtor's
employing agency that the debt exists, the amount of the delinquency or
debt, that the procedures in USDA Agency and United States Department of
Agriculture's (USDA's) regulations regarding salary offsets have been
followed, that the actions required by the Debt Collection Act have been
taken; and to request that salary offset be initiated by the debtor's
employing agency. This authority may not be redelegated.
(2) Certifying Officials are authorized to advise the Finance Office
to establish employee defalcation accounts and non-cash credits to
borrower accounts in cases involving other debts, such as those arising
from theft, fraud, embezzlement, loss of funds through negligence, and
similar actions involving USDA Agency employees.
(3) The Finance Office is authorized to establish defalcation
accounts and non-cash credits to borrower accounts upon receipt of
requests from the Certifying Officials.
(b) Definitions--(1) Certifying Officials. State Directors; State
Executive Directors; the Assistant Administrator, Finance Office; and
the Deputy Administrator for Management, National Office.
(2) Debt or debts. A term that refers to one or both of the
following:
(i) Delinquent debts. A past due amount owed to the United States
from sources which include, but are not limited to, insured or
guaranteed loans, fees, leases, rents, royalties, services, sales of
real or personal property, overpayments, penalties, damages, interest,
fines and forfeitures (except those arising under the Uniform Code of
Military Justice).
(ii) Other debts. An amount owed to the United States by an employee
for pecuniary losses where the employee has been determined to be liable
due to the employee's negligent, willful, unauthorized or illegal acts,
including but not limited to:
(A) Theft, misuse, or loss of Government funds;
(B) False claims for services and travel;
(C) Illegal, unauthorized obligations and expenditures of Government
appropriations;
(D) Using or authorizing the use of Government owned or leased
equipment, facilities supplies, and services for other than official or
approved purposes;
(E) Lost, stolen, damaged, or destroyed Government property;
(F) Erroneous entries on accounting record or reports; and,
(G) Deliberate failure to provide physical security and control
procedures for accountable officers, if such failure is determined to be
the proximate cause for a loss of Government funds.
(3) Defalcation account. An account established in the Finance
Office for other debts owed the Federal government in the amount missing
due to the action of an employee or former employee.
(4) Disposable pay. Pay due an employee that remains after required
deductions for Federal, State and local income taxes; Social Security
taxes, including Medicare taxes; Federal retirement programs; premiums
for life and health insurance benefits, and such other deductions
required by law to be withheld.
(5) Hearing Officer. An Administrative Law Judge of the USDA or
another individual not under the supervision or control of the USDA,
designated by the Certifying Official to review the determination of the
alleged debt.
(6) Non-cash credit. The accounting action taken by the Finance
Office to credit and make a borrower's account whole for funds paid by
the borrower but missing due to an employee's or former employee's
actions.
(7) Salary Offset. The collection of a debt due to the U.S. by
deducting a portion of the disposable pay of a Federal employee without
the employee's consent.
(c) Feasibility of salary offset. The first step the Certifying
Official must take to use this offset procedure is to decide, on a case
by case basis, whether offset is feasible. If an offset is feasible, the
directions in the following paragraphs of this section will be used to
[[Page 30]]
collect by salary offset. If the official making this determination
decides that salary offset is not feasible, the reasons supporting this
decision will be documented in the borrower's running case record in the
case of delinquent debts, or the ``For Official Use Only'' file in cases
of other debts. Ordinarily, and where possible, debts should be
collected in one lump-sum; but payments may be made in installments.
Installment deductions can be made over a period not greater than the
anticipated period of employment. However, the amount deducted for a pay
period will not exceed 15 percent of the disposable pay from which the
deduction is made. If possible, the installment payment will be
sufficient in size and frequency to liquidate the debt in approximately
3 years. Based on the Comptroller General's decisions, other debts by
employees cannot be forgiven. If the employee retires or resigns, or if
employment ends before collection of the debt is completed, final salary
payment, lump-sum leave, etc. may be offset to the extent necessary to
liquidate the debt. Salary offset is feasible if:
(1) The cost to the Government of collecting salary offset does not
exceed the amount of the debt. County Committee members are exempt from
salary offset because the amount collected by salary offset would be so
small as to be impractical.
(2) There are not any legal restrictions to the debt, such as the
debtor being under the jurisdiction of a bankruptcy court, or the
statute of limitations having expired. The Debt Collection Act of 1982
permits offset of claims that have not been outstanding for more than 10
years.
(d) Notice to debtor. (1) After the Certifying Official determines
that collection by salary offset is feasible, FmHA or its successor
agency under Public Law 103-354 Guide Letter 1951-C-4 should be sent
within 15 calendar days after that determination. This Guide Letter will
notify the debtor of intended salary offset at least 30 days before the
salary offset begins. FmHA or its successor agency under Public Law 103-
354 Guide Letter 1951-C-4 will be personally delivered to the debtor or
sent certified mail, Return Receipt Requested, with a copy sent by
regular mail on the same day. If the certified mail receipt is returned,
the date the debtor received the letter will be established and the time
limits set out in FmHA or its successor agency under Public Law 103-354
Guide Letter 1951-C-4 will run from that date. If delivery by certified
mail is not accomplished, FmHA or its successor agency under Public Law
103-354 will assume that the debtor received the letter by regular mail
on the day the certified mail was refused or was unable to be delivered.
(2) The Debt Collection Act of 1982 requires that the hearing
officer issue a written decision not later than 60 days after the filing
of the petition requesting the hearing; thus, the evidence upon which
the decision to notify the debtor is based, to the extent possible,
should be sufficient for FmHA or its successor agency under Public Law
103-354 to proceed at a hearing, should the debtor request a hearing
under paragraph (f) of this section.
(e) Notice requirement before salary offset. Salary offset will not
be made unless the employee receives 30 calendar days written notice.
This Notice of Intent (FmHA or its successor agency under Public Law
103-354 Guide Letter 1951-C-4) will be addressed to the debtor or the
debtor's representative. The Notice of Intent must be modified if it is
addressed to the debtor's representative. In either case, the Notice of
Intent will state:
(1) It has been determined that the debt is owed, the amount of the
debt, and the facts giving rise to the debt;
(2) The cost to the Government of collecting salary offset does not
exceed the amount of the debt;
(3) There are not any legal restrictions that would bar collecting
the debt;
(4) The debt will be collected by means of deduction of not more
than 15 percent from the employee's current disposable pay until the
debt and all accumulated interest are paid in full;
(5) The amount, frequency, approximate beginning date, and duration
of the intended deductions;
(6) An explanation of the requirements concerning interest,
penalties and administrative costs, unless such payments are waived;
[[Page 31]]
(7) The employee's right to inspect and request a copy of records
relating to the debt;
(8) The employee's right to voluntarily enter into a written
agreement for a repayment schedule with the agency different from that
proposed by FmHA or its successor agency under Public Law 103-354, if
the terms of the repayment proposed by the employee are agreeable with
the agency;
(9) That the employee has a right to a hearing conducted by an
Administrative Law Judge of USDA or a hearing official not under the
supervision or control of the Secretary of Agriculture, concerning the
agency's determination of the existence or amount of the debt and the
percentage of disposable pay to be deducted each pay period, if a
petition for a hearing is filed by the employee as prescribed by FmHA or
its successor agency under Public Law 103-354;
(10) The timely filing of a petition for hearing will stay the
collection proceedings;
(11) That a final decision will be issued at the earliest practical
date, but not later than 60 calendar days after the filing of petition
requesting the hearing;
(12) That any knowingly false or frivolous statements may subject
the employee to disciplinary procedures, or penalties, under the
applicable statutory authority;
(13) Any other rights and remedies available to the employee under
statutes or regulations governing the program for which the collection
is being made;
(14) That amounts paid on or deducted for the debt which are later
waived or found not owed to the United States will be promptly refunded
to the employee unless there are provisions to the contrary;
(15) The method and time period for requesting a hearing; and
(16) The name and address of an official of USDA to whom
communications should be directed.
(f) Debtor's request for records, offer to repay, request for a
hearing or request for information concerning debt settlement.
(1) If a debtor responds to FmHA or its successor agency under
Public Law 103-354 Guide Letter 1951-C-4 by asking to review and copy
FmHA or its successor agency under Public Law 103-354's records relating
to the debt, the Certifying Official will promptly respond by sending a
letter which tells the debtor the location of the debtor's FmHA or its
successor agency under Public Law 103-354 files and that the files may
be reviewed and copied within the next 30 days. Copying costs (see
subpart F of part 2018 of this Chapter) will be set out in the letter,
as well as the hours the files will be available each day. If a debtor
asks to have FmHA or its successor agency under Public Law 103-354 copy
the records, a copy will be made within 30 days of the request.
(2) If a debtor responds to FmHA or its successor agency under
Public Law 103-354 Guide Letter 1951-C-4 by offering to repay the debt,
the offer may be accepted by the Certifying Official, if it would be in
the best interest of the government. FmHA or its successor agency under
Public Law 103-354 Form Letter 1951-8 will be used if a repayment offer
for an FmHA or its successor agency under Public Law 103-354 loan or
grant is accepted. Upon receipt of an offer to repay, the Certifying
Official will delay institution of a hearing until a decision is made on
the repayment offer. Within 60 days after the initial offer to repay was
made, the Certifying Official must decide whether to accept or reject
the offer. This decision will be documented in the running case record
or the ``For Official Use Only'' file, as appropriate, and the debtor
will be sent a letter which sets out the decision to accept or reject
the offer to repay. The decision to accept or reject a repayment offer
should be based upon a realistic budget or farm and home plan and
according to the servicing regulations for the type of loan(s) involved.
(3) If a debtor responds to FmHA or its successor agency under
Public Law 103-354 Guide Letter 1951-C-4 by asking for a hearing on FmHA
or its successor agency under Public Law 103-354's determination that a
debt exists and/or is due, or on the percentage of net pay to be
deducted each pay period, the Certifying Official will notify the debtor
in accordance with paragraph (g)(3) of this section and request the
debtor's
[[Page 32]]
case file or the ``For Official Use Only'' file.
(4) If a debtor is willing to have more than 15 percent of the
disposable pay sent to FmHA or its successor agency under Public Law
103-354, a letter prepared and signed by the debtor clearly stating this
must be placed in the debtor's case file or the ``For Official Use
Only'' file.
(5) If a debtor who is an FmHA or its successor agency under Public
Law 103-354 borrower requests debt settlement, the account must be in
collection-only status or be an inactive account for which there is no
security. The Certifying Official must inform the borrower of how to
apply for debt settlement. Any application will be considered
independently of the salary offset. A salary offset should not be
delayed because the borrower applied for debt settlement.
(6) The time limits set in FmHA or its successor agency under Public
Law 103-354 Guide Letter 1951-C-4 and in paragraphs (f) (1), (2), and
(3) of this section run concurrently. In other words, if a debtor asks
to review the FmHA or its successor agency under Public Law 103-354 file
and offers to repay the debt, the debtor cannot take 30 days to ask to
review the file and then take another 30 days to offer to repay. The
request to review the file and the offer to repay must both be made
within 30 days of the date the debtor receives the notification letter.
(7) If an employee is included in a bargaining unit which has a
negotiated grievance procedure that does not specifically exclude salary
offset proceedings, the employee must grieve the matter in accordance
with the negotiated procedure. Employees who are not covered by a
negotiated procedure must utilize the salary offset proceedings as
outlined in FmHA or its successor agency under Public Law 103-354 Guide
Letter 1951-C-4. The employee must be informed, in writing, which
procedure to follow and, as appropriate, reference should be made to the
appropriate sections of the negotiated agreement.
(g) Hearings. (1) A hearing officer must be a USDA Administrative
Law Judge or a person who is not a USDA employee. In order to ensure
that a hearing officer will be available promptly when needed,
Certifying Officials need to make appropriate arrangements with
officials of nearby federal agencies for the use of each other's
employees as hearing officers.
(2) Not later than 30 days from the date the debtor receives the
Notice of Intent (FmHA or its successor agency under Public Law 103-354
Guide Letter 1951-C-4), the employee must file with the Certifying
Official issuing the notice, a written petition establishing his/her
desire for a hearing on the existence and amount of the debt or the
proposed offset schedule. The employee's petition must fully identify
and explain all the information and evidence that supports his/her
position. In addition, the petition must bear the employee's original
signature and be dated upon receipt by the Certifying Official.
(3) Certifying Officials are responsible for determining if the
employee's petition for a hearing has been submitted in a timely
fashion. Petitions received from employees after the 30-day time
limitation expires will be accepted only if the employee can show the
delay was because of circumstances beyond his/her control or because of
failure to receive notice of the time limitation. Certifying Officials
are required to provide written notification to the employee of the
acceptance or non-acceptance of the employee's petition for hearing.
(4) For those petitions accepted, FmHA or its successor agency under
Public Law 103-354 will arrange for a hearing officer and notify the
employee of the time and place of the hearing. The hearing location
should be convenient to all parties involved. The employee will also be
notified that the acceptance of the petition for hearing will stay the
commencement of collection proceedings. Any payments collected in error
due to untimely or delayed filing beyond the employee's control will be
refunded unless there are applicable contractual or statutory provisions
to the contrary.
(5) The hearing will be based on written submissions and
documentation provided by the debtor and FmHA or its successor agency
under Public Law 103-354 unless:
[[Page 33]]
(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) Processing delinquent debts. (1) Form AD-343, ``Payroll Action
Request,'' and FmHA or its successor agency under Public Law 103-354
Form Letter 1951-6 will be prepared and submitted by the Certifying
Official to the National Office, FMAS, for coordination and forwarding
to the debtor's employing agency if:
(i) The borrower does not respond to FmHA or its successor agency
under Public Law 103-354 Guide Letter 1951-C-4 within 30 days.
(ii) The borrower responds to FmHA or its successor agency under
Public Law 103-354 Guide Letter 1951-C-4 within 30 days and
(A) Has had an opportunity to review the file, if requested,
(B) Has received a hearing, if requested, and
(C) A decision has been made by the hearing officer to uphold the
offset.
(2) A copy of Form AD-343 and the Form letter 1951-6 will be sent to
the Finance Office, St. Louis, MO 63103, Attn: Account Settlement Unit.
(3) If the debtor is an FmHA or its successor agency under Public
Law 103-354 employee, Form AD-343 will be sent to the National Office,
FMAS, and a copy to the Finance Office, St. Louis, MO, Attn: Account
Settlement Unit. This form can be signed for the Certifying Official by
an employment officer, an Administrative Officer, or a personnel
management specialist, or signed by the Certifying Official.
(4) If the debtor has agreed to have more or less than 15 percent of
the disposable pay sent to FmHA or its successor agency under Public Law
103-354, a copy of the debtor's letter (FmHA or its successor agency
under Public Law 103-354 Form Letter 1951-8) authorizing this must be
attached to Form AD-343.
(5) Field offices will be notified of payments received from salary
offset by receipt of a transaction record from the Finance Office.
(i) Deduction percentage. (1) Generally, installment deductions will
be made over a period not greater than the anticipated period of
employment. If possible, the installment payment will be sufficient in
size and frequency to liquidate the debt in approximately 3 years. The
size and frequency of installment deductions will bear a reasonable
relation to the size of the debt and the employee's ability to pay.
Certifying Officials are responsible for determining the size and
frequency of the deductions. However, the amount deducted for any period
will not exceed 15 percent of the disposable pay from which the
deduction is made, unless the employee has agreed in writing to the
deduction of a greater amount. Installment payments of less than $25 per
pay period or $50 a month will be accepted only in the most unusual
circumstances.
(2) Deductions will be made only from basic pay, incentive pay,
retainer pay, or, in the case of an employee not entitled to basic pay,
other authorized pay. If there is more than one salary offset, the
maximum deduction for all
[[Page 34]]
salary offsets against an employee's disposable pay is 15 percent unless
the employee has agreed in writing to a greater amount.
(j) Agency/NFC responsibility for other debts. (1) FmHA or its
successor agency under Public Law 103-354 will inform NFC about other
indebtedness by transmitting to NFC an AD-343. NFC will process the
documents through the Payroll/Personnel System, calculate the net amount
of the adjustment and generate a salary offset notice. This notice will
be sent to the employee's employing office along with a duplicate copy
for the FmHA or its successor agency under Public Law 103-354's records.
FmHA or its successor agency under Public Law 103-354 is responsible for
completing the necessary information and forwarding the employee's
notice to the employee.
(2) Other indebtedness falls into two categories:
(i) An agency-initiated indebtedness (i.e. personal telephone calls,
property damages, etc.).
(ii) An NFC-initiated indebtedness (i.e. duplicate salary payments,
etc.). NFC will send the salary offset notice to the employing office.
(k) Establishing employees or former employees defalcation accounts
and non-cash credits to borrower accounts. In cases where a borrower
made a payment on an FmHA or its successor agency under Public Law 103-
354 account(s) and, due to theft, embezzlement, fraud, negligence, or
some other action on the part of an FmHA or its successor agency under
Public Law 103-354 employee or employees, the payment is not transmitted
to the Finance Office for application to the borrower's account(s),
certain accounting actions must be taken by the Finance Office to
establish non-cash credits to the borrower's account and an employee
defalcation account.
(1) The Certifying Official will advise the Assistant Administrator,
Finance Office by memorandum to establish a defalcation account. The
memorandum must state the following information:
(i) Employee's name (or former),
(ii) Social Security Number,
(iii) Present or last known address,
(iv) Date of Payment, and
(v) Amount of the defalcation account.
(2) If a non-cash credit to a borrower's account(s) is required, the
letter to the Finance Office will include:
(i) Borrower's name and case number,
(ii) Fund Code and Loan Code,
(iii) Date and amount of missing payment,
(iv) Copy of receipt issued for the missing payment, and
(v) Name of employee who last had custody of the missing funds.
(3) To assist and assure proper accounting for defalcation accounts
and non-cash credits, the request should be made at the same time.
Should requests be made separately, be sure to identify appropriately.
(4) The Certifying Official shall furnish a copy of the memorandum
and supporting documentation for paragraphs (k) (1) and (2) of this
section to the Deputy Administrator for Management for distribution to
the Financial and Management Analysis Staff (FMAS) and Employee
Relations Branch, Personnel Division.
(l) Application of payments, refunds and overpayments. (1) If a
debtor is delinquent or indebted on more than one FmHA or its successor
agency under Public Law 103-354 loan or debt, amounts collected by
offset will be applied as specified on Form AD-343, based on the
advantage to agency or debtor. The check date will be used as the date
of credit in applying payments to the borrower's accounts.
(2) If a court or agency orders FmHA or its successor agency under
Public Law 103-354 to refund the amount obtained by salary offset, a
refund will be requested promptly by the Certifying Official in
accordance with the order by sending FmHA or its successor agency under
Public Law 103-354 Form Letter 1951-5 to the Finance Office. Processing
FmHA or its successor agency under Public Law 103-354 Form Letter 1951-5
in the Finance Office will cause a refund to be sent to the debtor
through the county office or other appropriate FmHA or its successor
agency under Public Law 103-354 office. The debtor is not entitled to
any payment of interest, on the refunded amount.
(3) If a debtor does not request a hearing within the required time
and it
[[Page 35]]
is later determined that the delay was due to circumstances beyond the
debtor's control, any amount collected before the hearing decision is
made will be refunded promptly by the Certifying Official in accordance
with paragraphs (l) (1) and (2) of this section.
(4) If FmHA or its successor agency under Public Law 103-354
receives money through an offset but the debtor is not delinquent or
indebted at the time or the amount received is in excess of the
delinquency or indebtedness, the entire amount or the amount in excess
of the delinquency or indebtedness will be refunded promptly to the
debtor by the Certifying Official in accordance with paragraphs (l) (1)
and (2) of this section.
(m) Cancellation of offset. If a debtor's name has been submitted to
another agency for offset and the debtor's account is brought current or
otherwise satisfied, the Certifying Official will complete Form AD-343
and send it to the National Office, FMAS. FMAS will notify the paying
agency with Form AD-343 that the debtor is no longer delinquent or
indebted and to cancel the offset. A copy of the cancellation document
will be sent to the debtor and the Finance Office, Attn: Account
Settlement Unit.
(n) Intra-departmental transfer. When an FmHA or its successor
agency under Public Law 103-354 employee who is indebted to one agency
in USDA transfers to another agency within USDA, a copy of the repayment
schedule should be forwarded by the agency personnel office to the new
employing agency. The NFC will continue to make deductions until full
recovery is effected.
(o) Liquidation from final checks. Upon the determination that an
employee owing a debt to FmHA or its successor agency under Public Law
103-354 is to retire, resign, or employment otherwise ends, the
Certifying Official should forward a telegram with the appropriate
employee identification and amount of the debt to the NFC. The telegram
should request that the debt be collected from final salary/lump sum
leave or other funds due the employee, and, if necessary, to put a hold
on the retirement funds. The telegram information should be confirmed by
completion of Form AD-343. Collection from retirement funds will be in
accordance with Departmental Administrative Offset procedures (7 CFR
Part 3, Subpart B, Sec. 3.32).
(p) Coordination with other agencies. (1) If FmHA or its successor
agency under Public Law 103-354 is the creditor agency but not the
paying agency, the Certifying Official will submit Form AD-343 to the
National Office, FMAS, to begin salary offset against an indebted
employee. The request will include a certification as to the
determination of indebtedness, and that FmHA or its successor agency
under Public Law 103-354 has complied with applicable regulations and
instruction for submitting the funds to the Finance Office. (See FmHA or
its successor agency under Public Law 103-354 Form Letter 1951-6).
(2) When an employee of FmHA or its successor agency under Public
Law 103-354 owes a debt to another Federal agency, salary offset may be
used only when the Federal agency certifies that the person owes the
debt and that the Federal agency has complied with its regulations. The
request must include the creditor agency's certification as to the
indebtedness, including the amount, and that the employee has been given
the due process entitlements guaranteed by the Debt Collection Act of
1982. When a request for offset is received, FmHA or its successor
agency under Public Law 103-354 will notify the employee and NFC and
arrange for offset. (See FmHA or its successor agency under Public Law
103-354 Form Letter 1951-7).
(q) Deductions by the National Finance Center (NFC). The NFC will
automatically deduct the full amount of the delinquency or indebtedness
if less than 15 percent of disposable pay or 15 percent of disposable
pay if the delinquency or indebtedness exceeds 15 percent, unless the
creditor agency advises otherwise. Deductions will begin the second pay
period after the 30-day notification period has expired unless FmHA or
its successor agency under Public Law 103-354 issues the notice. If FmHA
or its successor agency under Public Law 103-354 issues the notice, the
NFC will begin deductions on the first pay period after receipt of the
Form AD-343.
[[Page 36]]
(r) Interest, penalties and administrative costs. Interest and
administrative costs will normally be assessed on outstanding claims
being collected by salary offset. However, penalties should not be
charged routinely on debts being collected in installments by salary
offsets, since it is not to be construed as a failure to pay within a
given time period. Additional interest, penalties, and administrative
costs will not be assessed on delinquent loans until FmHA or its
successor agency under Public Law 103-354 publishes regulations
permitting such charges.
(s) Adjustment in rate of repayment. (1) When an employee who is
indebted receives a reduction in basic pay that would cause the current
deductions to exceed 15 percent of disposable pay, and the employee has
not consented in writing to a greater amount, FmHA or its successor
agency under Public Law 103-354 must take action to reduce the amount of
the deductions to 15 percent of the new amount of disposable pay. Upon
an increase in basic pay which results in the current deductions to be
less than the specified percentage, FmHA or its successor agency under
Public Law 103-354 may increase the amount of the deductions
accordingly. In either case, when a change is made the employee will be
notified in writing.
(2) When an employee has an existing reduced repayment schedule
because of financial hardship, the creditor agency may arrange for a new
repayment schedule.
[52 FR 18544, May 18, 1987, as amended at 53 FR 44178, Nov. 2, 1988; 54
FR 26945, June 27, 1989; 62 FR 41799, Aug. 1, 1997]
Secs. 1951.112--1951.120 [Reserved]
Sec. 1951.121 Internal Revenue Service (IRS) offset.
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 Sec. 1951.312
of subpart G of part 1951 of this chapter.
[54 FR 966, Jan. 11, 1989]
Sec. 1951.122 Finance Office screening.
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) General. All past due single family housing (SFH) and farmer
program (FP) accounts are eligible for IRS Offset unless they meet one
or more of the following criteria:
(1) Account has been referred to OGC for foreclosure and, based on
the legal opinion required by Sec. 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) Single Family Housing Borrowers. In addition to the criteria set
forth in Sec. 1951.122(a), the following criteria are for delinquent SFH
borrowers:
(1) Borrower has one loan and it is less than 3 monthly payments
delinquent (or, if annual borrower, the
[[Page 37]]
equivalent of less than 3 monthly payments for annual payments past due)
or more than 9 years delinquent.
(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) Farmer Program Borrowers. In addition to the criteria set forth
in Sec. 1951.122(a), the following criteria are for delinquent FP
borrowers:
(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) Servicing Condition Requirements for Farmer Program Borrowers.
The FP accounts remaining after screening from Sec. 1951.122 (a) and (c)
are eligible for IRS offset only if either of the following servicing
conditions takes place, whichever comes first:
(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.
[55 FR 38035, Sept. 17, 1990, as amended at 55 FR 52037, Dec. 19, 1990]
Sec. 1951.123 Field office screening.
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 Sec. 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.
[54 FR 967, Jan. 11, 1989, as amended at 55 FR 38036, Sept. 17, 1990]
Sec. 1951.124 Notice to borrowers.
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.
[54 FR 967, Jan. 11, 1989, as amended at 55 FR 38036, Sept. 17, 1990]
Sec. 1951.125 Processing borrowers' requests not to exercise IRS 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.
[55 FR 38036, Sept. 17, 1990, as amended at 55 FR 52037, Dec. 19, 1990]
Sec. 1951.126 Final referral to IRS.
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
[[Page 38]]
Office will review the list on Report Code 865 upon receipt, and each
week thereafter. This weekly review will continue until September 1 for
the previous year's submission, or until action has been taken on each
account (offset or removal). If any of the events listed under
Sec. 1951.122 of this subpart occurs, immediately submit Form FmHA or
its successor agency under Public Law 103-354 1951-43, ``Adjustment of
Accounts Referred for IRS Offset,'' in accordance with the FMI for that
form. All accounts referred to the IRS for offset will be reported to a
credit bureau by the Finance Office.
[55 FR 38036, Sept. 17, 1990, as amended at 55 FR 52037, Dec. 19, 1990]
Sec. 1951.127 Processing of amounts offset.
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 Sec. 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.
[54 FR 967, Jan. 11, 1989, as amended at 55 FR 38036, Sept. 17, 1990]
Sec. 1951.128 Receipt of Finance Office/IRS offset reports and listings.
The Finance Office will provide a copy of the reports or listings in
Sec. 1951.129 through Sec. 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.
[55 FR 38036, Sept. 17, 1990]
Sec. 1951.129 Borrowers eligible for offset (prior to 60-day notice).
This listing includes borrowers eligible for offset after Finance
Office screening. The field office will screen all borrowers in
accordance with Sec. 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 Sec. 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.
[55 FR 38036, Sept. 17, 1990]
Sec. 1951.130 Borrowers sent due process notices for IRS/Credit Bureau referrals.
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 Sec. 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
[[Page 39]]
sent to the Chief, Computer Resources Branch, mail code FC-353, in the
Finance Office. These lists must be received no later than 2 months
after the date of receipt, since the Finance Office will use the
information provided on these lists to create the IRS annual
certification tape. 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 Sec. 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.
[55 FR 38037, Sept. 17, 1990]
Sec. 1951.131 Form FmHA or its successor agency under Public Law 103-354 389-833, Borrower Accounts Submitted to IRS for Offset Report, RC 865.
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.
[55 FR 38037, Sept. 17, 1990]
Sec. 1951.132 Form FmHA or its successor agency under Public Law 103-354 389-760, Annual Unprocessable Report IRS Offset, RC 822-C.
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 not be offset by IRS. This report should be
retained by each field office. It is not necessary to complete Form FmHA
or its successor agency under Public Law 103-354 1951-43 for borrowers
listed on this report.
[55 FR 38037, Sept. 17, 1990]
Sec. 1951.133 Form FmHA or its successor agency under Public Law 103-354 389-761, Annual No Match Report IRS Offset, RC 822-D.
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 not be offset by IRS. This report should be
retained by each field office. It is not necessary to complete Form FmHA
or its successor agency under Public Law 103-354 1951-43 for borrowers
listed on this report.
[55 FR 38037, Sept. 17, 1990]
Sec. 1951.134 Form FmHA or its successor agency under Public Law 103-354 389-764, Weekly Offset Report (Cash Collections) IRS Offset, RC 222-C.
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 Sec. 1951.127 for refunding the
offset to the borrower.
[55 FR 38037, Sept. 17, 1990]
Sec. 1951.135 Form FmHA or its successor agency under Public Law 103-354 389-763, Weekly Claims Report IRS Offset, RC 222-D.
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 (Sec. 1951-134)
[[Page 40]]
the actual amount offset for those borrowers listed in this report. This
report should be retained by each field office.
[55 FR 38037, Sept. 17, 1990]
Secs. 1951.136--1951.149 [Reserved]
Sec. 1951.150 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0119.
[51 FR 42821, Nov. 26, 1986]
Subpart D--Final Payment on Loans
Source: 57 FR 774, Jan. 9, 1992, unless otherwise noted.
Sec. 1951.151 Purpose.
This subpart prescribes authorizations, policies, and procedures of
the Farm Service Agency (FSA), Rural Housing Service (RHS), Rural
Utility Service (RUS) for its water and waste programs, and Rural
Business-Cooperative Service (RBS), herein referred to as ``Agency,''
for processing final payment on all loans. This subpart does not apply
to direct single family housing customers of the RHS.
[61 FR 59778, Nov. 22, 1996]
Sec. 1951.152 Definition.
As used in this subpart:
Mortgage. Includes real estate mortgage, deed of trust or any other
form of security instrument or lien on real property.
Sec. 1951.153 Chattel security or note-only cases.
(a) If a loan secured by both real estate and chattels is paid in
full, the chattel security instrument will be satisfied or released in
accordance with subpart A of part 1962 of this chapter.
(b) When a loan is evidenced by only a note and the note is paid in
full, FmHA or its successor agency under Public Law 103-354 will deliver
the note to the borrower in the manner prescribed in Sec. 1951.155(c) of
this subpart.
Sec. 1951.154 Satisfaction and release of documents.
(a) Authorization. FmHA or its successor agency under Public Law
103-354 is authorized to execute the necessary releases and
satisfactions and return security instruments and related documents to
borrowers. Satisfaction and release of security documents takes place:
(1) Upon receipt of payment in full of all amounts owed to the
Government including any amounts owed to the loan insurance account,
subsidy recapture amounts, all loan advances and/or other charges to the
borrower's account;
(2) Upon verification that the amount of payment received is
sufficient to pay the full amount owed by the borrower; or
(3) When a compromise or adjustment offer has been accepted and
approved by the appropriate Government official in full settlement of
the account and all required funds have been paid.
(b) [Reserved]
(c) Lost note. If the original note is lost FmHA or its successor
agency under Public Law 103-354 will give the borrower an affidavit of
lost note so that the release or satisfaction may be processed.
Sec. 1951.155 County and/or District Office actions.
(a) Funds remaining in supervised bank accounts. When a borrower is
ready to pay an insured or direct loan in full, any funds remaining in a
supervised bank account will be withdrawn and remitted for application
to the borrower's account. If the entire principal of the loan is
refunded after the loan is closed, the borrower will be required to pay
interest from the date of the note to the date of receipt of the refund.
(b) Determining amount to be collected. FmHA or its successor agency
under Public Law 103-354 will compute and verify the amount to be
collected for payment of an account in full. Requests for payoff
balances on all accounts will be furnished in writing in a format
specified by FmHA or its successor agency under Public Law 103-354
(available in any FmHA or its successor agency under Public Law 103-354
office).
[[Page 41]]
(c) Delivery of satisfaction, notes, and other documents. When the
remittance which paid an account in full has been processed by FmHA or
its successor agency under Public Law 103-354, the paid note and
satisfied mortgage may be returned to the borrower. If other provisions
exist, the mortgage will not be satisfied until the total indebtedness
secured by the mortgage is paid. For instance, in a situation where a
rural housing loan is paid-in-full and there is a subsidy recapture
receivable balance that the borrower elects to delay repaying, the
amount of recapture to be repaid will be determined when the principal
and interest balance is paid. The mortgage securing the RHS, RBS, RUS,
and/or FSA or its successor agency under Public Law 103-354 debt will
not be released of record until the total amount owed the Government is
repaid. To permit graduation or refinancing by the borrower, the
mortgage securing the recapture owed may be subordinated.
(1) If FmHA or its successor agency under Public Law 103-354
receives final payments in a form other than cash, U.S. Treasury check,
cashier's check, certified check, money order, bank draft, or check
issued by an institution determined by FmHA or its successor agency
under Public Law 103-354 to be financially responsible, the mortgage and
paid note will not be released until after a 30-day waiting period. If
other indebtedness to FmHA or its successor agency under Public Law 103-
354 is not secured by the mortgage, FmHA or its successor agency under
Public Law 103-354 will execute the satisfaction or release. When the
stamped note is delivered to the borrower, FmHA or its successor agency
under Public Law 103-354 will also deliver the real estate mortgage and
related title papers such as title opinions, title insurance binders,
certificates of title, and abstracts which are the property of the
borrower. Any water stock certificates or other securities that are the
property of the borrower will be returned to the borrower. Also, any
assignments of income will be terminated as provided in the assignment
forms.
(2) Delivery of documents at the time of final payment will be made
when payment is in the form of cash, U.S. Treasury check, cashier's
check, certified check, money order, bank draft, or check issued by an
institution determined by FmHA or its successor agency under Public Law
103-354 to be responsible. FmHA or its successor agency under Public Law
103-354 will not accept payment in the form of foreign currency, foreign
checks or sight drafts. FmHA or its successor agency under Public Law
103-354 will execute the satisfaction or release (unless other
indebtedness to FmHA or its successor agency under Public Law 103-354 is
covered by the mortgage) and mark the original note with a paid-in-full
legend based upon receipt of the full payment balance of the borrower's
account(s), computed as of the date final payment is received. In
unusual cases where an insured promissory note is held by a private
holder, FmHA or its successor agency under Public Law 103-354 can
release the mortgage and deliver the note when it is received.
(d)-(e) [Reserved]
(f) Cost of recording or filing of satisfaction. The satisfaction or
release will be delivered to the borrower for recording and the
recording costs will be paid by the borrower, except when State law
requires the mortgagee to record or file satisfactions or release and
pay the recording costs.
(g) Property insurance. When the borrower's loan has been paid-in-
full and the satisfaction or release of the mortgage has been executed,
FmHA or its successor agency under Public Law 103-354 may release the
mortgage interest in the insurance policy as provided in subpart A of
part 1806 of this chapter (FmHA or its successor agency under Public Law
103-354 Instruction 426.1).
(h) [Reserved]
(i) Outstanding Loan Balance(s). FmHA or its successor agency under
Public Law 103-354 will attempt to collect any account balance(s) that
may result from an error by FmHA or its successor agency under Public
Law 103-354 in handling final payments according to paragraph
1951.155(b) of this section. If collection cannot be made, the debt will
be settled according to subpart B of part 1956 of this chapter or
reclassified to collection-only. A deficiency judgment may be considered
if the balance is a significant amount
[[Page 42]]
($1,000 or more) and the borrower has known assets.
57 FR 774, Jan. 9, 1992, as amended at 60 FR 55145, Oct. 27, 1995]
Secs. 1951.156--1951.200 [Reserved]
Subpart E--Servicing of Community and Direct Business Programs Loans and
Grants
Source: 55 FR 4399, Feb. 8, 1990, unless otherwise noted.
Sec. 1951.201 Purposes.
This subpart prescribes the Rural Development mission area policies,
authorizations, and procedures for servicing Water and Waste Disposal
System loans and grants; Community Facility loans and grants; Rural
Business Enterprise/Television Demonstration grants; loans for Grazing
and other shift-in-land-use projects; Association Recreation loans;
Association Irrigation and Drainage loans; Watershed loans and advances;
Resource Conservation and Development loans; Direct Business loans;
Economic Opportunity Cooperative loans; 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.
[62 FR 33510, June 19, 1997, as amended at 62 FR 42387, Aug. 7, 1997]
Sec. 1951.202 Objectives.
The purpose of loan and grant servicing functions is to assist
recipients to meet the objectives of loans and grants, repay loans on
schedule, comply with agreements, and protect FmHA or its successor
agency under Public Law 103-354's financial interest. Supervision by
FmHA or its successor agency under Public Law 103-354 includes, but is
not limited to, review of budgets, management reports, audits and
financial statements; performing security inspections and providing,
arranging for, or recommending technical assistance; evaluating
environmental impacts of proposed actions by the borrower; and
performing civil rights compliance reviews.
Sec. 1951.203 Definitions.
(a) Approval official. An official who has been delegated loan and/
or grant approval authorities within applicable programs, subject to the
dollar limitations of exhibits A, B, and C of subpart A of part 1901 of
this chapter (available in any FmHA or its successor agency under Public
Law 103-354 office).
(b) Assumption of debt. The agreement by one party to legally bind
itself to pay the debt incurred by another.
(c) CONACT. The Consolidated Farm and Rural Development Act, as
amended.
(d) Eligible applicant. An entity that would be legally qualified
for financial assistance under the loan or grant program involved in the
servicing action.
(e) Ineligible applicant. An entity or individual that would not be
considered eligible for financial assistance under the loan or grant
program involved in the servicing action.
(f) Nonprogram (NP) loan. An NP loan exists when credit is extended
to an ineligible applicant and/or transferee in connection with loan
assumptions or sale of inventory property; any recipient in cases of
unauthorized assistance; or a recipient whose legal organization has
changed as set forth in Sec. 1951.220(e)
[[Page 43]]
of this subpart resulting in the borrower being ineligible for program
benefits.
(g) Servicing office. The State, District, or County Office
responsible for immediate servicing functions for the borrower or
grantee.
(h) Transfer fee. A one-time nonrefundable application fee, charged
to ineligible applicants for FmHA or its successor agency under Public
Law 103-354 services rendered in the processing of a transfer and
assumption.
Sec. 1951.204 Nondiscrimination.
Each instrument of conveyance required for a transfer, assumption,
or other servicing action under this subpart will contain the following
covenant.
The property described herein was obtained or improved with Federal
financial assistance and is subject to the nondiscrimination provisions
of title VI of the Civil Rights Act of 1964, title IX of the Education
Amendments of 1972, section 504 of the Rehabilitation Act of 1973, and
other similarly worded Federal statutes, and the regulations issued
pursuant thereto that prohibit discrimination on the basis of race,
color, national origin, handicap, religion, age, or sex in programs or
activities receiving Federal financial assistance. Such provisions apply
for as long as the property continues to be used for the same or similar
purposes for which the Federal assistance was extended, for so long as
the purchaser owns it, whichever is later.
Sec. 1951.205 Redelegation of authority.
Servicing functions under this subpart which are specifically
assigned to the State Director may be redelegated in writing to an
appropriate sufficiently trained designee.
Sec. 1951.206 Forms.
Forms utilized for actions under this subpart are to be modified
appropriately where necessary to adapt the forms for use by corporate
recipients rather than individuals.
Sec. 1951.207 State supplements.
State supplements developed to carry out the provisions of this
subpart will be prepared in accordance with subpart B of part 2006 of
this chapter (available in any FmHA or its successor agency under Public
Law 103-354 office) and applicable State laws and regulations. State
supplements are to be used only when required by National Instructions
or necessary to clarify the impact of State laws or regulations, and not
to restate the provisions of National Instructions. Advice and guidance
will be obtained as needed from the Office of the General Counsel (OGC).
Secs. 1951.208--1951.209 [Reserved]
Sec. 1951.210 Environmental requirements.
Servicing activities such as transfers, assumptions, subordinations,
sale or exchange of security property, and leasing of security will be
reviewed for compliance with subpart G of part 1940 of this chapter. The
appropriate environmental review will be completed prior to approval of
the servicing action. When National Office approval is required, the
completed environmental review will be included with other information
submitted.
Sec. 1951.211 Refinancing requirements.
In accordance with the CONACT, FmHA or its successor agency under
Public Law 103-354 requires for most loans covered by this subpart that
if at any time it shall appear to the Government that the borrower is
able to refinance the amount of the indebtedness then outstanding, in
whole or in part, by obtaining a loan for such purposes from responsible
cooperative or private credit sources, at reasonable rates and terms for
loans for similar purposes and periods of time, the borrower will, upon
request of the Government, apply for and accept such loan in sufficient
amount to repay the Government and will take all such actions as may be
required in connection with such loan. Applicable requirements are set
forth in subpart F of part 1951 of this chapter. A civil rights impact
analysis is required.
[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]
Sec. 1951.212 Unauthorized financial assistance.
Subpart O of part 1951 of this chapter prescribes policies for
servicing the loans and grants covered under this subpart when it is
determined that a
[[Page 44]]
borrower or grantee was not eligible for all or part of the financial
assistance received in the form of a loan, grant, subsidy, or any other
direct financial assistance.
Sec. 1951.213 Debt settlement.
Subpart C of part 1956 of this chapter prescribes policies and
procedures for debt settlement actions for loans covered under this
subpart when it is determined that a debt is eligible for settlement
except as provided in Secs. 1951.216 and 1951.231.
Sec. 1951.214 Care, management, and disposal of acquired property.
Property acquired by Government or its successor agency under Public
Law 103-354 will be handled according to subparts B and C of part 1955
of this chapter.
[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]
Sec. 1951.215 Grants.
No monitoring action by FmHA or its successor agency under Public
Law 103-354 is required after grant closeout. Grant closeout is when all
required work is completed, administrative actions relating to the
completion of work and expenditure of funds have been accomplished, and
FmHA or its successor agency under Public Law 103-354 accepts final
expenditure information. However, grantees remain responsible in
accordance with the terms of the grant for property acquired with grant
funds.
(a) Applicability of requirements. Servicing actions relating to
FmHA or its successor agency under Public Law 103-354 grants are
governed by the provisions of this subpart, the terms of the Grant
Agreement and, if applicable, the provisions of 7 CFR parts 3015, 3016,
and 3017.
(1) Servicing actions will be carried out in accordance with the
terms of the ``Association Water or Sewer System Grant Agreement,'' and
RUS Bulletin 1780-12, ``Water and Waste Grant Agreement'' (available
from any USDA/Rural Development office or the Rural Utilities Service,
United States Department of Agriculture, Washington, DC 20250-1500).
Grant agreements with a revision date on or after January 29, 1979,
require that the grantee request disposition instructions from the
Agency before disposing of property which is no longer needed for
original grant purposes.
(2) When facilities financed in part by FmHA or its successor agency
under Public Law 103-354 grants are transferred or sold, repayment of
all or a portion of the grant is not required if the facility will be
used for the same purposes and the new owner provides a written
agreement to abide by the terms of the grant agreement.
(3) 7 CFR 3015 first became effective on November 10, 1981; 7 CFR
parts 3016 on October 1, 1988; and 7 CFR 3017 on March 18, 1989. Grants
made on or after those dates are subject to the provisions of those
regulations except to the extent of the express provisions of the Grant
Agreement.
(b) Authorities. Subject to the requirements of Sec. 1951.215(a),
authority to approve servicing actions is as follows:
(1) For water and waste disposal grants, the State Director is
authorized to approve any servicing actions needed, except that prior
approval of the Administrator is required when property acquired with
grant funds is disposed of in accordance with Secs. 1951.226, 1951.230,
or 1951.232 of this subpart and the buyer or transferee refuses to
assume all terms of the grant agreement.
(2) All other grants will be serviced in accordance with the Grant
Agreement and this subpart. Prior approval of the Administrator is
required except for actions covered in the preceding paragraph.
[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]
Sec. 1951.216 Nonprogram (NP) loans.
Borrowers with NP loans are not eligible for any program benefits,
including appeal rights. However, FmHA or its successor agency under
Public Law 103-354 may use any servicing tool under this subpart
necessary to protect the Government's security interest, including
reamortization or rescheduling. The refinancing requirements of subpart
F of part 1951 of this chapter do not apply to NP loans. Debt settlement
actions relating to NP loans must be
[[Page 45]]
handled under the Federal Claims Collection Act; proposals will be
submitted to the National Office for review and approval. Any exception
to the servicing requirements of NP loans under this subpart must have
prior concurrence of the National Office.
Sec. 1951.217 Public bodies.
Servicing actions involving public bodies will be carried out to the
extent feasible according to the provisions of this subpart. With prior
National Office approval, the State Director is authorized to vary from
such provisions if necessary and approved by OGC, provided such
variation will not violate other regulatory or statutory provisions. To
request approval, the case file, including copies of applicable
documents, recommendations, and OGC comments, will be forwarded to the
Administrator, Attention: (appropriate program division).
Secs. 1951.218--1951.219 [Reserved]
Sec. 1951.220 General servicing actions.
(a) Payment in full. Payment in full of a loan is handled according
to subpart D of part 1951 of this chapter. When a loan is paid in full,
the servicing official will:
(1) Notify the company providing fidelity bond coverage in writing
that the government no longer has an interest in the bond if the
government is named co-obligee on the bond.
(2) Release FmHA or its successor agency under Public Law 103-354's
interest in insurance policies according to applicable provisions of
subpart A of part 1806 (FmHA or its successor agency under Public Law
103-354 Instruction 426.1).
(3) Release FmHA or its successor agency under Public Law 103-354's
interest in any other security as appropriate, consulting with OGC if
necessary.
(b) Loan summary statements. Upon request of a borrower, FmHA or its
successor agency under Public Law 103-354 will issue a loan summary
statement showing account activity for each loan made or insured under
the CONACT. Field offices will post a notice on the bulletin board
informing borrowers of the availability of loan summary statements. See
exhibit A of subpart A of this part for a sample of the required notice.
(1) The loan summary statement period is from January 1 through
December 31. The Finance Office forwards to field offices a copy of Form
FmHA or its successor agency under Public Law 103-354 1951-9, ``Annual
Statement of Loan Account,'' to be retained in borrower files as a
permanent record of account activity for the year.
(2) Quarterly Forms FmHA or its successor agency under Public Law
103-354 1951-9 are retained in the Finance Office on microfiche. These
statements reflect cumulative data from the beginning of the current
year through the end of the most recent quarter. Servicing offices may
request copies of these quarterly or annual statements by sending Form
FmHA or its successor agency under Public Law 103-354 1951-57, ``Request
for Loan Summary Statement,'' to the Finance Office.
(3) The servicing office will provide a copy of the applicable loan
summary statement to the borrower on request. A copy of Form FmHA or its
successor agency under Public Law 103-354 1951-9 and, for loans with
unamortized installments, a printout of future installments owed
obtained using the borrower status screen option in the Automated
Discrepancy Processing System (ADPS), will constitute the loan summary
statement to be provided to the borrower.
(c) Insurance. FmHA or its successor agency under Public Law 103-354
borrowers shall maintain insurance coverage as follows:
(1) Community and Insured Business Programs borrowers shall
continuously maintain adequate insurance coverage as required by the
loan agreement and Sec. 1942.17(j)(3) of subpart A of part 1942 of this
chapter. Insurance coverage must be monitored in accordance with the
above-referenced section to determine that adequate policies and bonds
are in force.
(2) For all other types of loans covered by this subpart, property
insurance will be serviced according to subpart A of part 1806 of this
chapter (FmHA or its successor agency under Public Law 103-354
Instruction 426.1) in
[[Page 46]]
real estate mortgage cases, and according to the loan agreement in other
cases.
(d) Property taxes. Real property taxes are serviced according to
Subpart A of part 1925 of this chapter. If State statutes permit a
personal property tax lien to have priority over FmHA or its successor
agency under Public Law 103-354's lien, such taxes are serviced
according to Secs. 1925.3 and 1925.4 of subpart A of part 1925 of this
chapter.
(e) Changes in borrower's legal organization. (1) The State Director
may approve, with OGC's concurrence, changes in a recipient's legal
organization, including revisions of articles of incorporation or
charter and bylaws, when:
(i) The change does not provide for a sole member type of
organization;
(ii) The borrower retains control over its assets and the operation,
management, and maintenance of the facility, and continues to carry out
its responsibilities as set forth in Sec. 1942.17(b)(4) of subpart A of
part 1942 of this chapter; and
(iii) The borrower retains significant local ties with the rural
community.
(2) The State Director may approve, with prior concurrence of the
Administrator, changes in a recipient's legal organization which result
in a sole member type of organization, or any other change which results
in a recipient's loss of control over its assets and/or the operation,
management and maintenance of the facility, provided all of the
following have been or will be met:
(i) The change is in the best interest of the Government;
(ii) The State Director determines and documents that other
servicing options under this subpart, such as sale or transfer and
assumption, have been explored and are not feasible;
(iii) The loan is classified as a nonprogram loan;
(iv) The borrower is notified that it is no longer eligible for any
program benefits, but will remain responsible under the loan agreement;
and
(v) Prior concurrence of the Administrator is obtained. Requests
will be forwarded to the Administrator: Attention (appropriate program
division), and will include the case file; Exhibit A of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office), appropriately completed; the proposed changes; OGC comments;
and any other necessary supporting information.
(f) Membership liability. As a loan approval requirement, some
borrowers may have special agreements with members of the purchase of
shares of stock or for payment of a pro rata share of the loan in the
event of default, or they may have authority in their corporate
instruments to make special assessments in that event. Such agreements
may be referred to as individual liability agreements and may be
assigned to and held by FmHA or its successor agency under Public Law
103-354 as additional security. In other cases the borrower's note may
be endorsed by individuals. The liability instruments will be serviced
in a manner indicated by their contents and the advice of OGC to
adequately protect FmHA or its successor agency under Public Law 103-
354's interest. Servicing actions necessary due to such provisions will
be noted on Form FmHA or its successor agency under Public Law 103-354
1905-10, ``Management System Card--Association.''
(g) Other security. Other security such as collateral assignments,
water stock certificates, notices of lienholder interest (Bureau of Land
Management grazing permits) and waivers of grazing privileges (Forest
Service grazing permits) will be serviced to protect the interest of
FmHA or its successor agency under Public Law 103-354, and in compliance
with any special servicing actions developed by the State Director with
OGC assistance. Evidence of the security will be filed in the servicing
office case file. Necessary servicing actions will be noted on Form FmHA
or its successor agency under Public Law 103-354 1905-10.
(h) Correcting errors in security instruments. Land, buildings, or
chattels included in a mortgage through mutual mistake may be released
from the mortgage by the State Director when substantiated by the
factual situation. The release is contingent on the State Director
determining, with OGC advice, that the property was included due to
mutual error.
[[Page 47]]
(i) Present market value determination. For purposes of this
subpart, the value of security is determined by the approval official as
follows:
(1) Security representing a relatively small portion of the total
value of the security property. The approval official will determine
that the real estate and chattels are disposed of at a reasonable price.
A current appraisal report may be required.
(2) Security representing a relatively large portion of the total
value of the security property. The approval official will require a
current appraisal report, and the sale prices of the real estate and
chattels disposed of will at least equal the present market value as
determined by this appraisal.
(3) Appraisal report. If required, a current appraisal report will
be completed in accordance with Sec. 1942.3 of subpart A of part 1942 of
this chapter. The appraisal will be completed by a qualified FmHA or its
successor agency under Public Law 103-354 employee or an independent
appraiser as determined appropriate by the approval official.
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 775, Jan. 9, 1992; 57 FR
21199, May 19, 1992; 57 FR 36591, Aug. 14, 1992]
Sec. 1951.221 Collections, payments and refunds.
Collections are processed in accordance with subpart B of part 1951
of this chapter. Payments and refunds are handled in accordance with the
following:
(a) Community and Insured Business Programs. (1) Field offices can
obtain data on principal installments due for Community and Insured
Business Programs loans with unamortized installments using the borrower
status screen option in the ADPS.
(2) Regular payments for Community and Insured Business Programs
borrowers are all payments other than extra payments and refunds. Such
payments are usually derived from facility revenues, and do not include
proceeds from the sale of security. They also include payments derived
from sources which do not decrease the value of FmHA or its successor
agency under Public Law 103-354's security.
(i) Distribution of such payments is made as follows:
(A) First, to the FmHA or its successor agency under Public Law 103-
354 loan(s) in proportion to the delinquency existing on each. Any
excess will be distributed in accordance with paragraphs (a)(2)(i) (B)
and (C) of this section.
(B) Second, to the FmHA or its successor agency under Public Law
103-354 loan or loans in proportion to the approximate amounts due on
each. Any excess will be distributed according to paragraph (a)(2)(i)(C)
of this section.
(C) Third, as advance payments on FmHA or its successor agency under
Public Law 103-354 loans. In making such distributions, consider the
principal balance outstanding on each loan, the security position of the
liens securing each loan, the borrower's request, and related
circumstances.
(ii) Unless otherwise established by the debt instrument, regular
payments will be applied as follows:
(A) For amortized loans, first to interest accrued (as of the date
of receipt of the payment), and then to principal.
(B) For principal-plus-interest loans, first to the interest due
through the date of the next scheduled installment of principal and
interest and then to principal due, with any balance applied to the next
scheduled principal installment.
(3) Extra payments are derived from sale of basic chattel or real
estate security; refund of unused loan funds; cash proceeds of property
insurance as provided in Sec. 1806.5(b) of subpart A of part 1806
(paragraph V B of FmHA or its successor agency under Public Law 103-354
Instruction 426.1); and similar actions which reduce the value of basic
security. At the option of the borrower, regular facility revenue may
also be used as extra payments when regular payments are current. Unless
otherwise established in the note or bond, extra payments will be
distributed and applied as follows:
(i) First to the account secured by the lowest priority of lien on
the property from which the extra payment was obtained. Any balance will
be applied to other FmHA or its successor agency under Public Law 103-
354 loans in ascending order of priority.
(ii) For amortized loans, first to interest accrued to the date
payment is
[[Page 48]]
received, and then to principal. For debt instruments with installments
of principal plus interest, such payments will be applied to the final
unpaid principal installment.
(b) Grazing Association Loans, Irrigation, Drainage and other Soil
and Water Conservation Loans, and Indian Tribes and Tribal Corporation
Loans. (1) Regular payments for such loans are defined in Sec. 1951.8(a)
of subpart A of part 1951 of this chapter, and are distributed according
to Sec. 1951.9(a) of that subpart unless otherwise established by the
note or bond.
(2) Extra payments are defined in Sec. 1951.8(b) of subpart A of
part 1951 of this chapter, and are distributed according to
Sec. 1951.9(b) of that subpart.
Sec. 1951.222 Subordination of security.
When a borrower requests FmHA or its successor agency under Public
Law 103-354 to subordinate a security instrument so that another
creditor or lender can refinance, extend, reamortize, or increase the
amount of a prior lien; be on parity with; or place a lien ahead of the
FmHA or its successor agency under Public Law 103-354 lien, it will
submit a written request to the servicing office as provided below. For
purposes of this subpart, subordination is defined to include cases
where a parity security position is being considered.
(a) General. The following requirements must normally be met:
(1) The request must be for subordination of a specific amount of
the FmHA or its successor agency under Public Law 103-354 indebtedness,
and the amount must be within the approval official's authority as set
forth in exhibits A, B, and C of subpart A of part 1901 of this chapter
(available in any FmHA or its successor agency under Public Law 103-354
office).
(2) It must be determined that the borrower cannot refinance its
FmHA or its successor agency under Public Law 103-354 debt in accordance
with subpart F of part 1951 of this chapter.
(3) The transaction will further the purposes for which the FmHA or
its successor agency under Public Law 103-354 loan was made, not
adversely affect the borrower's debt-paying ability, and result in the
FmHA or its successor agency under Public Law 103-354 debt being
adequately secured.
(4) The terms and conditions of the prior lien will be such that the
borrower can reasonably be expected to meet them as well as the
requirements of all other debts.
(5) Any proposed development work will be planned and performed
according to Sec. 1942.18 of subpart A of part 1942 of this chapter or
in a manner directed by the creditor which reasonably attains the
objectives of that section.
(6) All contracts, pay estimates, and change orders will be reviewed
and concurred in by the State Director.
(7) In cases involving land purchase, the FmHA or its successor
agency under Public Law 103-354 will obtain a mortgage on the purchased
land.
(8) When the transaction involves more than $10,000 or the approval
official considers it necessary, a present market value appraisal report
will be obtained. However, a new report need not be obtained if there is
an appraisal report not over one year old which permits a proper
determination of the present market value of the total property after
the transaction.
(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) Authorities. Proposals not meeting one or more of the above
requirements will be submitted to the Administrator, Attention
(appropriate program division) for prior concurrence. All other
proposals may be approved by the official with loan approval authority
under subpart A of part 1901 of this chapter.
(c) Processing. The case file is to include:
[[Page 49]]
(1) The borrower's written request on Form FmHA or its successor
agency under Public Law 103-354 465-1, ``Application for Partial
Release, Subordination, or Consent,'' if appropriate, or in other
acceptable format. The request must contain the purpose of the
subordination; exact amount of money or property involved; description
of security property involved; type of security instrument; name,
address, line of business and other general information pertaining to
the party in favor of which the request is made; and other pertinent
information to evaluate the need for the request;
(2) Current balance sheet;
(3) If development work is involved, an operating budget on Form
FmHA or its successor agency under Public Law 103-354 442-7, ``Operating
Budget,'' or similar form which projects income and expenses through the
first full year of operation following completion of planned
improvements; or if no development work is involved, an income statement
and budget on Form FmHA or its successor agency under Public Law 103-354
442-2, ``Statement of Budget, Income, and Equity,'' schedules 1 and 2,
or similar form;
(4) Copy of proposed security instrument;
(5) Appraisal report, when applicable;
(6) OGC opinion on the request;
(7) Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), appropriately
completed;
(8) Appropriate environmental review; and
(9) Any other necessary supporting information.
(d) Closing. All requests for subordination will be closed according
to instructions from OGC except those which affect only chattel liens
other than pledges of revenue. FmHA or its successor agency under Public
Law 103-354's consent on Form FmHA or its successor agency under Public
Law 103-354 465-1 will be signed concurrently with Form FmHA or its
successor agency under Public Law 103-354 460-2, ``Subordination by the
Government,'' when applicable.
Sec. 1951.223 Reamortization.
(a) State Director authorization. The State Director is authorized
to approve reamortization of loans under the following conditions:
(1) The account is delinquent and cannot be brought current within
one year while maintaining a reasonable reserve;
(2) The borrower has demonstrated for at least one year by actual
performance or has presented a budget which clearly indicates that it is
able to meet the proposed payment schedule;
(3) The amount being reamortized is within the State Director's loan
approval authorization; and
(4) There is no extension of the final maturity date.
(b) Requests requiring National Office approval. Reamortizations not
meeting the above conditions require prior National Office approval.
Requests will be forwarded to the National Office with the case file,
including:
(1) Current budget and cash flow prepared on Form FmHA or its
successor agency under Public Law 103-354 442-2, schedules 1 and 2, or
similar form;
(2) Current balance sheet and income statement;
(3) Exhibit A of this subpart, appropriately completed;
(4) Form FmHA or its successor agency under Public Law 103-354 1951-
33, ``Reamortization Request,'' completed in accordance with
Sec. 1951.223(c)(3) of this subpart, when applicable; and
(5) Any other necessary supporting information.
(c) Processing. When legally permissible and administratively
acceptable, the total outstanding principal and interest balances will
be reamortized rather than only the delinquent amount. Accrued interest
will be at the rate currently reflected in Finance Office records.
(1) Reamortizations will be perfected in accordance with OGC closing
instructions.
(2) When debt instruments are being modified or new debt instruments
executed, bond counsel or local counsel, as appropriate, must provide an
opinion indicating any effect on FmHA or its successor agency under
Public Law 103-354's security position. The FmHA or its successor agency
under Public Law
[[Page 50]]
103-354 approval official must determine that the government's interest
will remain adequately protected if the security position will be
affected.
(3) Notes. Except as provided in Sec. 1951.223(c)(4), loans
evidenced by notes will be reamortized through a new evidence of debt
unless OGC recommends that the terms of the existing document be
modified. Form FmHA or its successor agency under Public Law 103-354
1951-33 may be used to effect such modifications, if legally adequate,
or other forms may be used if acceptable to FmHA or its successor agency
under Public Law 103-354. The original of a new note or any endorsement
required by OGC is to be attached to the existing note, filed in the
servicing office, and retained until the account is paid in full or
otherwise satisfied. A copy will be forwarded to the Finance Office.
(4) Bonds and notes with other than real or chattel security pledged
to FmHA or its successor agency under Public Law 103-354. Loans
evidenced by bonds, or by notes with other than real or chattel security
pledged to FmHA or its successor agency under Public Law 103-354, may be
reamortized using procedures acceptable to the State Director and
legally permissible under State statutes in the opinion of the
borrower's counsel and the OGC.
(i) The procedure may consist of a new debt instrument or agreement
for the total FmHA or its successor agency under Public Law 103-354
indebtedness, including the delinquency, or a new instrument or
agreement whereby the borrower agrees to repay the delinquency plus
interest. If a new instrument or agreement for only the delinquent
amount is used, a new loan number will be assigned to the delinquent
amount, and the borrower will be required to pay the amounts due under
both the original and the new instruments.
(ii) When a delinquent or problem loan cannot be reamortized by
issuing a new debt instrument due to State statutes, or the cost of
preparation and closing is prohibitive, the rescheduling agreement
provided as Exhibit H of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), may be used.
(iii) Section 1942.19 of subpart A of part 1942 of this chapter
applies to any new bonds issued unless precluded by State statutes or an
exception is approved by the National Office.
(iv) If State statutes do not require the release of existing bonds,
they will be retained with the new bond instrument or agreement in the
FmHA or its successor agency under Public Law 103-354 office authorized
to store such documents. If State statutes require release of existing
bonds, the exchange will be accomplished by the District Director, and
the new bond and/or agreement will be retained in the appropriate
office.
(5) New debt instruments or agreements. (i) A copy will be sent to
the Finance Office after execution, except that if serial bonds are
used, the original bond(s) will be submitted to the Finance Office.
(ii) Any agreement used will contain:
(A) The amount delinquent, which must equal the total delinquency on
the account and net advances (the unpaid principal on any advance and
the accrued interest on any advance through the date of reamortization,
less interest payments credited on the advance account);
(B) The effective date of the reamortization;
(C) The number of years over which the delinquency will be
amortized;
(D) The repayment schedule; and
(E) The interest rate.
(iii) A payment will be due on the next scheduled due date.
Deferment of interest and/or principal payments is not authorized.
(iv) A separate new instrument will be required for each loan being
reamortized.
(v) If amortized payments are not used, the schedule of principal
installments developed will be such that combined payments of principal
and interest closely approximate an amortized payment.
(d) Reamortization with interest rate adjustment--Water and waste
borrowers only. A borrower that is seriously delinquent in loan payments
may be eligible for loan reamortization with interest rate adjustment.
The purpose of loan reamortization with interest rate adjustment is to
provide relief for a
[[Page 51]]
borrower that is unable to service the outstanding loan in accordance
with its existing terms and to enhance recovery on the loan. A borrower
must meet the conditions of this subpart to be considered eligible for
this provision.
(1) Eligibility determination. The State Director, Rural
Development, may submit to the Administrator for approval an adjustment
in the rate of interest charged on outstanding loans only for those
borrowers who meet the following requirements:
(i) The borrower has exhausted all other servicing provisions
contained in this subpart;
(ii) The borrower is experiencing severe financial problems;
(iii) Any management deficiencies must have been corrected or the
borrower must submit a plan acceptable to the State Office to correct
any deficiencies before an interest rate adjustment may be considered;
(iv) Borrower user rates must be comparable to similar systems. In
addition, the operating expenses reported by the borrower must appear
reasonable in relation to similar system expenses;
(v) The borrower has cooperated with Rural Development in exploring
alternative servicing options and has acted in good faith with regard to
eliminating the delinquency and complying with its loan agreements and
agency regulations; and
(vi) The borrower's account must be delinquent at least one annual
debt payment for 180 days.
(2) Conditions of approval. All borrowers approved for an adjustment
in the rate of interest by the Administrator shall agree to the
following conditions:
(i) The borrower shall agree not to maintain cash or cash reserves
beyond what is reasonable at the time of interest rate adjustment to
meet debt service, operating, and reserve requirements.
(ii) A review of the borrower's management and business operations
may be required at the discretion of the State Director. This review
shall be performed by an independent expert who has been recommended by
the State Director and approved by the National Office. The borrower
must agree to implement all recommendations made by the State Director
as a result of the review.
(iii) If requested, a copy of the latest audited financial
statements or management report must be submitted to the Administrator.
(3) Reamortization. At the discretion of the Administrator, the
interest rate charged on outstanding loans of eligible borrowers may be
adjusted to no less than the poverty interest rate and the term of the
loans may be extended up to a new 40 year term or the remaining useful
life of the facility, whichever is less.
[55 FR 4399, Feb. 8, 1990, as amended at 56 FR 25351, June 4, 1991; 63
FR 41714, Aug. 5, 1998]
Sec. 1951.224 Third party agreements.
The State Director may authorize all or part of a facility to be
operated, maintained or managed by a third party under a contract,
management agreement, written lease, or other third party agreement as
follows:
(a) Leases--(1) Lease of all or part of a facility (except when
liquidation action is pending). The State Director may consent to the
leasing of all or a portion of security property when:
(i) Leasing is the only feasible way to provide the service and is
the customary practice as required under Sec. 1942.17(b)(4) of subpart A
of part 1942 of this chapter;
(ii) The borrower retains ultimate responsibility for operating,
maintaining, and managing the facility and for its continued
availability and use at reasonable rates and terms as required under
Sec. 1942.17(b)(4) of subpart A of part 1942 of this chapter. The lease
agreement must clearly reflect sufficient control by the borrower over
the operation, maintenance, and management of the facility to assure
that the borrower maintains this responsibility;
(iii) The lease agreement contains provisions prohibiting any
amendments to the lease or any subleasing arrangements without prior
written approval from FmHA or its successor agency under Public Law 103-
354;
(iv) The lease document contains nondiscrimination requirements as
set forth in Sec. 1951.204 of this subpart;
[[Page 52]]
(v) The lease contains a provision which recognizes that FmHA or its
successor agency under Public Law 103-354 is a lienholder on the subject
facility and, as such, the lease is subordinate to the rights and claims
of FmHA or its successor agency under Public Law 103-354 as lienholder;
and
(vi) The lease does not constitute a lease/purchase arrangement,
unless permitted under Sec. 1951.232 of this subpart.
(2) Lease of all or part of a facility (pending liquidation action).
The State Director may consent to the leasing of all or a portion of
security property when:
(i) The lease will not adversely affect the repayment of the loan or
the Government's rights under the security or other instruments;
(ii) The State Director has determined that liquidation will likely
be necessary and the lease is necessary until liquidation can be
accomplished;
(iii) Leasing is not an alternative to, or means of delaying,
liquidation action;
(iv) The lease and use of any proceeds from the lease will further
the objective of the loan;
(v) Rental income is assigned to FmHA or its successor agency under
Public Law 103-354 in an amount sufficient to make regular payments on
the loan and operate and maintain the facility unless such payments are
otherwise adequately secured;
(vi) The lease is advantageous to the borrower and is not
disadvantageous to the Government;
(vii) If foreclosure action has been approved and the case has been
submitted to OGC, consent to lease and use of proceeds will be granted
only with OGC's concurrence; and
(viii) The lease does not exceed a one-year period. The property may
not be under lease more than two consecutive years without authorization
from the National Office. Long-term leases may be approved, with prior
authorization from the National Office, if necessary to ensure the
continuation of services for which the loan was made and if other
servicing options contained in this subpart have been determined
inappropriate for servicing the loan.
(b) Mineral leases. Unless liquidation is pending, the State
Director is authorized to approve mineral leases when:
(1) The lessee agrees, or is liable without any agreement, to pay
adequate compensation for any damage to the real estate surface and
improvements. Damage compensation will be assigned to FmHA or its
successor agency under Public Law 103-354 or the prior lienholder by the
use of Form FmHA or its successor agency under Public Law 103-354 443-
16, ``Assignment of Income from Real Estate Security,'' or other
appropriate instrument;
(2) Royalty payments are adequate and are assigned to FmHA or its
successor agency under Public Law 103-354 on Form FmHA or its successor
agency under Public Law 103-354 443-16 in an amount determined by the
State Director to be adequate to protect the Government's interest;
(3) All or a portion of delay rentals and bonus payments may be
assigned on Form FmHA or its successor agency under Public Law 103-354
443-16 if needed for protection of the Government's interest;
(4) The lease, subordination, or consent form is acceptable to OGC;
(5) The lease will not interfere with the purpose for which the loan
or grant was made; and
(6) When FmHA or its successor agency under Public Law 103-354
consent is required, the borrower submits a completed Form FmHA or its
successor agency under Public Law 103-354 465-1. The form will include
the terms of the proposed agreement and specify the use of all proceeds,
including any to be released to the borrower.
(c) Management agreements. Management agreements should contain the
minimum suggested contents contained in Guide 24 of part 1942, subpart A
of this chapter (available in any FmHA or its successor agency under
Public Law 103-354 office).
(d) Affiliation agreements. An affiliation agreement between the
borrower and a third party may be approved by the State Director, with
OGC concurrence, if it provides for shared services between the parties
and does not result
[[Page 53]]
in changes to the borrower's legal organizational structure which would
result in its loss of control over its assets and/or over the operation,
management, and maintenance of the facility to the extent that it cannot
carry out its responsibilities as set forth in Sec. 1942.17(b)(4) of
subpart A of part 1942 of this chapter. However, affiliation agreements
which result in a loss of borrower control may be approved with prior
concurrence of the Administrator if the loan is reclassified as a
nonprogram loan and the borrower is notified that it is no longer
eligible for any program benefit. Requests forwarded to the
Administrator will contain the case file, the proposed affiliation
agreement, and necessary supporting information.
(e) Processing. The consent of other lienholders will be obtained
when required. When National Office approval is required, or if the
State Director wishes to have a transaction reviewed prior to approval,
the case file will be forwarded to the National Office and will include:
(1) A copy of the proposed agreement;
(2) Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), appropriately
completed;
(3) Any other necessary supporting information.
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 21199, May 19, 1992]
Sec. 1951.225 Liquidation of security.
When the District Director believes that continued servicing will
not accomplish the objectives of the loan, he or she will complete
Exhibit A of this subpart (available in any FmHA or its successor agency
under Public Law 103-354 office), and submit it with the District Office
file to the State Office. If the State Director determines the account
should be liquidated, he or she will encourage the borrower to dispose
of the FmHA or its successor agency under Public Law 103-354 security
voluntarily through a sale or transfer and assumption, and establish a
specified period, not to exceed 180 days, to accomplish the action. If a
transfer or voluntary sale is not carried out, the loan will be
liquidated according to subpart A of part 1955 of this chapter.
Sec. 1951.226 Sale or exchange of security property.
A cash sale of all or a portion of a borrower's assets or an
exchange of security property may be approved subject to the conditions
set forth below.
(a) Authorities. (1) The District Director is authorized to approve
actions under this section involving only chattels.
(2) The State Director is authorized to approve real estate
transactions except as noted in the following paragraph.
(3) Approval of the Administrator must be obtained when a
substantial loss to the Government will result from a sale; one or more
members of the borrower's organization proposes to purchase the
property; it is proposed to sell the property for less than the
appraised value; or the buyer refuses to assume all the terms of the
Grant Agreement. It is not FmHA or its successor agency under Public Law
103-354 policy to sell security property to one or more members of the
borrower's organization at a price which will result in a loss to the
Government.
(b) General. Approval may be given when the approval official
determines and documents that:
(1) The consideration is adequate;
(2) The release will not prevent carrying out the purpose of the
loan;
(3) The remaining property is adequate security for the loan or the
transaction will not adversely affect FmHA or its successor agency under
Public Law 103-354's security position;
(4) If the property to be sold or exchanged is to be used for the
same or similar purposes for which the loan or grant was made, the
purchaser will:
(i) Execute Form FmHA or its successor agency under Public Law 103-
354 400-4, ``Assurance Agreement.'' The covenants involved will remain
in effect as long as the property continues to be used for the same or
similar purposes for which the loan or grant was made. The instrument of
conveyance will contain the covenant referenced in Sec. 1951.204 of this
subpart; and
(ii) Provide to FmHA or its successor agency under Public Law 103-
354 a written agreement assuming all rights and obligations of the
original grantee if grant funds were provided. See
[[Page 54]]
Sec. 1951.215 below for additional guidance on grant agreements.
(5) The proceeds remaining after paying any reasonable and necessary
selling expenses are used for one or more of the following purposes:
(i) To pay on FmHA or its successor agency under Public Law 103-354
debts according to Sec. 1951.221 of this subpart; on debts secured by a
prior lien; and on debts secured by a subsequent lien if it is to FmHA
or its successor agency under Public Law 103-354's advantage.
(ii) To purchase or acquire through exchange property more suited to
the borrower's needs, if the FmHA or its successor agency under Public
Law 103-354 debt will be as well secured after the transaction as
before.
(iii) To develop or enlarge the facility if necessary to improve the
borrower's debt-paying ability; place the operation on a sounder basis;
or otherwise further the loan objectives and purposes.
(6) Disposition of property acquired in whole or part with FmHA or
its successor agency under Public Law 103-354 grant funds will be
handled in accordance with the grant agreement.
(c) Processing. (1) The case file will contain the following:
(i) Except for actions approved by the District Director, Exhibit A
of this subpart (available in any FmHA or its successor agency under
Public Law 103-354 office), appropriately completed;
(ii) The appraisal report, if appropriate;
(iii) Name of purchaser, anticipated sales price, and proposed terms
and conditions;
(iv) Form FmHA or its successor agency under Public Law 103-354
1965-8, ``Release from Personal Liability,'' including the County
Committee memorandum and the State Director's recommendations;
(v) An executed Form FmHA or its successor agency under Public Law
103-354 400-4, if applicable;
(vi) An executed Form FmHA or its successor agency under Public Law
103-354 465-1, if applicable;
(vii) Form FmHA or its successor agency under Public Law 103-354
460-4, ``Satisfaction,'' if a debt has been paid in full or satisfied by
debt settlement action. For cases involving real estate, a similar form
may be used if approved by OGC; and
(viii) Written approval of the Administrator when required under
Sec. 1951.226(a)(3) of this subpart;
(2) Releasing security. (i) The District Director is authorized to
satisfy or terminate chattel security instruments when Sec. 1951.226(b)
of this subpart and Sec. 1962.17 and Sec. 1962.27 of subpart A of part
1962 of this chapter have been complied with. Partial release may be
made by using Form FmHA or its successor agency under Public Law 103-354
460-1, ``Partial Release,'' or Form FmHA or its successor agency under
Public Law 103-354 462-12, ``Statements of Continuation, Partial
Release, Assignment, Etc.''
(ii) Subject to Sec. 1951.226(b) of this subpart, the State Director
is authorized to release part or all of an interest in real estate
security by approving Form FmHA or its successor agency under Public Law
103-354 465-1. Partial release of real estate security may be made by
use of Form FmHA or its successor agency under Public Law 103-354 460-1
or other form approved by OGC.
(3) FmHA or its successor agency under Public Law 103-354 liens will
not be released until the sale proceeds are received for application on
the Government's claim. In states where it is necessary to obtain the
insured note from the lender to present to the recorder before releasing
a portion of the land from the mortgage, the borrower must pay any cost
for postage and insurance of the note while in transit. The District
Director will advise the borrower when it requests a partial release
that it must pay these costs. If the borrower is unable to pay the costs
from its own funds, the amounts shown on the statement of actual costs
furnished by the insured lender may be deducted from the sale proceeds.
(d) Release from liability. (1) When an FmHA or its successor agency
under Public Law 103-354 debt is paid in full from the proceeds of a
sale, the borrower will be released from liability by use of Form FmHA
or its successor agency under Public Law 103-354 1965-8.
(2) When sale proceeds are not sufficient to pay the FmHA or its
successor agency under Public Law 103-354 debt in full, any balance
remaining will be
[[Page 55]]
handled in accordance with procedures for debt settlement actions set
forth in subpart C of part 1956 of this chapter.
(i) In determining whether a borrower should be released from
liability, the State Director will consider the borrower's debt-paying
ability based on its assets and income at the time of the sale.
(ii) Release from liability will be accomplished by using Form FmHA
or its successor agency under Public Law 103-354 1965-8 and obtaining
from the County Committee a memorandum recommending the release which
contains the following statement:
________________ in our opinion does not have reasonable debt-paying
ability to pay the balance of the debt after considering its assets and
income at the time of the sale. The borrower has cooperated in good
faith, used due diligence to maintain the security against loss, and
otherwise fulfilled the covenants incident to the loan to the best of
its ability. Therefore, we recommend that the borrower be released from
liabilty upon the completion of the sale.
Sec. 1951.227 Protective advances.
The State Director is authorized to approve, without regard to any
loan or total indebtedness limitation, vouchers to pay costs, including
insurance and real estate taxes, to preserve and protect the security,
the lien, or the priority of the lien securing the debt owed to or
insured by FmHA or its successor agency under Public Law 103-354 if the
debt instrument provides that FmHA or its successor agency under Public
Law 103-354 may voucher the account to protect its lien or security. The
State Director must determine that authorizing a protective advance is
in the best interest of the government. For insurance, factors such as
the amount of advance, occupancy of the structure, vulnerability to
damage and present value of the structure and contents will be
considered.
(a) Protective advances are considered due and payable when
advanced. Advances bear interest at the rate specified in the most
recent debt instrument authorizing such an advance.
(b) Protective advances are not to be used as a substitute for a
loan.
(c) Vouchers are prepared in accordance with applicable procedures
set forth in FmHA or its successor agency under Public Law 103-354
Instruction 2024-A (available in any FmHA or its successor agency under
Public Law 103-354 office).
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36591, Aug. 14, 1992]
Secs. 1951.228--1951.229 [Reserved]
Sec. 1951.230 Transfer of security and assumption of loans.
(a) General. It is FmHA or its successor agency under Public Law
103-354 policy to approve transfers and assumptions to transferees which
will continue the original purpose of the loan in accordance with the
following and specific requirements relating to eligible and ineligible
borrowers set forth below:
(1) The present borrower is unable or unwilling to accomplish the
objectives of the loan.
(2) The transfer will not be disadvantageous to the Government or
adversely affect either FmHA or its successor agency under Public Law
103-354's security position or the FmHA or its successor agency under
Public Law 103-354 program in the area.
(3) Transfers to eligible applicants will receive preference over
transfers to ineligible applicants if recovery to FmHA or its successor
agency under Public Law 103-354 is not less than it would be if the
transfer were to an ineligible applicant.
(4) If the FmHA or its successor agency under Public Law 103-354
debt(s) exceed the present market value of the security as determined by
the State Director, the transferee will assume an amount at least equal
to the present value.
(5) If the transfer and assumption is to one or more members of the
borrower's organization, there must not be a loss to the government.
(6) FmHA or its successor agency under Public Law 103-354 concurs in
plans for disposition of funds in the transferor's debt service,
reserve, operation and maintenance, and any other project account,
including supervised bank accounts.
(7) When the property to be transferred is to be used for the same
or similar purposes for which the loan was made, the transferee will
execute Form
[[Page 56]]
FmHA or its successor agency under Public Law 103-354 400-4 to continue
nondiscrimination covenants and provide to FmHA or its successor agency
under Public Law 103-354 a written certification assuming all terms of
the Grant Agreement executed by the transferor. All instruments of
conveyance will contain the covenant referenced in Sec. 1951.204 of this
subpart.
(8) This subpart does not preclude the transferor from receiving
equity payments when the full account of the FmHA or its successor
agency under Public Law 103-354 debt is assumed. However, equity
payments will not be made on more favorable terms than those on which
the balance of the FmHA or its successor agency under Public Law 103-354
debt will be paid.
(9) Transferees must have the ability to pay the FmHA or its
successor agency under Public Law 103-354 debt as provided in the
assumption agreement and the legal capacity to enter into the contract.
The applicant will submit a current balanced sheet using Form FmHA or
its successor agency under Public Law 103-354 442-3, ``Balance Sheet,''
and budget and cash flow information using Form FmHA or its successor
agency under Public Law 103-354 442-2, or similar forms. For ineligible
applicants, such information may be supplemented by a credit report from
an independent source or verified by an independent certified public
accountant.
(10) For purposes of this subpart, transfers to eligible applicants
will include mergers and consolidations. Mergers occur when two or more
corporations combine in such a manner that only one remains in
existence. In a consolidation, two or more corporations combine to form
a new, consolidated corporation, with all of the original corporations
ceasing to exist. In both mergers and consolidations, the surviving or
emerging corporation takes the assets and assumes the liabilities of the
corporation(s) which ceased to exist. Such transactions must be
distinguished from transfers and assumptions, in which a transferor will
not necessarily go out of existence and the transferee will not always
take all assets or assume all liabilities of the transferor.
(11) A current appraisal report to establish the present market
value of the security will be completed in accordance with
Sec. 1951.220(i) of this subpart when the full debt is not being
assumed.
(12) There must be no lien, judgment, or similar claims of other
parties against the FmHA or its successor agency under Public Law 103-
354 security being transferred unless the transferee is willing to
accept such claims and the FmHA or its successor agency under Public Law
103-354 approval official determines that they will not prevent the
transferee from repaying the FmHA or its successor agency under Public
Law 103-354 debt, meeting all operating and maintenance costs, and
maintaining required reserves. The written consent of any other
lienholder will be obtained where required.
(b) Authorities. The State Director is authorized to approve
transfers and assumptions of FmHA or its successor agency under Public
Law 103-354 loans in accordance with the provisions of paragraphs (c)
and (d) of this section, except for the following, which require prior
approval of the Administrator:
(1) Proposals which will involve a loss to the Government;
(2) Proposals involving a transfer to one or more members of the
present borrower's organization;
(3) Proposals involving rates and terms which are more liberal than
those set forth in Sec. 1951.230(c) of this subpart;
(4) Proposals involving a cash payment to the present borrower which
exceeds the actual sales expenses;
(5) The transferee refuses to assume all terms of the Grant
Agreement for a project financed in part with FmHA or its successor
agency under Public Law 103-354 grant funds;
(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) Eligible applicants. Except as noted in Sec. 1951.230(b) of this
subpart, the State Director is authorized to approve transfers of
security property to and
[[Page 57]]
assumptions of FmHA or its successor agency under Public Law 103-354
debts by transferees who would be eligible for financial assistance
under the loan program involved for the type of loan being transferred.
The State Director must determine and document that eligibility
requirements have been satisfied.
(1) If a loan is evidenced and secured by a note and lien on real or
chattel property, Form FmHA or its successor agency under Public Law
103-354 1951-15, ``Community Programs Assumption Agreement,'' will be
executed by the transferee. When the terms of the loan are changed, the
new repayment period may not exceed the lesser of the repayment period
for a new loan of the type involved or the expected life of the
facility. Interest will accrue at the rate currently reflected in
Finance Office records.
(2) If the loan is evidenced and secured by a bond, procedures will
be followed which are acceptable to the State Director and legally
permissible under State law in the opinion of the borrower's counsel and
OGC. The interest rate will be the rate currently reflected in Finance
Office records. Any new repayment period provided may not exceed the
lesser of the repayment period for a new loan of the type involved or
the expected life of the facility.
(3) Loans being transferred and assumed may be combined when the
security is the same, new terms are being provided, a new debt
instrument will be issued, and the loans have the same interest rate and
are for the same purpose. If applicable, Sec. 1942.19(h)(11) will govern
the preparation of any new debt instruments required.
(4) A loan may be made in connection with a transfer if the
transferee meets all eligibility and other requirements for the kind of
loan being made. Such a loan will be considered as a separate loan, and
must be evidenced by a separate debt instrument. However, it is
permissible to have one authorizing loan resolution or ordinance if
permitted by State statutes.
(5) Any development funds remaining in a supervised bank account
which are not to be refunded to FmHA or its successor agency under
Public Law 103-354 will be transferred to a supervised bank account for
the transferee simultaneously with the closing of the transfer for use
in completing planned development.
(d) Ineligible applicants. Except as noted in Sec. 1951.230(b) of
this subpart, the State Director is authorized to approve transfer and
assumptions to transferees who would not be eligible for financial
assistance under the loan program involved for the type of loan being
transferred. However, the State Director is authorized to approve all
transfers of incorporated Economic Opportunity Cooperative loans to
ineligible applicants without regard to the requirements set forth in
Sec. 1951.230(b). Such transfers are considered only when an eligible
transferee is not available or when the recovery to FmHA or its
successor agency under Public Law 103-354 from a transfer to an
available eligible transferee would be less. Transfers are not to be
considered as a means by which members of the transferor's governing
body can obtain an equity or as a method of providing a source of easy
credit for purchasers.
(1) Ineligible applicants must pay a one-time nonrefundable transfer
fee when they submit an application or proposal.
(i) The National Office will issue a directive annually advising the
field of the amount of the fee. Any cost for appraisals performed by
non-FmHA or its successor agency under Public Law 103-354 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
[[Page 58]]
will request prior approval by submitting the transfer case file
established in accordance with processing requirements set forth below
to the National Office, Attention (appropriate program division).
(2) Any funds remaining in a supervised bank account will be
refunded to FmHA or its successor agency under Public Law 103-354 and
applied to the debt as a condition of transfer.
(3) The interest rate will be the greater of the rate specified for
the note in current Finance Office records or the market rate for
Community Programs as of the transfer closing date.
(4) The transferred loan will be identified as an NP loan and
serviced in accordance with Sec. 1951.216 of this subpart.
(5) Form FmHA or its successor agency under Public Law 103-354 465-
5, ``Transfer of Real Estate Security,'' will be used, and will be
modified as appropriate before execution.
(6) Consideration will be given to obtaining individual liability
agreements from members of the transferee organization.
(e) Release from liability. Except when nonprogram loans or Economic
Opportunity Cooperative loans are involved, transferors may be released
from liability in accordance with the following:
(1) If the full amount of the debt is assumed, the State Director
may approve the release from liability by use of Form FmHA or its
successor agency under Public Law 103-354 1965-8.
(2) If less than the full amount of the debt is assumed, any balance
remaining will be handled in accordance with procedures for debt
settlement actions set forth in subpart C of part 1956 of this chapter.
(i) In determining whether a borrower should be released from
liability, the State Director will consider the borrower's debt-paying
ability based on its assets and income at the time of the sale.
(ii) Release from liability will be accomplished by using Form FmHA
or its successor agency under Public Law 103-354 1965-8 and obtaining
from the County Committee a memorandum recommending the release which
contains the statement set forth in Sec. 1951.226(d)(2)(ii) of this
subpart.
(f) Processing. Transfers and assumptions will be processed in
accordance with the following:
(1) A transfer case file organized in accordance with FmHA or its
successor agency under Public Law 103-354 Instruction 2033-A (available
in any FmHA or its successor agency under Public Law 103-354 office)
will be established, and will contain all documents and correspondence
relating to the transfer. The forms utilized for transfers and
assumptions are listed in Exhibit D (available in any FmHA or its
successor agency under Public Law 103-354 office). All forms listed must
be completed and included in the case file unless inappropriate for the
particular situation.
(2) A letter of conditions establishing requirements to be met in
connection with the transfer and assumption will be issued, and the
transferee will be required to execute Form FmHA or its successor agency
under Public Law 103-354 442-46, ``Letter of Intent to Meet
Conditions,'' prior to the closing of the transfer.
(3) Both the transferee and transferor are responsible for obtaining
the legal services necessary to accomplish the transfer.
(4) Transfers will be closed in accordance with instructions
provided by OGC.
(5) When the transferee is a public body and Form FmHA or its
successor agency under Public Law 103-354 1951-15 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;
[[Page 59]]
(ii) A conformed copy of Form FmHA or its successor agency under
Public Law 103-354 1965-8.
(8) If an FmHA or its successor agency under Public Law 103-354
grant was made in conjunction with the loan being transferred, the
transferee must agree in writing to assume all rights and obligations of
the original grantee. See Sec. 1951.215 for additional guidance on grant
agreements.
(9) The transferee will obtain insurance according to requirements
for the loan(s) being transferred unless the approval official requires
additional insurance. When the entire FmHA or its successor agency under
Public Law 103-354 debt is being assumed and an amount has been advanced
for insurance premiums or any other purposes, the transfer will not be
completed until the Finance Office has charged the advance to the
transferor's account.
(10) Rates and terms. (i) If the transfer will be closed at the same
rates and terms, the transferee will be informed of the amount needed to
be on schedule by the next installment due date.
(ii) If the transfer will be closed at new rates and terms, the
transferee will be informed of the amount of principal and interest owed
based on information obtained using the ADPS status screen option.
(11) The effective date of a transfer is the actual date the
transfer is closed, which is the same date Form FmHA or its successor
agency under Public Law 103-354 1951-15 or other appropriate assumption
agreement is signed.
(12) Title to all assets will be conveyed from the transferor to the
transferee unless other arrangements are agreed upon by all parties
concerned, including FmHA or its successor agency under Public Law 103-
354. All instruments of conveyance will contain the covenant referenced
in Sec. 1951.204 of this subpart.
(13) If an insured loan being held by an investor is involved, the
Finance Office will have to repurchase the note prior to processing the
assumption agreement.
(14) When National Office approval is required, the transfer case
file will be submitted to the Administrator, Attention: (appropriate
program division), with Exhibit A of this subpart (available in any FmHA
or its successor agency under Public Law 103-354 office), appropriately
completed, and a cover memorandum which denotes any unusual
circumstances.
(15) The District Director must review Form FmHA or its successor
agency under Public Law 103-354 1910-11, ``Applicant Certification,
Federal Collection Policies for Consumer or Commercial Debts,'' with the
applicant, and the form must be signed by the applicant and included in
the file.
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36590, Aug. 14, 1992]
Sec. 1951.231 Special provisions applicable to Economic Opportunity (EO) Cooperative Loans.
(a) Withdrawal of member and transfer to and assumption by new
members of Unincorporated Cooperatives. (1) Withdrawal of a member who
is no longer utilizing the services of an association and transfer of
withdrawing member interest in the association to a new member who will
assume the entire unpaid balance of the indebtedness of the withdrawing
member may be permitted, if the remaining members agree to accept the
new member and the transfer will not adversely affect collection of the
loan. The servicing office will submit to the State Office the borrow
case file and the following:
(i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 executed by the proposed new member;
(ii) Statement of the current amount of the indebtedness involved;
(iii) A description and statement of the value of the security
property;
(iv) A memorandum to justify the transaction;
(v) Form FmHA or its successor agency under Public Law 103-354 440-
2, ``County Committee Certification or Recommendation;''
(vi) Exhibit B of this subpart, ``Agreement for New Member (With or
Without Withdrawing Member),'' (available in any FmHA or its successor
agency under Public Law 103-354 office), executed by the remaining
members of the association, the proposed new member, and the withdrawing
member; and
(vii) Form FmHA or its successor agency under Public Law 103-354
450-12,
[[Page 60]]
``Bill of Sale (Transfer by Withdrawing Member),'' executed by the
withdrawing member.
(2) If the State Director determines after review of the above
information that the proposed new member is eligible and the transfer is
justified, the State Director may approve the transfer and assumption by
executing Form FmHA or its successor agency under Public Law 103-354
1951-15.
(3) Upon completion of the above actions, the State Director may
release the outgoing member from personal liability using Form FmHA or
its successor agency under Public Law 103-354 1965-8.
(4) If Finance Office records must be changed due to changes in
borrower name, address and/or case number, necessary documents,
including Form FmHA or its successor agency under Public Law 103-354
1951-15 and, if applicable, Form FmHA or its successor agency under
Public Law 103-354 1965-8, will be forwarded to the Finance Office
immediately with a memorandum indicating that the purpose of the
submission is only to establish liability for a new member and release
an old member from liability.
(b) Withdrawal of members from Unincorporated Cooperatives when new
member not available. Withdrawal of a member who no longer utilizes the
services of an association may be permitted even though a new member is
not available, provided:
(1) The State Director determines that the remaining members have
sufficient need for the property, and that the withdrawal of the member
will not adversely affect collection of the loan; and
(2) The remaining members obtain from the outgoing member an
agreement conveying his or her interest in the cooperative property to
them. They may also wish to agree to protect the outgoing member against
liability on the debt owed to FmHA or its successor agency under Public
Law 103-354 as well as any other debts. Exhibit C of this subpart,
``Agreement for Withdrawal of Member (Without New Member),'' (available
in any FmHA or its successor agency under Public Law 103-354 office),
may be used by the cooperative. FmHA or its successor agency under
Public Law 103-354 will not be a party to the agreement.
(c) Addition of new members (no withdrawing member or transfer
involved) for both Incorporated and Unincorporated Cooperatives. (1) A
new member may be admitted to the association even though there is no
withdrawing member, if:
(i) The members of the association agree to accept the proposed new
member, and
(ii) The State Director determines that the association owns
adequate facilities to provide service to the new member.
(2) The servicing office will submit to the State Office the case
file and items (i) through (vi) of Sec. 1951.231(a)(1).
(3) If the State Director determines after the review of the above
information that the proposed new member is eligible and the transaction
is justified, the State Director may approve the transaction by
executing Form FmHA or its successor agency under Public Law 103-354
1951-15.
(4) Form FmHA or its successor agency under Public Law 103-354 1951-
15 will be forwarded immediatly to the Finance Office with a memorandum
indicating that the form is intended only to establish liability for a
new member.
(d) Deceased members of Unincorporated Cooperatives. Form FmHA or
its successor agency under Public Law 103-354 442-24, ``Operating
Agreement,'' (now obsolete) was executed by recipients of these loans.
Paragraph 10 of that form provides that in case of the death of any
member, the heirs or personal representative of the deceased member
shall take the deceased member's place in the association. This
provision also covers sale of the decedent's interest in the association
if the sale is necessary to pay debts of the estate.
(1) If the heirs or personal representative do not wish to continue
membership in the association, the remaining members may be permitted to
continue to operate the property if FmHA or its successor agency under
Public Law 103-354's financial interest will not be jeopardized. The
remaining members should obtain from the deceased member's estate an
agreement conveying the estate's interest in the cooperative
[[Page 61]]
property to them. The remaining members may wish to agree to protect the
estate against liability on the debt to FmHA or its successor agency
under Public Law 103-354 as well as any other debts of the cooperative.
(2) The requirement of Sec. 1962.46(h) of subpart A of part 1962
will also be followed.
(e) Action which affects individual members of Unincorporated EO
Cooperative security. The borrower will be expected to protect its own
interest in condemnation, trespass, quiet title, and other cases
affecting the security. The servicing office will immediately furnish
the complete facts concerning any action taken against individual
members of Unincorporated Cooperatives to the State Director together
with the case file.
(f) Debt Settlement. Debt settlement actions for Economic
Opportunity Cooperative loans must be handled under the Federal Claims
Collection Act; proposals will be submitted to the National Office for
review and approval.
Sec. 1951.232 Water and waste disposal systems which have become part of an urban area.
A water and/or waste disposal system serving an area which was
formerly a rural area as defined in Sec. 1942.17(b)(2)(iii) and (iv) of
subpart A of part 1942 of this chapter, but which has become in its
entirety part of an urban area, will be serviced in accordance with this
section.
(a) Curtailment or limitation of service. Service may not be
curtailed or limited by the inclusion of a system within an urban area.
(b) Sale or transfer and assumption. (1) The urban community or
another entity may purchase the facility involved and immediately pay
the FmHA or its successor agency under Public Law 103-354 debt in full;
or
(2) The urban community or another entity may accept a transfer of
the FmHA or its successor agency under Public Law 103-354 debt on an
ineligible applicant basis.
(3) When a grant is involved, the entity will agree in writing to
assume all rights and obligations of the original grantee. See
Sec. 1951.215 for additional guidance on grant agreements.
(c) Lease-purchase arrangement. If Sec. 1951.232(b) (l) and (2) of
this section are not practicable, the urban community may, with prior
approval of the National Office, operate and maintain the system under a
lease-purchase arrangement which provides that:
(1) The urban community will:
(i) Assume responsibility for operation and maintenance of the
facility, subject to nondiscrimination and all other requirements which
are applicable to the borrower, which are to be specified in the
agreement between the parties; and
(ii) Pay the association annually an amount sufficient to enable it
to meet all its obligations, including reserve account requirements.
(2) The FmHA or its successor agency under Public Law 103-354
borrower will:
(i) Meet its debt service and reserve account requirements to FmHA
or its successor agency under Public Law 103-354;
(ii) Retain its corporate existence until FmHA or its successor
agency under Public Law 103-354 has been paid in full; and
(iii) If agreed upon by both parties, convey title to the facility
to the urban community when the FmHA or its successor agency under
Public Law 103-354 debt has been paid in full.
(d) Processing. (1) Sale of a borrower's assets will be handled in
accordance with Sec. 1951.226 of this subpart.
(2) Transfer and assumption of a borrower's assets and indebtedness
will be handled in accordance with Sec. 1951.230 of this subpart.
(3) Lease-operation-to-purchase arrangements are not permitted.
(4) When a lease-purchase arrangement is proposed, the State
Director will obtain a proposed agreement drafted by either the borrower
or the urban community. The following will be forwarded to the
Administrator, Attention: Water and Waste Disposal Division, for review
and approval authorization:
(i) A copy of the proposed agreement;
(ii) Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), appropriately
completed;
(iii) OGC comments;
[[Page 62]]
(iv) The case file, including all documentation appropriate for the
type of servicing action involved.
[55 FR 4399, Feb. 8, 1992, as amended at 57 FR 21199, May 19, 1992]
Secs. 1951.233--1951.239 [Reserved]
Sec. 1951.240 State Director's additional authorizations and guidance.
(a) Promote financing purposes and improve or maintain
collectibility. The State Director is authorized to perform the
following functions when the action is determined likely to promote the
loan or grant purposes without jeopardizing collectibility of the loan
or imparing the adequacy of the security; will strengthen the security;
or will facilitate, improve, or maintain the orderly collection of the
loan:
(1) Approve requests for permission to modify bylaws, articles of
incorporation, or other rules and regulations of recipients, including
changes in rate or fee schedules. Changes affecting the recipient's
legal organizational structure must be approved by OGC.
(2) Consent to requests by the recipient to incur additional
indebtedness, subject to applicable FmHA or its successor agency under
Public Law 103-354 instructions and covenants in the loan or grant
agreement.
(3) Renew existing security instruments.
(4) Approve the extension or expansion of facilities and services.
(5) Require additional security when:
(i) Existing security is inadequate and the loan or security
instruments obligate the borrower to give additional security; or
(ii) The loan is in default and additional security is acceptable in
lieu of other servicing actions.
(6) Release properties being sold by the borrower from mortgages
securing Rural Renewal loans if the amount of the notes and mortgages
given by the purchaser to the borrower equal the present market value
and are assigned and pledged to FmHA or its successor agency under
Public Law 103-354, and any money payable to the borrower is applied as
an extra payment on the Rural Renewal loan.
(7) Approve requests for rights-of-way and easements and any
subordination necessary in connection with such requests.
(b) Referrals to National Office. All proposed servicing actions
which the State Director is not authorized by this subpart to approve
will be referred to the National Office.
(c) Defeasance of FmHA or its successor agency under Public Law 103-
354 indebtedness. Defeasance is the use of invested proceeds from a new
bond issue to repay outstanding bonds in accordance with the repayment
schedule of the outstanding bonds. The new issue supersedes the
contractual agreements the borrower agreed to in the prior issue.
Defeasance, or amending outstanding loan instruments and agreements to
permit defeasance, of FmHA or its successor agency under Public Law 103-
354 debt instruments is not authorized, since defeasance limits, or
eliminates entirely, the borrower's ability to comply with statutory
refinancing requirements implemented by subpart F of part 1951 of this
chapter.
Sec. 1951.241 Special provision for interest rate change.
(a) General. Effective October 1, 1981, and thereafter, upon request
of the borrower, the interest rate charged by FmHA or its successor
agency under Public Law 103-354 to water and waste disposal and
community facility borrowers shall be the lower of the rates in effect
at either the time of loan approval or loan closing. Pub. L. 99-88
provides that any FmHA or its successor agency under Public Law 103-354
grant funds associated with such loans shall be set in the amount based
on the interest rate in effect at the time of loan approval. Loans
closed October 1, 1981, through October 25, 1985, were closed at the
interest rate in effect at the time of loan approval and that interest
rate is reflected in the borrower's debt instrument. For community
facility and water and waste disposal loans closed on or after October
1, 1981, and for which the interest rate in effect at the time of loan
closing is lower than the interest rate in effect at the time of loan
approval, the borrower may request to be charged the lower interest
rate. The loan closing interest rate will be determined by FmHA or its
successor agency under Public Law 103-
[[Page 63]]
354 based upon requirements in effect at the date of loan closing.
Exhibit E of this subpart (available in any FmHA or its successor agency
under Public Law 103-354 office) contains a summary of interest rate
requirements for specific time periods. Exhibit C of Subpart O of this
part (available in any FmHA or its successor agency under Public Law
103-354 office) will be used to determine the interest rate and
effective dates by category of poverty, intermediate, and market rates.
Exhibit F of this subpart (available in any FmHA or its successor agency
under Public Law 103-354 office) contains the instructions on how to
process a change of interest rate. Loans meeting the criteria of this
section that have been paid in full are eligible for the borrower to
request the lower interest rate. For loan(s) that involved multiple
advances of FmHA or its successor agency under Public Law 103-354 funds
using temporary debt instruments, wherein the borrower requests the
interest rate in effect at loan closing, the interest rate charged shall
be the rate in effect on the date when the first temporary debt
instrument was issued.
(b) Notification to borrower and borrower selection of interest
rate. (1) FmHA or its successor agency under Public Law 103-354
servicing officials will notify each borrower meeting the provisions of
this section of the availability of a choice of interest rate. The
notification will be made in writing at the earliest possible date,
utilizing Exhibit G of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), and sent by certified
mail, return receipt requested. Borrowers will be advised at the time of
notification that if a change of interest rate is requested, the change
will be accomplished administratively by FmHA or its successor agency
under Public Law 103-354. The effect of the change on the loan account
will also be fully explained to the borrower.
(2) Borrowers must notify FmHA or its successor agency under Public
Law 103-354 within 90 calendar days of the date of FmHA or its successor
agency under Public Law 103-354 notification indicating their election
to retain the rate in effect at loan approval or to change the rate to
the rate in effect at the time of loan closing. If the borrower does not
respond within the 90-day period, FmHA or its successor agency under
Public Law 103-354 will not consider a future request for a lower
interest rate under the provisions of this subpart.
(3) The borrower is responsible for assuring that the official
executing the letter requesting the change of interest rate is duly
authorized and any action(s) necessary for this authorization have been
taken as required. Any costs associated with a change of interest rate
will be the responsibility of the borrower.
(c) Processing loan interest rate change. The State Director is
authorized to approve loan interest rate changes which meet the
requirements of this section. Loan interest rate changes will be
accomplished as follows:
(1) All loan payments already applied to the account(s) will be
reversed and reapplied by FmHA or its successor agency under Public Law
103-354 utilizing the changed interest rate. The balance remaining after
the completion of the reversal and reapplication procedures will be
applied first to any delinquency on the account and then to principal.
(2) For paid-in-full accounts which meet the criteria of
Sec. 1951.241(a) of this subpart, the balance of loan payments after
completion of the reversal and reapplication procedures will be returned
to the borrower unless the borrower is delinquent on another FmHA or its
successor agency under Public Law 103-354 loan of the same type. In
those cases the amount will be applied to the delinquent amount owed,
with any balance refunded to the borrower.
(3) The Finance Office will administratively change the interest
rate on a borrower's account in accordance with notification from the
servicing official. The installment schedule set forth in each
borrower's debt instrument will not change. The original principal
schedule for principal-plus-interest accounts where principal only is
stipulated will continue to be used for payment calculation by the
Finance Office. Amortized accounts will adhere to the original payment
schedule and amount. The last scheduled principal
[[Page 64]]
installment will be reduced by the amount of the balance previously
generated by the reversal and reapplication of payments.
(4) When FmHA or its successor agency under Public Law 103-354 has
processed a change of interest rate for an amortized loan and a
reduction in installment amounts is needed to provide for a sound
operation, the borrower may request reamortization in accordance with
Sec. 1951.223 of this subpart.
(5) The borrower will be notified in writing of the new interest
rate as changed.
Secs. 1951.242--1951.249 [Reserved]
Sec. 1951.250 OMB control number.
The reporting and recordkeeping requirements contained in this
regulation have been approved by the Office of Management and Budget and
have been assigned OMB Control Number 0575-0066. Public reporting burden
for this collection of information is estimated to vary from fifteen
minutes to three hours per response including time for reviewing
instructions, searching existing data sources, gathering and maintaining
the data needed, and completing and reviewing the collection of
information. Send comments regarding this burden estimate or any other
aspect of this collection of information, including suggestions for
reducing this burden, to Department of Agriculture, Clearance Officer,
OIRM, Room 404-W, Washington, DC 20250; and to the Office of Management
and Budget, Washington, DC 20503.
Exhibits to Subpart E
Editorial Note: Exhibits A through H are not published in the Code
of Federal Regulations.
Exhibit A--Report on Servicing Action
Exhibit B--Agreement for New Member (With or Without Withdrawing Member)
Exhibit C--Agreement for Withdrawal of Member (Without New Member)
Exhibit D--Items to be Included in Transfer and Assumption Dockets (if
applicable)
Exhibit E--Interest Rate Requirements and Effective Dates
Exhibit F--Instruction to FmHA or its successor agency under Public Law
103-354 Personnel to Implement Public Law 100-233
Exhibit G--Letter to Borrower Notifying of Choice of Interest Rate
Exhibit H--Rescheduling Agreement--Public Bodies
Subpart F--Analyzing Credit Needs and Graduation of Borrowers
Source: 61 FR 35927, July 9, 1996, unless otherwise noted.
Sec. 1951.251 Purpose.
This subpart prescribes the policies to be followed when analyzing a
direct borrower's needs for continued Agency supervision, further
credit, and graduation. All loan accounts will be reviewed for
graduation in accordance with this subpart, with the exception of
Guaranteed, Watershed, Resource Conservation and Development, Rural
Development Loan Funds, and Rural Rental Housing loans made to build or
acquire new units pursuant to contracts entered into on or after
December 15, 1989, and Intermediary Relending Program loans. The term
``Agency'' used in this subpart refers to the Farm Service Agency (FSA)
including its
[[Page 65]]
county and state committees and their personnel), Rural Utilities
Service (RUS), Rural Housing Service (RHS), or Rural Business-
Cooperative Service (RBS), depending upon the loan program discussed
herein. This subpart does not apply to RHS direct single family housing
(SFH) customers.
[61 FR 35927, July 9, 1996, as amended at 61 FR 59778, Nov. 22, 1996]
Sec. 1951.252 Definitions.
Commercial classified. The Agency's highest quality Farm Credit
Programs (FCP) accounts. The financial condition of the borrowers is
strong enough to enable them to absorb the normal adversities of
agricultural production and marketing. There is ample security for all
loans, there is sufficient cash flow to meet the expenses of the
agricultural enterprise and the financial needs of the family, and to
service debts. The account is of such quality that commercial lenders
would likely view the loans as a profitable investment.
Farm Credit Programs (FCP) loans. FSA Farm Ownership (FO), Operating
(OL), Soil and Water (SW), Recreation (RL), Emergency (EM), Economic
Emergency (EE), Economic Opportunity (EO), Special Livestock (SL),
Softwood Timber (ST) loans, and Rural Housing loans for farm service
buildings (RHF).
Graduation, FCP. The payment in full of all FCP loans or all FCP
loans of one type (i.e., all loans made for chattel purposes or all
loans made for real estate purposes) by refinancing with other credit
sources either with or without an Agency loan guarantee. A loan made for
both chattel and real estate purposes, for example an EM loan, will be
classified according to how the majority of the loan's funds were
expended. Borrowers must continue with their farming operations to be
considered as graduated.
Graduation, other programs. The payment in full of any direct loan
for Community and Business Programs, and all direct loans for housing
programs, before maturity by refinancing with other credit sources.
Graduated housing borrowers must continue to hold title to the property.
Graduation, for other than FCP, does not include credit which is
guaranteed by the United States.
Prospectus, FCP. Consists of a transmittal letter with a current
balance sheet and projected year's budget attached. The applicant's or
borrower's name and address need not be withheld from the lender. The
prospectus is used to determine lender interest in financing or
refinancing specific Agency direct loan applicants and borrowers. The
prospectus will provide information regarding the availability of an
Agency loan guarantee and interest assistance.
Reasonable rates and terms. Those commercial rates and terms which
borrowers are expected to meet when borrowing for similar purposes and
similar periods of time. The ``similar periods of time'' of available
commercial loans will be measured against, but need not be the same as,
the remaining or original term of the loan. In the case of Multi-Family
Housing (MFH) loans, ``reasonable rates and terms'' would be considered
to mean financing that would allow the units to be offered to eligible
tenants at rates consistent with other multi-family housing.
Servicing official. The district or county office official
responsible for the immediate servicing functions of the borrower.
Standard classified. These loan accounts are fully acceptable by
Agency standards. Loan risk and potential loan servicing costs are
higher than would be acceptable to other lenders, but all loans are
adequately secured. Repayment ability is adequate, and there is a high
probability that all loans will be repaid as scheduled and in full.
Sec. 1951.253 Objectives.
(a) [Reserved]
(b) Borrowers must graduate to other credit at reasonable rates and
terms when they are able to do so.
(c) If a borrower refuses to graduate, the account will be
liquidated under the following conditions:
(1) The borrower has the legal capacity and financial ability to
obtain other credit.
(2) Other credit is available from a commercial lender at reasonable
rates and terms. In the case of Labor Housing (LH), Rural Rental Housing
(RRH),
[[Page 66]]
and Rural Cooperative Housing (RCH) Programs, reasonable rates and terms
must also permit the borrowers to continue providing housing for low and
moderate income persons at rental rates tenants can afford considering
the loss of any subsidy which will be canceled when the loan is paid in
full.
(d) The Agency will enforce borrower graduation.
Sec. 1951.254 [Reserved]
Sec. 1951.255 Nondiscrimination.
All loan servicing actions described in this subpart will be
conducted without regard to race, color, religion, sex, familial status,
national origin, age, or physical or mental handicap.
Secs. 1951.256--1951.261 [Reserved]
Sec. 1951.262 Farm Credit Programs--graduation of borrowers.
(a)-(d) [Reserved]
(e) Graduation candidates. Borrowers who are classified
``commercial'' or ``standard'' are graduation candidates. At least every
2 years, all borrowers who have a current classification of commercial
or standard must submit a year-end balance sheet, actual financial
performance information for the most recent year, and a projected budget
for the current year to enable the Agency to reclassify their status and
determine their ability to graduate.
(f) Sending prospectus information to lenders. (1) The Agency will
distribute a borrower's prospectus to local lenders for possible
refinancing. The borrower's permission is not required, however, the
borrower must be notified of this action.
(2) The borrower is responsible for any application fees. The
borrower has 30 days from the date the borrower is notified of lender
interest in refinancing to make application, if required by the lender,
and refinance the FLP loan. For good cause, the borrower may be granted
a reasonable amount of additional time by the Agency.
[61 FR 35927, July 9, 1996, as amended at 62 FR 10120, Mar. 5, 1997]
Sec. 1951.263 Graduation of non-Farm Credit programs borrowers.
(a)-(b) [Reserved]
(c) The thorough review. Borrowers are required to supply such
financial information as the Agency deems necessary to determine whether
they are able to graduate to other credit. At a minimum, the financial
statements requested from the borrower must include a balance sheet and
a statement of income and expenses. Ordinarily, the financial statements
will be those normally required at the end of the particular borrower's
fiscal year. For borrowers who are not requested to furnish audited
financial statements, the balance sheet and statement of income and
expenses may be of the borrower's own format if the borrower's financial
situation is accurately reflected. The borrower has 60 days for group
type loans and 30 days for individual type loans to supply the financial
information requested.
(d) [Reserved]
(e) Requesting the borrower to graduate. (1) The Agency will send
written notice to borrowers found able to graduate requesting them to
graduate. The borrower must seek a loan only in the amount necessary to
repay the unpaid balance.
(2) Borrowers must provide evidence of their ability or inability to
graduate within 30 days for RH borrowers, and 90 days for group type
borrowers, after the date of the request. The Agency may allow
additional time for good cause, for example when a borrower expects to
receive income in the near future for the payment of accounts which
would substantially reduce the amount required for refinancing, or when
a borrower is a public body and must issue bonds to accomplish
graduation.
(3) If a borrower is unable to graduate the full amount of the loan,
the borrower must furnish evidence to the Agency, showing:
(i) The names of other lenders contacted;
(ii) The amount of loan requested by the borrower and the amount, if
any, offered by the lenders;
(iii) The rates and terms offered by the lenders or the specific
reasons why other credit is not available; and
(iv) The purpose of the loan request.
[[Page 67]]
(4) The difference in interest rates between the Agency and other
lenders will not be sufficient reason for failure to graduate if the
other credit is available at rates and terms which the borrower can
reasonably be expected to pay. An exception is made where there is an
interest rate ceiling imposed by Federal law or contained in the note or
mortgage.
(5) The Agency will notify the borrower in writing if it determines
that the borrower can graduate. The borrower must take positive steps to
graduate within 15 days for individual loans and 60 days for group loans
from such notice to avoid legal action. The servicing official may grant
a longer period where warranted.
Sec. 1951.264 Action when borrower fails to cooperate, respond or graduate.
(a) When borrowers with other than FCP loans fail to:
(1) Provide information following receipt of both FmHA Guide Letters
1951-1 and 1951-2 (available in any Agency office), or letters of
similar format, they are in default of the terms of their security
instruments. The approval official may, when appropriate, accelerate the
account based on the borrower's failure to perform as required by this
subpart and the loan and security instruments.
(2) Apply for or accept other credit following receipt of both FmHA
Guide Letters 1951-F-5 and 1951-6 (available in any Agency office), or
letters of similar format, they are in default under the graduation
requirement of their security instruments. If the Agency determines the
borrower is able to graduate, foreclosure action will be initiated in
accordance with Sec. 1955.15(d)(2)(ii). If the borrower's account is
accelerated, the borrower may appeal the decision.
(b) If an FCP borrower fails to cooperate after a lender expresses a
willingness to consider refinancing the Agency loan, the account will be
referred for legal action.
Sec. 1951.265 Application for subsequent loan, subordination, or consent to additional indebtedness from a borrower who has been requested to graduate.
(a) Any borrower who appears to meet the local commercial lending
standards, taking into consideration the Agency's loan guarantee
program, will not be considered for a subsequent loan, subordination, or
consent to additional indebtedness until the borrower's ability or
inability to graduate has been confirmed. An exception may be made where
the proposed action is needed to alleviate an emergency situation, such
as meeting applicable health or sanitary standards which require
immediate attention.
(b) If the borrower has been requested to graduate and has also been
denied a request for a subsequent loan, subordination, or consent to
additional indebtedness, the borrower may appeal both issues.
Sec. 1951.266 Special requirements for MFH borrowers.
All requirements of subpart E of part 1965 must be met prior to
graduation and acceptance of the full payment from an MFH borrower.
Secs. 1951.267-1951.299 [Reserved]
Sec. 1951.300 OMB control number.
The reporting requirements contained in this regulation have been
approved by the Office of Management and Budget (OMB) and have been
assigned OMB control number 0575-0093.
Exhibits to Subpart F
Exhibit A [Reserved]
Exhibit B--Suggested Outline for Seeking Information From Lenders on
Credit Criteria for Graduation of Single Family Housing Loans
Date:___________________________________________________________________
Name of Lender:_________________________________________________________
Title:__________________________________________________________________
Address:________________________________________________________________
Name of County Supervisor:______________________________________________
Service Area:___________________________________________________________
[[Page 68]]
1. Is the lender interested in making loans to refinance rural
housing borrowers? Yes:____; No:____.
If later, when?_________________________________________________________
How much credit does the lender expect to have available in the next
three to four months for making such loans? $____________
In the next twelve (12) months? $____________
2. What are the loan terms? ____________
3. What is the current interest rate? ____________ {time} Variable
rate. {time} Fixed rate.
If variable, how is it determined? ____________
4. Is a risk differential used in establishing interest rates
charged for new customers? Yes: ____; No: ____.
If yes, explain:________________________________________________________
5. What can a typical loan applicant be expected to pay for:
------------------------------------------------------------------------
Dollars Or percent
------------------------------------------------------------------------
a. Filing an application................ .............. ..............
b. Real estate appraisal................ .............. ..............
c. Credit report........................ .............. ..............
d. Loan orgination fee.................. .............. ..............
e. Loan closing costs................... .............. ..............
------------------------------------------------------------------------
6. Is mortgage guarantee insurance required? Yes: ____; No: ____. If
yes, how many years? ____. Cost? ____________.
7. Is there a minimum or maximum loan size policy? Yes: ____; No:
____.
If yes, explain: --_____________________________________________________
8. Is there a minimum and maximum home value the lender will loan
on? Yes: ____; No: ____. If yes, minimum: $____________; maximum:
$____________.
9. Does the lender use a loan to market value ratio? ____________
10. Is there a minimum net and gross income criteria? Yes: ____; No:
____. If yes, net: $____________; gross: $____________.
11. Does the lender use a minimum loan or home value to income
ratio? Yes: ____; No: ____. If yes, loan to income ratio: ____________
Value to income ratio: ____________
12. Is there a percentage of gross income a typical applicant should
have available to pay housing costs? ____________
a. To pay for principal, interest, taxes and insurance (PITI)?
____%.
b. To pay for the total housing costs and other credit obligations?
____%.
13. Are there any age of home, housing type, site size, and/or
geographic restriction policies? Yes: ____; No: ____.
If yes, List:___________________________________________________________
14. Other Comments:___________________________________________________
15. For the purpose of reducing the number of inappropriate
referrals, would the lender like the opportunity to review specific
borrower financial information prior to the borrower being asked to file
a formal application? Yes: ____; No: ____. If the answer is yes, only
those borrowers who are listed on Form FmHA or its successor agency
under Public Law 103-354 1951-24 will be referred to the bank. The
lenders should be advised, however, the information supplied to them
will not include the borrower's name, social security number, exact
address, or place of employment that could be used to link a specific
borrower to the information being provided by FmHA or its successor
agency under Public Law 103-354.
[48 FR 40203, Sept. 6, 1983; 48 FR 41142, Sept. 14, 1983]
Subpart G--I [Reserved]
Subpart J--Management and Collection of Nonprogram (NP) Loans
Source: 58 FR 52646, Oct. 12, 1993, unless otherwise noted.
Sec. 1951.451 General.
This subpart contains policies and procedures of the Farm Service
Agency (FSA) for making, managing, collecting, liquidating, and
servicing loans on nonprogram (NP) terms. All references in this subpart
to farm real estate, farm property and farm chattels also include
nonfarm property that was security for a Farm Credit debt of the FSA.
(a) An NP loan is a loan on terms more stringent than terms for a
program loan and it is an extension of credit for the convenience of the
Government because the applicant does not qualify for program assistance
or the property to be financed is not suited for program purposes. Such
loans are made or continued only when it is in the best interest of the
Government. NP loans include:
(1) Sale of inventory property on NP terms;
(2) Assumption of a program loan on NP terms;
(3) Loans converted to NP status as a result of receipt of
unauthorized assistance;
(4) Loans converted to NP status when only a portion of the security
property is being transferred and the FmHA or its successor agency under
Public Law 103-354 debt is not paid in full;
[[Page 69]]
(5) Sale of the real property that was security for an FP loan to
the previous owner under the Leaseback/Buyback program on NP terms;
(6) Sale of the real property of an FP borrower under the Homestead
Protection program; or
(7) FP accounts rescheduled under an accelerated repayment
agreement.
(b) C&BP/NP and MFH/NP transactions involving transfer of the
security property will be submitted to the National Office for review,
authorization and processing guidance. The submission must include a
justification for the proposed action, a servicing and management plan,
the State Director's recommendations, and the case files. The sale of
C&BP and MFH inventory property to NP purchasers will be handled in
accordance with subpart C of part 1955 of this chapter.
(c) Borrowers who have program and NP loans will have their loan
accounts serviced and liquidated in accordance with the regulation
applicable to the particular loan(s). Therefore, NP loans are not
eligible for any program servicing except those permitted in this
subpart. However, even though the NP loan will not be eligible for
program servicing benefits or entitlements, the borrower is not
precluded from receiving assistance on the program loan (e.g., having an
NP farm loan should not preclude a borrower from being considered for
debt restructuring assistance in the form of a deferral, rescheduling,
consolidation, etc., on a FP program loan). When the decision has been
made to liquidate the program loan of a borrower who is also indebted
for an NP loan and the NP security is also additional security for the
program loan the NP loan will be accelerated at the same time as the
program loan using the program acceleration notice. Likewise, if an NP
loan is to be liquidated and the borrower is also indebted for a program
loan which serves as additional security for the NP loan the program
loan will be accelerated at the same time as the NP loan using the
program acceleration notice. Any appeal of an adverse decision involving
both an NP and program loan would affect only the program loan.
[58 FR 52646, Oct. 12, 1993, as amended at 61 FR 59778, Nov. 22, 1996]
Sec. 1951.452 Policy.
NP credit is extended for the convenience of the Government in
servicing an existing loan or to facilitate sale of inventory property.
Where a borrower has both program and NP loans outstanding, servicing
will be according to the regulation applicable to the particular
loan(s). NP borrowers are not eligible for program entitlements or
servicing actions such as subsidy, moratorium, reamortization,
rescheduling, consolidation, deferral, limited resource assistance,
buyout, writedown and conservation easements. Neither are NP borrowers
subject to occupancy/operation requirements, graduation or other similar
requirements imposed on program borrowers. NP borrowers are required to
adequately maintain the security, pay real estate taxes and/or
assessments when due or make scheduled escrow installments for taxes and
insurance when required by FmHA or its successor agency under Public Law
103-354, and keep buildings insured according to the promissory note and
mortgage or security agreement, but may lease all or a portion of the
security without FmHA or its successor agency under Public Law 103-354's
consent, except as provided in Sec. 1951.460 (a) and (b) of this
subpart.
Sec. 1951.453 [Reserved]
Sec. 1951.454 Review of adverse decisions.
NP applicants and borrowers are not entitled to appeal rights under
subpart B of part 1900 of this chapter or parts 11 and 780 of this
title. However, decisions involving NP applicants, borrowers or property
are reviewable by the next level supervisor.
[58 FR 52646, Oct. 12, 1993, as amended at 62 FR 10120, Mar. 5, 1997]
Sec. 1951.455 NP loan making for Single Family Housing (SFH) and farm property (real and chattel).
(a) Application for NP credit. Applications for credit on NP terms
are made at the County Office serving the area where the property is
located or through an approved packager or real estate broker if so
instructed by County Office personnel. To apply for NP credit, except
Homestead Protection
[[Page 70]]
program, standard forms used to process program applications may be
utilized or comparable documentation which contains information to
establish financial stability, creditworthiness, and repayment ability
for the requested credit. However, the loan approval official will have
the discretion to determine what information is required to support
approval of the loan. For property purchased under the Homestead
Protection program the information required to support approval of the
loan will be in accordance with subpart S of part 1951 of this chapter.
The creditworthiness standards in Sec. 1944.9 of subpart A of part 1944
of this chapter will be used to evaluate an NP applicant's eligibility
for assistance to purchase a single family residence. The application is
not complete until all information requested by the Agency is received.
(b) Fees. In addition, credit reports will be ordered to determine
the eligibility of NP applicants requesting FLP credit. A nonrefundable
credit report fee will be charged the applicant. The amounts of these
fees change periodically; current fees will be quoted by county office
personnel upon request. A borrower whose loan is reclassified as NP
because unauthorized assistance was received; or only a portion of the
security property is being transferred and the FLP debt is not paid in
full; or FLP accounts rescheduled under an accelerated repayment
agreement will not be required to submit an application or pay the
application fee.
(c) Eligibility restrictions. If farm property is being purchased or
the debt assumed, and an individual or member, stockholder, partner, or
joint operator of a proposed entity transferee or purchaser has been
convicted after December 23, 1985, under Federal or State law of
planting, cultivating, growing, producing, harvesting, or storing a
controlled substance (see 21 CFR part 1308, which is exhibit C of
subpart A of part 1941 of this chapter (available in any agency office),
for the definition of ``controlled substance'') prior to the approval of
the credit sale or assumption in any crop year, the individual or entity
shall be ineligible for FLP credit for the crop year in which the
individual was convicted four succeeding crop years following the
conviction. Purchasers will attest on the application form used that as
individuals or that its members, if an entity, have not been convicted
of such crime after December 23, 1985.
(d) [Reserved]
(e) Downpayment. A downpayment must be collected at closing and
remitted in accordance with subpart B of this part 1951 (available in
any agency office). The minimum downpayment will be based on the
purchase price for a credit sale and the current market value (less any
prior liens for chattel security) or the debt, whichever is lower, for
an assumption. Downpayment requirements vary from time to time and vary
by type of property. Current downpayment requirements will be provided
by county office personnel upon request.
(f) Interest rate. The FP/NP interest rate for real property or
chattel property, as applicable, in effect at the time of loan approval,
will be charged on NP assumptions and credit sales involving all other
types of sales, except as otherwise stated. The Homestead Protection
program interest rate in effect at the time of loan approval will be
charged on Homestead Protection properties.
(g) Terms. The purchase price for credit sales or the FLP debt being
assumed, less the downpayment amount, will be amortized as follows,
except the term will never be longer than the period for which the
property will serve as adequate security:
(1) Farm property (real estate security) and CONACT residential
property classified as surplus. The note amount will be amortized over a
period not to exceed 15 years. When an NP loan was initially scheduled
for repayment in 15 years or less together with a 25-year amortization,
the agency may authorize an extension not to exceed a total of 25 years
from the date the NP assumption or credit sale was closed provided it is
in the Government's best interest and the agency retains the same lien
priority.
(2) Farm property (chattels security). The note amount will be
amortized over a period not to exceed 5 years.
[[Page 71]]
(3) Homestead protection. The note amount will be amortized over a
period not to exceed 35 years.
(h) Modification of security instruments. Any convenants in the
promissory note and/or security instruments (mortgage or deed of trust)
relating to graduation to other credit, inability to secure other
financing, restrictions on leasing, FLP operation requirements, and
consent to junior lien encumbrance will be deleted.
(i) Security. The security requirements for NP loans on farm real
estate will be in accordance with subpart A of part 1943 of this chapter
and NP loans on chattel property will be secured in accordance with
subpart A of part 1962 of this chapter. Except that, an NP loan will be
secured only by the property purchased.
(j) Closing. Title clearance, preparation of deeds, loan closing and
property insurance requirements are the same as for a program loan on
the same type property, except the purchaser must pay his/her own
closing costs.
[58 FR 52646, Oct. 12, 1993, as amended at 62 FR 10120, Mar. 5, 1997]
Sec. 1951.456 [Reserved]
Sec. 1951.457 Payments.
(a) Receiving payments. Borrowers will mail or bring their payments
to the county office. Borrowers will be responsible for any fees
associated with converting cash payments to money orders. If the fee is
not paid, it will be deducted from the payment.
(b) Payments not received when due. NP borrowers are expected to
make scheduled payments when due. The Agency personnel are not required
to provide program supervision, servicing, management or credit
counseling in accordance the agency servicing instructions if payments
are not received when due. To ensure consistency, a series of contacts
will be made when servicing delinquent accounts. All actions taken,
agreements reached and recommendations made in the servicing of the
borrower's account are to be documented. When appropriate, the Agency
may work out a reasonable agreement with an NP borrower to cure a
delinquency; however, such an agreement will not usually exceed 1 year.
Failure to make payments as agreed will result in actions determined by
the agency to best protect the Government's interest. Collection of a
delinquency from an Internal Revenue Service (IRS) offset will be used
to the extent permitted by law.
[58 FR 52646, Oct. 12, 1993, as amended at 60 FR 55146, Oct. 27, 1995;
62 FR 10120, Mar. 5, 1997]
Sec. 1951.458 Servicing real estate taxes.
Refer to subpart A of part 1925 of this chapter for servicing real
estate taxes.
[62 FR 10120, Mar. 5, 1997]
Sec. 1951.459 Preservation of security.
(a) Inspections of NP security property. Inspections will be made on
NP security as necessary to protect FmHA or its successor agency under
Public Law 103-354's security interest. In the event of abandonment,
servicing actions will be taken according to Sec. 1955.55 of subpart B
of part 1955 of this chapter.
(b) Subordination. Subordination is not authorized where an NP
borrower only owes FmHA or its successor agency under Public Law 103-354
an NP loan(s). Subordination of a mortgage may be permitted to
refinance, extend, reamortize, increase the amount of an existing prior
lien, or to permit a prior lien only when the security for the NP loan
is also security for an FmHA or its successor agency under Public Law
103-354 program loan, the request for the subordination meets all the
requirements for the subordination of the FmHA or its successor agency
under Public Law 103-354 program loan and is in the best interest of the
Government.
(c) Bankruptcy. NP loans on single family residences will be
serviced in accordance with subpart C of part 1965 of this chapter, farm
real estate in accordance with subpart A of part 1965 of this chapter,
and farm chattel in accordance with subpart A of part 1962 of this
chapter.
Sec. 1951.460 Release of security property or sale or lease of related property rights.
(a) Partial release. Release of a portion of the security property
may be made when the borrower requests it and FmHA or its successor
agency
[[Page 72]]
under Public Law 103-354 determines the release will not adversely
affect the Government's interest. Release may be approved when payment
is received by FmHA or its successor agency under Public Law 103-354 in
the amount of the market value, as determined by FmHA or its successor
agency under Public Law 103-354, of the property to be released.
Proceeds from such transactions (less related expenses authorized by
FmHA or its successor agency under Public Law 103-354) will be applied
to the FmHA or its successor agency under Public Law 103-354
indebtedness as an extra payment or to prior liens in order of lien
priority.
(b) Easements, right-of-ways, and lease of mineral rights or other
rights. Consent may be given by FmHA or its successor agency under
Public Law 103-354 for the borrower to grant an easement or lease
mineral rights when it is determined by FmHA or its successor agency
under Public Law 103-354 the action will not adversely affect the
Government's interest. The granting of an easement or right-of-way and
lease of mineral rights may be approved when payment is received by FmHA
or its successor agency under Public Law 103-354 in the amount of the
market value, as determined by FmHA or its successor agency under Public
Law 103-354, for rights granted or benefits are derived which are equal
to or greater than the value of the property being disposed of. Proceeds
from these transactions (less related expenses authorized by FmHA or its
successor agency under Public Law 103-354) will be applied to the FmHA
or its successor agency under Public Law 103-354 debt as an extra
payment or to prior liens in order of lien priority.
(c)-(d) [Reserved]
Sec. 1951.461 Release of valueless FmHA or its successor agency under Public Law 103-354 lien without monetary consideration.
Release of an FmHA or its successor agency under Public Law 103-354
lien without monetary consideration may be granted when it is determined
by FmHA or its successor agency under Public Law 103-354 to have no
present or prospective value or when enforcement would be ineffectual or
uneconomical. Judgment liens or statutory redemption rights may be
released only with prior consent of OGC.
Sec. 1951.462 Deceased borrower.
When an NP borrower dies, FmHA or its successor agency under Public
Law 103-354 will determine whether or not arrangements can be effected
for continuation of the loan under one of the provisions of this
section. If not, the loan may be liquidated according to Sec. 1951.468
of this subpart. The servicing actions and the circumstances under which
they may be considered are outlined in paragraphs (a) through (d) of
this section.
(a) Continue with jointly liable borrower. If a jointly liable
borrower will repay the loan and fulfill other obligations of the loan,
FmHA or its successor agency under Public Law 103-354 will take no
action to liquidate the loan.
(b) Assumption by spouse not liable for the FmHA or its successor
agency under Public Law 103-354 debt. The spouse of a deceased borrower
who is not liable for the FmHA or its successor agency under Public Law
103-354 debt and who wishes to assume the debt may do so in accordance
with Sec. 1951.463(d)(1) of this subpart.
(c) Continue with joint tenant, tenant by the entirety, or other
person. When a joint tenant, tenant by the entirety, or other person who
inherits title to (or an interest in) the security property, on which
the principal residence is located, by devise, descent, or operation of
law upon the death of a borrower makes payments as scheduled in the
promissory note (or assumption agreement), FmHA or its successor agency
under Public Law 103-354 may not take action to liquidate the loan as
long as the property is adequately maintained, real estate taxes and
assessments are paid when due, and the dwelling is not known to be
uninsured (if funds for taxes and insurance are being escrowed, the
escrow is a part of the scheduled payments). The loan may be assumed in
accordance with Sec. 1951.463(d) of this subpart; however, assumption of
the indebtedness is not required. Continuation with a joint tenant,
tenant by the entirety, or other person under
[[Page 73]]
the provisions of this paragraph applies only to the transfer of title
resulting from death of the borrower; it does not apply to any
subsequent transfer of title by the inheritor(s) except by devise,
descent, or operation of law upon the death of the inheritors or sale of
interests among inheritors to consolidate title. Any other subsequent
transfer of title will be treated as a sale and is subject to the
requirements of Sec. 1951.463 of this subpart.
(d) Assumption by a person, other than the spouse, who is not liable
for the FmHA or its successor agency under Public Law 103-354 loan. A
person other than the deceased borrower's spouse who wishes to assume
the loan for the benefit of persons who were dependent on the deceased
borrower at the time of death, without receiving title to the property,
may do so in accordance with Sec. 1951.463(d)(1) of this subpart
provided:
(1) The residence will continue to be occupied by one or more
persons who were dependent on the borrower at the time of death; and
(2) There is reasonable prospect for orderly repayment of the loan
and other obligations of the loan will be met.
Sec. 1951.463 Transfer of security and assumption of indebtedness.
When a borrower proposes to sell security property, assumption of
the indebtedness may be approved on program or NP terms, as applicable,
subject to the provisions of paragraphs (c) and (d) of this section.
Assumptions under paragraphs (b)(2), (b)(3), (b)(4), (b)(5) and (d) of
this section only are authorized on existing terms. When security
property is sold (or title is otherwise conveyed), whether by full
conveyance or by land contract, contract-for-deed, or other similar
instrument, and the FmHA or its successor agency under Public Law 103-
354 debt is not assumed by the purchaser (new owner) or paid in full,
the conveyance will not be approved, except as provided in paragraphs
(b)(2) and (b)(5) of this section or Sec. 1951.462 of this subpart. If
the conveyance is not approved the loan must be liquidated unless FmHA
or its successor agency under Public Law 103-354 determines it is not in
the Government's best interest. If FmHA or its successor agency under
Public Law 103-354 decides to continue with the loan, the account will
be serviced in the borrower's name and the borrower will remain liable
for the loan under the terms of the security instrument.
(a) [Reserved]
(b) General. The following policies apply to all transfers and
assumptions under this subpart:
(1) Amount of assumption. Except for transfers covered in paragraphs
(b)(2), (b)(3), (b)(4), (b)(5) and (d) of this section, the transferee
will assume the lesser of the indebtedness, or current market value as
determined by FmHA or its successor agency under Public Law 103-354,
less any prior liens and the downpayment.
(2) Conveyance of security property by borrower to spouse or child.
When a borrower conveys security property to his/her spouse or children,
assumption of the indebtedness is not required and FmHA or its successor
agency under Public Law 103-354 may not take action to liquidate the
loan as long as payments are made as scheduled and other obligations of
the loan are met. In the event the transferee(s) wishes to assume the
indebtedness, it may be assumed on the terms outlined in paragraph
(d)(1) of this section as applicable to the circumstances.
(3) Withdrawal of jointly liable borrower. When a stockholder/
member/partner/joint operator of an entity who is personally liable on
the note withdraws from the entity or dies, and all of the remaining
individuals are not personally liable on the note(s), the loan must be
assumed by all remaining parties.
(4) Addition of new transferee(s). When new stockholders/members/
partners/joint operators enter an entity, assumption of the indebtedness
is required, however, the indebtedness may be assumed on existing terms.
A downpayment based on the unpaid balance of the loan is required when
the assumption is closed.
(5) Conveyance of security property into an inter vivos trust. When
the borrower conveys security property into an inter vivos trust,
whereby the borrower does not transfer rights of occupancy in the
property, FmHA or its successor agency under Public Law 103-354 may not
[[Page 74]]
take action to liquidate the loan as long as payments are made as
scheduled and other obligations of the loan are met.
(c) Program assumption. A NP loan may be assumed by an eligible
program applicant if the property meets the eligibility requirements for
a currently authorized program (SFH, Farm Ownership (FO), etc.). In such
cases, the assumption will be at the interest rate and up to the maximum
term in effect for the type loan involved at the time the assumption is
approved. After assumption on program terms, the loan will be
reclassified as Rural Housing (RH), FO, etc., as applicable.
(d) NP assumption. The rates and terms for an NP assumption will be
as provided in Sec. 1951.455 of this subpart. A loan may be assumed on
existing terms only in the situations outlined in paragraphs (b)(2),
(b)(3), (b)(4), (b)(5), (d)(1), (d)(2), and (d)(3) of this section. An
individual not liable for the loan who acquires title to or an interest
in the security by means of one of the situations mentioned may assume
the indebtedness on existing terms or current terms if more favorable,
in which case a downpayment based on the unpaid balance would be
required. The interest rate, final due date, payment date, and account
status (current, delinquent, ahead of schedule) will not be changed by
virtue of an assumption on existing terms, after assumption compliance
with loan conditions is required. If a same terms assumption is
consummated and the account is delinquent, it may be reamortized in
accordance with applicable program regulations. Situations where these
terms are authorized are:
(1) An individual who acquires title to or an interest in the
security property by virtue of death, divorce, or deed from a spouse or
parent but is not liable for the debt and who wishes to assume the loan
may do so. Any subsequent transfer of title, except between inheritors
to consolidate title, will be treated as a sale and is not covered by
these provisions. Individuals in this category are:
(i) A deceased borrower's surviving spouse.
(ii) A divorced borrower's spouse.
(iii) A joint tenant with right of survivorship or relative of a
deceased borrower.
(2) The spouse or child of a living borrower to whom title to the
security property has been conveyed by spouse or parent.
(3) A person other than the deceased borrower's spouse who wishes to
continue with the loan under conditions outlined in Sec. 1951.462 (c) or
(d) of this subpart may do so.
(e) County Committee actions on Farmer Program assumptions. On
program assumptions, the County Committee must certify the transferee's
eligibility for the type of loan to be assumed.
(f) Title clearance and loan closing. Title clearance and closing
will be the same as for any program loan of the same type.
(g) Release from liability. Release from liability of NP borrowers
is not authorized.
Secs. 1951.464--1951.467 [Reserved]
Sec. 1951.468 Liquidation.
When it is determined an NP borrower cannot or will not successfully
repay the loan, FmHA or its successor agency under Public Law 103-354
will attempt to have the borrower liquidate voluntarily.
(a) Voluntary. If an NP borrower in default indicates a willingness
to voluntarily liquidate, other liquidation actions by FmHA or its
successor agency under Public Law 103-354 may be delayed for a
reasonable period, usually not to exceed 120 days for real estate, if
the borrower is earnestly seeking other financing, or has the security
property listed or offered for sale and it is being actively marketed at
a reasonable price.
(b) Foreclosure. If an NP borrower in default (monetary or
nonmonetary) does not cure the default and is not willing or able to
voluntarily liquidate, the servicing official will refer the case to the
next level supervisor with a recommendation for further action. If
foreclosure is approved, the account will be accelerated. NP borrowers
do not have appeal rights under subpart B of part 1900 of this chapter;
however, the NP borrower may request a review of the decision to
foreclose by the next
[[Page 75]]
level supervisor to consider evidence that the loan is not in default.
If the borrower fails to satisfy the account during the period specified
in the demand letter, FmHA or its successor agency under Public Law 103-
354 will proceed with foreclosure without further notice or extension of
time.
(c) Conveyance to FmHA or its successor agency under Public Law 103-
354. FmHA or its successor agency under Public Law 103-354 does not
solicit or encourage conveyance of NP security property to the
Government and will consider a borrower's offer to convey by deed in
lieu of foreclosure only after the debt has been accelerated and when it
is in the Government's best interest. Release of the borrower from
liability is not authorized. Upon receipt of an offer to convey, FmHA or
its successor agency under Public Law 103-354 will remind the borrower
of provisions for voluntary liquidation under paragraph (a) of this
section. The borrower will also be informed of the consequences of a
conveyance by deed in lieu of foreclosure as follows:
(1) All costs related to the conveyance which FmHA or its successor
agency under Public Law 103-354 pays will be added to the debt;
(2) A credit equal to the market value of the property, as
determined by FmHA or its successor agency under Public Law 103-354,
less prior liens, will be applied to the debt; and
(3) If the credit does not satisfy the debt, the debtor remains
liable for the payment of the account balance and the account will be
debt settled.
(d) Consent to sale of real estate security when the FmHA or its
successor agency under Public Law 103-354 debt and authorized selling
expenses exceed market value. If an NP borrower proposes to sell real
estate security for an amount which will be insufficient to pay the FmHA
or its successor agency under Public Law 103-354 debt, prior lien(s) if
any, and sale expenses authorized by FmHA or its successor agency under
Public Law 103-354, an appraisal will be completed and FmHA or its
successor agency under Public Law 103-354 may consent to the sale if the
proposed sale price is not less than the market value. No commission
will be allowed or paid under this paragraph when the sale is to the
broker, broker's salesperson(s), to persons living in his/her or
salesperson(s) immediate household or to legal entities in which the
broker or salesperson(s) have an interest if the sale involves FmHA or
its successor agency under Public Law 103-354 credit. If credit is not
being extended to the persons mentioned in the preceding sentence (a
cash sale), a commission will be allowed or paid. In no case will the
borrower (seller) receive any cash proceeds from the sale. Any real
estate taxes due from the transferor and other authorized selling
expenses for which there is insufficient equity proceeds for payment at
closing will be charged to the borrower's account prior to loan closing.
Authorized selling expenses will not be considered or included in the
amount assumed. Release from liability is not authorized.
Sec. 1951.469 Actions after liquidation of property.
(a) [Reserved]
(b) Servicing unsatisfied account balances. A current financial
statement will be obtained, if possible, when application of sale
proceeds does not satisfy an NP loan; or if a conveyance to FmHA or its
successor agency under Public Law 103-354 has been accepted and credit
of the market value less prior liens and estimated inventory handling
expenses does not satisfy the debt, FmHA or its successor agency under
Public Law 103-354 will pursue collection if there appears to be income
or assets from which to collect. Where the borrower owns other real
estate, or if the borrower is known to be in the process of purchasing
other real estate (such as another dwelling), a judgment for the
remaining debt including expenses paid by FmHA or its successor agency
under Public Law 103-354 will be sought.
(c) [Reserved]
Secs. 1951.470-1951.478 [Reserved]
Sec. 1951.479 Pilot projects.
From time to time FmHA or its successor agency under Public Law 103-
354 conducts pilot projects to test concepts related to the management
and/or sale of SFH inventory property which may
[[Page 76]]
deviate from the provisions of this subpart, but will not be
inconsistent with provisions of the authorizing statutes, or other Acts
affecting FmHA or its successor agency under Public Law 103-354's loan
programs. Prior to initiation of a pilot project, FmHA or its successor
agency under Public Law 103-354 will publish in the Federal Register a
Notice outlining the nature, scope, and duration of the pilot. The pilot
projects may be handled by FmHA or its successor agency under Public Law
103-354 employees and/or under contract with persons, firms, or other
entities in the private sector.
Sec. 1951.480 [Reserved]
Sec. 1951.481 FmHA or its successor agency under Public Law 103-354 Instructions.
Detailed FmHA or its successor agency under Public Law 103-354
Instructions for administering this subpart are available in any FmHA or
its successor agency under Public Law 103-354 office (FmHA or its
successor agency under Public Law 103-354 Instruction 1951-J).
Secs. 1951.482-1951.500 [Reserved]
Subpart K--Predetermined Amortization Schedule System (PASS) Account
Servicing
Source: 50 FR 8597, Mar. 4, 1985, unless otherwise noted.
Sec. 1951.501 General.
(a) This subpart prescribes the policies, authorizations, and
procedures for implementing and servicing PASS for all of the following
Farmers Home Administration or its successor agency under Public Law
103-354 (FmHA or its successor agency under Public Law 103-354) Multiple
Family Housing (MFH) loan recipients which includes Farm Labor Housing
(LH) and Rural Rental Housing (RRH) including Rural Cooperative Housing
(RCH) and Congregate Housing and includes:
(1) All MFH loans, credit sales, reamortizations, and transfers
closed on or after May 1, 1985, and
(2) All MFH loan recipients converting from the Daily Interest
Accrual System (DIAS) to PASS according to Sec. 1951.517 of this
subpart, except:
(i) Seasonal LH and LH loans to individual farmers may be closed on
monthly or annual payment schedules and also may be closed on Daily
Interest Accrual under subpart A of part 1951 of this chapter.
Instructions for scheduling payments are according to the Forms Manual
Insert (FMI) for Form FmHA or its successor agency under Public Law 103-
354 1944-52, ``Multiple Family Housing Promissory Note.''
(ii) Rural Housing Site (RHS) loans and Site Option (SO) loans will
be closed and serviced on Daily Interest Accrual under subpart A of part
1951 of this chapter. Payment billings are subject to Sec. 1951.506 of
this subpart.
(b) All MFH loan recipients not described in paragraph (a) of this
section will continue to be subject to the servicing and collection
requirements of subpart A of part 1951 of this chapter. For the purposes
of this subpart, all references to ``County Supervisor'' in subpart A of
part 1951 shall be construed to mean ``District Director.''
(c) All FmHA or its successor agency under Public Law 103-354 MFH
loans (RRH, RCH, LH, RHS, and SO) whether DIAS or PASS, are subject to
the definitions contained in Sec. 1951.504 of this subpart, and payment
application as outlined in Sec. 1951.510 of this subpart.
(d) All MFH loan payments will be processed using Exhibit A of this
subpart (available in any FmHA or its successor agency under Public Law
103-354 office).
[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16244, May 6, 1988; 56 FR
28038, June 19, 1991]
Sec. 1951.502 [Reserved]
Sec. 1951.503 Authorities and responsibilities.
District Directors are responsible for administering this subpart
under the general guidance and supervision of the State Director. The
District Office Management System will be fully used to accomplish this
responsibility.
[[Page 77]]
Sec. 1951.504 Definitions and statements of policy.
Advance regular payment. Regular payments made at election of the
borrower to pay the account ahead of schedule. These payments may be
either full or partial payments and will be applied to the amortized
payment schedule by the Finance Office.
Amortization schedule. An amortization schedule is the projected
application of periodic payments to principal and interest at the
promissory note rate so the debt will be paid in full over the number of
periods specified in the promissory note, assumption agreement (new
terms), or reamortization agreement. Computation is based on a 30-day
month and a 360-day year.
Amortized recoverable costs. Recoverable cost items may be amortized
over a period up to 5 years. This function will allow the servicing
official to voucher recoverable cost items such as taxes.
(1) Payment of real estate taxes. When a borrower's taxes are paid
by voucher, the amortization period of the tax advance will be the
number of months for which the taxes are being vouchered with a maximum
of 5 years.
(2) Costs other than real estate taxes. Advances for costs other
than real estate taxes will be amortized for 12 months unless, based on
the borrower's repayment ability, a longer period is needed. An
amortization period of more than 12 months will be used only when the
cost is of a nonrecurring type. In no case, however, will the repayment
period exceed 5 years.
(3) Retroactive amortization of recoverable costs. Recoverable costs
which have been vouchered since May 1, 1985, may, with National Office
approval, be retroactively amortized for applicable time periods as
shown in paragraphs (c)(1) and (c)(2) of this section, if payments made
since the costs were vouchered are sufficient to bring both the loan and
cost accounts current. The following information should be forwarded to
the National Office for approval of the reclassification to amortized
status, and forwarded to the Finance Office for processing: An audit
showing all costs vouchered along with payments made since the date of
the cost item and to be made prior to the reclassification; the
estimated reapplication of the payments due to reclassification showing
that the account will be current after the reclassification; and the
proposed budget and management case files.
Audit receivables. Loan, grant or subsidy funds which were used by
the borrower for unauthorized purposes; have been identified by the
Office of Inspector General (OIG) in an audit; and, which FmHA or its
successor agency under Public Law 103-354 is requiring the borrower to
repay.
Conversion. The act of changing a borrower's account from DIAS to
PASS.
Daily Interest Accrual System (DIAS). A system whereby interest is
charged daily from the date a payment is received in the District Office
to the next date a payment is received. A daily interest accrual factor
is computed by multiplying the outstanding principal balance by the
effective interest rate and dividing by 365 days. Computation is always
based on a 365 day year. Interest on each payment is charged on the
actual number of days that a principal balance is outstanding.
District Director. For the purpose of this subpart the term includes
the Assistant District Director, and other qualified District staff who
may be delegated responsibilities according to Sec. 1930.143 of subpart
C of part 1930 of this chapter, and the provisions of subpart F of part
2006 of this chapter (available in any FmHA or its successor agency
under Public Law 103-354 office). In the case of LH loans still being
serviced in the County Office, this definition also includes qualified
County Office staff. This definition further includes the Area Loan
Specialists in Alaska, Island Directors in Hawaii, Directors of Western
Pacific Territories, and other qualified staff members in Alaska,
Hawaii, and Western Pacific Territories, respectively.
Extra payment. Extra payments are applied all to principal on the
end of the loan and are funds derived from:
(1) Sale of basic chattel or real estate security, including rental
or lease of real estate security of a depreciating or depleting nature.
(2) Refinancing of real estate debt.
(3) Mineral royalties.
[[Page 78]]
(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).
Non-recoverable costs. Payments charged to a loan program insurance
fund by use of a fund code. These costs are only incurred after
Government acquisition of title to the property, and are therefore
charged to an inventory account.
Overage. This term refers to both ``overage'' and ``surcharge''
described in exhibit H to subpart C of part 1930 of this chapter.
Payment effective date. The payment effective date is the day of the
month on which payments will be effectively applied to the account by
the Finance Office for the month payment is due regardless of the
payment reception date. On PASS all payments will be applied as of the
first day of the month.
Payment reception date. The day of the month the payment is received
in the District Office.
Predetermined Amortization Schedule System (PASS). System whereby
FmHA or its successor agency under Public Law 103-354 will apply loan
payments based on an amortization schedule.
Project late fee. The amount charged a borrower's project account
for a delinquent payment according to Sec. 1951.510(c)(2) of this
subpart, or when an uncollectible regular payment has been processed
according to Sec. 1951.506(c) of this subpart.
Promissory note installment. The unrounded amortized installment
shown on the promissory note, conversion agreement, assumption agreement
or reamortization agreement, whichever is currently in effect.
Recoverable costs. Additional project costs such as vouchered
insurance or taxes which FmHA or its successor agency under Public Law
103-354 requires a borrower to pay.
Refund payment. Payments from unused loan funds which are applied to
principal on the end of the loan account.
Regular payment. All monthly payments scheduled according to PASS.
Does not include extra payments, advance regular payments, refund
payments or voluntary additional principal payments.
Subsidized installment. The promissory note installment reduced by
the terms of Form FmHA or its successor agency under Public Law 103-354
1944-7, ``Multiple Family Housing Interest Credit and Rental Assistance
Agreement.'' The subsidized installment is the unrounded amortized
installment computed at the subsidized interest rate.
Subsidy credit. The difference between a borrower's monthly
promissory note installment and the monthly subsidized installment.
Voluntary additional principal payment. Payments applied all to
principal which are made at the election of the borrower in addition to
regularly scheduled payments and with FmHA or its successor agency under
Public Law 103-354 approval. Such payments will not affect the schedule
payment status or change the amount of the regular monthly payments.
Funds for voluntary additional principal payments are derived from
sources other than extra payment sources. Payments will be applied to
current loans only.
[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 2194, Jan. 26, 1988; 53
FR 16244, May 6, 1988; 55 FR 25078, June 20, 1990; 56 FR 66961, Dec. 27,
1991; 62 FR 25070, May 7, 1997]
Sec. 1951.505 [Reserved]
Sec. 1951.506 Processing payments.
(a) Regular payments. Regular payments and advance regular payments
will be processed as follows:
(1) All payments will be based on tenants occupying the units as of
the first day of the month prior to the payment due date. For example, a
payment due on July 1 is based on tenants occupying the units June 1.
For the purposes of this subpart, the word ``tenant'' also means RCH
``member.''
(2) The borrower must deliver all Forms FmHA or its successor agency
[[Page 79]]
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 agency under Public Law 103-354 by the borrower for tenants
without current tenant certifications unless there is a formal eviction
in process, then the payment will be calculated based on the expired
tenant certificate. The District Director may determine that the
[[Page 80]]
tenant may be required to reimburse the borrower for that overage as
allowed in paragraph VII F 6 c of exhibit B to subpart C of part 1930 of
this chapter.
(iv) The borrower may subtract any RA due the project (supported by
current tenant certifications) from the payment due and remit a ``net''
payment. Calculations supporting the ``net'' payment must be shown on
Part I of Form FmHA or its successor agency under Public Law 103-354
1944-29. The Finance Office will net enough RA to bring the account
status current and pay any unpaid overage, late fees, interest on
delinquent principal, etc., based on the payment reception date. If the
account is on or ahead of schedule on the payment reception date, enough
RA will be netted to pay one full installment and any unpaid coverage,
interest on delinquent principal, etc.
(6) The District Director will certify that data on current tenant
certifications held in the District Office supports claims on Form FmHA
or its successor agency under Public Law 103-354 1944-29. The District
Director will transmit payments as directed in exhibit A of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office).
(7) Payment input by FmHA or its successor agency under Public Law
103-354 will be based on correct amounts regardless of the amount
remitted by the borrower.
(b) Other payments. Payments made through the District Office will
be processed according to subpart B of part 1951 of this chapter
(available in any FmHA or its successor agency under Public Law 103-354
office).
(c) Uncollectible payment. Uncollectible payments will be handled
under subpart B of this part 1951 of this chapter. The payment effective
date for the replacement payment will be the date the replacement
payment is received in the District Office, not the date of the original
payment.
[50 FR 8597, Mar. 4, 1985, as amended at 51 FR 27671, Aug. 1, 1986; 55
FR 25078, June 20, 1990; 56 FR 28038, June 19, 1991; 58 FR 40954, July
30, 1993; 59 FR 54789, Nov. 2, 1994; 62 FR 25065, 25070, May 7, 1997]
Sec. 1951.507 Maintaining borrower accounts.
(a) Accounts of active borrowers. The foundation for proper and
timely debt payment is sound budgeting and monthly review of income and
expenses by the borrower and, as necessary, the District Office staff.
Account maintenance, therefore, must begin with initial planning and
must be an integral part of ongoing analysis, planning and follow-up
management assistance.
(b) Accounts of collection-only borrowers. Collection only accounts
will be serviced according to Sec. 1951.7(b) of subpart A of this part.
(c) Notifying borrowers of late fees and past due payments. The
Finance Office will automatically notify each borrower of late fees for
payments which were unpaid on the 10th day of the month. A copy of the
notice will be mailed to the District Office servicing the account.
(d) Subsequent servicing. Delinquent accounts will be serviced
according to the respective program requirements. Accounts will also be
serviced under subpart B of part 1965 of this chapter.
(e) District Office monitoring. District Offices should review each
account at least monthly by accessing the Automated Multi-Housing
Accounting System (AMAS) through field office terminals. For projects on
PASS, the Management System card will be flagged with an orange signal
between Position ``5'' and ``RRH.'' Exhibit A-1 of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office) should be used to track payments.
[50 FR 8597, Mar. 4, 1985, as amended at 58 FR 40955, July 30, 1993]
Sec. Sec. 1951.508-1951.509 [Reserved]
Sec. 1951.510 Payment application.
(a) Regular payment due date. The regular payment due date is the
first day of each month. All months will be counted as 30 days (360 day
year).
(b) First regular payment. (1) The first regular amortized payment
after loan closing for transfers (new terms), reamortizations, voluntary
conversions, credit sales, or loans closed after interim financing must
be at least one (1) month from closing. For example, if a
[[Page 81]]
loan is closed on January 31, the first regular amortized payment will
be due March 1. For multiple advance loans the first payment must be at
least one (1) month after the final advance.
(2) For transfers (same terms) payments on loans already on PASS
will be due on the next scheduled due date.
(3) Transfers (same terms) converting from DIAS to PASS are loans
retaining the same interest rate and final due date and regular
amortized payments will be due 30 days form either the date of closing
or the interest only installment, whichever is later.
(c) Delinquent payments. (1) A loan payment is due on the first day
of a month. A loan payment is considered past due when it is received on
the second day or a subsequent day through the close of business of the
tenth day of the month. A loan payment is late when it is received after
normal business hours of the tenth day of the month, without regard to
weekends, holidays or payment transmission factors. Thereafter, a late
fee will be charged as described in paragraphs (c)(2) and (c)(4) of this
section.
(2) The project account will be charged a late fee when the regular
payment is not received in the District Office by close of business of
the tenth (10) day of the month the payment is due or when the payment
is applied by the Finance Office and does not fully pay the regular
payment and other charges for each project loan. Late fees collected by
the Finance Office will be deposited in the Rural Housing Insurance Fund
(RHIF).
(i) The project late fee is six percent of the total regular
payment(s) due shown on the promissory note(s), conversion agreement(s),
assumption agreement(s) or reamortization agreement(s).
(ii) A project late fee will be charged for any unpaid portion of
the regular payment(s) exceeding $15.00.
(iii) A project late fee will be charged one time only, for each
regular payment.
(iv) Except for cooperative housing, project late fees may not be
paid from project income as specified in paragraph XIII B2a(4) of
exhibit B to subpart C of part 1930 of this chapter.
(v) Exceptions may be made to late fee charges only as follows:
(A) The State Director may allow an exception for any project for
three (3) monthly project late fee charges in any calendar year, based
on the State Director's determination that the late fees place an unfair
burden on the project. For each exception requested, the borrower must
provide a written explanation of the circumstances which caused the late
payment and what actions will be taken to bring the account current.
(B) The National Office may authorize exceptions to late fees for
borrowers who have late fees exceeding the State Director's exception
authority. When the State Director determines that the application of a
late fee would place an unfair burden on the borrower, the State
Director may submit a request for an exception to the late fee to the
National Office. The request will include an explanation of the
circumstances, a recommendation for action and all relevant case file
material. The National Office will review the request and notify the
State Director what action should be taken on the account.
(C) When an exception to late fees is granted, the State Director
will notify the borrower on Form FmHA or its successor agency under
Public Law 103-354 1951-51, ``Multiple Family Housing Exception to Late
Fees,'' completed according to the FMI.
(D) When an application for late fee exception is denied the State
Director must give the borrower appeal rights under subpart B of part
1900 of this chapter.
(3) A project is considered delinquent on the 30th day of the month
when any due amount is unpaid.
(4) When a regular PASS payment continues to be delinquent on the
first of the month following the delinquent payment due date, interest
will be charged on the unpaid delinquent principal at the note rate from
the date the principal was due until all regular payments, recoverable
cost charges, late fees, and occupancy surcharges have been paid current
in accordance with
[[Page 82]]
the number of full installments required by the promissory note. This
interest will be in addition to the scheduled interest of the regular
payment. The interest on delinquent principal will be added to the
regular payment amount due for the month.
(d) Subsidy credit. When the Finance Office receives the regular
payment, subsidy credit will be applied to the loan account before any
payment or other credit is applied to the account. Subsidy credit will
be applied first to accrued interest and then to principal after all
interest is paid. Subsidy credit will not be applied to late fees, audit
receivables, or recoverable cost charges.
(e) Regular payments. Regular payments will be applied in the
following priority:
(1) Amortized audit receivables.
(2) Unamortized audit receivables.
(3) All project late fees due.
(4) Occupancy surcharges.
(5) Amortized recoverable costs due.
(6) Unamortized recoverable costs due.
(7) Overage.
(8) All other interest due.
(9) Principal.
(10) Any remaining regular payment will be applied as an advance
regular payment unless specifically designated otherwise.
(f) Advance regular payments. These payments affect the payment
status of the loan. The loan account must be current before a payment
can be applied as an advance payment. The payment effective date will be
the due date of the next regular payment which is not fully paid.
(g) Extra and refund payments. Both will be applied as principal to
the last installment to become due under the note.
(h) Voluntary additional principal payments. These payments will
only be credited to the account when all regularly scheduled payments on
the account have been paid. Voluntary additional principal payments are
credited all to principal, as of the payment effective date, and do not
affect the payment status of the loan.
(i) Projects with initial and subsequent loan(s). Regular payments
on projects with an initial and subsequent loan(s) will be applied
according to the priorities listed in Sec. 1951.510(e) of this subpart.
Each priority item will be paid for all project loans before moving to
the next item.
Payments will be applied for each priority item in accordance with the
loan number, beginning with the initial loan and ending with the highest
numbered subsequent loan.
(j) Final payments. Final payments will be applied on the next
payment due date or the final due date shown on the promissory note,
assumption agreement or reamortization agreement, whichever is sooner.
The District Office must contact the Finance Office for the amount of
the final payment. Final payment should be accepted under conditions
specified in Sec. 1965.90 of subpart B to part 1965 of this chapter.
[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16245, May 6, 1988; 55 FR
5975, Feb. 21, 1990; 55 FR 25078, June 20, 1990; 56 FR 2257, Jan. 22,
1991; 58 FR 40955, July 30, 1993]
Sec. 1951.511 [Reserved]
Sec. 1951.512 Changes in the application of loan payments.
District Office employees with State Director authorization
according to Sec. 1930.143 of subpart C to part 1039 of this chapter are
authorized to approve reapplication of loan payments between accounts
when payments have been applied in error. All authorization for
reapplication of payments must conform to the policies expressed in this
subpart. No change may be made if the loan is paid in full, the
cancelled note or notes have been returned to the borrower, and the
security instruments have been satisfied. The District Director will
process the changes as prescribed in exhibit A of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office) by the AMAS Coordinator.
[56 FR 28038, June 19, 1991, as amended at 58 FR 40955, July 30, 1993]
Sec. 1951.513 Overpayments and refunds to borrowers.
Overpayments and refunds to borrowers will be processed according to
Sec. 1951.13 of Subpart A of this part.
[[Page 83]]
Sec. 1951.514 Recoverable and non-recoverable cost charges.
The District Director will service recoverable and non-recoverable
cost items according to Sec. 1951.14 of subpart A of this part and FmHA
or its successor agency under Public Law 103-354 Instruction 2024-A
which is available in any FmHA or its successor agency under Public Law
103-354 office. (Recoverable and non-recoverable costs are defined in
Sec. 1951.504 of this subpart.)
[53 FR 16245, May 6, 1988, as amended at 57 FR 36591, Aug. 14, 1992]
Sec. 1951.515 Promissory notes for borrowers who convert to PASS.
Promissory notes in the hands of investors when a loan is converted
to PASS will be repurchased by the Finance Office and forwarded to the
District Office for storage.
Sec. 1951.516 [Reserved]
Sec. 1951.517 Conversion from DIAS to PASS.
(a) Conversion prior to May 1, 1985. The account of any existing RRH
loan recipient who elected to convert to PASS before October 31, 1983,
by following instructions prescribed by FmHA or its successor agency
under Public Law 103-354, and who signed their conversion documents
before May 1, 1985, or any recipient of a new loan, credit sale, or
transfer (new terms) closed between November 1, 1983, and April 30,
1985, who elected to convert to PASS, was converted, as if the loan has
been on an amortization schedule from the date of the loan, transfer
(new terms), or reamortization (new terms), whichever occurred later.
(b) Conversion on or after May 1, 1985--(1) Required conversion.
After May 1, 1985, all MFH loans, transfers or reamortizations must be
closed on PASS, except LH loans specified in Sec. 1951.501(a)(2)(i) of
this subpart. All borrowers receiving subsequent loans or
reamortizations must convert all initial and subsequent loans on the
project to PASS. If the subsequent loan and conversion are not closed on
the first of the month, the interest from the date of closing to the
first of the month will be capitalized. Recoverable costs and unpaid
interest may be capitalized on coversions required by subsequent loans
or reamortization of one loan on the project account.
(2) Voluntary conversion. District Directors shall approve voluntary
conversion of any account from DIAS to PASS upon a request by the
borrower, when the following conditions are met:
(i) The loan account and reserve account are current less any
authorized withdrawals at the time of conversion.
(ii) Conversion does not result in a rent increase.
(iii) The conversion is effective the first day of the month.
(3) Processing conversions. The following actions must be taken to
convert an account from DIAS to PASS:
(i) Form FmHA or its successor agency under Public Law 103-354 1951-
50, ``Multiple Family Housing Conversion Agreement,'' will be completed
according to the FMI except loans converted on Form FmHA or its
successor agency under Public Law 103-354 1965-9, ``Multiple Family
Housing Assumption Agreement,'' or FmHA or its successor agency under
Public Law 103-354 1965-16, ``Multiple Family Housing Reamortization
Agreement.'' The terms of Forms FmHA or its successor agency under
Public Law 103-354 1965-9 and FmHA or its successor agency under Public
Law 103-354 1965-16 convert the account to PASS.
(ii) When the borrower will continue to receive interest credit
following conversion, the current interest credit plan type will be
passed through to the PASS loan. However, a new Form FmHA or its
successor agency under Public Law 103-354 1944-7 must be prepared to
reflect the PASS payment and subsidy amount.
(iii) On the back of the original note or assumption agreement (new
terms), below all signatures and endorsements, the District Director
will insert the following: ``A Form FmHA or its successor agency under
Public Law 103-354 1951-50 dated ______ 198__, in the principal sum of
$______, has been given to modify the payment schedule of the note.
(4) Principal balance to be converted. For transfers and
reamortizations, the applicable transfer or reamortization form will
convert the account to PASS. The principal balance converted to
[[Page 84]]
PASS will be established according to the FMI for Forms FmHA or its
successor agency under Public Law 103-354 1965-9, FmHA or its successor
agency under Public Law 103-354 1965-10, ``Information on Assumption of
Multiple Family Housing Loans,'' or FmHA or its successor agency under
Public Law 103-354 1965-16, and the following:
(i) For DIAS to PASS transactions (new terms):
(A) First of the month closings: The unpaid interest, overage and
late fees accrued through the last day of the previous month will be
capitalized.
(B) Other than the first of the month closing: Accrued interest,
overage and late fees through the date of closing will be capitalized.
An interest only installment from the date of closing through the 30th
day of the month will be collected from the transferee and applied to
the transferee's account. This interest only installment will be
calculated on the same interest credit rate in effect for the previous
borrower.
(ii) For DIAS to PASS transactions (same terms):
(A) First of the month closings: Accrued interest, overage and late
fees through the last day of the previous month will be collected from
the transferor at closing and credited to the transferor's account.
(B) Other than the first of the month closings: Accrued interest,
overage and late fees through the date of closing will be collected from
the transferor at closing and credited to the transferor's account. The
date of credit is the day before closing. An interest only installment
from the date of closing through the 30th day of the month will be
collected from the transferee and credited to the transferee's account.
This interest only installment will be calculated on the same interest
credit rate in effect for the previous borrower.
(iii) Reamortizations will always be effective the first day of the
month. Unpaid interest, including any unpaid overage and late fees may
be capitalized as follows: DIAS to PASS transactions, through the last
day of the previous month; PASS to PASS transactions, through the 30th
day of the previous month.
(iv) Audit receivables may not be transferred or reamortized. They
will be established as a ``Collection Only'' account for the transferor
and must be collected or charged off.
(5) Terms of conversion. All conversion on Form FmHA or its
successor agency under Public Law 103-354 1951-50 will be at the
interest rate and within the remaining terms shown on the converting
promissory note, assumption agreement (new terms) or reamortization
agreement (new terms).
[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16245, May 6, 1988; 58 FR
40955, July 30, 1993; 62 FR 25065, May 7, 1997]
Sec. 1951.518 Determining current loan balances for transfer.
Same terms transfers, when the transferor has been converted to
PASS, must take place in a current loan status on the date of the
transfer. Any delinquent principal and interest must be brought current.
Overpayments and advance regular payments made on PASS accounts result
in the creation of a ``future paid'' status account under AMAS. These
advance payments must be reversed off and applied to the transferor's
principal balance prior to determining the loan balance to be
transferred. If the future payments have been made through rental
assistance, they must be refunded to the transferor and reapplied in the
form of cash on the loan balance.
[53 FR 16245, May 6, 1988]
Secs. 1951.519--1951.547 [Reserved]
Sec. 1951.548 Exception authority.
The Administrator of the Farmers Home Administration or its
successor agency under Public Law 103-354 may, in individual cases, make
an exception to any requirements of this Subpart not required by the
authorizing statute if the Administrator finds that application of such
requirement would adversely affect the interest of the Government. The
Administrator will exercise the authority only at the request of the
State Director. The District Director will submit the request supported
by data: demonstrating the adverse impact; identifying the particular
requirement involved; showing proper alternative courses of action; and,
identifying how the adverse impact will be eliminated.
[[Page 85]]
Sec. 1951.549 [Reserved]
Sec. 1951.550 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0106. Public reporting burden for this collection of
information is estimated to be 15 minutes per response, with an average
of 15 minutes per response including time for reviewing instructions,
searching existing data sources, gathering and maintaining the data
needed, and completing and reviewing the collection of information. Send
comments regarding this burden estimate or any other aspect of this
collection of information, including suggestions for reducing this
burden, to Department of Agriculture, Clearance Office, OIRM, Room 404-
W, Washington, DC 20250; and to the Office of Management and Budget,
Paperwork Reduction Project (OMB 0575-0106), Washington, DC 20503.
[56 FR 28039, June 19, 1991]
Subpart L--Servicing Cases Where Unauthorized Loan or Other Financial
Assistence was Received--Farmer Programs
Source: 50 FR 45777, Nov. 1, 1985, unless otherwised noted.
Sec. 1951.551 Purpose.
This subpart prescribes the policies and procedures for servicing
insured Operating (OL), Farm Ownership (FO), Soil and Water (SW),
Recreation (RL), Emergency (EM), Economic Emergency (EE), Special
Livestock (SL), Softwood Timber (ST), Economic Opportunity (EO) loans,
and Rural Housing loans for farm service buildings (RHF) (referred to as
farmer program (FP) loans), when it is determined that the borrower was
not eligible for all or part of the financial assistance received in the
form of a loan or subsidy granted. It does not apply to guaranteed
loans.
[52 FR 26138, July 13, 1987]
Sec. 1951.552 Definitions.
As used in this subpart, the following definitions apply:
(a) Active borrower. A borrower who has an outstanding account in
the records of the Finance Office, including collection-only or an
unsatisfied account balance where a voluntary conveyance was accepted
without borrower being released from liability or where liquidation did
not satisfy the indebtedness.
(b) Assistance. Financial assistance in the form of a loan or
interest subsidy received.
(c) Debt instrument. Used as a collective term to include promissory
note or assumption agreement.
(d) False information. Information, known to be incorrect, provided
with the intent to obtain benefits which would not have been obtainable
based on correction information.
(e) Inaccurate information. Incorrect information provided
inadvertently without intent to obtain benefits fraudulently.
(f) Inactive borrower. A former active borrower whose loan(s)
has(have) been paid in full or assumed by another party(ies), and who
does not have an outstanding account in the records of the Finance
Office.
(g) Unauthorized Assistance. Any loan, primary loan servicing
action, including Net Recovery Buyout, or interest subsidy received for
which there was no authorization, for which the borrower was not
eligible, or which was obligated from the wrong appropriation or fund.
An unauthorized interest subsidy is a benefit received through a loan
that was made at a lower interest rate than that to which the borrower
was entitled, whether the incorrect interest rate was selected
erroneously by the approval official, or the documents were prepared in
error.
[50 FR 45777, Nov. 1, 1985, as amended at 56 FR 33862, July 24, 1991]
Sec. 1951.553 Policy.
When it is determined that unauthorized assistance has been
received, an effort must be made to collect from the borrower the sum
which is determined to be unauthorized, regardless of amount, unless any
applicable Statute of Limitations has expired.
[[Page 86]]
Secs. 1951.554--1951.555 [Reserved]
Sec. 1951.556 Initial determination that unauthorized assistance was received.
Unauthorized assistance may be identified through audits conducted
by the Office of the Inspector General (OIG), USDA; through reviews made
by Farmers Home Administration or its successor agency under Public Law
103-354 (FmHA or its successor agency under Public Law 103-354)
personnel; or through other means such as information provided by a
private citizen which documents that unauthorized assistance has been
received by a borrower. If FmHA or its successor agency under Public Law
103-354 has reason to believe unauthorized assistance was received, but
is unable to determine whether or not the assistance was in fact
unauthorized, the case will be referred to the Office of the General
Counsel (OGC) or the National Office, as appropriate, for review and
advice. In every case where it is known or believed by FmHA or its
successor agency under Public Law 103-354 that the assistance was based
on false information, investigation by the OIG will be requested, as
provided for in FmHA or its successor agency under Public Law 103-354
Instruction 2012-B (available in any FmHA or its successor agency under
Public Law 103-354 office). If OIG conducts an investigation, the
actions outlined in Sec. 1951.557 of this subpart will be deferred until
the OIG investigation is completed and the report is received. The
reason(s) for the unauthorized assistance being received by the borrower
will be well documented in the case file, and will specifically state
whether it was due to:
(a) Submission of inaccurate information by the borrower;
(b) Submission of false information by the borrower;
(c) Submission of inaccurate or false information by another party
on the borrower's behalf such as a seller, developer, real estate
broker, or attorney, when the borrower did not know the other party had
submitted inaccurate or false information;
(d) Error by FmHA or its successor agency under Public Law 103-354
personnel, either in making computations or failure to follow published
regulations or other agency issuances; or
(e) Error in preparation of a debt instrument which caused a loan to
be closed at an interest rate lower than the correct rate in effect when
the loan was approved.
Sec. 1951.557 Notification to borrower.
(a) Collection efforts will be initiated by the County Supervisor by
a letter substantially similar to Exhibit A of this Subpart (available
in any FmHA or its successor agency under Public Law 103-354 office),
and mailed to the borrower by ``Certified Mail, Return Receipt
Requested,'' with a copy to the State Director; and, for a case
identified in an OIG audit report, copies to the OIG office which
conducted the audit and the Planning and Analysis Staff of the National
Office. This letter will be sent to all borrowers who received
unauthorized assistance, regardless of amount. The letter will:
(1) Specify in detail the reason(s) the assistance was determined to
be unauthorized;
(2) State the amount of unauthorized assistance to be repaid
according to Exhibit D of this Subpart (available in any FmHA or its
successor agency under Public Law 103-354 office); and
(3) Establish an appointment for the borrower to discuss with the
County Supervisor the basis for FmHA or its successor agency under
Public Law 103-354's claim; and give the borrower an opportunity to
provide facts, figures, written records or other information which might
refute FmHA or its successor agency under Public Law 103-354's
determination that the assistance received was unauthorized.
(b) If the borrower meets with the County Supervisor, the County
Supervisor will outline to the borrower why the assistance was
determined to be unauthorized. The borrower will be given an opportunity
to provide information to refute FmHA or its successor agency under
Public Law 103-354's findings. When requested by the borrower, the
County Supervisor may grant additional time for the borrower to assemble
documentation. When an extension is granted, the County Supervisor will
specify a definite number of days to be allowed and establish the
[[Page 87]]
follow up necessary to assure that servicing of the case continues
without undue delay.
Sec. 1951.558 Decision on servicing actions.
When the County Supervisor is the same official who approved the
unauthorized assistance, the District Director must review the case
before further actions are taken by the County Supervisor.
(a) Payment in full. If the borrower agrees with FmHA or its
successor agency under Public Law 103-354's determination and agrees to
repay in a lump sum, the County Supervisor may allow a reasonable period
of time (not to exceed 90 days) for the borrower to arrange for
repayment. The amount due will be the amount stated in the letter as
shown in Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office). The County Supervisor
will remit collections to the Finance Office according to the Forms
Manual Insert (FMI) for Form FmHA or its successor agency under Public
Law 103-354 451-2, ``Schedule of Remittances,'' for application to the
borrower's account as an extra payment. After a borrower repays an
unauthorized interest subsidy benefit in a lump sum, the loan will be
serviced in accordance with Sec. 1951.561(a)(3) of this subpart. In the
case of unauthorized assistance which was identified in an OIG audit,
the County Supervisor will report the repayment as outlined in
Sec. 1951.568(a) of this subpart.
(b) Continuation with borrower. If the borrower agrees with FmHA or
its successor agency under Public Law 103-354's determination or is
willing to repay but cannot repay the unauthorized assistance in a lump
sum within a reasonable period of time, continuation may be authorized.
Servicing actions outlined in Sec. 1951.561 of this subpart will be
taken, provided all of the following conditions are met:
(1) The borrower did not provide false information as defined in
Sec. 1951.552(d) of this subpart.
(2) It would be highly inequitable to require prompt repayment of
the unauthorized assistance; and
(3) Failure to collect the unauthorized assistance in full will not
adversely affect FmHA or its successor agency under Public Law 103-354's
financial interests.
(c) Liquidation of loan(s) or legal action to enforce collection.
When a case cannot be handled according to the provisions of paragraph
(a) or (b) of this section, or if the borrower refuses to execute the
documents necessary to make account adjustments or establish an
obligation to repay the unauthorized assistance as provided in
Sec. 1951.561 of this subpart, or when a borrower fails to respond to
the initial letter prescribed in Sec. 1951.557 of this subpart within 30
days, one of the following actions will be taken:
(1) Active borrower with a secured loan. (i) The County Supervisor
will send Exhibit B of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office.)
(ii) If the borrower wants to voluntarily convey, the County
Supervisor will follow the directions in Sec. 1955.10 or Sec. 1955.20 as
applicable, of subpart A of part 1955 of this chapter.
(iii) If the borrower does not appeal, does not repay the
unauthorized assistance in full, does not voluntarily convey,
voluntarily sell or refinance the entire FmHA or its successor agency
under Public Law 103-354 debt, the borrower's account will be
accelerated and there will be no appeal of this action. The County
Supervisor and District Director will follow the directions in
Sec. 1955.15 of subpart A of part 1955 of this chapter.
(iv) Forced liquidation will not be pursued when:
(A) The amount of unauthorized assistance outstanding, including
principal, accrued interest, and recoverable costs charged to the
account, is less that $1,000; or
(B) It can be clearly documented that it would not be in the best
financial interest of the Government to force liquidation. If the
servicing official wishes to make an exception to forced liquidation
under paragraph (c)(1)(B) of this section, a request for an exception
under Sec. 1951.569 of this subpart will be made.
(v) Account adjustments will be made by FmHA or its successor agency
under
[[Page 88]]
Public Law 103-354 without the signature of the borrower according to
Sec. 1951.568(a)(5) of this subpart. In these cases, the borrower will
be notified by letter of the actions taken with a copy of Forms FmHA or
its successor agency under Public Law 103-354 1951-12, ``Correction of
Loan Account,'' or 1951-13, ``Change in Interest Rate,'' as applicable,
enclosed to reflect the adjustments.
(2) (Inactive borrower or active borrower with unsecured loan such
as collection-only or unsatisfied balance after liquidation). The County
Supervisor will document the facts in the case and submit it to the
State Director who will request the advice of OGC on pursuing legal
action to effect collection. The State Director will tell OGC what
assets, if any, are available from which to collect.
[50 FR 45777, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988]
Secs. 1951.559--1951.560 [Reserved]
Sec. 1951.561 Servicing options in lieu of liquidation or legal action.
When all of the conditions outlined in Sec. 1951.558(b) of this
subpart are met, servicing options outlined in this section will be
considered; and accounts will be serviced according to this section and
Sec. 1951.568 of this subpart.
(a) Active borrower--(1) Entire loan, or loan servicing
unauthorized. When the entire loan, or all or a portion of primary loan
servicing, is determined to be unauthorized because the borrower was not
eligible, or because the loan or primary loan servicing was approved for
unauthorized purposes, the following alternatives will be considered in
the order listed:
(i) Execution of Form FmHA or its successor agency under Public Law
103-354 1965-11, ``Accelerated Repayment Agreement,'' according to
Sec. 1965.26(e) of subpart A of part 1965 of this chapter, for loans
secured by real estate, or rescheduling according to Subpart A of this
part, for loans not secured by real estate, based on the borrower's
repayment ability.
(ii) Refinancing with another type of FmHA or its successor agency
under Public Law 103-354 loan to repay the unauthorized loan, if the
borrower is eligible for the type loan being considered.
(iii) When the case cannot be handled according to paragraph
(a)(1)(i) or (a)(1)(ii) of this section, continuance with the loan on
the existing terms may be approved, and the loan will, thereafter, be
serviced as an authorized loan.
(2) Portion of loan unauthorized. When a portion of a loan is
determined to be unauthorized, the Finance Office will be instructed to
separate the authorized and unauthorized portions of the loan, setting
up each as a separate loan at the correct interest rate. The correct
interest rate will be taken from Exhibit C of this subpart (available in
any FmHA or its successor agency under Public Law 103-354 office) as of
the date of loan approval. All payments made on the loan being corrected
will be reversed and reapplied to the unauthorized portion. If after
reapplication of payments the unauthorized portion is not paid in full,
the options outlined in paragraph (a) of this section may be considered
for repayment of the balance of the unauthorized portion; and the
authorized portion will be serviced as an outlined loan. See
Sec. 1951.568 of this subpart for instructions on setting up separate
accounts.
(3) Unauthorized interest subsidy benefits received. When the
borrower was eligible for the loan, but should properly have been
charged a higher interest rate than that shown in the debt instrument on
all or a portion of the loan, resulting in the receipt of unauthorized
interest subsidy benefits, the case will be handled as outlined below.
The unauthorized interest rate will be corrected to the interest rate in
effect on the date the original loan was approved as outlined in
paragraph (a)(3)(iii) of this section.
(i) When a subsidized interest rate was incorrectly charged on the
entire loan, all payments made will be reversed and reapplied at the
correct interest rate; and future installments will be scheduled at the
correct interest rate. After reapplication of payments, the loan will be
treated as an authorized loan.
(ii) When a subsidized interest rate was incorrectly charged on only
a portion of the loan, the Finance Office will
[[Page 89]]
be instructed by the County Supervisor to separate the loan into two
portions, with the correct interest rate established for the portion
having the incorrect subsidized interest rate. All payments made on the
loan being adjusted will be reversed and reapplied, first to the portion
with the corrected interest rate. After reapplication of payments at the
correct interest rate, both portions will be serviced as authorized
loans.
(iii) Incorrect interest rates will be corrected as follows
referring to Exhibit C of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office) for interest rates in
effect on specific dates:
(A) For disaster Emergency (EM) loans, to the rate for EM annual
production loans.
(B) For Operating Loans--Limited Resource (OL-LR), to the rate for
regular Operating Loans (OL).
(C) For Farm Ownership--Limited Resource (FO-LR), to the rate for
regular Farm Ownership (FO).
(D) For all other types of FP loans, to the correct rate for the
type loan involved which was in effect when the loan was approved.
(b) Inactive borrower. When the individual or entity does not have
an outstanding account in the records of the Finance Office, the
following actions will be taken:
(1) Have the inactive borrower execute a promissory note in the
amount of the assistance determined to be unauthorized according to
Sec. 1951.557 of this subpart. This note will bear interest at the rate
which was in effect for the type loan associated with the unauthorized
assistance when it was approved. The term will not exceed 10 years or
the term of the original loan, whichever is the shorter term.
(2) Take the best lien obtainable on any collateral having equity
value to secure the note.
[50 FR 45777, Nov. 1, 1985, as amended at 51 FR 4138, Feb. 3, 1986; 56
FR 33862, July 24, 1991]
Secs. 1951.562--1951.567 [Reserved]
Sec. 1951.568 Account adjustments and reporting requirements.
When a final determination has been made that unauthorized
assistance has been granted, the Finance Office will be notified of
necessary account adjustments as outlined in this section, depending
upon whether the case of unauthorized assistance was identified by OIG
in an audit report or by another means. The Finance Office will service
the accounts as prescribed in this section.
(a) Audit cases. Only cases of unauthorized assistance identified by
OIG will be reported to the Finance Office by submission on Form FmHA or
its successor agency under Public Law 103-354 1951-12 completed in
accordance with the FMI. The Finance Office will flag the account for
monitoring and reporting as required. Each payment reversed will be
reapplied as of the original date of credit. ``Loan'' refers to an
account with an active borrower unless specified as ``inactive.'' If the
borrower has arranged to repay in a lump sum, the payment will be
remitted with Form FmHA or its successor agency under Public Law 103-354
451-2, according to the FMI. Form FmHA or its successor agency under
Public Law 103-354 1951-12 will reflect the amount and the Schedule
Number.
(1) Entire loan unauthorized. When the entire loan is unauthorized
because the borrower was not eligible or because the loan was approved
for unauthorized purposes, and continuation is authorized, the Finance
Office will be advised as follows:
(i) Accelerated repayment agreement or loan rescheduled. If the
borrower has executed Form FmHA or its successor agency under Public Law
103-354 1965-11 for loans secured by real estate; or has executed Form
FmHA or its successor agency under Public Law 103-354 1951-4 for loans
not secured by real estate, the form(s) will be prepared and distributed
according to the FMIs, attaching the original form(s) to Form FmHA or
its successor agency under Public Law 103-354 1951-12.
[[Page 90]]
(ii) Continuation with loan on existing terms. When it is determined
that all the conditions outlined in Sec. 1951.558(b) of this subpart are
met and continuation with the loan on the existing terms is approved,
the servicing official will submit Form FmHA or its successor agency
under Public Law 103-354 1951-12 to the Finance Office to reflect this.
(2) Portion of loan unauthorized. When a loan is to be separated
into authorized and unauthorized portions, the authorized portion will
retain the original loan number, and the original principal amount will
be reduced by the unauthorized amount. A new loan in the unauthorized
amount will be established as the unauthorized loan with the next
available number assigned by the Finance Office. Payments made on the
loan being adjusted will be reversed and reapplied first to the
unauthorized loan. If the reapplication of payments does not pay the
unauthorized loan in full, upon receipt of Forms FmHA or its successor
agency under Public Law 103-354 451-26, ``Transaction Record,'' showing
the balances of the authorized and unauthorized loans, the servicing
official will proceed under the provisions of Sec. 1951.561(a)(2) and
will submit a revised Form FmHA or its successor agency under Public Law
103-354 1951-12 (along with a copy of the original Form FmHA or its
successor agency under Public Law 103-354 1951-12).
(3) Unauthorized subsidy benefits received. (i) Entire loan. When
the interest rate on an entire loan is changed, Form FmHA or its
successor agency under Public Law 103-354 1951-12 will be submitted to
notify the Finance Office of the correct interest rate to be charged
from the original loan closing date. Payments made will be reversed and
reapplied at the corrected interest rate, after which the unauthorized
subsidy benefits will be reported to OIG as resolved. The loan will then
be treated as an authorized loan.
(ii) Portion of loan. When the interest rate on only a portion of a
loan must be changed, the portion which has the incorrect interest rate
will be established as a new loan at the correct interest rate shown on
Form FmHA or its successor agency under Public Law 103-354 1951-12.
Payments made on the loan being adjusted will be reversed and reapplied
first to the loan with the corrected interest rate. Both loans will then
be treated as authorized loans.
(4) Liquidation pending. When liquidation is initiated under the
provisions of this subpart, Form FmHA or its successor agency under
Public Law 103-354 1951-12 will be submitted to advise the Finance
Office to establish the unauthorized assistance account. This account
will be flagged ``FAP'' (Foreclosure Action Pending) or ``CAP'' (Court
Action Pending), as applicable.
(5) Liquidation not initiated. Cases in which liquidation would
normally be initiated, but where it is not because of the provisions of
Sec. 1951.558 (c)(1)(iv)(A) or (c)(1)(iv)(B) of this subpart, will be
adjusted according to Sec. 1951.561 (a)(2) or (a)(3) of this subpart and
this section, and the adjustments will be reflected on Form FmHA or its
successor agency under Public Law 103-354 1951-12. In this instance
only, account adjustments will be made even though the borrower does not
sign Form FmHA or its successor agency under Public Law 103-354 1951-12
and any related documents.
(6) Establishment of account of inactive borrower. (i) When an
inactive borrower agrees to repay unauthorized assistance and executes
documents to evidence such an obligation, Form FmHA or its successor
agency under Public Law 103-354 1951-12 will reflect this, and the
Finance Office will establish or the account according to the terms
indicated on Form FmHA or its successor agency under Public Law 103-354
1951-12.
(ii) When a judgment is obtained against such a borrower, Form FmHA
or its successor agency under Public Law 103-354 1962-20, ``Notice of
Judgment,'' will be prepared and distributed in accordance with the FMI
to establish a judgment account. The FmHA or its successor agency under
Public Law 103-354 field office will process the judgment or the third
party judgment via the FmHA or its successor agency under Public Law
103-354 field office terminal system.
[[Page 91]]
(7) Payments on authorized and unauthorized loans concurrently. When
a borrower has both authorized and unauthorized loans outstanding,
installments may be scheduled to be paid concurrently on all loans.
Payments may be adjusted by means of rescheduling or reamortizing to
coincide with the borrower's repayment ability according to servicing
regulations for the type loan involved. The County Supervisor will
complete Form FmHA or its successor agency under Public Law 103-354 451-
2 so that payments received will be applied first to the unauthorized
loan account to maintain it current, with the remainder of the payment
applied to the other loan(s).
(8) Reporting. At prescribed intervals, the Finance Office will
report to the OIG on the status of cases involving unauthorized
assistance which were identified by OIG in audit reports. For reporting
purposes, the following applies:
(i) For an unauthorized loan account established as provided in
paragraph (a) (1), (2), or (6) of this section, reporting will be as
follows:
(A) When unauthorized assistance is paid in full, it will be
reported on the next scheduled report only, giving the amount collected.
(B) When unauthorized assistance is to be repaid under an
accelerated repayment agreement, the unpaid balance will be reported
initially and the collections and status will be included on each
scheduled report until the account is paid in full.
(C) When continuation with the loan on existing terms is approved,
or after a loan is rescheduled or reamortized, it will be reported as
resolved on the next scheduled report, and no further reporting is
required.
(ii) For unauthorized subsidy cases as provided in paragraph (a)(3)
of this section, when the unauthorized amount has been repaid, or
payments have been reversed and reapplied at the correct interest rate,
the unauthorized subsidy will be reported as resolved on the next
scheduled report. No further reporting is required.
(iii) When an account is established with liquidation action pending
as provided in paragraph (a)(4) of this section, the status will be
included on each scheduled report until the liquidation is completed or
the account is otherwise paid in full.
(iv) When liquidation is not initiated as provided in paragraph
(a)(5) of this section, it will be reported on the next scheduled report
(along with collections, if any). No further reporting is required.
(b) Nonaudit cases. Basically, servicing options which may be used
are the same for audit and nonaudit cases; however, when receipt of
unauthorized assistance is identified by a means other than an OIG audit
report, the Finance Office will be notified only if adjustments to an
account or reinstatement of an inactive account are necessary. Once
adjustments are made as provided in this paragraph, the loan(s) will be
treated as an authorized loan(s). Each payment reversed will be
reapplied as of the original date of credit. After payments are reversed
and reapplied, the servicing official will receive Forms FmHA or its
successor agency under Public Law 103-354 451-26 from the Finance Office
reflecting the account status.
(1) Account adjustments will be handled as follows:
(i) When a change in interest rate is necessary, retroactive to the
date of loan closing on all or a portion of a loan, Form FmHA or its
successor agency under Public Law 103-354 1951-13 will be completed
according to the FMI and submitted to the Finance Office. Payments will
be reversed and reapplied accordingly.
(ii) For accounts to be rescheduled or reamortized, Forms FmHA or
its successor agency under Public Law 103-354 1951-4, or 1965-11, as
applicable, will be prepared and submitted in accordance with the
respective FMI.
(iii) When an inactive borrower agrees to repay unauthorized
assistance and executes documents to evidence such an obligation, the
County Supervisor will notify the Finance Office by memorandum,
attaching a copy of the promissory note. The Finance Office will
establish or reinstate the account according to the terms of the
promissory note.
(iv) If a loan is paid in full, the remittance will be handled in
the same manner as any other final payment.
[[Page 92]]
(2) A delinquency created through reversal and reapplication of
payments to effect corrections outlined in paragraph (b)(1) of this
section will be serviced according to the applicable servicing
regulations for the type loan involved.
[50 FR 45777, Nov. 1, 1985, as amended at 55 FR 35295, Aug. 29, 1990]
Sec. 1951.569 Exception authority.
The Administrator may in individual cases make an exception to any
requirement or provision of this subpart which is not inconsistent with
the authorizing statute or other applicable law if the Administrator
determines that application of the requirement or provision would
adversely effect the Government's interest. The Administrator will
exercise this authority only at the request of the State Director and on
the recommendation of the appropriate Program Assistant Administrator.
Requests for exceptions must be made in writing by the State Director
and supported with documentation to explain the adverse effect on the
Government's interest, propose alternative courses of action, and show
how the adverse effect will be eliminated or minimized if the exception
is granted.
Secs. 1951.570--1951.599 [Reserved]
Sec. 1951.600 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0102.
Subpart M [Reserved]
Subpart N--Servicing Cases Where Unauthorized Loan or Other Financial
Assistance Was Received--Multiple Family Housing
Source: 50 FR 12996, Apr. 2, 1985, unless otherwise noted.
Sec. 1951.651 Purpose.
This subpart prescribes the policies and procedures for servicing
multiple family housing (MFH) loans and/or grants made by Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) when it is determined
that the borrower or grantee was not eligible for all or part of the
financial assistance received in the form of a loan, grant, subsidy
granted, any other direct financial assistance, or was not made subject
to restrictive-use provisions required by law and/or regulation. As used
in this subpart, MFH loans and grants are section 515 rural rental
housing (RRH) and rural cooperative housing (RCH) loans and sections 514
and 516 labor housing (LH) loans and grants.
[58 FR 38926, July 21, 1993]
Sec. 1951.652 Definitions.
As used in this subpart, the following definitions apply:
(a) Active borrower. A borrower who has an outstanding account in
the records of the Finance Office, including collection-only or an
unsatisfied account balance where a voluntary conveyance was accepted
without release from liability or foreclosure did not satisfy the
indebtedness.
(b) Assistance. Financial assistance in the form of a loan, grant,
or subsidy received.
(c) Debt instrument. Used as a collective term to include promissory
note, assumption agreement, grant agreement/resolution, or bond.
(d) False information. Information, known to be incorrect, provided
with the intent to obtain benefits which would not have been obtainable
based on correct information.
(e) Inaccurate information. Incorrect information provided
inadvertently without intent to obtain benefits fraudulently.
(f) Inactive borrower. A former borrower whose loan(s) has(have)
been paid in full or assumed by another party(ies) and who does not have
an outstanding account in the records of the Finance Office.
(g) Recipient. ``Recipient'' refers to an individual or entity that
received a loan, or portion of a loan, an interest subsidy, or a grant
which was unauthorized or was not made subject to restrictive-use
provisions required by law and/or regulation.
[[Page 93]]
(h) Unauthorized assistance. Any loan, interest subsidy, or grant,
or any portion thereof, received by a borrower or grantee for which
there was no regulatory authorization, or for which the recipient was
not eligible.
Interest subsidy includes interest credits, rental assistance, and
subsidy benefits received because a loan was made at a lower interest
rate than that to which the recipient was entitled, whether the
incorrect interest rate was selected erroneously by the approval
official, or the documents were prepared in error.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]
Sec. 1951.653 Policy.
When unauthorized assistance has been received, an effort must be
made to collect the sum which is determined to be unauthorized from the
recipient, regardless of amount, unless any applicable statute of
limitations has expired.
[58 FR 38926, July 21, 1993]
Sec. 1951.654 Categories of unauthorized assistance.
Unauthorized assistance includes, but is not limited to, these
categories:
(a) The recipient was not eligible for the assistance.
(b) The property, as approved, does not qualify for the program. For
example: An RRH or LH project which clearly is above modest in size,
design and/or cost or was not located in an area designated as rural
when the initial loan was made.
(c) The loan or grant was made for unauthorized purposes. For
example: Purchase of an excessive amount of land.
(d) The recipient was granted unauthorized subsidy in the form of:
(1) Interest credits (IC) on an RRH loan;
(2) Rental Assistance (RA) in connection with an RRH or LH loan; or
(3) A subsidy benefit received through use of an incorrect interest
rate.
(e) The recipient was not subjected to obligations required by the
assistance, such as restrictive-use provisions, at the time the
assistance was provided.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]
Sec. 1951.655 [Reserved]
Sec. 1951.656 Initial determination that unauthorized assistance was received.
Unauthorized assistance may be identified through audits conducted
by the Office of the Inspector General, USDA, (OIG); through reviews
made by FmHA or its successor agency under Public Law 103-354 personnel;
or through other means such as information provided by a private citizen
which documents that unauthorized assistance has been received by a
recipient of FmHA or its successor agency under Public Law 103-354
assistance. If FmHA or its successor agency under Public Law 103-354 has
reason to believe unauthorized assistance was received, but is unable to
determine whether or not the assistance was in fact unauthorized, the
case will be referred to the Regional Office of the General Counsel
(OGC) or the National Office, as appropriate, for review and advice. In
every case where it is known or believed by FmHA or its successor agency
under Public Law 103-354 that the assistance was based on false
information, investigation by the Office of the Inspector General (OIG)
will be requested as provided for in FmHA or its successor agency under
Public Law 103-354 Instruction 2012-B (available in any FmHA or its
successor agency under Public Law 103-354 office). If OIG conducts an
investigation, the actions outlined in Sec. 1951.657 of this subpart
will be deferred until the OIG investigation is completed and the report
is received. The reason(s) for the unauthorized assistance being
received by the recipient will be well documented in the case file, and
will specifically state whether it was due to:
(a) Submission of inaccurate information by the recipient;
(b) Submission of false information by the recipient;
(c) Submission of inaccurate or false information by another party
on the recipient's behalf such as a loan packager, developer, real
estate broker, or
[[Page 94]]
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.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]
Sec. 1951.657 Notification to recipient.
(a) Collection efforts will be initiated by the District Director by
a letter substantially similar to exhibit A of this subpart (available
in any FmHA or its successor agency under Public Law 103-354 office),
and mailed by the servicing official to the recipient by ``Certified
Mail, Return Receipt Requested,'' with a copy to the State Director and,
for a case identified in an OIG audit report, a copy to the OIG office
which conducted the audit and the Planning and Analysis Staff of the
National Office. This letter will be sent to all recipients who received
unauthorized assistance, regardless of amount. The letter will:
(1) Specify in detail the reason(s) the assistance was determined to
be unauthorized;
(2) State the amount of unauthorized assistance to be repaid
according to exhibit C of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office); and
(3) Establish an appointment for the recipient to discuss with the
District Director the basis for FmHA or its successor agency under
Public Law 103-354's claim; and give the recipient an opportunity to
provide facts, figures, written records or other information which might
alter FmHA or its successor agency under Public Law 103-354's
determination that the assistance received was unauthorized.
(b) If the recipient meets with the District Director, the District
Director will outline to the recipient why the assistance was determined
to be unauthorized. The recipient will be given an opportunity to
provide information to refute FmHA or its successor agency under Public
Law 103-354's findings. When requested by the recipient, the District
Director may grant additional time for the recipient to assemble
documentation. When an extension is granted, the District Director will
specify a definite number of days to be allowed and establish the
followup necessary to assure that servicing of the case continues
without undue delay.
Sec. 1951.658 Decision on servicing actions.
When the District Director is the same individual who approved the
unauthorized assistance, the State Director must review the case before
further actions are taken by the District Director.
(a) Payment in full. If the recipient agrees with FmHA or its
successor agency under Public Law 103-354's determination or will pay in
a lump sum, the District Director may allow a reasonable period of time
(usually not to exceed 90 days) for the recipient to arrange for
repayment. The amount due will be the amount stated in the letter as
shown in exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office). The requirements of
subpart E of part 1965 will be followed with appropriate modifications
for prepayments under this subpart. If the loan was subject to
restrictive-use provisions prior to the request for payment in full, the
project will remain subject to restrictive-use provisions. Wherever
feasible, appropriate, or necessary to protect tenants and the low- and
moderate-income population of the community, all attempts to encourage
the borrower to sell the project to an acceptable transferee will be
made before the prepayment is accepted. All tenant notifications and
restrictive-use provisions, when applicable, must be followed when
prepayment of all debt on an MFH project is demanded. The District
Director will remit collections as follows:
[[Page 95]]
(1) In the case of the loan, for application to the borrower's
account as an extra payment.
(2) In the case of a grant, as a ``Miscellaneous Collection for
Application to the General Fund.''
(3) In the case of a loan or grant which was identified in an OIG
audit, the District Director will report the repayment as outlined in
Sec. 1951.668 (a)(1)((i), (a)(3), or (a)(6) as applicable.
(4) In the case of RA, the repayment will be handled as outlined in
Sec. 1951.661 (a)(3) and exhibit E to FmHA or its successor agency under
Public Law 103-354 Instruction 1930-C.
(b) Continuation with recipient. If the recipient agrees with FmHA
or its successor agency under Public Law 103-354's determination or is
willing to pay the amount in question but cannot repay the unauthorized
assistance within a reasonable period of time, continuation is
authorized and servicing actions outlined in Sec. 1951.668 will be taken
provided all of the following conditions are met:
(1) The recipient did not provide false information as defined in
Sec. 1951.652 (d);
(2) It would be highly inequitable to require prompt repayment of
the unauthorized assistance; and
(3) Failure to collect the unauthorized assistance in full will not
adversely affect FmHA or its successor agency under Public Law 103-354's
financial interests.
(c) Notice of determination when agreement is not reached. If the
recipient does not agree with FmHA or its successor agency under Public
Law 103-354's determination, or if the recipient fails to respond to the
initial letter prescribed in Sec. 1951.657 within 30 days, the District
Director will notify the recipient by letter substantially similar to
exhibit B of this subpart (available in any FmHA or its successor agency
under Public Law 103-354 office) (sent by Certified Mail, Return Receipt
Requested), with a copy to the State Director, and for a case identified
in an OIG audit report, a copy to the OIG office which conducted the
audit and the Planning and Analysis Staff of the National Office. This
letter will include:
(1) The amount of assistance finally determined by FmHA or its
successor agency under Public Law 103-354 to be unauthorized;
(2) A statement of further actions to be taken by FmHA or its
successor agency under Public Law 103-354 as outlined in paragraph
(e)(1) or (e)(2) of this section; and
(3) The appeal rights as prescribed in exhibit B of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office).
(d) Appeals. Appeals resulting from the letter prescribed in
paragraph (c) of this section will be handled according to subpart B of
part 1900 of this chapter. All appeal provisions will be concluded
before proceeding with further actions. If the recipient does not
prevail in an appeal, or when an appeal is not made during the time
allowed, the District Director will proceed with the actions outlined in
paragraph (e) of this section, as applicable. If during the course of
appeal the appellant decides to agree with FmHA or its successor agency
under Public Law 103-354's findings or is willing to repay the
unauthorized assistance, the District Director will proceed with the
actions outlined in paragraph (a) or (b) of this section.
(e) Liquidation of loan(s) or legal action to enforce collection. If
the recipient is unwilling or unable to arrange for repayment as
provided in paragraph (a) of this section or continuation is not
feasible as provided in paragraph (b) of this section, one of the
following actions, as appropriate, will be taken:
(1) Active borrower with a secured loan. (i) The District Director
will attempt to have the recipient liquidate voluntarily. If the
recipient agrees to liquidate voluntarily, this will be documented by an
entry in the running record of the case file. Where real property is
involved, a letter will be prepared by the District Director and signed
by the recipient agreeing to voluntary liquidation. For organizations, a
resolution of the governing body may be necessary in addition to the
running record notation. If the recipient does not agree to voluntary
liquidation, or agrees but it cannot be accomplished within a reasonable
period of time (usually not more than 90 days), forced liquidation
action will be initiated in
[[Page 96]]
accordance with subpart A of 1955 of this chapter unless:
(A) The amount of unauthorized assistance outstanding, including
principal, accrued interest, and any recoverable costs charged to the
account, is less than $1,000; or
(B) It can be clearly documented that it would not be in the best
financial interest of the Government to force liquidation. If the
District Director wishes to make an exception to forced liquidation
under paragraph (e)(1)(i)(B) of this section, a request for an exception
under Sec. 1951.669 will be made.
(ii) When all of the conditions of paragraph (a) or (b) or this
section are met, but the recipient does not repay or refuses to execute
documents to effect necessary account adjustments according to the
provisions of Sec. 1951.661, liquidation action will be initiated as
provided in paragraph (e)(1)(i) of this section.
(iii) When forced liquidation would be initiated except that the
loan is being handled under paragraph (e)(1)(i)(A) or (e)(1)(i)(B) of
this section account adjustments will be made by FmHA or its successor
agency under Public Law 103-354 without the signature of the recipient
according to Sec. 1951.668(a)(5). In these cases, the recipient will be
notified by letter of the actions taken with a copy of Form FmHA or its
successor agency under Public Law 103-354 1951-12, ``Correction of Loan
Account,'' if applicable.
(2) Grantee, inactive borrower, or active borrower with unsecured
loan (such as collection-only, or unsatisfied balance after
liquidation). The District Director will document the facts in the case
and submit it to the State Director who will request the advice of OGC
on pursuing legal action to effect collection. The State Director will
tell OGC what assets, if any, are available from which to collect. The
case file, recommendation of State Director and OGC comments will be
forwarded to the National Office for review and authorization to
implement recommended servicing actions.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]
Secs. 1951.659--1951.660 [Reserved]
Sec. 1951.661 Servicing options in lieu of liquidation or legal action to collect.
When all of the conditions outlined in Sec. 1951.658(b) are met, an
unauthorized loan or grant will be serviced according to this section
and Sec. 1951.668, provided the recipient has the legal and financial
capabilities.
(a) Active borrower/grantee--(1) Unauthorized loan. (i) Correction
of problem. If the problem causing the assistance to be unauthorized can
be corrected, corrective action will be required. For example, where a
loan was in excess of the authorized amount, the recipient will be
required to refund the difference; or where the loan included funds for
purchase of excess land, the recipient will be required to sell the
excess land and the proceeds will be applied to the account as an extra
payment; or where a restrictive-use provision was omitted from a loan
document, the provision will be inserted.
(ii) Continuation on existing terms. When there is no specific
problem which can be corrected, continuation on the existing terms is
authorized.
(2) Unauthorized subsidy benefits received through use of incorrect
interest rate. When the recipient was eligible for the loan but should
properly have been charged a higher interest rate than that shown in the
debt instrument, resulting in the receipt of unauthorized subsidy
benefits, the interest rate must be corrected to that which was in
effect when the loan was approved. All payments made will be reversed
and reapplied at the correct interest rate and future installments will
be scheduled at the correct interest rate. A delinquency which is
created will be serviced according to subpart B of part 1965 of this
chapter. After reapplication of payments, the loan will be serviced as
an authorized loan. Change in interest rate will be accomplished
according to Sec. 1951.668. When the recipient is a public body with
loans secured by bonds on which interest rate cannot legally be changed
or payments reversed or reapplied, continuation on existing terms is
authorized.
[[Page 97]]
(3) Unauthorized interest credits or rental assistance. In cases
involving RA and/or IC, the subsidy benefits should be terminated as
provided in the Interest Credit and Rental Assistance Agreement.
Unauthorized RA will be serviced as a delinquent account according to
paragraph X B of exhibit E of subpart C of part 1930 of this chapter.
(i) Tenant's failure to properly report changes in income or size of
the household to the borrower. In cases where a tenant has received RA
and/or IC benefits to which he/she was not entitled because of the
tenant's failure to properly report income or changes in household size,
the borrower-landlord will provide the tenant with a notice of intent to
recoup improperly advanced rental subsidy benefits. Such a notice must
inform the tenant of the amount improperly advanced and the lump sum or
monthly amount that will be added to the tenant's rent to recoup the
improper rental subsidy. The borrower will inform the District Director
of the unauthorized benefits and of the agreement made by the tenant to
repay. Money collected will be remitted according to the FMI for Form
FmHA or its successor agency under Public Law 103-354 1944-9. If the
borrower has rental assistance, that portion attributable to RA will be
credited to the borrower's RA account. In the event that the tenant does
not repay through active collection efforts including legal remedy, the
borrower will report the facts to the District Director. The District
Director will report to the State Director who will obtain the advice of
OGC on further actions.
(ii) Tenant knowingly misrepresented income or number of occupants
to the borrower. If it appears the tenant has knowingly misrepresented
income to the borrower, the District Director will look into the case to
determine the facts. If the District Director determines that income or
number of occupants was misrepresented, he/she will direct the borrower-
landlord to demand and to attempt to recoup improperly received rental
subsidy from the tenant. Money collected will be remitted to the Finance
Office according to the FMI for Form FmHA or its successor agency under
Public Law 103-354 1944-9. If the tenant fails to make restitution, the
District Director will refer the case to the State Director who will
request the advice of OGC on further actions.
(iii) Unauthorized RA and/or IC paid due to borrower's error.
Whether unauthorized RA or IC was received by the borrower due to
miscalculation or oversight by the borrower or the borrower's management
agent, the borrower is required to make restitution to FmHA or its
successor agency under Public Law 103-354. This restitution will not be
charged to any tenant or to the project as any part of the budget or
operating expense. The restitution will be handled as a refund according
to the FMI for Form FmHA or its successor agency under Public Law 103-
354 1944-49. In the case of a nonprofit or public body borrower, when
funds from nonproject sources are not available, the State Director may
make an exception and allow project income not required for approved
operating budget items to cover the cost of restitution.
(iv) Rental assistance assigned to wrong household. When the tenant
has correctly reported income and household size, but RA was assigned by
the borrower to the household in error, the tenant's RA benefit will be
cancelled and reassigned.
(A) Notification and cancellation. Before the borrower notifies the
tenant, the borrower or management agent will review the case with the
District Director. If the District Director verifies that an error was
made based on information available at the time the unit was assigned,
the tenant will be given 30 days written notice by the borrower or
management agent that the unit was assigned in error and that the RA
benefit will be cancelled effective on the next monthly rental payment
due after the end of the 30-day notice period. The written notice will
provide that:
(1) The tenant has the right to cancel the lease based on the loss
of subsidy benefit to the tenant.
(2) The RA granted in error will not be recaptured.
(3) The tenant may meet with management to discuss the cancellation
and the facts on which the decision was
[[Page 98]]
based. The borrower must give the tenant appeal rights under subpart L
or part 1944 of this chapter.
(B) Reassignment of RA. Rental assistance will be reassigned in
accordance with paragraph XII of exhibit E to subpart C of part 1930 of
this chapter.
(v) Rental assistance in excess of contract. When rental assistance
is advanced in excess of the RA contract limit, the District Director
will send a report of the facts and a recommendation of proposed action
through the State Director to the Assistant Administrator, Housing. The
Assistant Administrator will determine the disposition of the case and
notify the State Director, who will instruct the District Director of
the required action.
(4) Unauthorized grant assistance. (i) When the recipient will repay
unauthorized grant assistance over a period of time, interest will be
charged at the rate specified in the grant agreement for default from
the date received until paid. Repayment will be scheduled over a period
consistent with the recipient's repayment ability but not to exceed 10
years. The District Director must maintain collection records as the
Finance Office cannot set upon an account for repayment of a grant. The
District Director will attempt to collect the monies due, and all
collections will be remitted with Form FmHA or its successor agency
under Public Law 103-354 451-2, ``Schedule of Remittances,'' as a
``Miscellaneous Collection for Application to the General Fund.'' For
cases identified in OIG audits only, the District Director will report
quarterly to the State Office according to Sec. 1951.668 (a)(6).
(ii) If it is determined the recipient cannot repay unauthorized
grant assistance, the assistance may be left outstanding under the terms
of the grant agreement. In the case of committed funds not yet
disbursed, no further disbursements will be made without prior consent
of the Administrator.
(5) Cases where recipient has both authorized and unauthorized loans
outstanding. When a recipient has both authorized and unauthorized loans
outstanding, installments will be scheduled to be paid concurrently on
all loans. Each loan will be serviced according to the loan servicing
regulations in effect for an authorized loan of its type.
(b) Inactive borrower. When a borrower no longer has an outstanding
account in the records of the Finance Office, the following actions will
be taken:
(1) Have the recipient execute a promissory note in the amount of
the assistance determined to be unauthorized in the exhibit A (available
in any FmHA or its successor agency under Public Law 103-354 office)
letter according to Sec. 1951.657. This note will bear interest at the
rate which was in effect for the type loan associated with the
unauthorized assistance when it was approved. The term will not exceed
10 years.
(2) Take the best mortgage obtainable to secure the note.
[50 FR 12996, Apr. 2, 1985, as amended at 51 FR 11563, Apr. 4, 1986; 58
FR 38926, July 21, 1993]
Secs. 1951.662--1951.667 [Reserved]
Sec. 1951.668 Servicing unauthorized assistance accounts.
When a final determination has been made that unauthorized
assistance has been granted, the Finance Office will be notifed of
necessary account adjustments as outlined in this section, depending
upon whether the case or unauthorized assistance was identified by OIG
in an audit report or by another means. The Finance Office will service
the accounts as prescribed in this section.
(a) Audit cases. Ony the cases of unauthorized assistance identified
by OIG will be reported to the Finance Office. Form FmHA or its
successor agency under Public Law 103-354 1951-12 will be completed in
accordance with the FMI, and the District Director will prepare and
submit Form FmHA or its successor agency under Public Law 103-354 1951-
52, ``MFH Record Adjustment--Audit Claim,'' according to the FMI to
advise the Finance Office. The Finance Office will flag the account for
monitoring and reporting as required. Each payment reversed will be
reapplied as of the original date of credit. ``Loan'' as used in this
section refers to an account with an active borrower unless specified as
``inactive.''
[[Page 99]]
(1) Unauthorized loan. When the loan is unauthorized because the
recipient was not eligible or because the loan was approved for
unauthorized purposes, the Finance Office will be advised as follows:
(i) Repayment in full. If the recipient has arranged to repay the
unauthorized loan, the payment will be remitted with Form FmHA or its
successor agency under Public Law 103-354 1944-9, in accordance with the
FMI. Forms FmHA or its successor agency under Public Law 103-354 1951-12
and 1951-52 will reflect the amount and the Schedule Number from Form
FmHA or its successor agency under Public Law 103-354 1944-9.
(ii) Continuation with loan on existing terms. When continuation
with the loan on the existing terms is approved according to
Sec. 1951.661 (a)(1)(ii), the District Director will submit Form FmHA or
its successor agency under Public Law 103-354 1951-52 to the Finance
Office to reflect this.
(2) Unauthorized subsidy benefits received through use of incorrect
interest rate. When the interest rate on an entire loan is changed, Form
FmHA or its successor agency under Public Law 103-354 1951-52 will be
submitted to notify the Finance Office of the correct interest rate to
be charged from the loan closing date. Payments made will be reversed
and reapplied at the corrected interest rate, after which the
unauthorized subsidy benefits will be reported to OIG as resolved. The
loan will thereafter be treated as an authorized loan.
(3) Unauthorized interest credits and/or rental assistance.
Unauthorized rental assistance and/or interest credits will be recovered
according to the provisions of Sec. 1951.661. The District Director will
report to the State Office by the 1st of March, June, September, and
December of each year, the repayment of unauthorized rental assistance
and/or interest credits by account name, case number, account code,
audit report number, finding number, date of claim, amount of claim,
amount collected during period, and balance owed at end of reporting
period. The State Office will forward a consolidated report to the
Finance Office no later than the 15th of March, June, September, and
December of each year for inclusion in the OIG report.
(4) Liquidation pending. When liquidation is initiated under the
provisions of this subpart, Form FmHA or its successor agency under
Public Law 103-354 1951-52 will be submitted to advise the Finance
Office of the unauthorized assistance account to be established. This
account will be flagged ``FAP'' (Foreclosure Action Pending) or ``CAP''
(Court Action Pending), as applicable. The account status will also be
amended in the MFH Information Tracking and Retrieval System (MISTR)
according to subpart G of part 2033 (available in any FmHA or its
successor agency under Public Law 103-354 State or District Office).
(5) Liquidation not initiated. Cases in which Liquidation has not
been initiated because of the provisions of Sec. 1951.658 (e)(1)(i)(A)
or (e)(1)(i)(B) will be adjusted according to Sec. 1951.661 and this
section of this subpart, and the adjustments will be reflected on Form
FmHA or its successor agency under Public Law 103-354 1951-52. In this
instance only, account adjustments will be made even though the
recipient does not sign Form FmHA or its successor agency under Public
Law 103-354 1951-52 and any related documents.
(6) Unauthorized grant assistance. When grant funds are to be repaid
as provided in Sec. 1951.661(a)(4) the District Director will report to
the State Office by the 1st of March, June, September, and December of
each year, the amount of collections by account name, case number, fund
code, audit report number, finding number, date of claim, original
amount of claim, amount collected during period, and the balance owed at
end of reporting period on the unauthorized grant assistance. The State
Office will submit a composite report to the Finance Office by the 15th
of March, June, September, and December of each year.
(7) Establishment of account for inactive borrower. When an inactive
borrower agrees to repay unauthorized assistance and executes documents
to evidence such an obligation, Forms FmHA or its successor agency under
Public Law 103-354 1951-12 and 1951-52 will be completed according to
the FMIs. The Finance Office will establish
[[Page 100]]
the account according to the terms indicated on Form FmHA or its
successor agency under Public Law 103-354 1951-52.
(8) Reporting. At prescribed intervals, the Finance Office will
report to the OIG on the status of cases involving unauthorized
assistance which were identified by OIG in audit reports. The amounts to
be reported will be determined by the Finance Office after account
servicing actions have been completed. For reporting purposes, the
following applies:
(i) For an unauthorized loan account as provided in paragraph (a)(1)
or (a)(4) of this section, reporting will be as follows:
(A) When unauthorized assistance is paid in full, this will be
reported on the next scheduled report only.
(B) When continuation with the loan on existing terms is approved,
the case will be reported as resolved on the next scheduled report, and
no further reporting is required.
(ii) For unauthorized subsidy cases as provided in paragraph (a)(2)
or (a)(3) of this section, after the unauthorized amount has been repaid
or payments have been reversed and reapplied at the correct interest
rate, the unauthorized subsidy will be reported as resolved on the next
scheduled report. No further reporting is required.
(iii) When an account is established with liquidation action pending
as provided in paragraph (a)(4) of this section, the status will be
included on each scheduled report until the liquidation is completed or
the account is otherwise paid in full.
(iv) When liquidation is not initiated as provided in paragraph
(a)(5) of this section, this will be reported on the next scheduled
report (along with collections, if any). No further reporting is
required.
(v) When unauthorized grant assistance is scheduled to be repaid,
the collections and status reported by the State Office to the Finance
Office by memorandum according to paragraph (a)(6) of this section will
be included in the OIG Report until the account is paid in full.
(vi) When an inactive borrower has agreed to repay unauthorized
assistance according to paragraph (a)(7) of this section, the account
will be reported initially, and collections and status will be included
in each scheduled report until the account is paid in full.
(b) Nonaudit cases. Basically, servicing is the same for audit and
nonaudit case; however, when receipt of unauthorized assistance is
identified by a means other than an OIG audit report, the Finance Office
will be notified only if adjustments to an active account or
reinstatement of an inactive account are necessary, or grant funds are
repaid. Once adjustments are made as provided in this paragraph, the
loan(s) will be treated as an authorized loan(s). Any payment reversed
will be reapplied as of the original date of credit. After payments are
reversed and reapplied, the District Director will receive Form FmHA or
its successor agency under Public Law 103-354 451-26, ``Transaction
Record,'' from the Finance Office reflecting the account status.
(1) Account adjustments will be handled as follows:
(i) When a change in interest rate retroactive to the date of loan
closing is necessary, Form FmHA or its successor agency under Public Law
103-354 1951-13, ``Change in Interest Rate,'' will be completed
according to the FMI and executed by the borrower. Form FmHA or its
successor agency under Public Law 103-354 1951-521 will be submitted to
the Finance Office. Payments will be reversed and reapplied accordingly.
(ii) When an inactive borrower agrees to repay unauthorized
assistance and executes documents to evidence such an obligation, the
District Director will notify the Finance Office by memorandum,
attaching a copy of the promissory note. The Finance Office will
establish or reinstate the account according to the terms of the
promissory note.
(iii) If a loan is paid in full, the remittance will be handled in
the same manner as any other final payment.
(2) A delinquency created through reversal and reapplication of
payments to effect corrections outlined in paragraph (b)(1)(i) of this
section will be serviced according to subpart B of part 1965 of this
chapter.
[[Page 101]]
(c) Collection of unauthorized assistance. Collection of
unauthorized assistance will be made in accordance with the appropriate
sections of subpart K of part 1951 of this chapter. If full prepayment
of an MFH loan is required, the prepayment will be accepted in
accordance with the requirements of subpart E of part 1965 of this
chapter, and appropriate restrictive-use provisions, if applicable, will
remain in the deeds of release.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]
Sec. 1951.669 Exception authority.
The Administrator may in individual cases make an exception to any
requirement or provision of this subpart which is not inconsistent with
any applicable law or opinion of the Comptroller General, provided the
Administrator determines that application of the requirement or
provision would adversely affect the Government's interest. Requests for
exceptions must be made in writing by the State Director and submitted
through the Assistant Administrator, Housing. Requests will be supported
with documentation to explain the adverse effect on the Government's
interest, proposed alternative courses of action, and show how the
adverse effect will be eliminated or minimized if the exception is
granted.
Secs. 1951.670--1951.699 [Reserved]
Sec. 1951.700 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0104.
Subpart O--Servicing Cases Where Unauthorized Loan(s) or Other Financial
Assistance Was Received--Community and Insured Business Programs
Source: 50 FR 13000, Apr. 2, 1985, unless otherwise noted.
Sec. 1951.701 Purpose.
This subpart prescribes the policies and procedures for servicing
Community and Business Program loans and/or grants made by Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) when it is determined
that the borrower or grantee was not eligible for all or part of the
financial assistance received in the form of a loan, grant, or subsidy
granted, or any other direct financial assistance. It does not apply to
guaranteed loans. Loans sold without insurance by the FmHA or its
successor agency under Public Law 103-354 to the private sector will be
serviced in the private sector and will not be serviced under this
subpart. The provisions of this subpart are not applicable to such
loans. Future changes to this subpart will not be made applicable to
such loans.
[52 FR 38908, Oct. 20, 1987]
Sec. 1951.702 Definitions.
As used in this subpart, the following definitions apply:
(a) Active borrower. A borrower who has an outstanding account in
the records of the Finance Office, including collection-only or an
unsatisfied account balance where a voluntary conveyance was accepted
without release from liability of foreclosure did not satisfy the
indebtedness.
(b) Assistance. Finance assistance in the form of a loan, grant, or
subsidy received.
(c) Debt instrument. Used as a collective term to include promissory
note, assumption agreement, grant agreement agreement/resolution, or
bond.
(d) False information. Information, known to be incorrect, provided
with the intent to obtain benefits which would not have been obtainable
based on correct information.
(e) Inaccurate information. Incorrect information provided
inadvertently without intent to obtain benefits fraudulently.
(f) Inactive borrower. A former borrower whose loan(s) has (have)
been paid in full or assumed by another party(ies) and who does not have
an outstanding account in the records of the Finance Office.
(g) Recipient. ``Recipient'' refers to an individual or entity that
received a loan, or portion of a loan, an interest
[[Page 102]]
subsidy, a grant, or a portion of a grant which was unauthorized.
(h) Servicing official. For Community Programs, the servicing
official is the District Director, an Assistant District Director, or a
District Loan Specialist so designated. For Business Programs, the
servicing official is the State Director or Designee.
(i) Unauthorized assistance. Any loan, interest subsidy, grant, or
portion thereof received by a recipient for which there was no
regulatory authorization for which the recipient was not eligible.
Interest subsidy includes subsidy benefits received because a loan was
closed at a lower interest rate than that to which the recipient was
entitled, whether the incorrect interest rate was selected erroneously
by the approval official or the documents were prepared in error.
Sec. 1951.703 Policy.
When unauthorized assistance has been received, an effort must be
made to collect from the recipient the sum which is determined to be
unauthorized, regardless of amount, unless any applicable Statute of
Limitation has expired.
Secs. 1951.704--1951.705 [Reserved]
Sec. 1951.706 Initial determination that unauthorized assistance was received.
Unauthorized assistance may be identified through audits conducted
by the Office of the Inspector General, USDA, (OIG); through reviews
made by FmHA or its successor agency under Public Law 103-354 personnel;
or through other means such as information provided by a private citizen
which documents that unauthorized assistance has been receive by a
recipient of FmHA or its successor agency under Public Law 103-354
assistance. If the servicing official has reason to believe unauthorized
assistance was received, but is unable to determine whether or not the
assistance was in fact unauthorized, the case file including the advice
of the Regional Office of the General Counsel (OGC) will be referred to
the National Office for review and comment. In every case where it is
known or believed by FmHA or its successor agency under Public Law 103-
354 that the assistance was based on false information, investigation by
the OIG will be requested as provided for in FmHA or its successor
agency under Public Law 103-354 Instruction 2012-B (available in any
FmHA or its successor agency under Public Law 103-354 office). If OIG
conducts an investigation, the actions outlined in Sec. 1951.707 will be
deferred until the OIG investigation is completed and the report is
received. The reason(s) for the unauthorized assistance being received
by the recipient will be well documented in the case file, and will
specifically state whether it was due to:
(a) Submission of inaccurate information by the recipient;
(b) Submission of false information by the recipient.
(c) Submission of inaccurate or false information by another
authorized party acting on the recipient's behalf including professional
consultant such as engineers, architects, and attorneys, when the
recipient did not know the other part had submitted inaccurate or false
information;
(d) Error by FmHA or its successor agency under Public Law 103-354
personnel, either in making computations or failure to follow published
regulations or other agency issuances; or
(e) Error in preparation of a debt instrument which caused a loan to
be closed at an interest rate lower than the correct rate in effect when
the loan was approved.
Sec. 1951.707 Notification to recipient.
(a) Collection efforts will be initiated by the servicing official
by a letter substantially similar to exhibit A of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office), and mailed to the recipient by ``Certified Mail, Return Receipt
Requested,'' with a copy to the State Director and, for a case identifed
in an OIG audit report, a copy to the OIG office which conducted the
audit and the Planning and Analysis Staff of the National Office. This
letter will be sent to all recipients who received unauthorized
assistance, regardless of amount. The letter will:
[[Page 103]]
(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.
Sec. 1951.708 Decision on servicing actions.
When the servicing official is the same individual who approved the
unauthorized assistance, the next-higher supervisory official must
review the case before further actions are taken by the servicing
official.
(a) Payment in full. If the recipient agrees with FmHA or its
successor agency under Public Law 103-354's determination or will pay
the amount in question, the servicing official may allow a reasonable
period of time (usually not to exceed 90 days) for the recipient to
arrange for repayment. The amount due will be determined according to
Sec. 1951.711(a). the servicing official will remit collections to the
Finance Office according to the Forms Manual Insert (FMI) for Form FmHA
or its successor agency under Public Law 103-354 451-2, ``Schedule of
Remittances,'' as follows:
(1) In the case of a loan, for application to the borrower's account
as an extra payment.
(2) In the case of a grant, as a ``Miscellaneous Collection for
Application to the General Fund.''
(3) In the case of a loan or grant which was identified in an OIG
audit, the servicing official will report the repayment as outlined in
Sec. 1951.711(b)(2) or 1951.715 as applicable.
(b) Continuation with recipient. If the recipient agrees with FmHA
or its successor agency under Public Law 103-354's determination or is
willing to pay the amount in question but cannot repay the unauthorized
assistance within a reasonable period of time, continuation is
authorized and servicing actions outlined in Sec. 1951.711 will be taken
provided all of the following conditions are met:
(1) The recipient did not provide false information as defined in
Sec. 1951.702(d);
(2) It would be highly inequitable to require prompt repayment of
the unauthorized assistance; and
(3) Failure to collect the unauthorized assistance in full will not
adversely affect FmHA or its successor agency under Public Law 103-354's
financial interests.
(c) Notice of determination when agreement is not reached. If the
recipient does not agree with FmHA or its successor agency under Public
Law 103-354's determination, or if the recipient fails to respond to the
initial letter prescribed in Sec. 1951.707 within 30 days, the servicing
official will notify the recipient by letter substantially similar to
exhibit B of this subpart (available in any FmHA or its successor agency
under Public Law 103-354 office) (sent by Certified Mail, Return Receipt
Requested), with a copy to the State Director, and for a case identified
in an OIG audit report, a copy to the OIG office which conducted the
audit and the Planning and Analysis Staff of the National Office. This
letter will include:
(1) The amount of assistance finally determined by FmHA or its
successor agency under Public Law 103-354 to be unauthorized including
any accrued interest.
[[Page 104]]
(2) A statement of further actions to be taken by FmHA or its
successor agency under Public Law 103-354 as outlined in paragraph
(e)(1) or (e)(2) of this section; and
(3) The appeal rights as prescribed in exhibit B of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office).
(d) Appeals. Appeals resulting from the letter prescribed in
paragraph (c) of this section will be handled according to subpart B of
part 1900 of this chapter. All appeal provisions will be concluded
before proceeding with further actions. If the recipient does not
prevail in an appeal, or when an apeal is not made during the time
allowed, the servicing official will document the facts in the case file
and submit to State Director, if the servicing official is other than
State Director, who will proceed with the actions outlined in paragraph
(e) of this section, as applicable. If during the course of appeal the
appellant decides to agree with FmHA or its successor agency under
Public Law 103-354's findings or is willing to repay the unauthorized
assistance, the servicing official will proceed with the actions
outlined in paragraph (a), (b), or (e) of this section.
(e) Liquidation of loan(s) or legal action to enforce collection.
When a case cannot be handled according to the provisions of paragraph
(a) or (b) of this section, or if the recipient refuses to execute the
documents necessary to establish an obligation to repay the unauthorized
assistance as provided in Sec. 1951.711, one of the following actions
will be taken:
(1) Active borrower with a secured loan. (i) The servicing official
will attempt to have the recipient liquidate voluntarily. If the
recipient agrees to liquidate voluntarily, this will be documented in
the case file. Where real property is involved, a letter will be
prepared by the servicing official and signed by the recipient agreeing
to voluntary liquidation. A resolution of the governing body may be
required. If the recipient does not agree to voluntary liquidation, or
agrees but it cannot be accomplished within a reasonable period of time
(usually not more than 90 days), forced liquidation action will be
initiated in accordance with applicable provisions of subpart A of part
1955 of this chapter unless:
(A) The amount of unauthorized assistance outstanding, including
principal, accrued interest, and any recoverable costs charged to the
account, is less than $1,000; or
(B) It can be clearly documented that it would not be in the best
financial interest of the Government to force liquidation. If the
servicing official wishes to make an exception to forced liquidation
under paragraph (e)(1)(i)(B) of this section, a request for an exception
under Sec. 951.716 will be made.
(ii) When all of the conditions of paragraph (a) or (b) of this
section are met, but the recipient does not repay or refuses to execute
documents to effect necessary account adjustments according of the
provisions of Sec. 1951.711, liquidation action will be initiated as
provided in paragraph (e)(1)(i) of this section.
(iii) When forced liquidation would be initiated except that the
loan is being handled under paragraph (e)(1)(i)(A) or (e)(1)(i)(B) of
this section, continuation with the loan on existing terms will be
provided. In these cases, the recipient will be notified by letter of
the actions taken.
(2) Grantee, inactive borrower, or active borrower with unsecured
loan (such as collection-only, or unsatisfied balance after
liquidation). The servicing official will document the facts in the case
file and submit it to the State Director, if the servicing official is
other than the State Director, who will request the advice of the OGC on
pursuing legal action to effect collection. The case file,
recommendation of State Director and OGC comments will be forwarded to
the National Office for review and authorization to implement
recommended servicing actions. The State Director will tell OGC what
assets, if any, are available from which to collect.
Secs. 1951.709--1951.710 [Reserved]
Sec. 1951.711 Servicing options in lieu of liquidation or legal action to collect.
When the conditions outlined in Sec. 1951.708(b) are met, the
servicing options outlined in this section will be
[[Page 105]]
considered. Accounts will be serviced according to this section and
Sec. 1951.715.
(a) Determination of unauthorized loan and/or grant assistance
amount--(1) Unauthorized loan amount. The principal loan amount that was
unauthorized will be determined. The unauthorized amount will be the
unauthorized principal plus any accrued interest on the unauthorized
principal at the note interest rate until the date paid in accordance
with Sec. 1951.708(a), or until the date other satisfactory financial
arrangements are made in accordance with paragraph (b)(1) or (c) of this
section.
(2) Unauthorized grant amount. The unauthorized grant actually
expended will be determined. The unauthorized amount will be the
unauthorized grant with accrued interest at the interest rate stipulated
in the respective executed grant agreement for default cases until the
date paid in accordance with Sec. 1951.708(a), or until the date other
satisfactory financial arrangements are made in accordance with
paragraph (b)(2) or (c) of this section.
(b) Continuation on modified terms. When the recipient has the legal
and financial capabilities, the case will be serviced according to one
of the following, as appropriate. In each instance, the servicing
official will advise the Finance Office by memorandum of the actions
necessary to effect the account adjustment.
(1) Unauthorized loan. A loan for the unauthorized amount determined
according to paragraph (a)(1) of this section will be established at the
interest rate specified in the outstanding debt instrument or at the
present market interest rate, whichever is greater, for the respective
Community and Business program area. The loan will be amortized for a
period not to exceed fifteen (15) years, the remaining term of the
original loan, or the remaining useful life of the facility whichever is
shorter.
(2) Unauthorized grant. The unauthorized grant amount determined
according to paragraph (a)(2) of this section will be converted to a
loan at the market interest rate for the respective Community and
Business Programs area in effect on the date the financial assistance
was provided, and will be amortized for a period not to exceed fifteen
(15) years. The recipient will be required to execute a debt instrument
to evidence this obligaton, and the best security position practicable
in a manner which will adequately protect the FmHA or its successor
agency under Public Law 103-354's interests during the repayment period
will be taken as security. When the recipient is to repay grant
assistance, the servicing official must maintain records on the
``account'' as the Finance Office cannot set up an account for repayment
of a grant. The servicing official will attempt to collect the monies
due and all collections will be remitted with Form FmHA or its successor
agency under Public Law 103-354 451-2 to the Finance Office as
``Miscellaneous Collections for Application to the General Fund.'' For
cases identified in OIG audits only, the servicing official will report
by the 1st of March, June, September, and December of each year the
following information on cases of this type to the State Director:
Recipient's name, fund code, audit report number, audit finding number,
date of claim, amount of claim, amount collected during the reporting
period, and the balance owed on the unauthorized grant assistance.
(3) Unauthorized subsidy benefits received. When the recipient was
eligible for the loan but should have been charged a higher interest
rate than that in the debt instrument, which resulted in the receipt of
unauthorized subsidy benefits, the case will be handled as outlined in
this paragraph. The recipient will be given the option to submit a
written request that the interest rate be adjusted to the lower of the
rate for which they were eligible that was in effect at the date of loan
approval or loan closing. (See exhibit C of this subpart for interest
rates (available in any FmHA or its successor agency under Public Law
103-354 office).) FmHA or its successor agency under Public Law 103-354
servicing officials will make a concerted effort to collect all
unauthorized subsidy benefits from the recipient and will contact the
Office of General Counsel in each case for advice in accomplishing
corrective actions.
(c) Continuation on existing terms. When the recipient does not have
the
[[Page 106]]
legal and/or financial capabilities for the options outlined in
paragraph (b)(1), (b)(2), or (b)(3) of this section, as appropriate, to
be exercised, the recipient may be allowed to continue to meet the loan/
grant obligations outlined in the existing loan/grant instruments.
Unless the unauthorized assistance was identified in an OIG audit, no
Finance Office notification or action is necessary. If identified by
OIG, the servicing official will advise the Finance Office by memorandum
of the determination to continue with the recipient on the existing
terms of the loan/grant.
(d) Reporting requirements to National Office. An annual report will
be submitted by the State Office to the Assistant Administrator,
Community and Business Programs, within 30 days following the end of the
Government's fiscal year for each case of unauthorized assistance or
subsidy benefits. The report will include for each case the account
name, case number, fund code, OIG audit number (if applicable), amount
collected during period, and the balance owed on the unauthorized
assistance. Each State Office is responsible for coordinating with the
servicing official's office so that this information can be accumulated
and consolidated by the State Office within the allotted time. A
negative report is required from States which have no unauthorized
assistance cases.
[50 FR 13000, Apr. 2, 1985, as amended at 51 FR 11563, Apr. 4, 1986; 54
FR 28020, July 5, 1989]
Secs. 1951.712--1951.714 [Reserved]
Sec. 1951.715 Account adjustments and reporting requirement.
Cases of unauthorized assistance which require Finance Office
notification and action, regardless of whether they were identified in
an OIG audit or by other means, will be submitted to the Finance Office
by memorandum from the servicing official, as provided in applicable
paragraphs of Sec. 1951.711 of this subpart. Each memorandum should
include account (borrower) name, case number, audit report number (if
applicable), finding number (if applicable), fund code, loan number, and
an explanation of the actions to be taken. If the unauthorized
assistance was identified in an OIG audit report, the memorandum should
be clearly annotated ``Audit Claim for OIG Report'' as a part of the
subject. The explanation should provide sufficient details to allow the
Finance Office to properly adjust the account. The State Office will
forward a consolidated report on unauthorized grant assistance
identified in an OIG audit to the Finance Office by the 15th of March,
June, September, and December of each year reflecting the information
reported by servicing officials in accordance with Sec. 1951.711(b)(2)
for inclusion in the report to OIG.
(a) Entire loan unauthorized. When the entire loan is unauthorized
because the recipient was not eligible or because the loan was approved
for unauthorized purposes, the servicing official will advise the
Finance Office, by memorandum, which of the following servicing actions
will be taken.
(1) Repayment in full. If the recipient has arranged to repay the
unauthorized loan in full through refinancing or other available
resources, the payment will be remitted with Form FmHA or its successor
agency under Public Law 103-354 451-2 and the schedule number will be
included in the memorandum.
(2) Continuation with loan on existing or modified terms. When it is
determined, according to Sec. 1951.711 (b)(1) or (c), that continuation
with the loan on the existing or modified terms will be provided, the
servicing official will advise the Finance Office by memorandum of this
determination including an explanation of the terms, if modified.
(b) Portion of loan unauthorized. When only a portion of the loan
has been determined to be for unauthorized purposes, the servicing
official will advise the Finance Office, by memorandum, of the servicing
actions as follows:
(1) Repayment in full of unauthorized portion. If the recipient has
arranged to repay the unauthorized portion of the loan through
refinancing or other available resources, the remittance will be
submitted with Form FmHA or its successor agency under Public Law 103-
354 451-2, and the schedule number will be included in the memorandum.
[[Page 107]]
(2) Continuation with unauthorized portion of loan on existing or
modified terms. When it is determined, according to Sec. 1951.711 (b)(1)
or (c), that continuation with the unauthorized portion of the loan on
the existing or modified terms will be provided, the servicing official
will advise the Finance Office by memorandum of this determination,
including an explanation of the terms if modified. The authorized
portion will retain the original loan number with installments adjusted
accordingly. Payments previously made will not be reversed and
reapplied. The amortized unauthorized amount will be assigned the next
available loan number. Installments for the authorized and unauthorized
loans will be scheduled and paid concurrently.
(c) Unauthorized subsidy benefits received. The unauthorized subsidy
benefits received will be serviced according to Sec. 1951.711 (b)(3) or
(c).
(d) Liquidation pending. When liquidation is initiated under the
provisions of this subpart, the servicing official will advise the
Finance Office, by memorandum, that an unauthorized assistance account
is to be established. This account will be flagged ``FAP'' (Foreclosure
Action Pending) or ``CAP'' (Court Action Pending), as applicable.
(e) Liquidation not initiated. Cases in which liquidation would
normally be initiated, but where it is not because of the provisions of
Sec. 1951.708(e)(1), will be serviced in accordance with
Sec. 1951.708(e)(1)(iii). If the unauthorized assistance was identified
through means other than an OIG audit report, the Finance Office will
not be notified and no action is necessary.
(f) Unauthorized grant assistance. A grant that is to be repaid will
be serviced according to Sec. 1951.711(b)(2). If the unauthorized
assistance was identified through means other than an OIG audit report
and a determination has been made not to recover, the Finance Office
will not be notified and no action is necessary.
(g) Reporting. At prescribed intervals, the Finance Office will
report to the OIG on the status of cases involving unauthorized
assistance which were identified by OIG in audit reports. The amounts to
be reported will be determined by the Finance Office after account
servicing actions have been completed. For reporting purposes, the
following applies:
(1) For an unauthorized loan account established as provided in
paragraph (a) or (b) of this section, reporting will be as follows:
(i) When unauthorized assistance is paid in full, this will be
reported on the next scheduled report only.
(ii) When continuation with the loan on existing or modified terms
is approved, this will be reported on the next scheduled report, and no
further reporting is required.
(2) For unauthorized subsidy cases as provided in paragraph (c) of
this section, once the interest rate has been appropriately adjusted,
the unauthorized subsidy will be reported as resolved on the next
scheduled report. No further reporting is required.
(3) When an account is established with liquidation action pending
as provided in paragraph (d) of this section, the status will be
included on each scheduled report until the liquidation is completed or
the account is otherwise paid in full.
(4) When liquidation is not initiated as provided in paragraph (e)
of this section, this will be reported on the next scheduled report. No
further reporting is required.
(5) When unauthorized grant assistance is scheduled to be repaid as
provided in paragraph (f) of this section, collections and status will
be included in the report to OIG until the amount is paid in full.
Sec. 1951.716 Exception authority.
The Administrator may in individual cases make an exception to any
requirement or provision of this subpart which is not inconsistent with
any applicable law or opinion of the Comptroller General, provided the
Administrator determines that application of the requirement or
provision would adversely affect the Government's interest. Requests for
exceptions must be made in writing by the State Director and submitted
through the Assistant Administrator, Community and Business Programs.
Requests will be supported with documentation to explain the adverse
effect on the Government's interest, propose alternative courses of
[[Page 108]]
action, and show how the adverse effect will be eliminated or minimized
if the exception is granted.
Secs. 1951.717--1951.749 [Reserved]
Sec. 1951.750 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0103.
Subparts P-Q [Reserved]
Subpart R--Rural Development Loan Servicing
Source: 53 FR 30656, Aug. 15, 1988, unless otherwise noted.
Sec. 1951.851 Introduction.
(a) This subpart contains regulations for servicing or liquidating
loans made by the Farmers Home Administration or its successor agency
under Public Law 103-354 (FmHA or its successor agency under Public Law
103-354) under the Intermediary Relending Program (IRP) to eligible IRP
intermediaries and applies to ultimate recipients and other involved
parties. The provisions of this subpart supersede conflicting provisions
of any other subpart.
(b) This subpart also contains regulations for servicing the
existing Rural Development Loan Fund (RDLF) loans previously approved
and administered by the U.S. Department of Health and Human Services
(HHS) under 45 CFR part 1076. This action is needed to implement the
provisions of Section 1323 of the Food Security Act of 1985, Pub. L. 99-
198, which provides for the transfer of the loan servicing authority for
those loans from the HHS to the U.S. Department of Agriculture (USDA).
(c) The portion of this regulation pertaining to loanmaking applies
to RDLF intermediaries cited in Sec. 1951.851(b) which have RDLF funds
from HHS and have not fully utilized relending of those funds to
ultimate recipients at the date of these regulations. The loanmaking of
all other IRP loans serviced by this regulation is in accordance with
part 1948, subpart C of this chapter.
(d) These regulations do not negate contractual arrangements that
were previously made by the HHS, Office of Community Services (OCS), or
the intermediaries operating relending programs that have already been
entered into with ultimate recipients under previous regulations.
(e) The loan program is administered by the FmHA or its successor
agency under Public Law 103-354 National Office. The Director, Business
and Industry Division, is the point of contact for servicing activities
unless otherwise delegated by the Administrator.
Sec. 1951.852 Definitions and abbreviations.
(a) General definitions. The following definitions are applicable to
the terms used in this subpart.
(1) Intermediary (Borrower). The entity receiving FmHA or its
successor agency under Public Law 103-354 loan funds for relending to
ultimate recipients. FmHA or its successor agency under Public Law 103-
354 becomes an intermediary in the event it takes over loan servicing
and/or liquidation.
(2) Loan Agreement. The signed agreement between FmHA or its
successor agency under Public Law 103-354 and the intermediary setting
forth the terms and conditions of the loan.
(3) Low-income. The level of income of a person or family which is
at or below the Poverty Guidelines as defined in section 673(2) of the
Community Services Block Grant Act (42 U.S.C. 9902(2)).
(4) Market value. The most probable price which property should
bring, as of a specific date in a competitive and open market, assuming
the buyer and seller are prudent and knowledgeable, and the price is not
affected by undue stimulus such as forced sale or loan interest subsidy.
(5) Principals of intermediary. Includes members, officers,
directors, and other entities directly involved in the operation and
management of an intermediary organization.
(6) Ultimate recipient. The entity receiving financial assistance
from the intermediary. This may be interchangeable with the term
``subrecipient'' in some documents previously issued by HHS.
[[Page 109]]
(7) Rural area. Includes all territory of a State that is not within
the outer boundary of any city having a population of twenty-five
thousand or more.
(8) State. Any of the fifty States, the Commonwealth of Puerto Rico,
the Virgin Islands of the United States, Guam, American Samoa, and the
Commonwealth of the Northern Mariana Islands.
(9) Technical assistance or service. Technical assistance or service
is any function unreimbursed by FmHA or its successor agency under
Public Law 103-354 performed by the intermediary for the benefit of the
ultimate recipient.
(10) Working capital. The excess of current assets over current
liabilities. It identifies the liquid portion of total enterprise
capital which constitutes a margin or buffer for meeting obligations
within the ordinary operating cycle of the business.
(b) Abbreviations. The following abbreviations are applicable:
B&I--Business and Industry
CSA--Community Services Administration
EIS--Environmental Impact Statement
HHS--U.S. Department of Health and Human Services
IRP--Intermediary Relending Program
OCS--Office of Community Services
OIG--Office of Inspector General
OGC--Office of the General Counsel
RDLF--Rural Development Loan Fund
USDA--United States Department of Agriculture
[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6052, Feb. 6, 1998]
Sec. 1951.853 Loan purposes for undisbursed RDLF loan funds from HHS.
(a) RDLF Intermediaries. Rural Development Loan funds will be used
by the RDLF intermediary to provide loans to ultimate recipients in
accordance with paragraph (b) of this section. Interest income, service
fees, and other authorized financing charges received by RDLF
intermediaries operating relending programs may be used to pay for: The
costs of administering the RDLF relending program, the provision of
technical assistance to borrowers, the absorption of bad debts
associated with RDLF loans, and repayment of debt. All proceeds in
excess of those needed to cover authorized expenses, as described above,
must be returned to the Agency.
(b) Ultimate recipients.
(1) Financial assistance from the intermediary to the ultimate
recipient must be for business facilities and community development
projects in rural areas.
(2) Financial assistance involving Rural Development Loan funds from
the intermediary to the ultimate recipient may include but not be
limited to:
(i) Business acquisitions, construction, conversion, enlargement,
repair, modernization, or development cost.
(ii) Purchasing and development of land, easements, rights-of-way,
building, facilities, leases, or materials.
(iii) Purchasing of equipment, leasehold improvements, machinery or
supplies.
(iv) Pollution control and abatement.
(v) Transportation services.
(vi) Startup operating costs and working capital.
(vii) Interest (including interest on interim financing) during the
period before the facility becomes income producing, but not to exceed 3
years.
(viii) Feasibility studies.
(ix) Reasonable fees and charges only as specifically listed in this
subparagraph. Authorized fees include loan packaging fees, environmental
data collection fees, and other professional fees rendered by
professionals generally licensed by individual State or accreditation
associations, such as engineers, architects, lawyers, accountants, and
appraisers. The amount of fee will be what is reasonable and customary
in the community or region where the project is located. Any such fees
are to be fully documented and justified.
(x) Aquaculture including conservation, development, and utilization
of water for aquaculture. Aquaculture means the culture or husbandry of
aquatic animals or plants by private industry for commercial purposes
including the culture and growing of fish by private industry for the
purpose of
[[Page 110]]
granting or augmenting publicly-owned or regulated stock of fish.
[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6053, Feb. 6, 1998]
Sec. 1951.854 Ineligible assistance purposes.
(a) RDLF Intermediaries. RDLF loans may not be used by the
intermediary:
(1) For payment of the intermediary's own administrative costs or
expenses.
(2) To purchase goods or services or render assistance in excess of
what is needed to accomplish the purpose of the ultimate recipient
project.
(3) For distribution or payment to the owner, partners,
shareholders, or beneficiaries of the ultimate recipient or members of
their families when such persons will retain any portion of their equity
in the ultimate recipient.
(4) For charitable and educational institutions, churches,
organizations affiliated with or sponsored by churches, and fraternal
organizations.
(5) For assistance to government employees, military personnel, or
principals or employees of the intermediary who are directors, officers
or have major ownership (20 percent or more) in the ultimate recipient.
(6) For relending in a city with a population of twenty-five
thousand or more as determined by the latest decennial census.
(7) For a loan to an ultimate recipient which has applied or
received a loan from another intermediary unless FmHA or its successor
agency under Public Law 103-354 provides prior written approval for such
loan.
(8) For any line of credit.
(9) To finance more than 75 percent of the total cost of a project
by the ultimate recipient. The total amount of RDLF loan funds requested
by the ultimate recipient plus the outstanding balance of any existing
RDLF loan(s) will not exceed $150,000. Other loans, grants, and/or
intermediary or ultimate recipient contributions or funds from other
sources must be used to make up the difference between the total cost
and the assistance provided with RDLF funds.
(10) For any investments in securities or certificates of deposit of
over 30-day duration without the concurrence of FmHA or its successor
agency under Public Law 103-354. If the RDLF funds have been unused to
make loans to ultimate recipients for 6 months or more, those funds will
be returned to FmHA or its successor agency under Public Law 103-354
unless FmHA or its successor agency under Public Law 103-354 provides an
exception to the RDLF intermediary. Any exception would be based on
evidence satisfactory to FmHA or its successor agency under Public Law
103-354 that every effort is being made by the intermediary to utilize
the RDLF funding in conformance with program objectives.
(b) Ultimate recipients. Ultimate recipients may not use assistance
received from RDLF intermediaries involving RDLF funds:
(1) For agricultural production, which means the cultivation,
production (growing), harvesting, either directly or through integrated
operations, of agricultural products (crops, animals, birds and marine
life, either for fiber or food for human consumption, and disposal or
marketing thereof, the raising, housing, feeding, breeding, hatching,
control and/or management of farm and domestic animals). Exceptions to
this definition are:
(i) Aquaculture as identified under eligible purposes.
(ii) Commercial nurseries primarily engaged in the production of
ornamental plants and trees and other nursery products such as bulbs,
florists' greens, flowers, shrubbery, flower and vegetable seeds, sod,
the growing of vegetables from seed to the transplant stage.
(iii) Forestry, which includes establishments primarily engaged in
the operation of timber tracts, tree farms, forest nurseries, and
related activities such as reforestation.
(iv) Financial assistance for livestock and poultry processing as
identified under eligible purposes.
(v) The growing of mushrooms or hydroponics.
(2) For the transfer of ownership unless the loan will keep the
business from closing, or prevent the loss of employment opportunities
in the area, or provide expanded job opportunities.
(3) For community antenna television services or facilities.
[[Page 111]]
(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.
Secs. 1951.855--1951.858 [Reserved]
Sec. 1951.859 Term of loans.
(a) No loans shall be extended for a period exceeding 30 years.
Principal payments on loans will be made at least annually. The initial
principal payment may be deferred not more than 3 years.
(b) The terms of loan repayment will be those stipulated in the loan
agreement and/or promissory note.
Sec. 1951.860 Interest on loans.
(a) RDLF intermediaries: When the RDLF loan portfolio was
transferred from HHS to USDA as required under Pub. L. 99-198, section
1323 of the Food Security Act of 1985, there were provisions that
affected the interest rates on those loans.
(1) Those loans made in 1980 and 1981 carried an original note rate
of 1 percent interest when they were first issued. The legislation
provides for those loans made in 1980 and 1981 to have a permanent
interest rate reduction to 1 percent effective December 23, 1985, to
maturity. However, the interest rates on the loans made in 1983 and 1984
may remain the same as the original note rate.
(2) Loans made in 1983 and 1984 do not automatically qualify for a
lower rate than the level of interest rates when the notes were first
issued. Section 407 of Pub. L. 99-425 provides for a weighted average
requirement that would affect those loans made in 1983 and 1984 to
intermediary borrowers.
(3) In those cases where loans were made in RDLF intermediaries and
the weighted average of all loans made by the RDLF intermediary after
December 31, 1982, does not exceed the sum of 6 percent plus the
interest rate to the intermediary (7 percent), the interest rate to be
charged the RDLF intermediary will be the rate charged on such loans
made in 1980, or 1 percent. Should the weighted average exceed 7
percent, the note rate will control.
(i) In order for FmHA or its successor agency under Public Law 103-
354 to determine the weighted average of the loan portfolio, the RDLF
intermediary will be required to complete a weighted loan average rate
on its outstanding portfolio. The schedule prepared for FmHA or its
successor agency under Public Law 103-354's review should include:
(A) Calculations of the interest amount scheduled to accrue on each
loan outstanding over a 1-year period based on the current interest rate
of each ultimate recipient's loan.
(B) The sum total of interest on each individual loan will be added
together to determine the total interest amount scheduled to accrue over
a 1-year period.
(C) Divide the total of paragraph (a)(2) of this section by the
total principal outstanding to determine the average interest percent
yield in the intermediary's loan portfolio.
(D) The loans to be included in determining the weighted interest
average will be those made from January 1, 1983, forward.
(E) FmHA or its successor agency under Public Law 103-354 will use
the anniversary date of October 1 of each year to request the
intermediary to complete a weighted interest average to determine the
interest rate on its RDLF loan for the coming calendar year, January 1
through December 31. All loans made in 1980 and 1981 have had the
interest rate permanently reduced by legislation to 1 percent, effective
December 25, 1985.
(F) The weighted loan average interest rate on the outstanding loan
portfolio as referenced in this section will be forwarded to FmHA or its
successor agency under Public Law 103-354 along with sufficient
documentation which
[[Page 112]]
should include calculations, list of outstanding loans, current interest
rate being charged on the loan, etc.
(b) Interest rates charged by intermediaries to the ultimate
recipients shall be at rates negotiated by those parties. Intermediaries
are encouraged to make loans to ultimate recipients at the lowest
possible rate, taking into account the cost of the loan funds to the
intermediary and the cost of administering the loan portfolio.
Secs. 1951.861--1951.865 [Reserved]
Sec. 1951.866 Security.
(a) Loans from RDLF intermediaries to ultimate recipients. Security
requirements for loans from intermediaries to ultimate recipients will
be negotiated between the intermediaries and ultimate recipients. FmHA
or its successor agency under Public Law 103-354 concurrence in the
intermediary's security proposal is required only when security for the
loan from the intermediary to the ultimate recipient will also serve as
security for the FmHA or its successor agency under Public Law 103-354
loan.
(b) Additional security. The FmHA or its successor agency under
Public Law 103-354 may require additional security at any time during
the term of a loan to an intermediary if, after review and monitoring,
an assessment indicates the need for such security.
(c) Appraisals. Real property serving as security for all loans to
intermediaries and for loans to ultimate recipients serving as security
for loans to intermediaries will be appraised by a qualified appraiser.
For all other types of property, a valuation shall be made using any
recognized, standard technique for the type of property involved
(including standard reference manuals), and this valuation shall be
described in the loan file.
Sec. 1951.867 Conflict of interest.
The intermediary will, for each proposed loan to an ultimate
recipient, inform FmHA or its successor agency under Public Law 103-354
in writing and furnish such additional evidence as FmHA or its successor
agency under Public Law 103-354 requests as to whether and the extent to
which the intermediary or its principal officers (including immediate
family) hold any legal or financial interest or influence in the
ultimate recipient or the ultimate recipient or any of its principal
officers (including immediate family) holds any legal or financial
interest or influence in the intermediary. FmHA or its successor agency
under Public Law 103-354 shall determine whether such ownership,
influence or financial interest is sufficient to create potential
conflict of interest. In the event FmHA or its successor agency under
Public Law 103-354 determines there is a conflict of interest, the
intermediary's assistance to the ultimate recipient will not be approved
until such conflict is eliminated.
Sec. 1951.868--1951.870 [Reserved]
Sec. 1951.871 Post award requirements.
(a) RDLF intermediaries with undisbursed RDLF loan funds shall be
governed by these regulations, the loan agreement, the approved work
program, security interests, and other conditions which FmHA or its
successor agency under Public Law 103-354 may require in awarding a
loan.
(b) Unless otherwise specifically agreed to in writing by the FmHA
or its successor agency under Public Law 103-354, any loan funds held by
an intermediary and any funds obtained from loaning FmHA or its
successor agency under Public Law 103-354-derived funds and recollecting
them that are not immediately needed by the intermediary for an ultimate
recipient should be deposited in an interest-bearing account in a bank
or other financial institution which will be covered by a form of
Federal deposit insurance. Any interest or income earned as a result of
such deposits shall be used by the intermediary only for purposes
authorized by FmHA or its successor agency under Public Law 103-354.
(c) Intermediaries operating relending programs must maintain
separate ledgers and segregated accounts for RDLF funds at all times.
(d) Reporting requirements shall be those delineated in the loan
agreement between the United States and the intermediary and such
subsequent requirements as FmHA or its successor
[[Page 113]]
agency under Public Law 103-354 deems appropriate. The intermediaries
must document periodically the extent to which increased employment,
income and ownership opportunities are provided to rural residents for
each loan made by such intermediary.
(e) No intermediary may make a loan to an ultimate recipient who has
applied for or received a loan from another intermediary unless FmHA or
its successor agency under Public Law 103-354 provides prior written
approval for such loan.
(f) All loan payments that are due on RDLF loans will be made
payable to the Farmers Home Administration or its successor agency under
Public Law 103-354, using the number assigned, and mailed directly to:
Farmers Home Administration or its successor agency under Public Law
103-354, Finance Office, FC 35, 1520 Market Street, St. Louis, Missouri
63103.
Sec. 1951.872 Other regulatory requirements.
(a) Intergovenmental consultation. The RDLF program is subject to
the provisions of Executive Order 12372 which requires intergovernmental
consultation with State and local officials. For each ultimate recipient
to be assisted with a loan under this subpart and for which the State in
which the ultimate recipient is to be located has elected to review the
program under their intergovernmental review process, the State Point of
Contact must be notified. Notification, in the form of a project
description, can be initiated by the intermediary or the ultimate
recipient. Any comments from the State must be included with the
intermediary's request to use the loan funds for the ultimate recipient.
Prior to FmHA or its successor agency under Public Law 103-354's
decision on the request, compliance with the requirements of
intergovernmental consultation must be demonstrated for each ultimate
recipient. These requirements should be carried out in accordance with
FmHA or its successor agency under Public Law 103-354 Instruction 1940-
J, ``Intergovernmental Review of Farmers Home Administration or its
successor agency under Public Law 103-354 Programs and Activities,''
available in any FmHA or its successor agency under Public Law 103-354
office.
(b) Environmental requirements. (1) Unless specifically modified by
this section, the requirements of subpart G of part 1940 of this chapter
apply to this subpart. FmHA or its successor agency under Public Law
103-354 will give particular emphasis to ensuring compliance with the
environmental policies contained in Secs. 1940.303 and 1940.304 in
subpart G of part 1940 of this chapter. Intermediaries and ultimate
recipients of loans must consider the potential environmental impacts of
their projects at the earliest planning stages and develop plans to
minimize the potential to adversely impact the environment.
(2) As part of the intermediary's request to FmHA or its successor
agency under Public Law 103-354 for concurrence to make a loan to an
ultimate recipient, the intermediary will include for the ultimate
recipient a properly completed Form FmHA or its successor agency under
Public Law 103-354 1940-20, ``Request for Environmental Information,''
if it is classified as a Class I or Class II action. FmHA or its
successor agency under Public Law 103-354 will complete the
environmental review required by subpart G of part 1940 of this chapter.
The results of this review will be used by FmHA or its successor agency
under Public Law 103-354 in making its decision on the request.
(c) Equal opportunity and nondiscrimination requirements.
(1) In accordance with Title V of Pub. L. 93-495, the Equal Credit
Opportunity Act, neither the intermediary nor FmHA or its successor
agency under Public Law 103-354 will discriminate against any applicant
on the basis of race, color, religion, national origin, age, physical or
mental handicap (provided that the applicant has the capacity to enter
into a binding contract), sex or marital status with respect to any
aspect of a credit transaction anytime Federal funds are involved.
(2) The regulations contained in part 1901, subpart E of this
chapter apply to loans made under this program.
(3) The Administrator will assure that equal opportunity and
nondiscrimination requirements are met in accordance with Title VI of
the Civil
[[Page 114]]
Rights Act of 1964, ``Nondiscrimination in Federally Assisted
Programs,'' 42 U.S.C. 2000d-2000d-4. If there is indication of
noncompliance with these requirements, such facts will be reported in
writing to the Administrator, ATTN: Equal Opportunity Officer.
Secs. 1951.873--1951.876 [Reserved]
Sec. 1951.877 Loan agreements.
(a) A loan agreement will have been executed by the RDLF
intermediary and OCS or HHS for each loan. The loan agreement ordinarily
would contain the following provisions:
(1) The amount of the loan.
(2) The interest rate.
(3) The term and repayment schedule.
(4) The provisions for late charges.
(5) Provisions regarding default.
(6) Disbursement procedure.
(7) Insurance requirements.
(i) Hazard insurance with a standard mortgage clause naming the
intermediary as beneficiary will be required on every ultimate recipient
in an amount that is at least the lesser of the depreciated replacement
value of the property being insured or the amount of the loan. Hazard
insurance includes fire, windstorm, lightning, hail, business
interruption, explosion, riot, civil commotion, aircraft, vehicle,
marine, smoke, builder's risk, public liability, property damage, flood
or mudslide, or any other hazard insurance that may be required to
protect the security. The RDLF intermediary's interest in the insurance
ordinarily will be assigned to the FmHA or its successor agency under
Public Law 103-354.
(ii) Ordinarily, life insurance, which may be decreasing term
insurance, is required for the principals and key employees of the
ultimate recipient and will be assigned or pledged to the RDLF
intermediary and subsequently to FmHA or its successor agency under
Public Law 103-354. A schedule of life insurance available for the
benefit of the loan will be included as part of the application.
(iii) Workmen's compensation insurance on ultimate recipients is
required in accordance with State law.
(iv) The RDLF intermediary is responsible for determining if an
ultimate recipient is located in a special flood or mudslide hazard area
anytime Federal funds are involved. If the ultimate recipient is in a
flood or mudslide area, then flood or mudslide insurance must be
provided.
(b) The RDLF intermediary will agree:
(1) Not to make any changes in the RDLF intermediary's articles of
incorporation, charter or bylaws without the concurrence of FmHA or its
successor agency under Public Law 103-354.
(2) Not to make a loan commitment to an ultimate recipient without
first receiving FmHA or its successor agency under Public Law 103-354's
written concurrence in the proposed use of loan funds.
Secs. 1951.878--1951.880 [Reserved]
Sec. 1951.881 Loan servicing.
(a) These regulations do not negate contractual arrangements that
were previously made by the HHS, Office of Community Services (OCS), or
the intermediaries operating relending programs that have already been
entered into with ultimate recipients under previous regulations.
preexisting documents control when in conflict with these regulations.
The loan is governed by terms of existing legal documents of each
intermediary. The RDLF/IRP intermediary is responsible for compliance
with the terms and conditions of the loan agreement.
(b) Each intermediary will be monitored by FmHA or its successor
agency under Public Law 103-354 based on progress reports submitted by
the intermediary, audit findings, disbursement transactions,
visitations, and other contract with the intermediary as necessary.
(c) Loan servicing is intended to be preventive rather than a
curative action. Prompt followup on delinquent accounts and early
recognition of potential problems and pursuing a solution to them are
keys to resolving many problem loan cases.
(d) Written notices on payments coming due will be prepared and sent
to the intermediary by the FmHA or its successor agency under Public Law
103-354 Finance Office approximately 15 days
[[Page 115]]
in advance of the due date of the payments. A copy of the notice will be
sent to the FmHA or its successor agency under Public Law 103-354
Administrator or designee.
(e) If the scheduled payment is not made by the intermediary within
30 days after the due date of the payment, the Finance Office will send
a past due notice to the intermediary. The notice will show the late
charge amount, if applicable, and the interest amount past due. The late
charge amount, if applicable, and the interest past due amount will be
capitalized as principal due 30 days after the due date of the monthly
payment unless existing loan documents prior to this regulation 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.
[[Page 116]]
If there are discrepancies in any loan balances being confirmed, the
Finance Office should be consulted before the Administrator or designee
writes the requested parties.
(10) Furnish upon request by the Finance Office, the information
necessary to help reconcile account balances, obtain evidence of
payments made by the borrower, and any other related data necessary to
keep the financial records correct and in balance.
(11) Answer Congressional and other correspondence.
(12) Review intermediary's plans, cash flow projections, balance
sheets, and operating statements.
Sec. 1951.882 Field visits.
(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.
Sec. 1951.883 Reporting requirements.
(a) Intermediaries are to provide FmHA or its successor agency under
Public Law 103-354 with reports as required in their respective loan
agreements, applicable statutes and as required by FmHA or its successor
agency under Public Law 103-354. The report shall include the following:
[[Page 117]]
(1) An annual audit; dates of audit report period need not
necessarily coincide with other reports on the RDLF/IRP. Audits shall be
due 90 days following the audit period. Audits must cover all of the
intermediary's activities. Audits will be performed by an independent
certified public accountant or by an independent public accountant
licensed and certified on or before December 31, 1970, by a regulatory
authority of a State or other political subdivision of the United
States. An acceptable audit will be performed in accordance with
generally accepted auditing standards and include such tests of the
accounting records as the auditor considers necessary in order to
express an opinion on the financial condition of the intermediary. FmHA
or its successor agency under Public Law 103-354 does not require an
unqualified audit opinion as a result of the audit. Compilations or
reviews do not satisfy the audit requirement.
(2) Quarterly or semiannual reports (due 30 days after the end of
the period).
(i) Reports will be required quarterly during the first year after
loan closing and, if all loan funds are not utilized during the first
year, quarterly reports will be continued until at least 90 percent of
the Agency IRP loan funds have been advanced to ultimate recipients.
Thereafter, reports will be required semiannually. Also, the Agency may
require quarterly reports if the intermediary becomes delinquent in
repayment of its loan or otherwise fails to fully comply with the
provisions of its work plan or Loan Agreement, or the Agency determines
that the intermediary's IRP revolving fund is not adequately protected
by the current sound worth and paying capacity of the ultimate
recipients.
(ii) These reports shall contain only information on the IRP
revolving loan fund, or if other funds are included, the IRP loan
program portion shall be segregated from the others; and in the case
where the intermediary has more than one IRP revolving fund from the
Agency a separate report shall be made for each of the IRP revolving
funds.
(iii) The reports will include, on a form provided by the Agency,
information on the intermediary's lending activity, income and expenses,
financial condition, and a summary of names and characteristics of the
ultimate recipients the intermediary has financed.
(3) An annual report on the extent to which increased employment
income and ownership opportunities are provided to low-income persons,
farm families, and displaced farm families for each loan made by such
intermediary.
(4) Proposed budget for the following year.
(5) Other reports as FmHA or its successor agency under Public Law
103-354 may require from time to time.
(b) Intermediaries shall report to FmHA or its successor agency
under Public Law 103-354 whenever an ultimate recipient is more than 90
days in arrears in the repayment of principal or interest.
[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6053, Feb. 6, 1998]
Sec. 1951.884 Non-Federal funds.
Once all the FmHA or its successor agency under Public Law 103-354-
derived loan funds have been utilized by the intermediary for assistance
to ultimate recipients according to the provisions of these regulations
and the loan agreement, assistance to new ultimate recipients financed
thereafter from the intermediary's revolving loan fund shall not be
considered as being derived from Federal funds and the requirements of
these regulations will not be imposed on those new ultimate recipients.
Ultimate recipients assisted by the intermediary with FmHA or its
successor agency under Public Law 103-354-derived loan funds shall be
required to comply with the provisions of these regulations and/or loan
agreement.
Sec. 1951.885 Loan classifications.
All loans to intermediaries in the FmHA or its successor agency
under Public Law 103-354 portfolio will be classified by FmHA or its
successor agency under Public Law 103-354 at loan closing and again
whenever there is a change in the loan which would impact on the
original classification. No one classification should be viewed as more
important than others. The uncollectibility aspect of Doubtful and Loss
classifications is of obvious importance. However, the function of the
[[Page 118]]
Substandard classification is to indicate those loans that are unduly
risky which may result in future losses. Substandard, Doubtful and Loss
are adverse classifications. The special mention classification is for
loans which are not adversely classified but which require the attention
and followup of FmHA or its successor agency under Public Law 103-354.
The loans will be classified as follows:
(a) Seasoned loan classification. To be classified as a seasoned
loan, a loan must:
(1) Have a remaining principal loan balance of two-thirds or less of
the original aggregate of all existing loans made to that intermediary.
(2) Be in compliance with all loan conditions and FmHA or its
successor agency under Public Law 103-354 regulations.
(3) Have been current on the loan(s) payments for 24 consecutive
months.
(4) Be secured by collateral which is determined to be adequate to
ensure there will be no loss on the loan.
(b) Current non-problem classification. This classification includes
those loans which have been current for less than 24 consecutive months
and are in compliance with the loan conditions and FmHA or its successor
agency under Public Law 103-354 regulations, and are not considered to
pose a credit risk to FmHA or its successor agency under Public Law 103-
354. These loans would be classified as seasoned but for the ``24
months'' and ``two-thirds'' requirements for seasoned loans.
(c) Special mention classification. This classification includes
loans which do not presently expose FmHA or its successor agency under
Public Law 103-354 to a sufficient degree of risk to warrant a
Substandard classification but do possess credit deficiencies deserving
FmHA or its successor agency under Public Law 103-354's close attention
because the failure to correct these deficiencies could result in
greater risk in the future. This classification would include loans that
may be high quality, but which FmHA or its successor agency under Public
Law 103-354 is unable to supervise properly because of an inadequate
loan agreement, the condition or lack of control over the collateral,
failure to obtain proper documentation or any other deviations from
prudent lending practices. Adverse trends in the intermediary's
operation or an imbalanced position in the balance sheet which has not
reached a point that jeopardizes the repayment of the loan should be
assigned to this classification. Loans in which actual, not potential,
weaknesses are evident and significant should be considered for a
Substandard classification.
(d) Substandard classification. This classification includes loans
which are inadequately protected by the current sound worth and paying
capacity of the obligor or of the collateral pledged, if any. Loans in
this classification must have a well defined weakness or weaknesses that
jeopardize the payment in full of the debt. If the deficiencies are not
corrected, there is a distinct possibility that FmHA or its successor
agency under Public Law 103-354 will sustain some loss.
(e) Doubtful classification. This classification includes those
loans which have all the weaknesses inherent in those classified
Substandard with the added characteristic that the weaknesses make
collection or liquidation in full, based on currently known facts,
conditions and values, highly questionable and improbable.
(f) Loss classification. This classification includes those loans
which are considered uncollectible and of such little value that their
continuance as loans is not warranted. Even though partial recovery may
be effected in the future, it is not practical or desirable to defer
writing off these basically worthless loans.
Secs. 1951.886--1951.888 [Reserved]
Sec. 1951.889 Transfer and assumption.
(a) All transfers and assumptions must be approved in advance in
writing by FmHA or its successor agency under Public Law 103-354. Such
transfers and assumptions must be to an eligible intermediary.
(b) Available transfer and assumption options to eligible
intermediaries include the following:
(1) The total indebtedness may be transferred to another eligible
intermediary on the same terms.
[[Page 119]]
(2) The total indebtedness may be transferred to another eligible
intermediary on different terms not to exceed those terms for which an
initial loan can be made to an organization that would have been
eligible originally.
(3) Less than total indebtedness may be transferred to another
eligible intermediary on the same terms.
(4) Less than total indebtedness may be transferred to another
eligible intermediary on different terms.
(c) The transferor will prepare the transfer document for FmHA or
its successor agency under Public Law 103-354's review prior to the
transfer and assumption.
(d) The transferee will provide FmHA or its successor agency under
Public Law 103-354 with a copy of its latest financial statement and a
copy of its annual financial statement for the past 3 years if
available; its Federal Tax Identification number; organizational
charter; minutes from the Board of Directors authorizing the
transaction; certification of good standing from the Secretary of State
or whatever regulatory agency oversees nonprofit corporations for that
State or Commonwealth where the entity is headquartered; and any other
information that FmHA or its successor agency under Public Law 103-354
deems necessary for its review.
(e) The assumption agreement will contain the FmHA or its successor
agency under Public Law 103-354 case nunber of the transferor and
transferee.
(f) When the transferee makes a cash downpayment in connection with
the transfer and assumption, any proceeds received by the transferor
will be credited on the transferor's loan debt in inverse order of
maturity.
(g) The Administrator or designee will approve or decline all
transfers and assumptions.
Sec. 1951.890 Office of Inspector General and Office of General Counsel referrals.
When facts or circumstances indicate that criminal violations, civil
fraud, misrepresentations, or regulatory violations may have been
committed by an applicant or an intermediary, FmHA or its successor
agency under Public Law 103-354 will refer the case to the appropriate
Regional Inspector General for Investigations, OIG, USDA, in accordance
with FmHA or its successor agency under Public Law 103-354 Instruction
2012-B (available in any FmHA or its successor agency under Public Law
103-354 office) for criminal investigation. Any questions as to whether
a matter should be referred will be resolved through consultation with
OIG and FmHA or its successor agency under Public Law 103-354 and
confirmed in writing. In order to assure protection of the financial and
other interests of the Government, a duplicate of the notification will
be sent to the OGC. OGC will be consulted on legal questions. After OIG
has accepted any matter for investigation, FmHA or its successor agency
under Public Law 103-354 staff must coordinate with OIG in advance
regarding routine servicing actions on existing loans.
Sec. 1951.891 Liquidation; default.
(a) In the event that FmHA or its successor agency under Public Law
103-354 takes over the servicing of the ultimate recipient of an
intermediary, those loans will be serviced by this regulation and in
accordance with the contractual arrangement between the intermediary and
the ultimate recipient. Should the FmHA or its successor agency under
Public Law 103-354 determine that it is necessary or desirable to take
action to protect or further the interests of FmHA or its successor
agency under Public Law 103-354 in connection with any default or breach
of conditions under any loan made 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.
[[Page 120]]
(3) Adjust interest rates, use fixed or variable rates, grant
moratoriums on repayment of principal and interest, collect or
compromise any obligations held by FmHA or its successor agency under
Public Law 103-354 and take such actions in respect to such loans as are
necessary or appropriate, consistent with the purpose of the program and
this subpart. The Administrator will notify the FmHA or its successor
agency under Public Law 103-354 Finance Office of any change in payment
terms, such as reamortizations or interest rate adjustments, and
effective dates of any changes resulting from servicing actions.
(b) Failure by an ultimate recipient to comply with the provisions
of these regulations and/or loan agreement shall constitute grounds for
a declaration of default and the demand for immediate and full repayment
of its loan.
(c) Failure by an intermediary to comply with the provisions of
these regulations or to relend funds in accordance with an approved work
plan or loan agreement shall constitute grounds for a declaration of
default and the demand for immediate and full repayment of the loan.
(d) In the event of default, the intermediary will promptly be
informed in writing of the consequences of failing to comply with loan
covenant(s).
(e) Protective advances to the intermediary will not be made in lieu
of additional loans, in particular working capital loans. Protective
advances are advances made by FmHA or its successor agency under Public
Law 103-354 for the purpose of preserving and protecting the collateral
where the intermediary has failed to and will not or cannot meet its
obligations. The Administrator or designee must approve in writing all
protective advances.
(f) In the event of bankruptcy by the intermediary and/or ultimate
recipient, FmHA or its successor agency under Public Law 103-354 is
responsible for protecting the interests of the Government. All
bankruptcy cases should be reported immediately to the Regional
Attorney. The Administrator must approve in advance and in writing the
estimated liquidation expenses on loans in liquidation backruptcy. These
expenses must be considered by FmHA or its successor agency under Public
Law 103-354 to be reasonable and customary.
(g) Liquidation, management, and disposal of inventory property will
be handled in accordance with subparts A, B, and C of part 1955 of this
chapter.
Secs. 1951.892--1951.893 [Reserved]
Sec. 1951.894 Debt settlement.
Debt settlement of all claims will be handled in accordance with the
Federal Claims Collection Standards (4 CFR parts 101-105).
Sec. 1951.895 [Reserved]
Sec. 1951.896 Appeals.
Any appealable adverse decision made by FmHA or its successor agency
under Public Law 103-354 which affects the borrower may be appealed upon
written request of the aggrieved party in accordance with subpart B of
part 1900 of this chapter.
Sec. 1951.897 Exception authority.
The Administrator may, in individual cases, grant an exception to
any requirement or provision of this subpart which is not inconsistent
with an applicable law or opinion of the Comptroller General, provided
the Administrator determines that application of the requirement or
provision would adversely affect the Government's interest. The basis
for this exception will be fully documented. The documentation will:
demonstrate the adverse impact; identify the particular requirement
involved; and show how the adverse impact will be eliminated.
Secs. 1951.898--1951.899 [Reserved]
Sec. 1951.900 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
Control Number 0575.0131. In accordance with 5 CFR part 1320, summarized
below is the annualized public reporting burden for this regulation.
[[Page 121]]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Est. No. of
Estimated Report filed annual man-hrs. Est. total
Sect. of regulations Title Form No. (if any) No. of annually responses per manhours
respondents (d) x (e) response (f) x (g)
(A) (B)................... (C)................. (D) (E)................. (F) (G) (H)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reporting Requirements--No Forms
--------------------------------------------------------------------------------------------------------------------------------------------------------
1951.860(a)(3)(i)............... Weighted average Written............. 12 1................... 12 3.0 36
interest calculation.
1951.877(a)(7)(i)............... Insurance............. Assignment.......... 36 On occasion......... 100 1.0 100
1951.882(a)..................... Intermediary Meeting............. 36 1................... 36 4.5 162
visitations.
1951.882(b)..................... Audited financial Written............. 36 1................... 36 .5 18
statement.
1951.883(a)(2)(ii).............. Program narrative..... Written............. ........... .................... ........... ........... ...........
IRP borrower.......... .................... 10 4................... 40 4.0 160
RDLF borrower......... .................... 26 2................... 52 4.0 208
1951.833(a)(2)(iii)............. Employment/income Written............. 36 1................... 36 1.5 54
narrative.
1951.883(a)(2)(iv).............. Proposed budget....... Written............. 36 1................... 36 2.5 90
1951.883(c)..................... Intermediary's report Written............. 36 On occasion......... 50 1.0 50
of loans 90 days in
arrears.
1951.889(c)..................... Assumption Agreement.. Written............. 2 1................... 2 3.5 7
1951.889(d)..................... Transferee financial Written............. 2 1................... 2 .5 1
statement.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form Approved with this Docket
--------------------------------------------------------------------------------------------------------------------------------------------------------
1951.883(a)(2).................. IRP Lending Activity 1951-4.............. ........... .................... ........... ........... ...........
Report.
IRP borrower.......... .................... 10 4................... 40 20 800
RDLF borrower......... .................... 26 2................... 52 20 1040
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reporting Requirements Under Other Numbers
--------------------------------------------------------------------------------------------------------------------------------------------------------
1951.872(b)..................... Request for 1940-20 (0575-0094). ........... .................... ........... ........... ...........
Environmental
Information.
\1\494 ........... \2\2,726
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Docket totals. \2\ Total hours.
[[Page 122]]
Subpart S--Farmer Program Account Servicing Policies
Source: 57 FR 18626, Apr. 30, 1992, unless otherwise noted.
Sec. 1951.901 Purpose.
This subpart describes the policies and procedures that the agency
will use in servicing most Farm Loan Program (FLP) loans. The loans
include Operating Loan (OL), Farm Ownership Loan (FO), Soil and Water
Loan (SW), Softwood Timber Production Loan (ST), Emergency Loan (EM),
Economic Emergency Loan (EE), Economic Opportunity Loan (EO), Recreation
Loan (RL), and Rural Housing Loan for farm service buildings (RHF)
accounts. Shared Appreciation Loans (SA) may be reamortized under this
subpart if the borrower also has outstanding Farm Loan Programs loans.
Cases involving unauthorized assistance will be serviced as described in
subpart L of this part. When it has been determined that all the
conditions outlined in Sec. 1951.558(b) of subpart L of this part have
been met, the loan will be treated as an authorized loan and may be
serviced under this subpart. Cases involving graduation of borrowers to
other sources of credit will be serviced as described in subpart F of
this part. This subpart does not apply to FLP Non-Program (NP) loans.
Examples of Primary Loan Servicing actions are: consolidation,
rescheduling and/or reamortization, deferral of principal and interest
payments, reclassifying to ST loans, reducing interest rate on the loan,
writedown of debt and conservation contract, or a combination of these
actions. Preservation loan servicing is the Homestead Protection
program. Any processing or servicing activity conducted pursuant to this
subpart involving authorized assistance to agency employees, members of
their families, known close relatives, or business or close personal
associates, is subject to the provisions of subpart D of part 1900 of
this chapter. Applicants for this assistance are required to identify
any known relationship or association with an agency employee.
[62 FR 10120, Mar. 5, 1997, as amended at 63 FR 6628, Feb. 10, 1998]
Sec. 1951.902 General.
Supervision and Servicing. It is a primary objective of the Agency
to provide supervised credit to borrowers in financial, production or
other difficulty in a manner that will assure the maximum opportunity
for their recovery and, at the same time, get the best recovery for the
Government. Supervision and servicing are continuing processes that
begin the day a farmer comes into the office. Providing supervised
credit has two objectives:
(a) To help farmers set goals, work on problem areas and work toward
graduation to commercial credit;
(b) To recover the maximum possible amount for the Government.
[62 FR 10120, Mar. 5, 1997]
Sec. 1951.903 Authorities and responsibilities.
(a) Responsibilities. Servicing officials will make full use of the
National automated tracked system to track and manage the FLP primary
and preservation loan servicing and debt settlement programs.
(b) Authorities. All loan servicing decisions except as set forth in
this section will be made by the servicing official except the approval
of writedown and buyout of a borrower's debt. Also, all applications for
debt settlement of FLP loans must be recommended by the County Committee
(except where the debt has been discharged through bankruptcy), approved
by the State Executive Director or the Administrator (depending upon the
amount of debt to be settled), and processed in accordance with the
provisions of subpart B of part 1956 of this chapter. Servicing
officials are authorized to accept a buyout payment when the borrower(s)
pays the current market value of the security set forth in Sec. 1951.909
of this Instruction. Only State Executive Directors are authorized to
approve writedown and buyout in accordance with Sec. 1951.909 of this
part and release a divorced spouse from liability on the debt in
accordance with Sec. 1951.909(a) of this part.
[62 FR 10121, Mar. 5, 1997]
[[Page 123]]
Sec. 1951.904 Mediation, reviews and appeals.
(a) Participant rights. (1) For loan servicing under this subpart,
mediation or a voluntary meeting of creditors will be offered if the
DALR$ calculations indicate that a feasible plan of operation cannot be
developed considering all primary loan service programs, Softwood
Timber, and Conservation Contracts. In states with a USDA Certified
Mediation Program, mediation will be offered. In all other states, a
voluntary meeting of creditors will be offered.
(2) Any negotiation of an Agency appraisal must be completed prior
to the meeting of creditors or mediation.
(3) If the borrower does not request mediation or a voluntary
meeting of creditors as offered in Exhibit E of this subpart within 45
days, the servicing official will issue the appropriate ``Notice of
Intent to Accelerate or to Continue Acceleration and Notice of
Borrowers' Rights.''
(4) Whenever the servicing official makes a decision that will
adversely affect a participant, the participant will be informed that
the decision can be reviewed in accordance with 7 CFR part 780 and
indicate whether it can be appealed to the USDA National Appeals
Division (NAD) according to regulations set forth in 7 CFR part 11.
Nonprogram (NP) participants are not entitled to appeal rights.
(b) Non-appealable decisions. The following types of decisions are
not appealable:
(1) Decisions made by parties outside the agency, even when those
decisions are used as a basis for the agency's decisions.
(2) Decisions that do not meet the eligibility requirements of 7 CFR
part 11.
(3) Interest rates as set forth in Agency procedures, except appeals
alleging application of the incorrect interest rate.
(4) Refusal to request or grant an administrative waiver permitted
by program regulations.
(5) Denials of assistance due to lack of funds.
(6) In cases where the adverse decision is based on both appealable
and non-appealable actions, the adverse action is not appealable.
(7) Determinations previously made by the Agency that have been
appealed, and a NAD decision adverse to the participant has been
entered; or upon which the time frame for appeal has expired with no
appeal being requested.
(c) Next-level review. Any adverse decision, whether appealable or
non-appealable, may be reviewed in accordance with 7 CFR part 780.
(d) NAD review. (1) A participant may request that NAD review the
Agency's determination that the decision may not be appealed.
(2) A participant may request that NAD review any decision that is
appealable.
(3) NAD will review the participant's request in accordance with 7
CFR part 11.
(e) Agency actions pending outcome of appeal. Assistance will not be
discontinued pending the outcome of an appeal of any adverse action.
Releases for essential family living and farm operating expenses will
not be terminated until the account has been accelerated.
(f) Time limits. Time limits for action under this subpart will be
tolled during the pendency of an appeal, but not during the pendency of
a request that NAD determine that a matter is or is not appealable.
[62 FR 10121, Mar. 5, 1997]