[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2007 Edition]
[From the U.S. Government Printing Office]
[[Page i]]
7
Parts 1950 to 1999
Revised as of January 1, 2007
Agriculture
________________________
Containing a codification of documents of general
applicability and future effect
As of January 1, 2007
With Ancillaries
Published by:
Office of the Federal Register
National Archives and Records
Administration
A Special Edition of the Federal Register
[[Page ii]]
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[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 7:
Subtitle B--Regulations of the Department of Agriculture
(Continued)
Chapter XVIII--Rural Housing Service, Rural
Business-Cooperative Service, Rural Utilities
Service, and Farm Service Agency, Department of
Agriculture (Continued) 5
Finding Aids:
Table of CFR Titles and Chapters........................ 459
Alphabetical List of Agencies Appearing in the CFR...... 477
List of CFR Sections Affected........................... 487
[[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
The Code of Federal Regulations is a codification of the general and
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departments and agencies of the Federal Government. The Code is divided
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parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
The appropriate revision date is printed on the cover of each
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OMB CONTROL NUMBERS
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Federal agencies to display an OMB control number with their information
collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
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[[Page vii]]
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January 1, 2007.
[[Page ix]]
THIS TITLE
Title 7--Agriculture is composed of fifteen volumes. The parts in
these volumes are arranged in the following order: parts 1-26, 27-52,
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1899, 1900-1939, 1940-1949, 1950-1999, and part 2000 to end.
The contents of these volumes represent all current regulations codified
under this title of the CFR as of January 1, 2007.
The Food and Nutrition Service current regulations in the volume
containing parts 210-299, include the Child Nutrition Programs and the
Food Stamp Program. The regulations of the Federal Crop Insurance
Corporation are found in the volume containing parts 400-699.
All marketing agreements and orders for fruits, vegetables and nuts
appear in the one volume containing parts 900-999. All marketing
agreements and orders for milk appear in the volume containing parts
1000-1199.
For this volume, Moja N. Mwaniki and Bonnie Fritts were Chief
Editors. The Code of Federal Regulations publication program is under
the direction of Frances D. McDonald, assisted by Ann Worley.
[[Page 1]]
TITLE 7--AGRICULTURE
(This book contains parts 1950 to 1999)
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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)
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Editorial Note: Nomenclature changes to chapter XVIII appear at 61 FR
1109, Jan. 16, 1996, and 61 FR 2899, Jan. 30, 1996.
SUBCHAPTER H--PROGRAM REGULATIONS (CONTINUED)
Part Page
1950 General..................................... 7
1951 Servicing and collections................... 10
1955 Property management......................... 143
1956 Debt settlement............................. 221
1957 Asset sales................................. 246
1962 Personal property........................... 247
1965 Real property............................... 285
1980 General..................................... 316
1981-1999 [Reserved]
[[Page 7]]
SUBCHAPTER H_PROGRAM REGULATIONS (CONTINUED)
PART 1950_GENERAL--Table of Contents
Subparts A-B [Reserved]
Subpart C_Servicing Accounts of Borrowers Entering the Armed Forces
Sec.
1950.101 Purpose.
1950.102 General.
1950.103 Borrower owing FmHA or its successor agency under Public Law
103-354 loans which are secured by chattels.
1950.104 Borrower owing FmHA or its successor agency under Public Law
103-354 loans which are secured by real estate.
1950.105 Interest rate.
Subparts A-B [Reserved]
Subpart C_Servicing Accounts of Borrowers Entering the Armed Forces
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.
Sec. 1950.101 Purpose.
Borrowers with accounts serviced by the Farmers Home Administration
or its successor agency under Public Law 103-354 (FmHA or its successor
agency under Public Law 103-354) who have entered or who are entering
military service will require special treatment. This subpart prescribes
the authorities, policies, and routines for servicing such cases in
addition to those contained in other FmHA or its successor agency under
Public Law 103-354 regulations.
[45 FR 43152, June 26, 1980]
Sec. 1950.102 General.
(a) FmHA or its successor agency under Public Law 103-354 will do
everything possible to assist borrowers entering the armed forces to
adjust their affairs in contemplation of military service. It is not the
policy FmHA or its successor agency under Public Law 103-354 to renew,
postpone, or modify annual installments due under a promissory note
because of the borrower's entry into the armed services. However, under
the Soldiers' and Sailors' Civil Relief Act of 1940, the property of a
borrower in the armed forces cannot validly be seized or sold by
foreclosure or otherwise during the borrower's tenure of service, or for
three months thereafter, except (1) pursuant to an agreement entered
into by the borrower after having been accepted for service, or (2) by
order of the Court. Any person causing an invalid sale to be made is
guilty of a misdemeanor. Regardless of the foregoing, the long-time
interest of the borrower can best be served by prompt and satisfactory
arrangements for the use and protection, or disposition, of the security
property in accordance with the policies expressed herein. Upon request,
OGC will inform the State Director with respect to relief which may be
secured by a borrower under the Soldiers' and Sailors' Civil Relief Act
of 1940.
(b) In connection with Multiple Housing loans to individuals,
references to County Supervisor and County Office in this subpart will
be read as District Director and District Office.
[50 FR 45763, Nov. 1, 1985]
Sec. 1950.103 Borrower owing FmHA or its successor agency under Public Law
103-354 loans which are secured by chattels.
(a) Policy. (1) Borrowers who owe loans other than Farm Ownership
(FO), Operating (OL), Soil and Water (SW), Recreation (RL), Emergency
(EM), Economic Emergency (EE), Economic Opportunity (EO), Special
Livestock (SL), Softwood Timber (ST) loans, and/or Rural Housing loans
for farm service buildings (RHF). When information is received that a
borrower is entering the armed forces, the County Supervisor will be
responsible for contacting the borrower immediately for the purpose of
reaching an understanding concerning the actions to take in connection
with the FmHA or its successor agency under Public Law 103-354 loan
indebtedness. The borrower will be permitted to retain the chattel
security if arrangements can be worked out which are satisfactory to the
borrower and FmHA or its successor agency under Public Law 103-354.
However, because
[[Page 8]]
of the nature of chattel security, the borrower will be informed of the
usual depreciation of such property and will be encouraged to sell the
property and apply the proceeds to the loan(s). In most cases, the
interests of both the borrower and the Government can best be served by
arranging for a voluntary sale of the security. A borrower retaining
security will be expected to make payments on the loan(s) equal to the
scheduled payments.
(2) Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, and/or RHF
loans. If the borrower is delinquent in accordance with subpart S of
part 1951 of this chapter, or otherwise in default, the County
Supervisor will send exhibit A and the appropriate attachments, as
outlined in subpart S of part 1951 of this chapter. If the borrower is
not delinquent, the County Supervisor will explain the options set out
in paragraph (b) of this section.
(b) Methods of handling. In carrying out the above policy, the cases
of borrowers entering the armed forces will be handled in accordance
with one of the following methods:
(1) Voluntary sale of security. This will be accomplished in
accordance with Sec. 1962.41 of subpart A of part 1962 of this chapter.
Any necessary forms will be signed:
(i) Before being accepted for service in the armed forces, if the
sale is to be completed before the borrower is accepted for service, or
(ii) After being accepted for service, if the sale cannot be
completed before the borrower is so accepted. For this purpose, an
individual will be considered as accepted for service after being
ordered to report for induction, or, if in the enlisted reserve, after
being ordered to report for service in the armed forces.
(2) Assumption of indebtedness. This will be accomplished in
accordance with Sec. 1962.34 of subpart A of part 1962 of this chapter.
(3) Arrangements with third persons. When the borrower arranges with
a relative or other reliable person to maintain the security in a
satisfactory manner and to make scheduled payments, the State Director
is authorized to approve the arrangement. In such a case, the borrower
will be required to execute a power of attorney, prepared or approved by
OGC, authorizing an attorney-in-fact to act for the borrower during the
latter's absence.
(4) Possible legal actions. If the borrower fails or refuses to
cooperate in the servicing of the loan indebtedness secured by chattels
in accordance with one of the methods set forth in this section, the
borrower's case folder will be forwarded to the State Director for
referral to OGC for legal advice as to the steps to be taken in
protecting the Government's interest.
(c) Statements of accounts and transfers. Borrowers entering the
armed forces will be requested to designate mailing addresses for the
delivery of statements of account. Any changes in these addresses will
be processed on Form FmHA or its successor agency under Public Law 103-
354 450-10, ``Advice of Borrower's Change of Address or Name,'' with
appropriate explanations. Under this procedure, a statement of account
may be mailed to a location other than where the account is maintained
and serviced. This is a deviation from the established procedure. These
cases will not be transferred unless the security, when retained by the
borrower in accordance with paragraph (b)(3) of this section, is moved
into another County Office territory. Then the transfer will be
processed through the use of Form FmHA or its successor agency under
Public Law 103-354 450-5, ``Application to Move Security Property and
Verification of Address,'' and Form FmHA or its successor agency under
Public Law 103-354 450-10 with appropriate explanations. In cases when
assumption agreements have been executed, statements of account will be
mailed to the assuming borrower. Cases involving assumption agreements
will be transferred when the assuming borrower moves from one County
Office territory to another.
[45 FR 43152, June 26, 1980, as amended at 50 FR 45763, Nov. 1, 1985; 52
FR 26133, July 13, 1987; 55 FR 40646, Oct. 4, 1990]
[[Page 9]]
Sec. 1950.104 Borrower owing FmHA or its successor agency under Public Law
103-354 loans which are secured by real estate.
County Supervisors, to the greatest extent possible, should keep
themselves informed of the plans of borrowers with FmHA or its successor
agency under Public Law 103-354 loans secured by real estate who may
enter the armed forces. They should encourage any borrower who is
definitely entering the armed forces to consult with them before the
borrower's military service begins concerning the most advantageous
arrangements that can be made regarding the security. County Supervisors
will assist these borrowers in working out mutually satisfactory
arrangements. Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, ST, and/
or RHF loans and who are delinquent or otherwise in default must be sent
exhibit A and the appropriate attachments, as outlined in subpart S of
part 1951 of this chapter. The County Supervisor will follow the
directions in subpart A of part 1965 of this chapter for liquidating
real estate security. FO, SW, RL, OL, EE, EM, SL, EO, ST and/or RHF
borrowers who are not delinquent will have their accounts handled as set
out in the following paragraphs.
(a) Power of attorney. Borrowers entering the armed forces who
retain ownership of the security should be encouraged to execute a power
of attorney authorizing the person of their choice to take any actions
necessary to insure proper use and maintenance of the security, payment
of insurance and taxes, and repayment of the loan. No FmHA or its
successor agency under Public Law 103-354 employee will act as attorney-
in-fact for a borrower. The State Director will consult with OGC
concerning any limitations upon the use of a power of attorney under
local law and the circumstances under which the power of attorney should
be exercised. In general, either spouse may act as attorney-in-fact for
the other spouse, but, in a few States, a spouse cannot exercise the
power of attorney in connection with a sale or encumbrance of the
homestead. In a majority of States, a power of attorney is revoked by
the death of a person granting the power, but, in some States, the power
of attorney executed by a person in the armed services remains valid
until actual notice is received of the death of the person granting the
power. A power of attorney should not be used in conveying title to the
farm except in those States where the power is good until actual notice
of death. The State Director will request OGC to prepare a satisfactory
form of power of attorney which may be duplicated in the State Office
and furnished to County Supervisors with a State supplement concerning
its use.
(b) Borrower retains ownership of the security. When a borrower
retains ownership of the security, FmHA or its successor agency under
Public Law 103-354 will assist in making arrangements for the use of the
security which will protect the interests of both the Government and the
borrower.
(1) Leasing. It will be more satisfactory if the security is leased
under a written lease in accordance with equitable leasing policies and
applicable FmHA or its successor agency under Public Law 103-354
procedures. The borrower should make arrangements for the rental income
to be used for regular payments on the loan in order to avoid the
accumulation of unpaid interest. The borrower also should make
arrangements for the payment of taxes and insurance and maintenance of
the security to avoid having these charges paid by the Government and
then charged to the account. It would be desirable to provide that the
lease will continue for the duration of the borrower's military service
unless either party gives written notice of earlier cancellation of the
lease.
(2) Operation by family. When a borrower wishes to have the farm
occupied and operated by family members or relatives without a written
lease, the County Supervisor should advise the borrower as to whether or
not the proposed arrangements will be in the best interests of the
borrower and the Government. When the farm is to be operated by
relatives, the hazards and disadvantages to the borrower and the
Government which are inherent in unwritten contracts will be discussed,
and every effort will be made to induce the
[[Page 10]]
borrower to enter into formal contractual arrangements whenever possible
to do so.
(c) Borrower does not retain ownership of the security. The security
may be transferred to another approved applicant or sold in accordance
with applicable procedure.
(d) Borrower abandons the security or fails to make satisfactory
arrangements. This paragraph does not apply to borrowers with FO, SW,
RL, OL, EE, EM, SL, EO, ST and/or RHF loans. Those borrowers should be
sent exhibit A and the appropriate attachments as outlined in subpart S
of part 1951 of this chapter. When a borrower abandons the security or
fails to make satisfactory arrangements for maintenance of the security
and payment of taxes, insurance, and installments on the loan, the
County Supervisor will send a complete report on the case to the State
Director. The report will include all the information that can be
obtained regarding the borrower's plans for the security and any
evidence to indicate that abandonment has, in fact, taken place. In
these instances, it must be recognized that the borrower may have
entered into verbal arrangements for the care of the security without
properly advising the County Supervisor. Whether such cases may be
construed to be in violation of the provisions of the mortgage, so as to
support foreclosure by order of the Court under the provisions of the
Soldiers' and Sailors' Civil Relief Act of 1940, will need to be
determined on an individual case basis by the State Director and OGC.
Clear-cut abandonment cases or instances in which the borrower fails to
take action to transfer or sell the property, while evidencing no
interest in it or desire to retain it, will be processed in accordance
with applicable procedures.
(e) Statement of account. Borrowers entering the armed forces who
retain ownership of the security will be requested to designate mailing
addresses for the delivery of statements of account. Any changes in
addresses will be processed on Form FmHA or its successor agency under
Public Law 103-354 450-10 with appropriate explanations.
[45 FR 43152, June 26, 1980, as amended at 50 FR 45764, Nov. 1, 1985; 52
FR 26134, July 13, 1987; 55 FR 40646, Oct. 4, 1990]
Sec. 1950.105 Interest rate.
(a) The Soldiers and Sailors Relief Act requires that the effective
interest rate charged a borrower who enters active military duty after a
loan is closed will not exceed 6 percent. This applies only to full-time
active military duty and does not include military reserve status or
National Guard participation.
(b) As soon as the County Supervisor verifies that a borrower is on
active duty, the County Supervisor will send the borrower a letter which
states that the interest rate on the borrower's FmHA or its successor
agency under Public Law 103-354 loans will not exceed 6 percent. At the
same time, the County Supervisor will send the Finance Office a
memorandum which states that the borrower is on active duty and that
interest of not more than 6 percent should accrue on the borrower's
loans, effective as of the date of the memorandum or as of the date of
the last payment, whichever is later, until further notice. If a
borrower's interest rate on any loan is less than 6 percent, the loan
will continue to accrue interest at the lower rate. The assistance under
this section may not be retroactively applied.
(c) As soon as the County Supervisor verifies that a borrower is no
longer on active duty, the County Supervisor will send the Finance
Office a memorandum advising them to terminate the 6 percent interest
rate. The rate will revert to the note rate (or the payment assistance
rate), effective with the next scheduled payment. The 6 percent interest
rate will not be cancelled retroactively.
(d) Additional directions for handling Single Family Housing Loans
are contained in 7 CFR part 3550.
[52 FR 26134, July 13, 1987, as amended at 60 FR 55122, Oct. 27, 1995;
67 FR 78329, Dec. 24, 2002]
PART 1951_SERVICING AND COLLECTIONS--Table of Contents
Subpart A_Account Servicing Policies
Sec.
1951.1 Purpose.
1951.2 Policy.
1951.3 Authorities and responsibilities.
1951.4-1951.6 [Reserved]
[[Page 11]]
1951.7 Accounts of borrowers.
1951.8 Types of payments.
1951.9 Distribution of payments when a borrower owes more than one type
of FmHA or its successor agency under Public Law 103-354 loan.
1951.10 Application of payments on production type loan accounts.
1951.11 Application of payments on real estate accounts.
1951.12 Changes in the application of loan payments.
1951.13 Overpayments and refunds.
1951.14 Recoverable and nonrecoverable cost charges.
1951.15 Return of paid-in-full or satisfied notes to borrower.
1951.16 Other servicing actions on real estate type loan accounts.
1951.17-1951.24 [Reserved]
1951.25 Review of limited resource FO, OL, and SW loans.
1951.26-1951.49 [Reserved]
1951.50 OMB control number.
Exhibit A to Subpart A--Notice to FmHA or its successor agency under
Public Law 103-354 Borrowers
Exhibit B to Subpart A--Notice of Change in Interest Rate
Subpart B [Reserved]
Subpart C_Offsets of Federal Payments to USDA Agency Borrowers
1951.101 General.
1951.102 Administrative offset.
1951.103-1951.105 [Reserved]
1951.106 Offset of payments to entities related to debtors.
1951.107-1951.110 [Reserved]
1951.111 Salary offset.
1951.112-1951.132 [Reserved]
1951.133 Establishment of Federal Debt.
1951.134-1951.135 [Reserved]
1951.136 Procedures for Department of Treasury offset and cross-
servicing for the Rural Housing Service (Community Facility
Program only) and the Rural Business-Cooperative Service.
1951.137 Procedures for Treasury offset and cross-servicing for the Farm
Service Agency (FSA) farm loan programs.
1951.138-1951.149 [Reserved]
1951.150 OMB control number.
Subpart D_Final Payment on Loans
1951.151 Purpose.
1951.152 Definition.
1951.153 Chattel security or note-only cases.
1951.154 Satisfaction and release of documents.
1951.155 County and/or District Office actions.
1951.156-1951.200 [Reserved]
Subpart E_Servicing of Community and Direct Business Programs Loans and
Grants
1951.201 Purposes.
1951.202 Objectives.
1951.203 Definitions.
1951.204 Nondiscrimination.
1951.205 Redelegation of authority.
1951.206 Forms.
1951.207 State supplements.
1951.208-1951.209 [Reserved]
1951.210 Environmental requirements.
1951.211 Refinancing requirements.
1951.212 Unauthorized financial assistance.
1951.213 Debt settlement.
1951.214 Care, management, and disposal of acquired property.
1951.215 Grants.
1951.216 Nonprogram (NP) loans.
1951.217 Public bodies.
1951.218-1951.219 [Reserved]
1951.220 General servicing actions.
1951.221 Collections, payments, and refunds.
1951.222 Subordination of security.
1951.223 Reamortization.
1951.224 Third party agreements.
1951.225 Liquidation of security.
1951.226 Sale or exchange of security property.
1951.227 Protective advances.
1951.228-1951.229 [Reserved]
1951.230 Transfer of security and assumption of loans.
1951.231 Special provisions applicable to Economic Opportunity (EO)
Cooperative Loans.
1951.232 Water and waste disposal systems which have become part of an
urban area.
1951.233-1951.239 [Reserved]
1951.240 State Director's additional authorizations and guidance.
1951.241 Special provision for interest rate change.
1951.242 Servicing delinquent Community Facility loans.
1951.243-1951.249 [Reserved]
1951.250 OMB control number.
Exhibits A-H to Subpart E [Note]
Subpart F_Analyzing Credit Needs and Graduation of Borrowers
1951.251 Purpose.
1951.252 Definitions.
1951.253 Objectives.
1951.254 [Reserved]
1951.255 Nondiscrimination.
1951.256-1951.261 [Reserved]
1951.262 Farm Credit Programs-graduation of borrowers.
1951.263 Graduation on non-Farm Credit programs borrowers.
1951.264 Action when borrower fails to cooperate, respond or graduate.
1951.265 Application for subsequent loan, subordination, or consent to
additional
[[Page 12]]
indebtedness from a borrower who has been requested to
graduate.
1951.266 Special requirements for MFH borrowers.
1951.267-1951.299 [Reserved]
1951.300 OMB control number.
Exhibit A to Subpart F [Reserved]
Exhibit B to Subpart F--Suggested Outline for Seeking Information From
Lenders on Credit Criteria for Graduation of Single Family
Housing Loans
Subparts G-I [Reserved]
Subpart J_Management and Collection of Nonprogram (NP) Loans
1951.451 General.
1951.452 Policy.
1951.453 [Reserved]
1951.454 Review of adverse decisions.
1951.455 NP loan making for Single Family Housing (SFH) and farm
property (real and chattel).
1951.456 [Reserved]
1951.457 Payments.
1951.458 Servicing real estate taxes.
1951.459 Preservation of security.
1951.460 Release of security property or sale or lease of related
property rights.
1951.461 Release of valueless FmHA or its successor agency under Public
Law 103-354 lien without monetary consideration.
1951.462 Deceased borrower.
1951.463 Transfer of security and assumption of indebtedness.
1951.464-1951.467 [Reserved]
1951.468 Liquidation.
1951.469 Actions after liquidation of property.
1951.470-1951.478 [Reserved]
1951.479 Pilot projects.
1951.480 [Reserved]
1951.481 FmHA or its successor agency under Public Law 103-354
Instructions.
1951.482-1951.500 [Reserved]
Subpart K [Reserved]
Subpart L_Servicing Cases Where Unauthorized Loan or Other Financial
Assistance Was Received_Farmer Programs
1951.551 Purpose.
1951.552 Definitions.
1951.553 Policy.
1951.554-1951.555 [Reserved]
1951.556 Initial determination that unauthorized assistance was
received.
1951.557 Notification to borrower.
1951.558 Decision on servicing actions.
1951.559-1951.560 [Reserved]
1951.561 Servicing options in lieu of liquidation or legal action.
1951.562-1951.567 [Reserved]
1951.568 Account adjustments and reporting requirements.
1951.569 Exception authority.
1951.570-1951.599 [Reserved]
1951.600 OMB control number.
Subparts M-N [Reserved]
Subpart O_Servicing Cases Where Unauthorized Loan(s) or Other Financial
Assistance Was Received_Community and Insured Business Programs.
1951.701 Purpose.
1951.702 Definitions.
1951.703 Policy.
1951.704-1951.705 [Reserved]
1951.706 Initial determination that unauthorized assistance was
received.
1951.707 Determination of the amount of unauthorized assistance.
1951.708 Notification to recipient.
1951.709 Decision on servicing actions.
1951.710 [Reserved]
1951.711 Servicing options in lieu of liquidation or legal action to
collect.
1951.712-1951.716 [Reserved]
1951.717 Exception authority.
1951.718-1951.750 [Reserved]
Subparts P-Q [Reserved]
Subpart R_Rural Development Loan Servicing
1951.851 Introduction.
1951.852 Definitions and abbreviations.
1951.853 Loan purposes for undisbursed RDLF loan funds from HHS.
1951.854 Ineligible assistance purposes.
1951.855-1951.858 [Reserved]
1951.859 Terms of loans.
1951.860 Interest on loans.
1951.861-1951.865 [Reserved]
1951.866 Security.
1951.867 Conflict of interest.
1951.868-1951.870 [Reserved]
1951.871 Post award requirements.
1951.872 Other regulatory requirements.
1951.873-1951.876 [Reserved]
1951.877 Loan agreements.
1951.878-1951.880 [Reserved]
1951.881 Loan servicing.
1951.882 [Reserved]
1951.883 Reporting requirements.
1951.884 Non-Federal funds.
1951.885 Loan classifications.
1951.886-1951.888 [Reserved]
1951.889 Transfer and assumption.
1951.890 Office of Inspector General and Office of General Counsel
referrals.
1951.891 Liquidation; default.
1951.892-1951.893 [Reserved]
1951.894 Debt settlement.
1951.895 [Reserved]
1951.896 Appeals.
1951.897 Exception authority.
1951.898-1951.899 [Reserved]
1951.900 OMB control number.
[[Page 13]]
Subpart S_Farm Loan Programs Account Servicing Policies
1951.901 Purpose.
1951.902 General.
1951.903 Authorities and responsibilities.
1951.904 Mediation, reviews and appeals.
1951.905 [Reserved]
1951.906 Definitions.
1951.907 Notice of Loan Service Programs.
1951.908 Servicing financially distressed current borrowers.
1951.909 Processing primary loan service programs requests.
1951.910 Consideration of borrower's other assets for new applications.
1951.911 Homestead protection.
1951.912 Mediation.
1951.913 Servicing Net Recovery Buyout Recapture Agreements.
1951.914 Servicing shared appreciation agreements.
1951.915 [Reserved]
1951.916 Exception authority.
1951.917-1951.949 [Reserved]
1951.950 OMB control number.
Exhibit A to Subpart S--Notice of the Availability of Loan Servicing and
Debt Settlement Programs for Delinquent Farm Borrowers
Exhibit D to Subpart S [Reserved]
Exhibit G to Subpart S--Deferral, Reamortization, and Reclassification
of Distressed Farmer Program (FP) Loans for Softwood Timber
Production (ST) Loans
Exhibit H to Subpart S--Conservation Contract Program
Subpart T_Disaster Set-Aside Program
1951.951 Purpose.
1951.952 General.
1951.953 Notification and request for DSA.
1951.954 Eligibility and loan limitation requirements.
1951.955-1951.956 [Reserved]
1951.957 Eligibility determination and processing.
1951.958 Cancellation and reversal of DSA.
1951.959 Exception authority.
1951.960-1951.1000 [Reserved]
Authority: 5 U.S.C. 301; 7 U.S.C. 1932 Note; 7 U.S.C. 1989; 31
U.S.C. 3716; 42 U.S.C. 1480
Editorial Note: Some of the exhibits referenced in this part 1951
are not published in the Code of Federal Regulations. Exhibits are
available in any FmHA or its successor agency under Public Law 103-354
office.
Subpart A_Account Servicing Policies
Source: 50 FR 45764, Nov. 1. 1985, unless otherwise noted.
Sec. 1951.1 Purpose.
This subpart sets forth the policies and procedures to use in
servicing Farmer Program loans (FP) which include Softwood Timber (ST),
Operating Loan (OL), Farm Ownership (FO), Soil and Water (SW),
Recreation Loan (RL), Emergency Loan (EM), Economic Emergency Loan (EE),
Special Livestock Loan (SL), Economic Opportunity Loan (EO), and Rural
Housing Loan for farm service buildings (RHF) accounts. This subpart
also applies to Rural Rental Housing Loan (RRH), Rural Cooperative
Housing Loan (RCH), Labor Housing Loan (LH), Rural Housing Site Loan
(RHS), and Site Option Loan (SO) accounts not covered under the
Predetermined Amortization Schedule System (PASS). Loans on PASS will be
administered under 7 CFR part 3560, subpart I. Cases involving
unauthorized assistance will be serviced under Subparts L and N of this
part. Cases involving graduation of borrowers to other sources of credit
will be serviced under Subpart F of this part.
[52 FR 26134, July 13, 1987, as amended at 69 FR 69105, Nov. 26, 2004]
Sec. 1951.2 Policy.
Borrowers are expected to pay their debts to the Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) in accordance with their
agreements and ability to pay. They will be encouraged to pay ahead of
schedule, consistent with sound financial management. When borrowers
have acted in good faith and have exercised due diligence in an effort
to pay their indebtedness but cannot pay on schedule because of
circumstances beyond their control, servicing actions will be consistent
with the best interests of the borrower and the Government. It is the
policy of this agency to service borrower loan account without regard to
race, color, religion, sex, marital status, national origin, age,
physical or mental handicap (borrower must possess the capacity to enter
into a legal contract for services).
[[Page 14]]
Sec. 1951.3 Authorities and responsibilities.
County Supervisors and District Directors are responsible for
servicing all FmHA or its successor agency under Public Law 103-354
accounts serviced by the County and District Offices as prescribed by
this subpart under the general guidance and supervision of District
Directors and State Office personnel. Full use will be made of the
County Office Management System in account servicing. For the purposes
of this Subpart, all references to ``County Supervisor'' shall be
construed to mean ``District Director'' for all loans serviced by the
District Office.
Sec. Sec. 1951.4-1951.6 [Reserved]
Sec. 1951.7 Accounts of borrowers.
(a) Accounts of active borrowers. The foundation for proper and
timely debt payment is sound farm and home planning or budgeting,
including plans for debt payment, supplemented by effective followup
management assistance. Account servicing, therefore, must begin with
initial planning and must be an integral part of analysis and subsequent
planning, as well as follow-up management assistance.
(b) Accounts of collection-only borrowers. (1) Collection-only
borrowers are expected to pay debts to FmHA or its successor agency
under Public Law 103-354 in accordance with their ability to pay.
Efforts to collect such debts, including use of collection letters and
account servicing visits, must be coordinated with other program
activities. If these borrowers are unable to pay in full, appropriate
debt settlement policies should be promptly applied.
(2) Envelopes addressed to collection-only borrowers will bear the
legend ``DO NOT FORWARD.'' When an envelope is returned indicating the
borrower has moved, appropriate steps will be taken to determine the
borrower's correct address.
(3) Regular County Office employees are generally expected to
service the collection-only caseload when it is of moderate size. State
Directors may assign additional employees to County Offices having large
collection-only caseloads when necessary to service such cases to a
prompt conclusion. State Directors may inform the National Office of the
need for employing special collection personnel in urban areas having
large collection-only caseloads when employees are not available to
assign to such areas.
(4) The following actions will be taken in servicing accounts owed
by collection-only borrowers:
(i) District Directors will review, yearly, all collection-only
cases in each County Office with the County Supervisor as early in each
fiscal year as possible. They will jointly agree on the actions to take
and will complete Form FmHA or its successor agency under Public Law
103-354 451-27, ``Review of Collection-Only Accounts.''
(ii) District Directors will establish with County Supervisors a
systematic plan for collecting the accounts or initiating appropriate
debt settlement actions during the year.
(iii) County Supervisors will include in their monthly calendars
plans for servicing these accounts.
(iv) On visits to County Offices, District Directors will review the
progress being made by County Supervisors to insure that goals will be
reached.
(v) For collection-only accounts in District Offices, the State
Director will review the accounts as required in paragraphs (b)(4)(i)
through (b)(4)(iv) of this section and the District Director will
service the account.
(c) Notifying borrowers of payments. County Supervisors will notify
borrowers of the dates and amounts of payments that have been agreed on
for all types of accounts. Form FmHA or its successor agency under
Public Law 103-354 451-3, ``Reminder of Payment to be Made,'' or similar
form approved by the State Director, will be used. The form will not
contain any language indicating that an account is delinquent. These
notices will be timed to reach borrowers immediately before the receipt
of the income from which the payments should be made or before the
installment due date on the note, as appropriate, and may include other
pertinent information such as a reference to agreements reached during
the year and sources of income from which the payment was planned. Such
notices need not be sent when frequent
[[Page 15]]
payments are scheduled and the borrower customarily makes the payments
when due.
(d) Subsequent servicing. (1) When a Farmer Program borrower fails
to make a payment as agreed, the County Supervisor will notify the
borrower in accordance with subpart S of part 1951 of this chapter.
(2) When a borrower other than a Farmer Program borrower fails to
make a payment as agreed, the County Supervisor will contact the
borrower to discuss the reasons why the payment was not made and to
develop specific plans, for making the payment. Form FmHA or its
successor agency under Public Law 103-354 451-32, ``Notice of Payment
Due,'' may be used to notify borrowers who make payments directly to the
Finance Office that their payment has not been received. Form FmHA or
its successor agency under Public Law 103-354 450-13, ``Request for
Assignment of Income From Trust Property,'' may be used when other
methods of loan collection fail and debt repayment is possible from
trust income. In the event the borrower refuses to make the payment when
income is available, or if it is determined that income will not be
available to make the payment within a reasonable length of time and
will not be available to make future payments, action will be taken to
protect the Government's interest in accordance with applicable
regulations. Followup actions of subsequent servicing will be noted on
appropriate Management System Cards.
(e) Maintaining records of accounts in County Offices. Records of
the accounts of FmHA or its successor agency under Public Law 103-354
borrowers will be maintained in the County Office on Forms FmHA or its
successor agency under Public Law 103-354 1905-1, FmHA or its successor
agency under Public Law 103-354 1905-5, FmHA or its successor agency
under Public Law 103-354 1905-10, ``Management System Card-
Association,'' as provided in FmHA or its successor agency under Public
Law 103-354 Instruction 1905-A (available in any FmHA or its successor
agency under Public Law 103-354 office).
(f) Inquiry for Multiple Family Housing (MFH) loans. Inquiry for all
RRH, RCH, LH, RHS and SO loans and grants will be made through field
terminals using procedures in the ``MFH Users Procedures'' manual or by
contacting the MFH Unit in the Finance Office.
(g) Inquiry for other than Multiple Family Housing (MFH) loans.
Inquiry for these loan programs will be made through field terminals
using procedures in the ``Automated Discrepancy Processing System
(ADPS)'' manuals.
(h) Loan Summary Statements. Upon request of a borrower, FmHA or its
successor agency under Public Law 103-354 issues a loan summary
statement that shows the account activity for each loan made or insured
under the Consolidated Farm and Rural Development Act. The field office
will post on the bulletin board a notice informing the borrower of the
availability of the loan summary statement. See Exhibit A for a sample
of the required notice.
(1) The loan summary statement period is from January 1 through
December 31. The Finance Office forwards a copy of Form FmHA or its
successor agency under Public Law 103-354 1951-9, ``Annual Statement of
Loan Account,'' to field offices to be retained in borrower files as a
permanent record of borrower activity for the year.
(2) Quarterly Forms FmHA or its successor agency under Public Law
103-354 1951-9 are retained in the Finance Office on microfiche. These
quarterly statements reflect cumulative data from the beginning of the
current year through the end of the most recent quarter. If a borrower
requests a loan summary statement with data through the most recent
quarter, county supervisors may request copies of these quarterly or
annual statements by sending Form FmHA or its successor agency under
Public Law 103-354 1951-57, ``Request for Loan Summary Statement,'' to
the Finance Office.
(3) When a loan summary statement is requested by the borrower, the
field office will copy the applicable annual or quarterly Forms FmHA or
its successor agency under Public Law 103-354 1951-9. A copy(ies) of
Form FmHA or its successor agency under Public Law 103-354 1951-9; a
copy of Form FmHA or its successor agency under Public Law 103-354 1951-
58, ``Basis for Loan Account Payment Application for Farmer Program
Loans;'' and a copy of the
[[Page 16]]
promissory note showing borrower installments will constitute the loan
summary statement provided to the borrower.
[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 11457, Apr. 9, 1987; 53
FR 35716, Sept. 14, 1988; 54 FR 10269, Mar. 13, 1989]
Sec. 1951.8 Types of payments.
(a) Regular payments. Regular payments are all payments other than
extra payments and refunds. Usually, regular payments are derived from
farm income, as defined Sec. 1962.4 of subpart A of part 1962 of this
chapter. Regular payments also include payments derived from sources
such as Agricultural Stabilization and Conservation Service payments
(other than those referred to in paragraph (b) of this section), off-
farm income, inheritances, life insurance, mineral royalties and income
from mineral leases (see Sec. 1965.17 (c) of subpart A of part 1965 of
this chapter), including income from leases or bonuses. Regular payments
in the case of a Section 502 RH loan to an applicant involved in a
mutual self-help project will include loan funds advanced for the
payment of any part of the first and second installments. All payments
to the lock box facility(s) by direct payment borrowers are considered
regular payments.
(b) Extra payments. Extra payments are payments derived from:
(1) Sale of chattels other than chattels which will be sold to
produce farm income or real estate security, including rental or lease
of real estate security of a depreciating or depleting nature.
(2) Refinancing of the real estate debt.
(3) Cash proceeds of real property insurance as provided in subpart
A of part 1806 of this chapter (FmHA or its successor agency under
Public Law 103-354 Instruction 426.1).
(4) A sale of real estate not mortgaged to the Government, pursuant
to a condition of loan approval.
(5) Agricultural Conservation Program payments as provided in
subpart A of part 1941 of this chapter.
(6) Transactions of a similar nature which reduce the value of
security other than chattels which will be sold to produce farm income.
(c) Refunds. Refunds are payments derived from the return of unused
loan or grant funds, except that the term ``refunds'' as used in Form
1940-17, ``Promissory Note,'' will be construed to mean the return of
funds advanced for capital goods, when a loan is made for operating
purposes.
[50 FR 45764, Nov. 1. 1985, as amended at 51 FR 4137, Feb. 3, 1986; 53
FR 35717, Sept. 14, 1988; 58 FR 52646, Oct. 12, 1993]
Sec. 1951.9 Distribution of payments when a borrower owes more than one type
of FmHA or its successor agency under Public Law 103-354 loan.
``Distribution'' means dividing a payment into parts according to
the rules set out in this section. This section only applies after the
County Supervisor determines the amount of proceeds that will be
released for other purposes in accordance with the annual plan (Form
FmHA or its successor agency under Public Law 103-354 431-2, ``Farm and
Home Plan'') and Form FmHA or its successor agency under Public Law 103-
354 1962-1, ``Agreement for the Use of Proceeds/Release of Chattel
Security.''
(a) Distribution of regular payments. (1) When a borrower owes more
than one type of FmHA or its successor agency under Public Law 103-354
loan, regular payments received from each crop year's income will be
distributed in accordance with the following priorities:
(i) First, to an amount equal to any advances made by FmHA or its
successor agency under Public Law 103-354 for the crop year's living and
operating expenses. If no advances were made, distribute the payment
according to paragraph (a)(1)(ii) of this section. If the amount of the
payment was greater than the amount of any advances, the excess should
be distributed according to paragraph (a)(1)(ii) of this section.
(ii) Second, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the approximate amounts due on each for the
year. In determining the amounts due for the year, deduct an amount
equal to any advances for the year's living and operating expenses. If
the amount of the payment exceeds the amount of any advances plus the
amount due on each
[[Page 17]]
loan for the year, the excess should be distributed according to
paragraph (a)(1)(iii) of this section.
(iii) Third, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the delinquencies existing on each. If the
amount of the payment exceeds the amount of any advances plus the amount
due on each loan for the year plus any delinquencies, the excess should
be distributed according to paragraph (a)(1)(iv) of this section.
(iv) Fourth, as advance payments on FmHA or its successor agency
under Public Law 103-354 loans. In making such distribution consider the
principal balance outstanding on each loan, the security position of the
liens securing each loan, the borrower's request, and related
circumstances.
(2) When the County Supervisor determines it is reasonable to expect
that the income which will be available for payment on FmHA or its
successor agency under Public Law 103-354 debts will be sufficient to
pay the installments scheduled for the year under the first and second
priorities, collections may be distributed so as to avoid unnecessary
delinquencies, and regular payments derived from rental or lease of real
estate security after approval of foreclosure or voluntary conveyance
will be distributed to the real estate lien of the highest priority.
(3) Payments will be distributed differently than the priorities
provided in this section if accounts are out of balance or a different
distribution is needed to protect the government's interest.
(4) Any income received from the sale of softwood timber on marginal
land converted to the production of softwood timber must be applied on
the ST loan(s).
(b) Distribution of extra payments. Extra payments will be
distributed first to the FmHA or its successor agency under Public Law
103-354 loan having highest priority of lien on the security from which
the payment was derived. When the payment is in excess of the unpaid
balance of the FmHA or its successor agency under Public Law 103-354
lien having the highest priority, the balance of such payment will be
distributed to the FmHA or its successor agency under Public Law 103-354
loan having the next highest priority.
(c) Application of payments. After the decision is reached as to the
amount of each payment that is to be distributed to the different loan
types, application of the payment will be governed by Sec. Sec. 1951.10
or 1951.11 of this subpart as appropriate.
[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 26134, July 13, 1987; 53
FR 35717, Sept. 14, 1988]
Sec. 1951.10 Application of payments on production type loan accounts.
Employees receiving payments on OL, EO, SW codes ``24,'' EM for
subtitle B purposes, EE operating-type, and other production-type loan
accounts will select, in accordance with the provisions of this section,
the account(s) to which such payment will be applied. All payments on OL
and EM loans approved on or before December 31, 1971, will be credited
first to any administrative costs, then to noncapitalized interest, then
to the amount of accrued deferred interest, and then to principal. All
payments on all other loans including OL and EM loans approved after
December 31, 1971, will be credited first to any administrative costs,
then to noncapitalized interest, then to the amount of accrued deferred
interest, then to interest accrued to the date of the payment and then
to principal, in accordance with the terms of the note. This section
only applies after the County Supervisor determines the amount of
proceeds that will be released for other purposes in accordance with the
annual plan (Form FmHA or its successor agency under Public Law 103-354
431-2) and Form FmHA or its successor agency under Public Law 103-354
1962-1.
(a) Rules for selection of accounts. The following rules will govern
the selection of accounts and installments to which payments will be
applied. As used in this section, ``recoverable costs'' are those which
the loan agreement documents say the borrower is primarily responsible
for paying and which the government can charge to the borrower's
account.
[[Page 18]]
(1) Payments from farm income or from assignments of income will be
applied first to accounts with small balances, including recoverable
costs, to remove such accounts from the records. Any balance will be
applied on debts secured by the lien in the following order:
(i) To amounts due or falling due on loans made in connection with
the current year's operations, except:
(A) When funds loaned for the purchase of capital goods were used to
meet the current year's operating expenses, payments will be applied
first to the final unpaid installments to the extent of the loan funds
so used. These payments will be treated as extra payments.
(B) When installments on loans previously made fall due before the
installment on the loan for the current year's operations or when such
loans are delinquent and it is anticipated that sufficient income will
be received to meet the installment on the current year's operations
when due, collections may be applied first to installments on loans made
in previous years.
(ii) To accounts having the oldest delinquencies, or if no
delinquencies, to the oldest unpaid account, except that the amount
available for payment on OL and EM loan accounts will be prorated
between the two accounts on the basis of:
(A) The delinquent amount owed on each, or
(B) The total amount owed on each if there are no delinquencies.
(2) Non-farm income and payments derived from the sale of real
estate security, will be applied to the earliest account secured by the
earliest lien covering such security. The amount to be applied to
principal will be applied to the final unpaid installment(s).
(3) On partial refunds of loan advances, the amount to be applied to
the principal will be applied to the final unpaid installment on the
note which evidences such advance; however, a refund of an advance for
current farm and home expenses repayable within the year may be applied
to the principal on the first unpaid installment on such note as a
regular payment.
(4) Total refunds of loan advances will be applied to the notes
which evidence such advances.
(5) In applying payments from sources other than those in paragraphs
(a)(2), (3), and (4) of this section the borrower has the right to
select the loan account or accounts on which such payments will be
applied. In the absence of the borrower's selection, such payments
generally will be applied in the following order:
(i) To accounts with small balances, including recoverable costs.
(ii) To accounts with the oldest unsecured note(s).
(iii) To accounts with the oldest delinquencies.
(iv) To accounts with the oldest secured note or notes.
(6) Employees receiving collections are authorized to make
exceptions to paragraphs (a)(1), (2), and (6) of this section when it is
necessary to apply a part of a payment to delinquent accounts to prevent
the Federal Statute of Limitations from being asserted as a defense in
suits on FmHA or its successor agency under Public Law 103-354 claims.
(b) Payments in full. Errors of a significant amount in computation
or collection will be called to the attention of the collection official
by the Finance Office. The borrower's note will not be returned until
the balance on the loan account is paid in full. Claims by or on behalf
of the borrowers that the amounts owed have been computed incorrectly
will be referred to the Finance Office.
[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988;
54 FR 46844, Nov. 8, 1989; 57 FR 18680, Apr. 30, 1992]
Sec. 1951.11 Application of payments on real estate accounts.
(a) Regular payments. If a borrower owes more than one type of real
estate loan, or has received initial and subsequent real estate loans on
which separate accounts are maintained, payments on such accounts should
be applied so as to maintain the note accounts approximately in balance
at the end of the year with respect to installments due on the notes,
other charges, and delinquencies.
[[Page 19]]
(b) Refunds and extra payments. (1) Refunds will be applied to the
note representing the loan from which the advance was made.
(2) Extra payments will be applied to the note secured by the
earliest mortgage on the property from which the extra payment was
obtained.
(3) Funds remaining from an RH grant or a combination loan and
grant, after completion of development, will be refunded. If the
borrower received a combination loan and grant, the remaining funds up
to the amount of the grant are considered to be grant funds.
(c) County Office actions. (1) The collecting official will complete
Form FmHA or its successor agency under Public Law 103-354 451-1,
``Acknowledgment of Cash Payment,'' in accordance with the FMI when cash
or money orders are received as a payment.
(2) The collection official will complete Form FmHA or its successor
agency under Public Law 103-354 451-2, ``Schedule of Remittances,'' in
accordance with the FMI.
(d) Finance Office handling. (1) Regular payment will be handled as
follows.
(i) Payments will be applied first to satisfy any administrative
costs such as a charge for an uncollectible check. (The amounts of any
such charges are available from any FmHA or its successor agency under
Public Law 103-354 office.)
(ii) Amounts paid on direct loan accounts will be credited to the
borrower's account as of the date of Form FmHA or its successor agency
under Public Law 103-354 451-2 or for direct payments the date payment
is received in the Finance Office, and will be applied first to a
portion of any interest which accrues during the deferral period, second
to interest accrued to the date received and third to principal, in
accordance with the terms of the note.
(iii) Amounts paid on insured loan accounts will be credited to the
borrower's account as of the date of Form FmHA or its successor agency
under Public Law 103-354 451-2 or for direct payments the date payment
is received in the Finance Office, and will be applied in the following
order:
(A) Advances from the insurance funds as shown on the latest Form
FmHA or its successor agency under Public Law 103-354 389-404,
``Analysis of Accounts Maturing.'' (If the collection is intended for
final payment of the loan, or to pay the insurance account in connection
with an assumption agreement, the collection will be applied first to
the interest accrued on the advance to the date of the payment.)
(B) Principal advanced from the insurance fund.
(C) Unamortized costs.
(D) Amount due for amortized costs for taxes and insurance.
(E) Unpaid loan insurance charges, including the current year's
charge, when applicable.
(F) First to a portion of any interest which accrues during the
deferral period, second to accrued interest to the date of the payment
on the note account and then to the principal balance of the note
account in accordance with the terms of the note.
(2) Extra payments and refunds will be credited to the borrower's
note account as of the date of Form FmHA or its successor agency under
Public Law 103-354 451-2 and will be applied first to a portion of any
interest which accures during the deferral period, second to interest
accrued to the date of the receipt and third to principal in accordance
with the terms of the note. The amount to be applied to principal will
be applied to the final unpaid installment(s). Extra payments and
refunds will not affect the schedule status of a borrower except
indirectly in connection with the amortization of a direct loan.
(3) The Finance Office will remit final payments promptly to
lenders. Other collections (regular, extra, and refunds) applied to a
borrower's insured note will be accumulated until the annual installment
due date, and will be remitted along with any advances from the
insurance fund to the lender within 30 days after the installment due
date. All payments to a lender will be credited first to interest to the
date of the Treasury check and then to principal. Since the application
of a payment to a borrower's account with the Government and the
Government's account with a lender is of a different effective date, the
balance owed by a borrower
[[Page 20]]
to the government and by the Government to a lender ordinarily will not
be the same.
[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 46845, Nov. 8, 1989]
Sec. 1951.12 Changes in the application of loan payments.
(a) Authority to change payments. County Supervisors and Assistant
County Supervisors are hereby authorized to approve requests for changes
in the application of payments between loan accounts when payments have
been applied in error and such requests conform to the policies
expressed in this Subpart. However, no change will be made if the
payment applied in error resulted in the payment in full of any FmHA or
its successor agency under Public Law 103-354 loan and the canceled note
or notes have been returned to the borrower.
(b) Form FmHA or its successor agency under Public Law 103-354 1951-
7, ``Request for Change in Application.'' Requests for changes in
application of payments will be made on Form FmHA or its successor
agency under Public Law 103-354 1951-7. For requests which County
Supervisors or Assistant County Supervisors are authorized to approve,
the County Supervisor or Assistant County Supervisor will sign the
original of Form FmHA or its successor agency under Public Law 103-354
1951-7 and forward it to the Finance Office. The Finance Office will
send Form FmHA or its successor agency under Public Law 103-354 451-26
to the County Office when the change is made on Finance Office records.
(c) Changes by the Finance Office in application of remittances. (1)
When reapplication of collection is made by the Finance Office Form FmHA
or its successor agency under Public Law 103-354 451-8, ``Journal
Voucher for Loan Account Adjustments,'' will be prepared. Form FmHA or
its successor agency under Public Law 103-354 451-26 will be forwarded
to the County Office to show the reapplication.
(2) When necessary, the Finance Office will correct Form FmHA or its
successor agency under Public Law 103-354 451-2 as prepared by the
County Office.
[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 18883, May 3, 1989]
Sec. 1951.13 Overpayments and refunds.
(a) The Finance Office will mail any overpayment refund check to the
County Supervisor, who will verify that the refund is due before
delivering the check.
(b) Borrower requests for overpayment refunds must be in writing.
Borrowers will be discouraged from requesting refunds when the County
Office records show that a refund is not due, however, the County
Supervisor will forward any request to the Finance Office. Finance
Office computations will control in determining the amount of any
refund.
(c) Underpayments or overpayments of less than $10 will not be
collected or refunded (except as provided in paragraph (b) of this
section) since the expense of processing the action would be more than
the amount involved.
Sec. 1951.14 Recoverable and nonrecoverable cost charges.
(a) The County Supervisor will:
(1) Prepare vouchers for recoverable and nonrecoverable cost charges
according to the applicable instruction for the type of advance being
made. (``Recoverable costs'' is defined in Sec. 1951.10(a) of this
subpart).
(2) If a recoverable cost, show on the voucher the fund code to
which the advance is to be charged.
(3) If the cost item relates to security for more than one type of
account, show the code for the loan secured by the earliest promissory
note (if lien secures more than one note).
(b) The Finance Office will forward Form FmHA or its successor
agency under Public Law 103-354 451-26, to the County Office when the
recoverable cost charge is processed.
Sec. 1951.15 Return of paid-in-full or satisfied notes to borrower.
(a) Notes not held in County Office. When the original of the note
is not held in the County Office the County Supervisor will request the
Finance Office to acquire and forward the note to the County Office.
[[Page 21]]
(b) Return of notes after collection. When a note (or loan-type
account) evidencing an OL, EM, EE, EO, special livestock (SL), SW loan
coded ``24'', or other production-type loan has been satisfied by
payment in full, the County Supervisor will examine the borrower's
records in the County Office and determine that the account has been
satisfied before delivering the note to the borrower (See Sec. 1962.27
of subpart A of part 1962 on the satisfaction of chattel security
instruments). The note(s) will be returned to the borrower immediately
except that:
(1) When the final payment is made in a form other than currency and
coin, Treasury check, cashier's check, certified check, Postal or bank
money order, bank draft, or a check issued by a responsible lending
institution or a responsible title insurance or title and trust company,
the note or notes will not be surrendered until 30 days after the date
of final payment, and
(2) When notes are needed in making marginal releases or
satisfactions or security instruments, the notes will be held until the
instruments are satisfied.
(c) Surrender of notes to effect collection. (1) County Supervisors
are authorized to surrender notes to borrowers when final payment of the
amount due is made in the form of currency and coin, Treasury check,
cashier's check, certified check, Postal or bank money order, bank
draft, or a check issued by a responsible lending institution or a
responsible title insurance or title trust company.
(2) The amount due on the note(s) to be surrendered will be
confirmed with the Finance Office. County Supervisors will request the
original note(s) from the Finance Office if it is not in the County
Office.
(d) Return of notes reduced to judgment. Notes which have been
reduced to judgment are a part of the court records and ordinarily
cannot be withdrawn and returned to the borrower even after satisfaction
of the judgment. Therefore, no effort will be made to obtain and return
such notes except on the written request of the judgment debtor or
debtor's attorney. Such requests will be referred to the Office of the
General Counsel (OGC).
(e) Debt settlement case. See subparts B or C of part 1956 of this
chapter for the handling of notes in debt settlement cases.
(f) Lost notes. (1) All promissory notes dated on or after 11-1-73
are held in the County Office. A few notes (with the exception of OL
notes) are still held by investors. If a note dated prior to 11-1-73
cannot be located in the County Office and it is needed for servicing
the case, the County Supervisor will write a memorandum to the Finance
Office explaining why the note is needed. The request should give the
name and case number of the borrower, date and original amount of the
loan, type of loan and loan code.
(2) If a promissory note is lost in the County Office and it is
needed for servicing a case, the State Director may authorize the County
Supervisor to execute an appropriate affidavit regarding the lost note.
The form of such an affidavit will be provided by OGC.
[50 FR 45764, Nov. 1, 1985, as amended at 51 FR 45432, Dec. 18, 1986; 53
FR 13100, Apr. 21, 1988; 56 FR 10147, Mar. 11, 1991]
Sec. 1951.16 Other servicing actions on real estate type loan accounts.
(a) Installment on note and other charges--(1) Direct loan accounts.
For a borrower with a direct loan, the term ``installation on note and
other charges,'' as used in this Subpart, will be the sum of the
following:
(i) Annual installment for the year as provided in the promissory
note(s).
(ii) Any recoverable cost charges paid for the borrower during the
year. (``Recoverable costs'' is defined in Sec. 1951.10(a) of this
Subpart.)
(2) Insured loan accounts. ``Loan insurance charge'' means a
separate insurance charge applying to FO and SW insured loans evidenced
by promissory note forms bearing a form date before January 8, 1959. For
all insured loans evidenced by note forms bearing a form date of January
8, 1959, or later, the insurance charge is called ``annual charge'' and
is included in the interest position of the annual installment in the
note. For a borrower with an insured loan, the term ``Installment on
note and other charge'' means the sum of the following:
[[Page 22]]
(i) Annual installment for the year as provided in the promissory
note.
(ii) Amounts owed the Agricultural Credit Insurance Fund. These
amounts are covered by the general term ``Insurance Account'' and
consist of the following:
(A) Unpaid loan insurance charges from prior years.
(B) Loan insurance charge for the current year. The loan insurance
charge is computed on the basis of the amount of the unpaid principal
obligation as of the installment due date and is due and payable on or
before the next installment due date.
(C) Any unpaid balance on advances from the insurance fund,
including any recoverable cost charges paid for the borrower during the
year.
(D) Any accrued interest on advances from the insurance fund.
(iii) The amounts owned on the insurance account must be paid by
regular payments each year whether or not the note account is ahead of
schedule.
(b) Schedule status. For direct and insured loans, a borrower will
be on schedule when the sum of regular payments through the last
preceding due date of the note equals the sum of installments on the
note and other charges due through the same date. Such a borrower will
be ahead of schedule or behind schedule when the sum of such regular
payments is larger or smaller, respectively, than the sum of such
installments on the note and other charges.
(c) Real estate payments. A borrower may make regular payments ahead
of schedule at any time and use them later to forego payments or to
supplement the amount available during any year for payment on the
annual installment on the note and other charges. Refunds and extra
payments will not be used in this way.
Sec. Sec. 1951.17-1951.24 [Reserved]
Sec. 1951.25 Review of limited resource FO, OL, and SW loans.
(a) Frequency of reviews. OL, FO, and SW loans will be reviewed each
year at the time the analysis is conducted in accordance with subpart B
of part 1924 of this chapter and any time a servicing action such as
consolidation, rescheduling, reamortization or deferral is taken. The
interest rate may not be changed more often than quarterly.
(b) Method of review. (1) Each loan will be considered on its own
merit.
(2) The County Supervisor should consider:
(i) The borrower's income and repayment record during the preceding
years;
(ii) The projections shown on the most recent Farm and Home Plan or
other similar plan or operation acceptable to FmHA or its successor
agency under Public Law 103-354, in light of the previous year's
projected figures and actual figures; (See subpart B of part 1924 of
this chapter)
(iii) Whether improved production practices have been or need to be
implemented;
(iv) The borrower's progress as a farmer; and
(v) All other factors which the County Supervisor believes should be
considered.
(3) The Farm and Home Plan projections for the coming year must show
that the ``balance available to pay debts'' exceeds the amount needed to
pay debts by at least 10 percent before an increase in interest rate is
put into effect. Borrowers that continually purchase unplanned items
without the County Supervisor's approval will have the interest rate on
their loans increased to the current rate for that loan type. Borrowers
that fail to provide the County Supervisor with the information needed
to conduct the analysis required in subpart B of part 1924 of this
chapter will have their interest rate on their loan increased to the
current rate for the OL, FO, or SW loan as applicable. The rate may
increase in increments of whole numbers to the current regular interest
rate for borrowers. In the borrower's case file, the County Supervisor
must document the unplanned purchases and the failure to provide
information in a timely manner. The County Supervisor must write the
borrower a letter which sets out the facts documented in the case file
and advises the borrower that the interest rate will be increased unless
the unplanned purchases cease or unless the borrower provides
information
[[Page 23]]
in a timely manner. Whenever it appears that the borrower has a
substantial increase in income and repayment ability or ceases farming,
either the interest rate may be increased to the current rate for FO, OL
or SW loans, as applicable, or the borrower will be graduated from the
program as provided in subpart F of this part.
(4) The County Office will be responsible for scheduling and
completing the reviews.
(5) Borrowers who have received a deferral under Subpart S of this
part will not have the interest rate increased on their limited resource
loans during the deferral period.
(c) Processing. (1) If, after the review, the interest rate is to
remain the same, no further action needs to be taken.
(2) When the interest rate is increased to the current rate, the
loan will be recorded as a regular loan and will no longer be considered
a limited resource loan. The borrower must be notified in writing at
least 30 days prior to the date of the change. Exhibit B of this subpart
may be used as a guide. The effective date of the change in interest
rate will be the effective date on Exhibit B. The borrower must be
informed of the following for each loan:
(i) The authorization for the change,
(ii) Reason for change (repayment ability, etc.),
(iii) The effective date and rate of the increase in interest,
(iv) Amount of the new installments and dates due,
(v) Right to appeal.
(3) It is not necessary to obtain a new promissory note for this
change in interest rate.
[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988;
56 FR 3395, Jan. 30, 1991; 58 FR 15074, Mar. 19, 1993]
Sec. Sec. 1951.26-1951.49 [Reserved]
Sec. 1951.50 OMB control number.
The collection of information requirements in Subpart A of part 1951
have been approved by the Office of Management and Budget and assigned
OMB control number 0575-0075.
[52 FR 26137, July 13, 1987]
Exhibit A to Subpart A of Part 1951--Notice to FmHA or its successor
agency under Public Law 103-354 Borrowers
FmHA or its successor agency under Public Law 103-354 borrowers with
farmer program and community program loan types made under the
Consolidated Farm and Rural Development Act may request a loan summary
statement which shows the calendar year account activity for each loan.
Interested borrowers may request these statements through their local
FmHA or its successor agency under Public Law 103-354 office.
[54 FR 10270, Mar. 13, 1989]
Exhibit B to Subpart A of Part 1951--Notice of Change in Interest Rate
(insert date)
Notice of Change in Interest Rate
[fxsp0]_________________________________________________________________
(insert borrower's address)
Re: [squ] [squ]
Fund code
[squ] [squ]
Loan number
[squ] [squ]
Kind code
Dear (insert borrower's name and case number): Your promissory note
dated ------, for the original amount of ------ dollars ($------)
provides for a change in interest rate for a limited resource loan in
accordance with the Farmers Home Administration or its successor agency
under Public Law 103-354 regulations.
Effective (insert date) the interest rate on this loan will be ----
percent ( %) on the unpaid principal balance. Your installment due
January 1, 19 , will be ------ dollars ($------). This change in
interest rate is for the reason indicated below.
[squ] Increase in repayment ability as per Farm and Home Plan dated
------.
[squ] (insert reason if other than above for increase in interest
rate).
You may appeal this action by writing to (hearing officer),
(address), within 30 calendar days of the date of this letter, giving
the reason why you believe this matter should be decided differently.
This time may be extended if you cannot notify the hearing officer
within 30 days for reasons beyond your control.
[56 FR 3396, Jan. 30, 1991]
Subpart B [Reserved]
[[Page 24]]
Subpart C_Offsets of Federal Payments to USDA Agency Borrowers
Sec. 1951.101 General.
Federal debt collection statutes provide for the use of
administrative, salary, and Internal Revenue Service (IRS) offsets by
government agencies, including the Farm Service Agency (FSA), Rural
Housing Service (RHS) for its community facility program, and Rural
Business-Cooperative Service (RBS), herein referred to collectively as
``United States Department of Agriculture (USDA) Agency,'' to collect
delinquent debts. Any money that is or may become payable from the
United States to an individual or entity indebted to a USDA Agency may
be subject to offset for the collection of a debt owed to a USDA Agency.
In addition, money may be collected from the debtor's retirement
payments for delinquent amounts owed to the USDA Agency if the debtor is
an employee or retiree of a Federal agency, the U.S. Postal Service, the
Postal Rate Commission, or a member of the U.S. Armed Forces or the
Reserve. Amounts collected will be processed as regular payments and
credited to the borrower's account. USDA Agencies will process requests
by other Federal agencies for offset in accordance with Sec. 1951.102
of this subpart. This subpart does not apply to direct single family
housing loans, direct multi-family housing loans, and the Rural
Utilities Service. Section 1951.136 of this subpart only applies to RHS
for its community facility program and RBS for the offset of Federal
payments. Nothing in this subpart affects the common law right of set
off available to USDA Agencies.
[67 FR 69671, Nov. 19, 2002]
Sec. 1951.102 Administrative offset.
(a) General. Collections of delinquent debts through administrative
offset will be taken in accordance with 7 CFR part 3, subpart B and
Sec. 1951.106.
(b) Definitions. In this subpart:
(1) Agency means Farm Service Agency, Farm Loan Programs; Rural
Housing Service, except direct Single Family Housing loans and direct
Multi-Family Housing loans; and Rural Business-Cooperative Service, or
any successor agency.
(2) Contracting officer is any person who, by appointment in
accordance with applicable regulations, has the authority to enter into
and administer contracts and make determinations and findings with
respect thereto. The term also includes the authorized representative of
the contracting officer, acting within the limits of the
representative's authority.
(3) County Committee means the local committee elected by farmers in
the county, as authorized by the Soil Conservation and Domestic
Allotment Act and the Department of Agriculture Reorganization Act of
1994, to administer FSA programs approved for the county as appropriate.
(4) Creditor agency means a Federal agency to whom a debtor owes a
monetary debt. It need not be the same agency that effects the offset.
(5) Debt management officer means an agency employee responsible for
collection by administrative offset of debts owed the United States.
(6) Delinquent or past-due means a payment that was not made by the
due date.
(7) Entity means a corporation, joint stock company, association,
general partnership, limited partnership, limited liability company,
irrevocable trust, revocable trust, estate, charitable organization, or
other similar organization participating in the farming operation.
(8) FP means Farm Programs.
(9) FLP means Farm Loan Programs.
(10) FSA means Farm Service Agency.
(11) National Appeals Division means the organization within the
Department of Agriculture that conducts appeals of adverse decisions for
program participants under the purview of 7 CFR part 11.
(12) Offsetting agency means an agency that withholds from its
payment to a debtor an amount owed by the debtor to a creditor agency,
and transfers the funds to the creditor agency for application to the
debt.
(13) Propriety means the offset is feasible. It includes offsetting
a debtor's payments due any entity in which the debtor participates
either directly or
[[Page 25]]
indirectly equal to the debtor's interest in the entity. To be feasible
the debt must exist and be 90 days past due or the borrower must be in
default of other obligations to the Agency, which can be cured by the
payment.
(14) Reviewing officer means an agency employee responsible for
conducting a hearing or documentary review on the existence of debt and
the propriety of administrative offset in accordance with 7 CFR 3.29.
FSA District Directors or other State Executive Director designees are
designated to conduct the hearings or reviews.
[65 FR 50602, Aug. 21, 2000, as amended at 67 FR 69671, Nov. 19, 2002;
69 FR 5267, Feb. 4, 2004]
Sec. Sec. 1951.103-1951.105 [Reserved]
Sec. 1951.106 Offset of payments to entities related to debtors.
(a) General. Collections of delinquent debts through administrative
offset will be in accordance with 7 CFR part 3, subpart B, and
paragraphs (b) and (c) of this section.
(b) Offsetting entities. Collections of delinquent debts through
administrative offset may be taken against a debtor's pro rata share of
payments due any entity in which the debtor participates when:
(1) It is determined that FSA has a legally enforceable right under
state law or Federal law, including program regulations at 7 CFR
792.7(l) and 1403.7(q), to pursue the entity payment;
(2) A debtor has created a shell corporation before receiving a
loan, or after receiving a loan, established an entity, or has
reorganized, transferred ownership of, or otherwise changed in some
manner the debtor's operation or the operation of a related entity for
the purpose of avoiding payment of the FSA, FLP debt or otherwise
circumventing Agency regulations;
(3) Assets used in the entity's operation include assets pledged as
security to the Agency which have been transferred to the entity without
payment to the Agency of the value of the security or Agency consent to
transfer of the assets;
(4) A corporation to which a payment is due is the alter ego of a
debtor; or
(5) A debtor participates in, either directly or indirectly, the
entity as determined by FSA.
(c) Other remedies. Nothing in this section shall be deemed to limit
remedies otherwise available to the Agency under other applicable law.
[65 FR 50603, Aug. 21, 2000]
Sec. Sec. 1951.107-1951.110 [Reserved]
Sec. 1951.111 Salary offset.
Salary offset may be used to collect debts arising from delinquent
USDA Agency loans and other debts which arise through such activities as
theft, embezzlement, fraud, salary overpayments, under withholding of
amounts payable for life and health insurance, and any amount owed by
former employees from loss of federal funds through negligence and other
matters. Salary offset may also be used by other Federal agencies to
collect delinquent debts owed to them by employees of the USDA Agency,
excluding county committee members. Administrative offset, rather than
salary offset, will be used to collect money from Federal employee
retirement benefits. For delinquent Farm Loan Programs direct loans,
salary offset will not begin until the borrower has been notified of
servicing options in accordance with 7 CFR 1951.907. In addition, for
Farm Loan Programs direct loans, salary offset will not be instituted if
the Federal salary has been considered on the Farm and Home Plan, and it
was determined the funds were to be used for another purpose other than
payment on the USDA Agency loan. For Farm Loan Programs guaranteed
debtors, salary offset can not begin until a final loss claim has been
paid. When salary offset is used, payment for the debt will be deducted
from the employee's pay and sent directly to the creditor agency. Not
more than 15 percent of the employee's disposable pay can be offset per
pay period, unless the employee agrees to a larger amount. The debt does
not have to be reduced to judgment or be undisputed, and the payment
does not have to be covered by a security instrument. This section
describes the procedures which must be followed before the USDA Agency
can
[[Page 26]]
ask a Federal agency to offset any amount against an employee's salary.
(a) Authorities. The following authorities are granted to USDA
Agency employees in order that they may initiate and implement salary
offset:
(1) Certifying Officials are authorized to certify to the debtor's
employing agency that the debt exists, the amount of the delinquency or
debt, that the procedures in USDA Agency and United States Department of
Agriculture's (USDA's) regulations regarding salary offsets have been
followed, that the actions required by the Debt Collection Act have been
taken; and to request that salary offset be initiated by the debtor's
employing agency. This authority may not be redelegated.
(2) Certifying Officials are authorized to advise the Finance Office
to establish employee defalcation accounts and non-cash credits to
borrower accounts in cases involving other debts, such as those arising
from theft, fraud, embezzlement, loss of funds through negligence, and
similar actions involving USDA Agency employees.
(3) The Finance Office is authorized to establish defalcation
accounts and non-cash credits to borrower accounts upon receipt of
requests from the Certifying Officials.
(b) Definitions--(1) Certifying Officials--State Directors; State
Executive Directors; the Assistant Administrator; Finance Office;
Financial Management Director; Financial Management Division, and the
Deputy Administrator for Management, National Office.
(2) Debt or debts. A term that refers to one or both of the
following:
(i) Delinquent debts. A past due amount owed to the United States
from sources which include, but are not limited to, insured or
guaranteed loans, fees, leases, rents, royalties, services, sales of
real or personal property, overpayments, penalties, damages, interest,
fines and forfeitures (except those arising under the Uniform Code of
Military Justice).
(ii) Other debts. An amount owed to the United States by an employee
for pecuniary losses where the employee has been determined to be liable
due to the employee's negligent, willful, unauthorized or illegal acts,
including but not limited to:
(A) Theft, misuse, or loss of Government funds;
(B) False claims for services and travel;
(C) Illegal, unauthorized obligations and expenditures of Government
appropriations;
(D) Using or authorizing the use of Government owned or leased
equipment, facilities supplies, and services for other than official or
approved purposes;
(E) Lost, stolen, damaged, or destroyed Government property;
(F) Erroneous entries on accounting record or reports; and,
(G) Deliberate failure to provide physical security and control
procedures for accountable officers, if such failure is determined to be
the proximate cause for a loss of Government funds.
(3) Defalcation account. An account established in the Finance
Office for other debts owed the Federal government in the amount missing
due to the action of an employee or former employee.
(4) Disposable pay. Pay due an employee that remains after required
deductions for Federal, State and local income taxes; Social Security
taxes, including Medicare taxes; Federal retirement programs; premiums
for life and health insurance benefits, and such other deductions
required by law to be withheld.
(5) Hearing Officer. An Administrative Law Judge of the USDA or
another individual not under the supervision or control of the USDA,
designated by the Certifying Official to review the determination of the
alleged debt.
(6) Non-cash credit. The accounting action taken by the Finance
Office to credit and make a borrower's account whole for funds paid by
the borrower but missing due to an employee's or former employee's
actions.
(7) Salary Offset. The collection of a debt due to the U.S. by
deducting a portion of the disposable pay of a Federal employee without
the employee's consent.
(c) Feasibility of salary offset. The first step the Certifying
Official must take
[[Page 27]]
to use this offset procedure is to decide, on a case by case basis,
whether offset is feasible. If an offset is feasible, the directions in
the following paragraphs of this section will be used to collect by
salary offset. If the official making this determination decides that
salary offset is not feasible, the reasons supporting this decision will
be documented in the borrower's running case record in the case of
delinquent debts, or the ``For Official Use Only'' file in cases of
other debts. Ordinarily, and where possible, debts should be collected
in one lump-sum; but payments may be made in installments. Installment
deductions can be made over a period not greater than the anticipated
period of employment. However, the amount deducted for a pay period will
not exceed 15 percent of the disposable pay from which the deduction is
made. If possible, the installment payment will be sufficient in size
and frequency to liquidate the debt in approximately 3 years. Based on
the Comptroller General's decisions, other debts by employees cannot be
forgiven. If the employee retires or resigns, or if employment ends
before collection of the debt is completed, final salary payment, lump-
sum leave, etc. may be offset to the extent necessary to liquidate the
debt. Salary offset is feasible if:
(1) The cost to the Government of collecting salary offset does not
exceed the amount of the debt. County Committee members are exempt from
salary offset because the amount collected by salary offset would be so
small as to be impractical.
(2) There are not any legal restrictions to the debt, such as the
debtor being under the jurisdiction of a bankruptcy court, or the
statute of limitations having expired. The Debt Collection Act of 1982
permits offset of claims that have not been outstanding for more than 10
years.
(d) Notice to debtor. (1) After the Certifying Official determines
that collection by salary offset is feasible, the debtor should be
notified within 15 calendar days after the salary offset determination.
This notice will notify the debtor of intended salary offset at least 30
days before the salary offset begins. For Farm Loan Programs direct
loans, this notice will be sent after the borrower is over 90 days past
due and immediately after sending notification of servicing rights in
accordance with 7 CFR 1951.907 of this subpart. For Farm Loan Programs
guaranteed debtors, this notice will be sent after a final loss claim
has been paid. The salary offset determination notice will be delivered
to the debtor by regular mail.
(2) The Debt Collection Act of 1982 requires that the hearing
officer issue a written decision not later than 60 days after the filing
of the petition requesting the hearing; thus, the evidence upon which
the decision to notify the debtor is based, to the extent possible,
should be sufficient for FmHA or its successor agency under Public Law
103-354 to proceed at a hearing, should the debtor request a hearing
under paragraph (f) of this section.
(e) Notice requirement before salary offset. Salary offset will not
be made unless the employee receives 30 calendar days written notice.
This Notice of Intent (FmHA or its successor agency under Public Law
103-354 Guide Letter 1951-C-4) will be addressed to the debtor or the
debtor's representative. The Notice of Intent must be modified if it is
addressed to the debtor's representative. In either case, the Notice of
Intent will state:
(1) It has been determined that the debt is owed, the amount of the
debt, and the facts giving rise to the debt;
(2) The cost to the Government of collecting salary offset does not
exceed the amount of the debt;
(3) There are not any legal restrictions that would bar collecting
the debt;
(4) The debt will be collected by means of deduction of not more
than 15 percent from the employee's current disposable pay until the
debt and all accumulated interest are paid in full;
(5) The amount, frequency, approximate beginning date, and duration
of the intended deductions;
(6) An explanation of the requirements concerning interest,
penalties and administrative costs, unless such payments are waived;
(7) The employee's right to inspect and request a copy of records
relating to the debt;
(8) The employee's right to voluntarily enter into a written
agreement
[[Page 28]]
for a repayment schedule with the agency different from that proposed by
FmHA or its successor agency under Public Law 103-354, if the terms of
the repayment proposed by the employee are agreeable with the agency;
(9) That the employee has a right to a hearing conducted by an
Administrative Law Judge of USDA or a hearing official not under the
supervision or control of the Secretary of Agriculture, concerning the
agency's determination of the existence or amount of the debt and the
percentage of disposable pay to be deducted each pay period, if a
petition for a hearing is filed by the employee as prescribed by FmHA or
its successor agency under Public Law 103-354;
(10) The timely filing of a petition for hearing will stay the
collection proceedings;
(11) That a final decision will be issued at the earliest practical
date, but not later than 60 calendar days after the filing of petition
requesting the hearing;
(12) That any knowingly false or frivolous statements may subject
the employee to disciplinary procedures, or penalties, under the
applicable statutory authority;
(13) Any other rights and remedies available to the employee under
statutes or regulations governing the program for which the collection
is being made;
(14) That amounts paid on or deducted for the debt which are later
waived or found not owed to the United States will be promptly refunded
to the employee unless there are provisions to the contrary;
(15) The method and time period for requesting a hearing; and
(16) The name and address of an official of USDA to whom
communications should be directed.
(f) Debtor's request for records, offer to repay, request for a
hearing or request for information concerning debt settlement--(1) If a
debtor responds to FmHA or its successor agency under Public Law 103-354
Guide Letter 1951-C-4 by asking to review and copy FmHA or its successor
agency under Public Law 103-354's records relating to the debt, the
Certifying Official will promptly respond by sending a letter which
tells the debtor the location of the debtor's FmHA or its successor
agency under Public Law 103-354 files and that the files may be reviewed
and copied within the next 30 days. Copying costs (see subpart F of part
2018 of this Chapter) will be set out in the letter, as well as the
hours the files will be available each day. If a debtor asks to have
FmHA or its successor agency under Public Law 103-354 copy the records,
a copy will be made within 30 days of the request.
(2) If a debtor responds to FmHA or its successor agency under
Public Law 103-354 Guide Letter 1951-C-4 by offering to repay the debt,
the offer may be accepted by the Certifying Official, if it would be in
the best interest of the government. FmHA or its successor agency under
Public Law 103-354 Form Letter 1951-8 will be used if a repayment offer
for an FmHA or its successor agency under Public Law 103-354 loan or
grant is accepted. Upon receipt of an offer to repay, the Certifying
Official will delay institution of a hearing until a decision is made on
the repayment offer. Within 60 days after the initial offer to repay was
made, the Certifying Official must decide whether to accept or reject
the offer. This decision will be documented in the running case record
or the ``For Official Use Only'' file, as appropriate, and the debtor
will be sent a letter which sets out the decision to accept or reject
the offer to repay. The decision to accept or reject a repayment offer
should be based upon a realistic budget or farm and home plan and
according to the servicing regulations for the type of loan(s) involved.
(3) If a debtor responds to FmHA or its successor agency under
Public Law 103-354 Guide Letter 1951-C-4 by asking for a hearing on FmHA
or its successor agency under Public Law 103-354's determination that a
debt exists and/or is due, or on the percentage of net pay to be
deducted each pay period, the Certifying Official will notify the debtor
in accordance with paragraph (g)(3) of this section and request the
debtor's case file or the ``For Official Use Only'' file.
(4) If a debtor is willing to have more than 15 percent of the
disposable pay sent to FmHA or its successor agency
[[Page 29]]
under Public Law 103-354, a letter prepared and signed by the debtor
clearly stating this must be placed in the debtor's case file or the
``For Official Use Only'' file.
(5) If a debtor who is an FmHA or its successor agency under Public
Law 103-354 borrower requests debt settlement, the account must be in
collection-only status or be an inactive account for which there is no
security. The Certifying Official must inform the borrower of how to
apply for debt settlement. Any application will be considered
independently of the salary offset. A salary offset should not be
delayed because the borrower applied for debt settlement.
(6) The time limits set in FmHA or its successor agency under Public
Law 103-354 Guide Letter 1951-C-4 and in paragraphs (f) (1), (2), and
(3) of this section run concurrently. In other words, if a debtor asks
to review the FmHA or its successor agency under Public Law 103-354 file
and offers to repay the debt, the debtor cannot take 30 days to ask to
review the file and then take another 30 days to offer to repay. The
request to review the file and the offer to repay must both be made
within 30 days of the date the debtor receives the notification letter.
(7) If an employee is included in a bargaining unit which has a
negotiated grievance procedure that does not specifically exclude salary
offset proceedings, the employee must grieve the matter in accordance
with the negotiated procedure. Employees who are not covered by a
negotiated procedure must utilize the salary offset proceedings as
outlined in FmHA or its successor agency under Public Law 103-354 Guide
Letter 1951-C-4. The employee must be informed, in writing, which
procedure to follow and, as appropriate, reference should be made to the
appropriate sections of the negotiated agreement.
(g) Hearings. (1) A hearing officer must be a USDA Administrative
Law Judge or a person who is not a USDA employee. In order to ensure
that a hearing officer will be available promptly when needed,
Certifying Officials need to make appropriate arrangements with
officials of nearby federal agencies for the use of each other's
employees as hearing officers.
(2) Not later than 30 days from the date the debtor receives the
Notice of Intent (FmHA or its successor agency under Public Law 103-354
Guide Letter 1951-C-4), the employee must file with the Certifying
Official issuing the notice, a written petition establishing his/her
desire for a hearing on the existence and amount of the debt or the
proposed offset schedule. The employee's petition must fully identify
and explain all the information and evidence that supports his/her
position. In addition, the petition must bear the employee's original
signature and be dated upon receipt by the Certifying Official.
(3) Certifying Officials are responsible for determining if the
employee's petition for a hearing has been submitted in a timely
fashion. Petitions received from employees after the 30-day time
limitation expires will be accepted only if the employee can show the
delay was because of circumstances beyond his/her control or because of
failure to receive notice of the time limitation. Certifying Officials
are required to provide written notification to the employee of the
acceptance or non-acceptance of the employee's petition for hearing.
(4) For those petitions accepted, FmHA or its successor agency under
Public Law 103-354 will arrange for a hearing officer and notify the
employee of the time and place of the hearing. The hearing location
should be convenient to all parties involved. The employee will also be
notified that the acceptance of the petition for hearing will stay the
commencement of collection proceedings. Any payments collected in error
due to untimely or delayed filing beyond the employee's control will be
refunded unless there are applicable contractual or statutory provisions
to the contrary.
(5) The hearing will be based on written submissions and
documentation provided by the debtor and FmHA or its successor agency
under Public Law 103-354 unless:
(i) A statute authorizes or requires consideration of waiving the
debt, the debtor requests waiver of the debt, and
[[Page 30]]
the waiver determination turns on an issue of credibility or truth.
(ii) The debtor requests reconsideration of the debt and the hearing
officer determines that the question of the indebtedness cannot be
resolved by a review of the documentary evidence; for example, when the
validity of the debt turns on an issue of credibility or truth.
(iii) The hearing officer determines that an oral hearing is
appropriate.
(6) Oral hearings may be conducted by conference call at the request
of the debtor or at the discretion of the hearing officer. The hearing
officer's determination that the offset hearing is on the written record
is final and is not subject to review.
(7) The hearing officer will issue a written decision not later than
60 days after the filing of the petition requesting the hearing, unless
the employee requests and the Certifying Official grants a delay in the
proceedings. The written decision will state the facts supporting the
nature and origin of the debt, the hearing officer's analysis, findings
and conclusions as to the amount and validity of the debt, and repayment
schedule. Both the employee and FmHA or its successor agency under
Public Law 103-354 will be provided with a copy of the hearing officer's
written decision on the debt.
(h) Processing delinquent debts. (1) Form AD-343, ``Payroll Action
Request,'' and FmHA or its successor agency under Public Law 103-354
Form Letter 1951-6 will be prepared and submitted by the Certifying
Official to the National Office, FMAS, for coordination and forwarding
to the debtor's employing agency if:
(i) The borrower does not respond to FmHA or its successor agency
under Public Law 103-354 Guide Letter 1951-C-4 within 30 days.
(ii) The borrower responds to FmHA or its successor agency under
Public Law 103-354 Guide Letter 1951-C-4 within 30 days and
(A) Has had an opportunity to review the file, if requested,
(B) Has received a hearing, if requested, and
(C) A decision has been made by the hearing officer to uphold the
offset.
(2) A copy of Form AD-343 and the Form letter 1951-6 will be sent to
the Finance Office, St. Louis, MO 63103, Attn: Account Settlement Unit.
(3) If the debtor is an FmHA or its successor agency under Public
Law 103-354 employee, Form AD-343 will be sent to the National Office,
FMAS, and a copy to the Finance Office, St. Louis, MO, Attn: Account
Settlement Unit. This form can be signed for the Certifying Official by
an employment officer, an Administrative Officer, or a personnel
management specialist, or signed by the Certifying Official.
(4) If the debtor has agreed to have more or less than 15 percent of
the disposable pay sent to FmHA or its successor agency under Public Law
103-354, a copy of the debtor's letter (FmHA or its successor agency
under Public Law 103-354 Form Letter 1951-8) authorizing this must be
attached to Form AD-343.
(5) Field offices will be notified of payments received from salary
offset by receipt of a transaction record from the Finance Office.
(i) Deduction percentage. (1) Generally, installment deductions will
be made over a period not greater than the anticipated period of
employment. If possible, the installment payment will be sufficient in
size and frequency to liquidate the debt in approximately 3 years. The
size and frequency of installment deductions will bear a reasonable
relation to the size of the debt and the employee's ability to pay.
Certifying Officials are responsible for determining the size and
frequency of the deductions. However, the amount deducted for any period
will not exceed 15 percent of the disposable pay from which the
deduction is made, unless the employee has agreed in writing to the
deduction of a greater amount. Installment payments of less than $25 per
pay period or $50 a month will be accepted only in the most unusual
circumstances.
(2) Deductions will be made only from basic pay, incentive pay,
retainer pay, or, in the case of an employee not entitled to basic pay,
other authorized pay. If there is more than one salary offset, the
maximum deduction for all salary offsets against an employee's
disposable pay is 15 percent unless the
[[Page 31]]
employee has agreed in writing to a greater amount.
(j) Agency/NFC responsibility for other debts. (1) FmHA or its
successor agency under Public Law 103-354 will inform NFC about other
indebtedness by transmitting to NFC an AD-343. NFC will process the
documents through the Payroll/Personnel System, calculate the net amount
of the adjustment and generate a salary offset notice. This notice will
be sent to the employee's employing office along with a duplicate copy
for the FmHA or its successor agency under Public Law 103-354's records.
FmHA or its successor agency under Public Law 103-354 is responsible for
completing the necessary information and forwarding the employee's
notice to the employee.
(2) Other indebtedness falls into two categories:
(i) An agency-initiated indebtedness (i.e. personal telephone calls,
property damages, etc.).
(ii) An NFC-initiated indebtedness (i.e. duplicate salary payments,
etc.). NFC will send the salary offset notice to the employing office.
(k) Establishing employees or former employees defalcation accounts
and non-cash credits to borrower accounts. In cases where a borrower
made a payment on an FmHA or its successor agency under Public Law 103-
354 account(s) and, due to theft, embezzlement, fraud, negligence, or
some other action on the part of an FmHA or its successor agency under
Public Law 103-354 employee or employees, the payment is not transmitted
to the Finance Office for application to the borrower's account(s),
certain accounting actions must be taken by the Finance Office to
establish non-cash credits to the borrower's account and an employee
defalcation account.
(1) The Certifying Official will advise the Assistant Administrator,
Finance Office by memorandum to establish a defalcation account. The
memorandum must state the following information:
(i) Employee's name (or former),
(ii) Social Security Number,
(iii) Present or last known address,
(iv) Date of Payment, and
(v) Amount of the defalcation account.
(2) If a non-cash credit to a borrower's account(s) is required, the
letter to the Finance Office will include:
(i) Borrower's name and case number,
(ii) Fund Code and Loan Code,
(iii) Date and amount of missing payment,
(iv) Copy of receipt issued for the missing payment, and
(v) Name of employee who last had custody of the missing funds.
(3) To assist and assure proper accounting for defalcation accounts
and non-cash credits, the request should be made at the same time.
Should requests be made separately, be sure to identify appropriately.
(4) The Certifying Official shall furnish a copy of the memorandum
and supporting documentation for paragraphs (k) (1) and (2) of this
section to the Deputy Administrator for Management for distribution to
the Financial and Management Analysis Staff (FMAS) and Employee
Relations Branch, Personnel Division.
(l) Application of payments, refunds and overpayments. (1) If a
debtor is delinquent or indebted on more than one FmHA or its successor
agency under Public Law 103-354 loan or debt, amounts collected by
offset will be applied as specified on Form AD-343, based on the
advantage to agency or debtor. The check date will be used as the date
of credit in applying payments to the borrower's accounts.
(2) If a court or agency orders FmHA or its successor agency under
Public Law 103-354 to refund the amount obtained by salary offset, a
refund will be requested promptly by the Certifying Official in
accordance with the order by sending FmHA or its successor agency under
Public Law 103-354 Form Letter 1951-5 to the Finance Office. Processing
FmHA or its successor agency under Public Law 103-354 Form Letter 1951-5
in the Finance Office will cause a refund to be sent to the debtor
through the county office or other appropriate FmHA or its successor
agency under Public Law 103-354 office. The debtor is not entitled to
any payment of interest, on the refunded amount.
(3) If a debtor does not request a hearing within the required time
and it is later determined that the delay was
[[Page 32]]
due to circumstances beyond the debtor's control, any amount collected
before the hearing decision is made will be refunded promptly by the
Certifying Official in accordance with paragraphs (l) (1) and (2) of
this section.
(4) If FmHA or its successor agency under Public Law 103-354
receives money through an offset but the debtor is not delinquent or
indebted at the time or the amount received is in excess of the
delinquency or indebtedness, the entire amount or the amount in excess
of the delinquency or indebtedness will be refunded promptly to the
debtor by the Certifying Official in accordance with paragraphs (l) (1)
and (2) of this section.
(m) Cancellation of offset. If a debtor's name has been submitted to
another agency for offset and the debtor's account is brought current or
otherwise satisfied, the Certifying Official will complete Form AD-343
and send it to the National Office, FMAS. FMAS will notify the paying
agency with Form AD-343 that the debtor is no longer delinquent or
indebted and to cancel the offset. A copy of the cancellation document
will be sent to the debtor and the Finance Office, Attn: Account
Settlement Unit.
(n) Intra-departmental transfer. When an FmHA or its successor
agency under Public Law 103-354 employee who is indebted to one agency
in USDA transfers to another agency within USDA, a copy of the repayment
schedule should be forwarded by the agency personnel office to the new
employing agency. The NFC will continue to make deductions until full
recovery is effected.
(o) Liquidation from final checks. Upon the determination that an
employee owing a debt to FmHA or its successor agency under Public Law
103-354 is to retire, resign, or employment otherwise ends, the
Certifying Official should forward a telegram with the appropriate
employee identification and amount of the debt to the NFC. The telegram
should request that the debt be collected from final salary/lump sum
leave or other funds due the employee, and, if necessary, to put a hold
on the retirement funds. The telegram information should be confirmed by
completion of Form AD-343. Collection from retirement funds will be in
accordance with Departmental Administrative Offset procedures (7 CFR
Part 3, Subpart B, Sec. 3.32).
(p) Coordination with other agencies. (1) If FmHA or its successor
agency under Public Law 103-354 is the creditor agency but not the
paying agency, the Certifying Official will submit Form AD-343 to the
National Office, FMAS, to begin salary offset against an indebted
employee. The request will include a certification as to the
determination of indebtedness, and that FmHA or its successor agency
under Public Law 103-354 has complied with applicable regulations and
instruction for submitting the funds to the Finance Office. (See FmHA or
its successor agency under Public Law 103-354 Form Letter 1951-6).
(2) When an employee of FmHA or its successor agency under Public
Law 103-354 owes a debt to another Federal agency, salary offset may be
used only when the Federal agency certifies that the person owes the
debt and that the Federal agency has complied with its regulations. The
request must include the creditor agency's certification as to the
indebtedness, including the amount, and that the employee has been given
the due process entitlements guaranteed by the Debt Collection Act of
1982. When a request for offset is received, FmHA or its successor
agency under Public Law 103-354 will notify the employee and NFC and
arrange for offset. (See FmHA or its successor agency under Public Law
103-354 Form Letter 1951-7).
(q) Deductions by the National Finance Center (NFC). The NFC will
automatically deduct the full amount of the delinquency or indebtedness
if less than 15 percent of disposable pay or 15 percent of disposable
pay if the delinquency or indebtedness exceeds 15 percent, unless the
creditor agency advises otherwise. Deductions will begin the second pay
period after the 30-day notification period has expired unless FmHA or
its successor agency under Public Law 103-354 issues the notice. If FmHA
or its successor agency under Public Law 103-354 issues the notice, the
NFC will begin deductions on the first pay period after receipt of the
Form AD-343.
[[Page 33]]
(r) Interest, penalties and administrative costs. Interest and
administrative costs will normally be assessed on outstanding claims
being collected by salary offset. However, penalties should not be
charged routinely on debts being collected in installments by salary
offsets, since it is not to be construed as a failure to pay within a
given time period. Additional interest, penalties, and administrative
costs will not be assessed on delinquent loans until FmHA or its
successor agency under Public Law 103-354 publishes regulations
permitting such charges.
(s) Adjustment in rate of repayment. (1) When an employee who is
indebted receives a reduction in basic pay that would cause the current
deductions to exceed 15 percent of disposable pay, and the employee has
not consented in writing to a greater amount, FmHA or its successor
agency under Public Law 103-354 must take action to reduce the amount of
the deductions to 15 percent of the new amount of disposable pay. Upon
an increase in basic pay which results in the current deductions to be
less than the specified percentage, FmHA or its successor agency under
Public Law 103-354 may increase the amount of the deductions
accordingly. In either case, when a change is made the employee will be
notified in writing.
(2) When an employee has an existing reduced repayment schedule
because of financial hardship, the creditor agency may arrange for a new
repayment schedule.
[52 FR 18544, May 18, 1987, as amended at 53 FR 44178, Nov. 2, 1988; 54
FR 26945, June 27, 1989; 62 FR 41799, Aug. 1, 1997; 65 FR 50603, Aug.
21, 2000; 67 FR 69671, Nov. 19, 2002]
Sec. Sec. 1951.112-1951.132 [Reserved]
Sec. 1951.133 Establishment of Federal Debt.
Any amounts paid by RBS on account of liabilities of a business and
industry (B&I) program guaranteed loan borrower will constitute a
Federal debt owing to RBS by the B&I guaranteed loan borrower. In such
case, the RBS may use all remedies available to it, including offset
under the Debt Collection Improvement Act of 1996 (DCIA), to collect the
debt from the borrower. Interest charges will be established at the note
rate of the guaranteed loan on the date a loss claim is paid. RBS may,
at its option, refer such debt in all or part to the Department of the
Treasury, before a final loss claim is determined.
[69 FR 3000, Jan. 22, 2004]
Sec. Sec. 1951.134-1951.135 [Reserved]
Sec. 1951.136 Procedures for Department of Treasury offset and
cross-servicing
for the Rural Housing Service (Community Facility Program only) and the Rural
Business-Cooperative Service.
(a) The National Offices of the Rural Housing Service (RHS),
Community Facilities (CF) and the Rural Business-Cooperative Service
(RBS) will refer past due, legally enforceable debts which are over 180
days delinquent to the Secretary of the Treasury for collection by
centralized administrative offset (TOP), Internal Revenue Service offset
administered through TOP and Treasury's Cross-Servicing (Cross-
Servicing) Program, which centralizes all Government debt collection
actions. A borrower with a workout agreement in place, in bankruptcy or
litigation, or meeting other exclusion criteria, may be excluded from
TOP or Cross-Servicing.
(b) A 60 day due process notice will be sent to borrowers subject to
TOP or Cross-Servicing. The borrower will be given 60 days to resolve
any delinquency before the debt is reported to Treasury. The notice will
include:
(1) The nature and amount of the debt, the intention of the Agency
to collect the debt through TOP or Cross-Servicing, and an explanation
of the debtor's rights;
(2) An opportunity to inspect and copy the records related to the
debt from the Agency;
(3) An opportunity to review the matter within the Agency or the
National Appeals Division, if there has not been a previous opportunity
to appeal the offset; and
(4) An opportunity to enter into a written repayment agreement.
(c) In referring debt to the Department of Treasury the Agency will
certify that:
[[Page 34]]
(1) The debt is past due and legally enforceable in the amount
submitted and the Agency will ensure that collections are properly
credited to the debt;
(2) Except in the case of a judgment debt or as otherwise allowed by
law, the debt is referred for offset within 10 years after the Agency's
right of action accrues;
(3) The Agency has made reasonable efforts to obtain payment; and
(4) Payments that are prohibited by law from being offset are exempt
from centralized administrative offset.
[67 FR 69672, Nov. 19, 2002]
Sec. 1951.137 Procedures for Treasury offset and cross-servicing for the
Farm Service Agency (FSA) farm loan programs.
(a) The Farm Service Agency, Farm Loan Programs, will refer past
due, legally enforceable debts which are over 180 days delinquent to the
Secretary of the Treasury for collection by centralized administrative
offset (TOP), Internal Revenue Service offset administered through TOP
and Treasury's Cross-Servicing (Cross-Servicing) Program, which
centralizes all Government debt collection actions. A borrower with a
workout agreement in place, in bankruptcy or litigation, or meeting
other exclusion criteria, may be excluded from TOP or Cross-Servicing.
Guaranteed debtors will only be referred to TOP upon confirmation of
payment on a final loss claim.
(b) A 60 day due process notice will be sent to borrowers subject to
TOP or Cross-Servicing by the Director of Kansas City Finance Office.
The borrower will be given 60 days to resolve any delinquency before the
debt is reported to Treasury. The notice will include:
(1) The nature and amount of the debt, the intention of the Agency
to collect the debt through TOP or Cross-Servicing, and an explanation
of the debtor's rights;
(2) An opportunity to inspect and copy the records related to the
debt, from the Agency;
(3) An opportunity to review the matter within the Agency; and
(4) An opportunity to enter into a written repayment agreement.
(c) In referring debt to the Department of Treasury the Agency will
certify that:
(1) The debt is past due and legally enforceable in the amount
submitted and the Agency will ensure that collections are properly
credited to the debt;
(2) Except in the case of a judgment debt or as otherwise allowed by
law, the debt is referred for offset within 10 years after the Agency's
right of action accrues;
(3) The Agency has made reasonable efforts to obtain payment; and
(4) Payments that are prohibited by law from being offset are exempt
from centralized administrative offset.
[67 FR 69672, Nov. 19, 2002]
Sec. Sec. 1951.138-1951.149 [Reserved]
Sec. 1951.150 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0119.
[51 FR 42821, Nov. 26, 1986]
Subpart D_Final Payment on Loans
Source: 57 FR 774, Jan. 9, 1992, unless otherwise noted.
Sec. 1951.151 Purpose.
This subpart prescribes authorizations, policies, and procedures of
the Farm Service Agency (FSA), Rural Housing Service (RHS), Rural
Utility Service (RUS) for its water and waste programs, and Rural
Business-Cooperative Service (RBS), herein referred to as ``Agency,''
for processing final payment on all loans. This subpart does not apply
to direct single family housing customers or to the Rural Rental
Housing, Rural Cooperative Housing, or Farm Labor Housing programs of
the RHS.
[61 FR 59778, Nov. 22, 1996, as amended at 69 FR 69105, Nov. 26, 2004]
Sec. 1951.152 Definition.
As used in this subpart:
Mortgage. Includes real estate mortgage, deed of trust or any other
form of
[[Page 35]]
security instrument or lien on real property.
Sec. 1951.153 Chattel security or note-only cases.
(a) If a loan secured by both real estate and chattels is paid in
full, the chattel security instrument will be satisfied or released in
accordance with subpart A of part 1962 of this chapter.
(b) When a loan is evidenced by only a note and the note is paid in
full, FmHA or its successor agency under Public Law 103-354 will deliver
the note to the borrower in the manner prescribed in Sec. 1951.155(c)
of this subpart.
Sec. 1951.154 Satisfaction and release of documents.
(a) Authorization. FmHA or its successor agency under Public Law
103-354 is authorized to execute the necessary releases and
satisfactions and return security instruments and related documents to
borrowers. Satisfaction and release of security documents takes place:
(1) Upon receipt of payment in full of all amounts owed to the
Government including any amounts owed to the loan insurance account,
subsidy recapture amounts, all loan advances and/or other charges to the
borrower's account;
(2) Upon verification that the amount of payment received is
sufficient to pay the full amount owed by the borrower; or
(3) When a compromise or adjustment offer has been accepted and
approved by the appropriate Government official in full settlement of
the account and all required funds have been paid.
(b) [Reserved]
(c) Lost note. If the original note is lost FmHA or its successor
agency under Public Law 103-354 will give the borrower an affidavit of
lost note so that the release or satisfaction may be processed.
Sec. 1951.155 County and/or District Office actions.
(a) Funds remaining in supervised bank accounts. When a borrower is
ready to pay an insured or direct loan in full, any funds remaining in a
supervised bank account will be withdrawn and remitted for application
to the borrower's account. If the entire principal of the loan is
refunded after the loan is closed, the borrower will be required to pay
interest from the date of the note to the date of receipt of the refund.
(b) Determining amount to be collected. FmHA or its successor agency
under Public Law 103-354 will compute and verify the amount to be
collected for payment of an account in full. Requests for payoff
balances on all accounts will be furnished in writing in a format
specified by FmHA or its successor agency under Public Law 103-354
(available in any FmHA or its successor agency under Public Law 103-354
office).
(c) Delivery of satisfaction, notes, and other documents. When the
remittance which paid an account in full has been processed by FmHA or
its successor agency under Public Law 103-354, the paid note and
satisfied mortgage may be returned to the borrower. If other provisions
exist, the mortgage will not be satisfied until the total indebtedness
secured by the mortgage is paid. For instance, in a situation where a
rural housing loan is paid-in-full and there is a subsidy recapture
receivable balance that the borrower elects to delay repaying, the
amount of recapture to be repaid will be determined when the principal
and interest balance is paid. The mortgage securing the RHS, RBS, RUS,
and/or FSA or its successor agency under Public Law 103-354 debt will
not be released of record until the total amount owed the Government is
repaid. To permit graduation or refinancing by the borrower, the
mortgage securing the recapture owed may be subordinated.
(1) If FmHA or its successor agency under Public Law 103-354
receives final payments in a form other than cash, U.S. Treasury check,
cashier's check, certified check, money order, bank draft, or check
issued by an institution determined by FmHA or its successor agency
under Public Law 103-354 to be financially responsible, the mortgage and
paid note will not be released until after a 30-day waiting period. If
other indebtedness to FmHA or its successor agency under Public Law 103-
354 is not secured by the mortgage, FmHA or its successor agency under
Public Law 103-
[[Page 36]]
354 will execute the satisfaction or release. When the stamped note is
delivered to the borrower, FmHA or its successor agency under Public Law
103-354 will also deliver the real estate mortgage and related title
papers such as title opinions, title insurance binders, certificates of
title, and abstracts which are the property of the borrower. Any water
stock certificates or other securities that are the property of the
borrower will be returned to the borrower. Also, any assignments of
income will be terminated as provided in the assignment forms.
(2) Delivery of documents at the time of final payment will be made
when payment is in the form of cash, U.S. Treasury check, cashier's
check, certified check, money order, bank draft, or check issued by an
institution determined by FmHA or its successor agency under Public Law
103-354 to be responsible. FmHA or its successor agency under Public Law
103-354 will not accept payment in the form of foreign currency, foreign
checks or sight drafts. FmHA or its successor agency under Public Law
103-354 will execute the satisfaction or release (unless other
indebtedness to FmHA or its successor agency under Public Law 103-354 is
covered by the mortgage) and mark the original note with a paid-in-full
legend based upon receipt of the full payment balance of the borrower's
account(s), computed as of the date final payment is received. In
unusual cases where an insured promissory note is held by a private
holder, FmHA or its successor agency under Public Law 103-354 can
release the mortgage and deliver the note when it is received.
(d)-(e) [Reserved]
(f) Cost of recording or filing of satisfaction. The satisfaction or
release will be delivered to the borrower for recording and the
recording costs will be paid by the borrower, except when State law
requires the mortgagee to record or file satisfactions or release and
pay the recording costs.
(g) Property insurance. When the borrower's loan has been paid-in-
full and the satisfaction or release of the mortgage has been executed,
FmHA or its successor agency under Public Law 103-354 may release the
mortgage interest in the insurance policy as provided in subpart A of
part 1806 of this chapter (FmHA or its successor agency under Public Law
103-354 Instruction 426.1).
(h) [Reserved]
(i) Outstanding Loan Balance(s). FmHA or its successor agency under
Public Law 103-354 will attempt to collect any account balance(s) that
may result from an error by FmHA or its successor agency under Public
Law 103-354 in handling final payments according to paragraph
1951.155(b) of this section. If collection cannot be made, the debt will
be settled according to subpart B of part 1956 of this chapter or
reclassified to collection-only. A deficiency judgment may be considered
if the balance is a significant amount ($1,000 or more) and the borrower
has known assets.
[57 FR 774, Jan. 9, 1992, as amended at 60 FR 55145, Oct. 27, 1995]
Sec. Sec. 1951.156-1951.200 [Reserved]
Subpart E_Servicing of Community and Direct Business Programs Loans and
Grants
Source: 55 FR 4399, Feb. 8, 1990, unless otherwise noted.
Sec. 1951.201 Purposes.
This subpart prescribes the Rural Development mission area policies,
authorizations and procedures for servicing the following programs:
Water and Waste Disposal System loans and grants, Community Facility
loans and grants, Rural Business Enterprise/Television Demonstration
grants; loans for Grazing and other shift-in-land-use projects;
Association Recreation loans; Association Irrigation and Drainage loans;
Watershed loans and advances; Resource Conservation and Development
loans; Direct Business loans; Economic Opportunity Cooperative loans;
Rural Renewal loans; Energy Impacted Area Development Assistance Program
grants; National Nonprofit Corporation grants; Water and Waste Disposal
Technical Assistance and Training grants; Emergency Community Water
Assistance grants; System for Delivery of Certain Rural Development
Programs panel grants; section 306C WWD loans and grants; and, in part
4284 of
[[Page 37]]
this title, Rural and Cooperative Development Grants, Value-Added
Producer Grants and Agriculture Innovation Center Grants. Rural
Development State Offices act on behalf of the Rural Utilities Service,
the Rural Business-Cooperative Service and the Farm Service Agency as to
loan and grant programs formerly administered by the Farmers Home
Administration and the Rural Development Administration. Loans sold
without insurance to the private sector will be serviced in the private
sector and will not be serviced under this subpart. The provisions of
this subpart are not applicable to such loans. Future changes to this
Subpart will not be made applicable to such loans.
[69 FR 23425, Apr. 29, 2004]
Sec. 1951.202 Objectives.
The purpose of loan and grant servicing functions is to assist
recipients to meet the objectives of loans and grants, repay loans on
schedule, comply with agreements, and protect FmHA or its successor
agency under Public Law 103-354's financial interest. Supervision by
FmHA or its successor agency under Public Law 103-354 includes, but is
not limited to, review of budgets, management reports, audits and
financial statements; performing security inspections and providing,
arranging for, or recommending technical assistance; evaluating
environmental impacts of proposed actions by the borrower; and
performing civil rights compliance reviews.
Sec. 1951.203 Definitions.
(a) Approval official. An official who has been delegated loan and/
or grant approval authorities within applicable programs.
(b) Assumption of debt. The agreement by one party to legally bind
itself to pay the debt incurred by another.
(c) CONACT. The Consolidated Farm and Rural Development Act, as
amended.
(d) Eligible applicant. An entity that would be legally qualified
for financial assistance under the loan or grant program involved in the
servicing action.
(e) Ineligible applicant. An entity or individual that would not be
considered eligible for financial assistance under the loan or grant
program involved in the servicing action.
(f) Nonprogram (NP) loan. An NP loan exists when credit is extended
to an ineligible applicant and/or transferee in connection with loan
assumptions or sale of inventory property; any recipient in cases of
unauthorized assistance; or a recipient whose legal organization has
changed as set forth in Sec. 1951.220(e) of this subpart resulting in
the borrower being ineligible for program benefits.
(g) Servicing office. The State, District, or County Office
responsible for immediate servicing functions for the borrower or
grantee.
(h) Transfer fee. A one-time nonrefundable application fee, charged
to ineligible applicants for FmHA or its successor agency under Public
Law 103-354 services rendered in the processing of a transfer and
assumption.
[55 FR 4399, Feb. 8, 1990, as amended at 69 FR 70884, Dec. 8, 2004]
Sec. 1951.204 Nondiscrimination.
Each instrument of conveyance required for a transfer, assumption,
or other servicing action under this subpart will contain the following
covenant.
The property described herein was obtained or improved with Federal
financial assistance and is subject to the nondiscrimination provisions
of title VI of the Civil Rights Act of 1964, title IX of the Education
Amendments of 1972, section 504 of the Rehabilitation Act of 1973, and
other similarly worded Federal statutes, and the regulations issued
pursuant thereto that prohibit discrimination on the basis of race,
color, national origin, handicap, religion, age, or sex in programs or
activities receiving Federal financial assistance. Such provisions apply
for as long as the property continues to be used for the same or similar
purposes for which the Federal assistance was extended, for so long as
the purchaser owns it, whichever is later.
Sec. 1951.205 Redelegation of authority.
Servicing functions under this subpart which are specifically
assigned to the State Director may be redelegated in writing to an
appropriate sufficiently trained designee.
[[Page 38]]
Sec. 1951.206 Forms.
Forms utilized for actions under this subpart are to be modified
appropriately where necessary to adapt the forms for use by corporate
recipients rather than individuals.
Sec. 1951.207 State supplements.
State supplements developed to carry out the provisions of this
subpart will be prepared in accordance with subpart B of part 2006 of
this chapter (available in any FmHA or its successor agency under Public
Law 103-354 office) and applicable State laws and regulations. State
supplements are to be used only when required by National Instructions
or necessary to clarify the impact of State laws or regulations, and not
to restate the provisions of National Instructions. Advice and guidance
will be obtained as needed from the Office of the General Counsel (OGC).
Sec. Sec. 1951.208-1951.209 [Reserved]
Sec. 1951.210 Environmental requirements.
Servicing activities such as transfers, assumptions, subordinations,
sale or exchange of security property, and leasing of security will be
reviewed for compliance with subpart G of part 1940 of this chapter. The
appropriate environmental review will be completed prior to approval of
the servicing action. When National Office approval is required, the
completed environmental review will be included with other information
submitted.
Sec. 1951.211 Refinancing requirements.
In accordance with the CONACT, FmHA or its successor agency under
Public Law 103-354 requires for most loans covered by this subpart that
if at any time it shall appear to the Government that the borrower is
able to refinance the amount of the indebtedness then outstanding, in
whole or in part, by obtaining a loan for such purposes from responsible
cooperative or private credit sources, at reasonable rates and terms for
loans for similar purposes and periods of time, the borrower will, upon
request of the Government, apply for and accept such loan in sufficient
amount to repay the Government and will take all such actions as may be
required in connection with such loan. Applicable requirements are set
forth in subpart F of part 1951 of this chapter. A civil rights impact
analysis is required.
[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]
Sec. 1951.212 Unauthorized financial assistance.
Subpart O of part 1951 of this chapter prescribes policies for
servicing the loans and grants covered under this subpart when it is
determined that a borrower or grantee was not eligible for all or part
of the financial assistance received in the form of a loan, grant,
subsidy, or any other direct financial assistance.
Sec. 1951.213 Debt settlement.
Subpart C of part 1956 of this chapter prescribes policies and
procedures for debt settlement actions for loans covered under this
subpart when it is determined that a debt is eligible for settlement
except as provided in Sec. Sec. 1951.216 and 1951.231.
Sec. 1951.214 Care, management, and disposal of acquired property.
Property acquired by Government or its successor agency under Public
Law 103-354 will be handled according to subparts B and C of part 1955
of this chapter.
[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]
Sec. 1951.215 Grants.
No monitoring action by FmHA or its successor agency under Public
Law 103-354 is required after grant closeout. Grant closeout is when all
required work is completed, administrative actions relating to the
completion of work and expenditure of funds have been accomplished, and
FmHA or its successor agency under Public Law 103-354 accepts final
expenditure information. However, grantees remain responsible in
accordance with the terms of the grant for property acquired with grant
funds.
(a) Applicability of requirements. Servicing actions relating to
FmHA or its successor agency under Public Law 103-
[[Page 39]]
354 grants are governed by the provisions of this subpart, the terms of
the Grant Agreement and, if applicable, the provisions of 7 CFR parts
3015, 3016, and 3017.
(1) Servicing actions will be carried out in accordance with the
terms of the ``Association Water or Sewer System Grant Agreement,'' and
RUS Bulletin 1780-12, ``Water and Waste Grant Agreement'' (available
from any USDA/Rural Development office or the Rural Utilities Service,
United States Department of Agriculture, Washington, DC 20250-1500).
Grant agreements with a revision date on or after January 29, 1979,
require that the grantee request disposition instructions from the
Agency before disposing of property which is no longer needed for
original grant purposes.
(2) When facilities financed in part by FmHA or its successor agency
under Public Law 103-354 grants are transferred or sold, repayment of
all or a portion of the grant is not required if the facility will be
used for the same purposes and the new owner provides a written
agreement to abide by the terms of the grant agreement.
(3) 7 CFR 3015 first became effective on November 10, 1981; 7 CFR
parts 3016 on October 1, 1988; and 7 CFR 3017 on March 18, 1989. Grants
made on or after those dates are subject to the provisions of those
regulations except to the extent of the express provisions of the Grant
Agreement.
(b) Authorities. Subject to the requirements of Sec. 1951.215(a),
authority to approve servicing actions is as follows:
(1) For water and waste disposal grants, the State Director is
authorized to approve any servicing actions needed, except that prior
approval of the Administrator is required when property acquired with
grant funds is disposed of in accordance with Sec. Sec. 1951.226,
1951.230, or 1951.232 of this subpart and the buyer or transferee
refuses to assume all terms of the grant agreement.
(2) All other grants will be serviced in accordance with the Grant
Agreement and this subpart. Prior approval of the Administrator is
required except for actions covered in the preceding paragraph.
[55 FR 4399, Feb. 8, 1990, as amended at 63 FR 16089, Apr. 2, 1998]
Sec. 1951.216 Nonprogram (NP) loans.
Borrowers with NP loans are not eligible for any program benefits,
including appeal rights. However, FmHA or its successor agency under
Public Law 103-354 may use any servicing tool under this subpart
necessary to protect the Government's security interest, including
reamortization or rescheduling. The refinancing requirements of subpart
F of part 1951 of this chapter do not apply to NP loans. Debt settlement
actions relating to NP loans must be handled under the Federal Claims
Collection Act; proposals will be submitted to the National Office for
review and approval. Any exception to the servicing requirements of NP
loans under this subpart must have prior concurrence of the National
Office.
Sec. 1951.217 Public bodies.
Servicing actions involving public bodies will be carried out to the
extent feasible according to the provisions of this subpart. With prior
National Office approval, the State Director is authorized to vary from
such provisions if necessary and approved by OGC, provided such
variation will not violate other regulatory or statutory provisions. To
request approval, the case file, including copies of applicable
documents, recommendations, and OGC comments, will be forwarded to the
Administrator, Attention: (appropriate program division).
Sec. Sec. 1951.218-1951.219 [Reserved]
Sec. 1951.220 General servicing actions.
(a) Payment in full. Payment in full of a loan is handled according
to subpart D of part 1951 of this chapter. When a loan is paid in full,
the servicing official will:
(1) Notify the company providing fidelity bond coverage in writing
that the government no longer has an interest in the bond if the
government is named co-obligee on the bond.
(2) Release FmHA or its successor agency under Public Law 103-354's
interest in insurance policies according
[[Page 40]]
to applicable provisions of subpart A of part 1806 (FmHA or its
successor agency under Public Law 103-354 Instruction 426.1).
(3) Release FmHA or its successor agency under Public Law 103-354's
interest in any other security as appropriate, consulting with OGC if
necessary.
(b) Loan summary statements. Upon request of a borrower, FmHA or its
successor agency under Public Law 103-354 will issue a loan summary
statement showing account activity for each loan made or insured under
the CONACT. Field offices will post a notice on the bulletin board
informing borrowers of the availability of loan summary statements. See
exhibit A of subpart A of this part for a sample of the required notice.
(1) The loan summary statement period is from January 1 through
December 31. The Finance Office forwards to field offices a copy of Form
FmHA or its successor agency under Public Law 103-354 1951-9, ``Annual
Statement of Loan Account,'' to be retained in borrower files as a
permanent record of account activity for the year.
(2) Quarterly Forms FmHA or its successor agency under Public Law
103-354 1951-9 are retained in the Finance Office on microfiche. These
statements reflect cumulative data from the beginning of the current
year through the end of the most recent quarter. Servicing offices may
request copies of these quarterly or annual statements by sending Form
FmHA or its successor agency under Public Law 103-354 1951-57, ``Request
for Loan Summary Statement,'' to the Finance Office.
(3) The servicing office will provide a copy of the applicable loan
summary statement to the borrower on request. A copy of Form FmHA or its
successor agency under Public Law 103-354 1951-9 and, for loans with
unamortized installments, a printout of future installments owed
obtained using the borrower status screen option in the Automated
Discrepancy Processing System (ADPS), will constitute the loan summary
statement to be provided to the borrower.
(c) Insurance. FmHA or its successor agency under Public Law 103-354
borrowers shall maintain insurance coverage as follows:
(1) Community and Insured Business Programs borrowers shall
continuously maintain adequate insurance coverage as required by the
loan agreement and Sec. 1942.17(j)(3) of subpart A of part 1942 of this
chapter. Insurance coverage must be monitored in accordance with the
above-referenced section to determine that adequate policies and bonds
are in force.
(2) For all other types of loans covered by this subpart, property
insurance will be serviced according to subpart A of part 1806 of this
chapter (FmHA or its successor agency under Public Law 103-354
Instruction 426.1) in real estate mortgage cases, and according to the
loan agreement in other cases.
(d) Property taxes. Real property taxes are serviced according to
Subpart A of part 1925 of this chapter. If State statutes permit a
personal property tax lien to have priority over FmHA or its successor
agency under Public Law 103-354's lien, such taxes are serviced
according to Sec. Sec. 1925.3 and 1925.4 of subpart A of part 1925 of
this chapter.
(e) Changes in borrower's legal organization. (1) The State Director
may approve, with OGC's concurrence, changes in a recipient's legal
organization, including revisions of articles of incorporation or
charter and bylaws, when:
(i) The change does not provide for a sole member type of
organization;
(ii) The borrower retains control over its assets and the operation,
management, and maintenance of the facility, and continues to carry out
its responsibilities as set forth in Sec. 1942.17(b)(4) of subpart A of
part 1942 of this chapter; and
(iii) The borrower retains significant local ties with the rural
community.
(2) The State Director may approve, with prior concurrence of the
Administrator, changes in a recipient's legal organization which result
in a sole member type of organization, or any other change which results
in a recipient's loss of control over its assets and/or the operation,
management and maintenance of the facility, provided all of the
following have been or will be met:
[[Page 41]]
(i) The change is in the best interest of the Government;
(ii) The State Director determines and documents that other
servicing options under this subpart, such as sale or transfer and
assumption, have been explored and are not feasible;
(iii) The loan is classified as a nonprogram loan;
(iv) The borrower is notified that it is no longer eligible for any
program benefits, but will remain responsible under the loan agreement;
and
(v) Prior concurrence of the Administrator is obtained. Requests
will be forwarded to the Administrator: Attention (appropriate program
division), and will include the case file; Exhibit A of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office), appropriately completed; the proposed changes; OGC comments;
and any other necessary supporting information.
(f) Membership liability. As a loan approval requirement, some
borrowers may have special agreements with members of the purchase of
shares of stock or for payment of a pro rata share of the loan in the
event of default, or they may have authority in their corporate
instruments to make special assessments in that event. Such agreements
may be referred to as individual liability agreements and may be
assigned to and held by FmHA or its successor agency under Public Law
103-354 as additional security. In other cases the borrower's note may
be endorsed by individuals. The liability instruments will be serviced
in a manner indicated by their contents and the advice of OGC to
adequately protect FmHA or its successor agency under Public Law 103-
354's interest. Servicing actions necessary due to such provisions will
be tracked in the Multi-Family Housing Information System (MFIS).
(g) Other security. Other security such as collateral assignments,
water stock certificates, notices of lienholder interest (Bureau of Land
Management grazing permits) and waivers of grazing privileges (Forest
Service grazing permits) will be serviced to protect the interest of
FmHA or its successor agency under Public Law 103-354, and in compliance
with any special servicing actions developed by the State Director with
OGC assistance. Evidence of the security will be filed in the servicing
office case file. Necessary servicing actions will be noted in MFIS.
(h) Correcting errors in security instruments. Land, buildings, or
chattels included in a mortgage through mutual mistake may be released
from the mortgage by the State Director when substantiated by the
factual situation. The release is contingent on the State Director
determining, with OGC advice, that the property was included due to
mutual error.
(i) Present market value determination. For purposes of this
subpart, the value of security is determined by the approval official as
follows:
(1) Security representing a relatively small portion of the total
value of the security property. The approval official will determine
that the real estate and chattels are disposed of at a reasonable price.
A current appraisal report may be required.
(2) Security representing a relatively large portion of the total
value of the security property. The approval official will require a
current appraisal report, and the sale prices of the real estate and
chattels disposed of will at least equal the present market value as
determined by this appraisal.
(3) Appraisal report. If required, a current appraisal report will
be completed in accordance with Sec. 1942.3 of subpart A of part 1942
of this chapter. The appraisal will be completed by a qualified FmHA or
its successor agency under Public Law 103-354 employee or an independent
appraiser as determined appropriate by the approval official.
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 775, Jan. 9, 1992; 57 FR
21199, May 19, 1992; 57 FR 36591, Aug. 14, 1992; 69 FR 69105, Nov. 26,
2004]
Sec. 1951.221 Collections, payments and refunds.
Payments and refunds are handled in accordance with the following:
(a) Community and Insured Business Programs. (1) Field offices can
obtain data on principal installments due for Community and Insured
Business Programs loans with unamortized installments using the borrower
status screen option in the ADPS.
[[Page 42]]
(2) Regular payments for Community and Insured Business Programs
borrowers are all payments other than extra payments and refunds. Such
payments are usually derived from facility revenues, and do not include
proceeds from the sale of security. They also include payments derived
from sources which do not decrease the value of FmHA or its successor
agency under Public Law 103-354's security.
(i) Distribution of such payments is made as follows:
(A) First, to the FmHA or its successor agency under Public Law 103-
354 loan(s) in proportion to the delinquency existing on each. Any
excess will be distributed in accordance with paragraphs (a)(2)(i) (B)
and (C) of this section.
(B) Second, to the FmHA or its successor agency under Public Law
103-354 loan or loans in proportion to the approximate amounts due on
each. Any excess will be distributed according to paragraph (a)(2)(i)(C)
of this section.
(C) Third, as advance payments on FmHA or its successor agency under
Public Law 103-354 loans. In making such distributions, consider the
principal balance outstanding on each loan, the security position of the
liens securing each loan, the borrower's request, and related
circumstances.
(ii) Unless otherwise established by the debt instrument, regular
payments will be applied as follows:
(A) For amortized loans, first to interest accrued (as of the date
of receipt of the payment), and then to principal.
(B) For principal-plus-interest loans, first to the interest due
through the date of the next scheduled installment of principal and
interest and then to principal due, with any balance applied to the next
scheduled principal installment.
(3) Extra payments are derived from sale of basic chattel or real
estate security; refund of unused loan funds; cash proceeds of property
insurance as provided in Sec. 1806.5(b) of subpart A of part 1806
(paragraph V B of FmHA or its successor agency under Public Law 103-354
Instruction 426.1); and similar actions which reduce the value of basic
security. At the option of the borrower, regular facility revenue may
also be used as extra payments when regular payments are current. Unless
otherwise established in the note or bond, extra payments will be
distributed and applied as follows:
(i) First to the account secured by the lowest priority of lien on
the property from which the extra payment was obtained. Any balance will
be applied to other FmHA or its successor agency under Public Law 103-
354 loans in ascending order of priority.
(ii) For amortized loans, first to interest accrued to the date
payment is received, and then to principal. For debt instruments with
installments of principal plus interest, such payments will be applied
to the final unpaid principal installment.
(b) Soil and Water Conservation Loans. (1) Regular payments for such
loans are defined in Sec. 1951.8(a) of subpart A of part 1951 of this
chapter, and are distributed according to Sec. 1951.9(a) of that
subpart unless otherwise established by the note or bond.
(2) Extra payments are defined in Sec. 1951.8(b) of subpart A of
part 1951 of this chapter, and are distributed according to Sec.
1951.9(b) of that subpart.
[55 FR 4399, Feb. 8, 1990, as amended at 66 FR 1569, Jan. 9, 2001; 68 FR
61331, Oct. 28, 2003; 68 FR 69952, Dec. 16, 2003]
Sec. 1951.222 Subordination of security.
When a borrower requests FmHA or its successor agency under Public
Law 103-354 to subordinate a security instrument so that another
creditor or lender can refinance, extend, reamortize, or increase the
amount of a prior lien; be on parity with; or place a lien ahead of the
FmHA or its successor agency under Public Law 103-354 lien, it will
submit a written request to the servicing office as provided below. For
purposes of this subpart, subordination is defined to include cases
where a parity security position is being considered.
(a) General. The following requirements must normally be met:
(1) The request must be for subordination of a specific amount of
the Rural Development indebtedness.
(2) It must be determined that the borrower cannot refinance its
FmHA or its successor agency under Public Law 103-354 debt in accordance
with subpart F of part 1951 of this chapter.
[[Page 43]]
(3) The transaction will further the purposes for which the FmHA or
its successor agency under Public Law 103-354 loan was made, not
adversely affect the borrower's debt-paying ability, and result in the
FmHA or its successor agency under Public Law 103-354 debt being
adequately secured.
(4) The terms and conditions of the prior lien will be such that the
borrower can reasonably be expected to meet them as well as the
requirements of all other debts.
(5) Any proposed development work will be planned and performed
according to Sec. 1942.18 of subpart A of part 1942 of this chapter or
in a manner directed by the creditor which reasonably attains the
objectives of that section.
(6) All contracts, pay estimates, and change orders will be reviewed
and concurred in by the State Director.
(7) In cases involving land purchase, the FmHA or its successor
agency under Public Law 103-354 will obtain a mortgage on the purchased
land.
(8) When the transaction involves more than $10,000 or the approval
official considers it necessary, a present market value appraisal report
will be obtained. However, a new report need not be obtained if there is
an appraisal report not over one year old which permits a proper
determination of the present market value of the total property after
the transaction.
(9) The proposed action must not change the nature of the borrower's
activities so as to make it ineligible for FmHA or its successor agency
under Public Law 103-354 loan assistance.
(10) Necessary consent and subordination of all other outstanding
security interests must be obtained.
(b) Authorities. Proposals not meeting one or more of the above
requirements will be submitted to the Administrator, Attention
(appropriate program division) for prior concurrence. All other
proposals may be approved by the official with loan approval authority
under subpart A of part 1901 of this chapter.
(c) Processing. The case file is to include:
(1) The borrower's written request on Form FmHA or its successor
agency under Public Law 103-354 465-1, ``Application for Partial
Release, Subordination, or Consent,'' if appropriate, or in other
acceptable format. The request must contain the purpose of the
subordination; exact amount of money or property involved; description
of security property involved; type of security instrument; name,
address, line of business and other general information pertaining to
the party in favor of which the request is made; and other pertinent
information to evaluate the need for the request;
(2) Current balance sheet;
(3) If development work is involved, an operating budget on Form
FmHA or its successor agency under Public Law 103-354 442-7, ``Operating
Budget,'' or similar form which projects income and expenses through the
first full year of operation following completion of planned
improvements; or if no development work is involved, an income statement
and budget on Form FmHA or its successor agency under Public Law 103-354
442-2, ``Statement of Budget, Income, and Equity,'' schedules 1 and 2,
or similar form;
(4) Copy of proposed security instrument;
(5) Appraisal report, when applicable;
(6) OGC opinion on the request;
(7) Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), appropriately
completed;
(8) Appropriate environmental review; and
(9) Any other necessary supporting information.
(d) Closing. All requests for subordination will be closed according
to instructions from OGC except those which affect only chattel liens
other than pledges of revenue. FmHA or its successor agency under Public
Law 103-354's consent on Form FmHA or its successor agency under Public
Law 103-354 465-1 will be signed concurrently with Form FmHA or its
successor agency under Public Law 103-354 460-2, ``Subordination by the
Government,'' when applicable.
[55 FR 4399, Feb. 8, 1990, as amended at 66 FR 1569, Jan. 9, 2001; 69 FR
70884, Dec. 8, 2004]
Sec. 1951.223 Reamortization.
(a) State Director authorization. The State Director is authorized
to approve
[[Page 44]]
reamortization of loans under the following conditions:
(1) The account is delinquent and cannot be brought current within
one year while maintaining a reasonable reserve;
(2) The borrower has demonstrated for at least one year by actual
performance or has presented a budget which clearly indicates that it is
able to meet the proposed payment schedule;
(3) The amount being reamortized is within the State Director's loan
approval authorization; and
(4) There is no extension of the final maturity date.
(b) Requests requiring National Office approval. Reamortizations not
meeting the above conditions require prior National Office approval.
Requests will be forwarded to the National Office with the case file,
including:
(1) Current budget and cash flow prepared on Form FmHA or its
successor agency under Public Law 103-354 442-2, schedules 1 and 2, or
similar form;
(2) Current balance sheet and income statement;
(3) Exhibit A of this subpart, appropriately completed;
(4) Form RD 3560-15, ``Reamortization Request,'' completed in
accordance with Sec. 1951.223(c)(3) of this subpart, when applicable;
and
(5) Any other necessary supporting information.
(c) Processing. When legally permissible and administratively
acceptable, the total outstanding principal and interest balances will
be reamortized rather than only the delinquent amount. Accrued interest
will be at the rate currently reflected in Finance Office records.
(1) Reamortizations will be perfected in accordance with OGC closing
instructions.
(2) When debt instruments are being modified or new debt instruments
executed, bond counsel or local counsel, as appropriate, must provide an
opinion indicating any effect on FmHA or its successor agency under
Public Law 103-354's security position. The FmHA or its successor agency
under Public Law 103-354 approval official must determine that the
government's interest will remain adequately protected if the security
position will be affected.
(3) Notes. Except as provided in Sec. 1951.223(c)(4), loans
evidenced by notes will be reamortized through a new evidence of debt
unless OGC recommends that the terms of the existing document be
modified. Form RD 3560-15 may be used to effect such modifications, if
legally adequate, or other forms may be used if acceptable to FmHA or
its successor agency under Public Law 103-354. The original of a new
note or any endorsement required by OGC is to be attached to the
existing note, filed in the servicing office, and retained until the
account is paid in full or otherwise satisfied. A copy will be forwarded
to the Finance Office.
(4) Bonds and notes with other than real or chattel security pledged
to FmHA or its successor agency under Public Law 103-354. Loans
evidenced by bonds, or by notes with other than real or chattel security
pledged to FmHA or its successor agency under Public Law 103-354, may be
reamortized using procedures acceptable to the State Director and
legally permissible under State statutes in the opinion of the
borrower's counsel and the OGC.
(i) The procedure may consist of a new debt instrument or agreement
for the total FmHA or its successor agency under Public Law 103-354
indebtedness, including the delinquency, or a new instrument or
agreement whereby the borrower agrees to repay the delinquency plus
interest. If a new instrument or agreement for only the delinquent
amount is used, a new loan number will be assigned to the delinquent
amount, and the borrower will be required to pay the amounts due under
both the original and the new instruments.
(ii) When a delinquent or problem loan cannot be reamortized by
issuing a new debt instrument due to State statutes, or the cost of
preparation and closing is prohibitive, the rescheduling agreement
provided as Exhibit H of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), may be used.
(iii) Section 1942.19 of subpart A of part 1942 of this chapter
applies to any new bonds issued unless precluded by State statutes or an
exception is approved by the National Office.
[[Page 45]]
(iv) If State statutes do not require the release of existing bonds,
they will be retained with the new bond instrument or agreement in the
FmHA or its successor agency under Public Law 103-354 office authorized
to store such documents. If State statutes require release of existing
bonds, the exchange will be accomplished by the District Director, and
the new bond and/or agreement will be retained in the appropriate
office.
(5) New debt instruments or agreements. (i) A copy will be sent to
the Finance Office after execution, except that if serial bonds are
used, the original bond(s) will be submitted to the Finance Office.
(ii) Any agreement used will contain:
(A) The amount delinquent, which must equal the total delinquency on
the account and net advances (the unpaid principal on any advance and
the accrued interest on any advance through the date of reamortization,
less interest payments credited on the advance account);
(B) The effective date of the reamortization;
(C) The number of years over which the delinquency will be
amortized;
(D) The repayment schedule; and
(E) The interest rate.
(iii) A payment will be due on the next scheduled due date.
Deferment of interest and/or principal payments is not authorized.
(iv) A separate new instrument will be required for each loan being
reamortized.
(v) If amortized payments are not used, the schedule of principal
installments developed will be such that combined payments of principal
and interest closely approximate an amortized payment.
(d) Reamortization with interest rate adjustment--Water and waste
borrowers only. A borrower that is seriously delinquent in loan payments
may be eligible for loan reamortization with interest rate adjustment.
The purpose of loan reamortization with interest rate adjustment is to
provide relief for a borrower that is unable to service the outstanding
loan in accordance with its existing terms and to enhance recovery on
the loan. A borrower must meet the conditions of this subpart to be
considered eligible for this provision.
(1) Eligibility determination. The State Director, Rural
Development, may submit to the Administrator for approval an adjustment
in the rate of interest charged on outstanding loans only for those
borrowers who meet the following requirements:
(i) The borrower has exhausted all other servicing provisions
contained in this subpart;
(ii) The borrower is experiencing severe financial problems;
(iii) Any management deficiencies must have been corrected or the
borrower must submit a plan acceptable to the State Office to correct
any deficiencies before an interest rate adjustment may be considered;
(iv) Borrower user rates must be comparable to similar systems. In
addition, the operating expenses reported by the borrower must appear
reasonable in relation to similar system expenses;
(v) The borrower has cooperated with Rural Development in exploring
alternative servicing options and has acted in good faith with regard to
eliminating the delinquency and complying with its loan agreements and
agency regulations; and
(vi) The borrower's account must be delinquent at least one annual
debt payment for 180 days.
(2) Conditions of approval. All borrowers approved for an adjustment
in the rate of interest by the Administrator shall agree to the
following conditions:
(i) The borrower shall agree not to maintain cash or cash reserves
beyond what is reasonable at the time of interest rate adjustment to
meet debt service, operating, and reserve requirements.
(ii) A review of the borrower's management and business operations
may be required at the discretion of the State Director. This review
shall be performed by an independent expert who has been recommended by
the State Director and approved by the National Office. The borrower
must agree to implement all recommendations made by the State Director
as a result of the review.
[[Page 46]]
(iii) If requested, a copy of the latest audited financial
statements or management report must be submitted to the Administrator.
(3) Reamortization. At the discretion of the Administrator, the
interest rate charged on outstanding loans of eligible borrowers may be
adjusted to no less than the poverty interest rate and the term of the
loans may be extended up to a new 40 year term or the remaining useful
life of the facility, whichever is less.
[55 FR 4399, Feb. 8, 1990, as amended at 56 FR 25351, June 4, 1991; 63
FR 41714, Aug. 5, 1998; 69 FR 69105, Nov. 26, 2004]
Sec. 1951.224 Third party agreements.
The State Director may authorize all or part of a facility to be
operated, maintained or managed by a third party under a contract,
management agreement, written lease, or other third party agreement as
follows:
(a) Leases--(1) Lease of all or part of a facility (except when
liquidation action is pending). The State Director may consent to the
leasing of all or a portion of security property when:
(i) Leasing is the only feasible way to provide the service and is
the customary practice as required under Sec. 1942.17(b)(4) of subpart
A of part 1942 of this chapter;
(ii) The borrower retains ultimate responsibility for operating,
maintaining, and managing the facility and for its continued
availability and use at reasonable rates and terms as required under
Sec. 1942.17(b)(4) of subpart A of part 1942 of this chapter. The lease
agreement must clearly reflect sufficient control by the borrower over
the operation, maintenance, and management of the facility to assure
that the borrower maintains this responsibility;
(iii) The lease agreement contains provisions prohibiting any
amendments to the lease or any subleasing arrangements without prior
written approval from FmHA or its successor agency under Public Law 103-
354;
(iv) The lease document contains nondiscrimination requirements as
set forth in Sec. 1951.204 of this subpart;
(v) The lease contains a provision which recognizes that FmHA or its
successor agency under Public Law 103-354 is a lienholder on the subject
facility and, as such, the lease is subordinate to the rights and claims
of FmHA or its successor agency under Public Law 103-354 as lienholder;
and
(vi) The lease does not constitute a lease/purchase arrangement,
unless permitted under Sec. 1951.232 of this subpart.
(2) Lease of all or part of a facility (pending liquidation action).
The State Director may consent to the leasing of all or a portion of
security property when:
(i) The lease will not adversely affect the repayment of the loan or
the Government's rights under the security or other instruments;
(ii) The State Director has determined that liquidation will likely
be necessary and the lease is necessary until liquidation can be
accomplished;
(iii) Leasing is not an alternative to, or means of delaying,
liquidation action;
(iv) The lease and use of any proceeds from the lease will further
the objective of the loan;
(v) Rental income is assigned to FmHA or its successor agency under
Public Law 103-354 in an amount sufficient to make regular payments on
the loan and operate and maintain the facility unless such payments are
otherwise adequately secured;
(vi) The lease is advantageous to the borrower and is not
disadvantageous to the Government;
(vii) If foreclosure action has been approved and the case has been
submitted to OGC, consent to lease and use of proceeds will be granted
only with OGC's concurrence; and
(viii) The lease does not exceed a one-year period. The property may
not be under lease more than two consecutive years without authorization
from the National Office. Long-term leases may be approved, with prior
authorization from the National Office, if necessary to ensure the
continuation of services for which the loan was made and if other
servicing options contained in this subpart have been determined
inappropriate for servicing the loan.
(b) Mineral leases. Unless liquidation is pending, the State
Director is authorized to approve mineral leases when:
[[Page 47]]
(1) The lessee agrees, or is liable without any agreement, to pay
adequate compensation for any damage to the real estate surface and
improvements. Damage compensation will be assigned to FmHA or its
successor agency under Public Law 103-354 or the prior lienholder by the
use of Form FmHA or its successor agency under Public Law 103-354 443-
16, ``Assignment of Income from Real Estate Security,'' or other
appropriate instrument;
(2) Royalty payments are adequate and are assigned to FmHA or its
successor agency under Public Law 103-354 on Form FmHA or its successor
agency under Public Law 103-354 443-16 in an amount determined by the
State Director to be adequate to protect the Government's interest;
(3) All or a portion of delay rentals and bonus payments may be
assigned on Form FmHA or its successor agency under Public Law 103-354
443-16 if needed for protection of the Government's interest;
(4) The lease, subordination, or consent form is acceptable to OGC;
(5) The lease will not interfere with the purpose for which the loan
or grant was made; and
(6) When FmHA or its successor agency under Public Law 103-354
consent is required, the borrower submits a completed Form FmHA or its
successor agency under Public Law 103-354 465-1. The form will include
the terms of the proposed agreement and specify the use of all proceeds,
including any to be released to the borrower.
(c) Management agreements. Management agreements should contain the
minimum suggested contents contained in Guide 24 of part 1942, subpart A
of this chapter (available in any FmHA or its successor agency under
Public Law 103-354 office).
(d) Affiliation agreements. An affiliation agreement between the
borrower and a third party may be approved by the State Director, with
OGC concurrence, if it provides for shared services between the parties
and does not result in changes to the borrower's legal organizational
structure which would result in its loss of control over its assets and/
or over the operation, management, and maintenance of the facility to
the extent that it cannot carry out its responsibilities as set forth in
Sec. 1942.17(b)(4) of subpart A of part 1942 of this chapter. However,
affiliation agreements which result in a loss of borrower control may be
approved with prior concurrence of the Administrator if the loan is
reclassified as a nonprogram loan and the borrower is notified that it
is no longer eligible for any program benefit. Requests forwarded to the
Administrator will contain the case file, the proposed affiliation
agreement, and necessary supporting information.
(e) Processing. The consent of other lienholders will be obtained
when required. When National Office approval is required, or if the
State Director wishes to have a transaction reviewed prior to approval,
the case file will be forwarded to the National Office and will include:
(1) A copy of the proposed agreement;
(2) Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), appropriately
completed;
(3) Any other necessary supporting information.
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 21199, May 19, 1992]
Sec. 1951.225 Liquidation of security.
When the District Director believes that continued servicing will
not accomplish the objectives of the loan, he or she will complete
Exhibit A of this subpart (available in any FmHA or its successor agency
under Public Law 103-354 office), and submit it with the District Office
file to the State Office. If the State Director determines the account
should be liquidated, he or she will encourage the borrower to dispose
of the FmHA or its successor agency under Public Law 103-354 security
voluntarily through a sale or transfer and assumption, and establish a
specified period, not to exceed 180 days, to accomplish the action. If a
transfer or voluntary sale is not carried out, the loan will be
liquidated according to subpart A of part 1955 of this chapter.
[[Page 48]]
Sec. 1951.226 Sale or exchange of security property.
A cash sale of all or a portion of a borrower's assets or an
exchange of security property may be approved subject to the conditions
set forth below.
(a) Authorities. (1) The District Director is authorized to approve
actions under this section involving only chattels.
(2) The State Director is authorized to approve real estate
transactions except as noted in the following paragraph.
(3) Approval of the Administrator must be obtained when a
substantial loss to the Government will result from a sale; one or more
members of the borrower's organization proposes to purchase the
property; it is proposed to sell the property for less than the
appraised value; or the buyer refuses to assume all the terms of the
Grant Agreement. It is not FmHA or its successor agency under Public Law
103-354 policy to sell security property to one or more members of the
borrower's organization at a price which will result in a loss to the
Government.
(b) General. Approval may be given when the approval official
determines and documents that:
(1) The consideration is adequate;
(2) The release will not prevent carrying out the purpose of the
loan;
(3) The remaining property is adequate security for the loan or the
transaction will not adversely affect FmHA or its successor agency under
Public Law 103-354's security position;
(4) If the property to be sold or exchanged is to be used for the
same or similar purposes for which the loan or grant was made, the
purchaser will:
(i) Execute Form FmHA or its successor agency under Public Law 103-
354 400-4, ``Assurance Agreement.'' The covenants involved will remain
in effect as long as the property continues to be used for the same or
similar purposes for which the loan or grant was made. The instrument of
conveyance will contain the covenant referenced in Sec. 1951.204 of
this subpart; and
(ii) Provide to FmHA or its successor agency under Public Law 103-
354 a written agreement assuming all rights and obligations of the
original grantee if grant funds were provided. See Sec. 1951.215 of
this subpart for additional guidance on grant agreements.
(5) The proceeds remaining after paying any reasonable and necessary
selling expenses are used for one or more of the following purposes:
(i) To pay on FmHA or its successor agency under Public Law 103-354
debts according to Sec. 1951.221 of this subpart; on debts secured by a
prior lien; and on debts secured by a subsequent lien if it is to FmHA
or its successor agency under Public Law 103-354's advantage.
(ii) To purchase or acquire through exchange property more suited to
the borrower's needs, if the FmHA or its successor agency under Public
Law 103-354 debt will be as well secured after the transaction as
before.
(iii) To develop or enlarge the facility if necessary to improve the
borrower's debt-paying ability; place the operation on a sounder basis;
or otherwise further the loan objectives and purposes.
(6) Disposition of property acquired in whole or part with FmHA or
its successor agency under Public Law 103-354 grant funds will be
handled in accordance with the grant agreement.
(c) Processing. (1) The case file will contain the following:
(i) Except for actions approved by the District Director, Exhibit A
of this subpart (available in any FmHA or its successor agency under
Public Law 103-354 office), appropriately completed;
(ii) The appraisal report, if appropriate;
(iii) Name of purchaser, anticipated sales price, and proposed terms
and conditions;
(iv) Form FmHA or its successor agency under Public Law 103-354
1965-8, ``Release from Personal Liability,'' including the County
Committee memorandum and the State Director's recommendations;
(v) An executed Form FmHA or its successor agency under Public Law
103-354 400-4, if applicable;
(vi) An executed Form FmHA or its successor agency under Public Law
103-354 465-1, if applicable;
(vii) Form FmHA or its successor agency under Public Law 103-354
460-4, ``Satisfaction,'' if a debt has been paid in full or satisfied by
debt settlement action. For cases involving real estate,
[[Page 49]]
a similar form may be used if approved by OGC; and
(viii) Written approval of the Administrator when required under
Sec. 1951.226(a)(3) of this subpart;
(2) Releasing security. (i) The District Director is authorized to
satisfy or terminate chattel security instruments when Sec. 1951.226(b)
of this subpart and Sec. 1962.17 and Sec. 1962.27 of subpart A of part
1962 of this chapter have been complied with. Partial release may be
made by using Form FmHA or its successor agency under Public Law 103-354
460-1, ``Partial Release,'' or Form FmHA or its successor agency under
Public Law 103-354 462-12, ``Statements of Continuation, Partial
Release, Assignment, Etc.''
(ii) Subject to Sec. 1951.226(b) of this subpart, the State
Director is authorized to release part or all of an interest in real
estate security by approving Form FmHA or its successor agency under
Public Law 103-354 465-1. Partial release of real estate security may be
made by use of Form FmHA or its successor agency under Public Law 103-
354 460-1 or other form approved by OGC.
(3) FmHA or its successor agency under Public Law 103-354 liens will
not be released until the sale proceeds are received for application on
the Government's claim. In states where it is necessary to obtain the
insured note from the lender to present to the recorder before releasing
a portion of the land from the mortgage, the borrower must pay any cost
for postage and insurance of the note while in transit. The District
Director will advise the borrower when it requests a partial release
that it must pay these costs. If the borrower is unable to pay the costs
from its own funds, the amounts shown on the statement of actual costs
furnished by the insured lender may be deducted from the sale proceeds.
(d) Release from liability. (1) When an FmHA or its successor agency
under Public Law 103-354 debt is paid in full from the proceeds of a
sale, the borrower will be released from liability by use of Form FmHA
or its successor agency under Public Law 103-354 1965-8.
(2) When sale proceeds are not sufficient to pay the FmHA or its
successor agency under Public Law 103-354 debt in full, any balance
remaining will be handled in accordance with procedures for debt
settlement actions set forth in subpart C of part 1956 of this chapter.
(i) In determining whether a borrower should be released from
liability, the State Director will consider the borrower's debt-paying
ability based on its assets and income at the time of the sale.
(ii) Release from liability will be accomplished by using Form FmHA
or its successor agency under Public Law 103-354 1965-8 and obtaining
from the County Committee a memorandum recommending the release which
contains the following statement:
---------------- in our opinion does not have reasonable debt-paying
ability to pay the balance of the debt after considering its assets and
income at the time of the sale. The borrower has cooperated in good
faith, used due diligence to maintain the security against loss, and
otherwise fulfilled the covenants incident to the loan to the best of
its ability. Therefore, we recommend that the borrower be released from
liability upon the completion of the sale.
[55 FR 4399, Feb. 8, 1990, as amended at 69 FR 70884, Dec. 8, 2004]
Sec. 1951.227 Protective advances.
The State Director is authorized to approve, without regard to any
loan or total indebtedness limitation, vouchers to pay costs, including
insurance and real estate taxes, to preserve and protect the security,
the lien, or the priority of the lien securing the debt owed to or
insured by FmHA or its successor agency under Public Law 103-354 if the
debt instrument provides that FmHA or its successor agency under Public
Law 103-354 may voucher the account to protect its lien or security. The
State Director must determine that authorizing a protective advance is
in the best interest of the government. For insurance, factors such as
the amount of advance, occupancy of the structure, vulnerability to
damage and present value of the structure and contents will be
considered.
(a) Protective advances are considered due and payable when
advanced. Advances bear interest at the rate specified in the most
recent debt instrument authorizing such an advance.
(b) Protective advances are not to be used as a substitute for a
loan.
[[Page 50]]
(c) Vouchers are prepared in accordance with applicable procedures
set forth in FmHA or its successor agency under Public Law 103-354
Instruction 2024-A (available in any FmHA or its successor agency under
Public Law 103-354 office).
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36591, Aug. 14, 1992]
Sec. Sec. 1951.228-1951.229 [Reserved]
Sec. 1951.230 Transfer of security and assumption of loans.
(a) General. It is FmHA or its successor agency under Public Law
103-354 policy to approve transfers and assumptions to transferees which
will continue the original purpose of the loan in accordance with the
following and specific requirements relating to eligible and ineligible
borrowers set forth below:
(1) The present borrower is unable or unwilling to accomplish the
objectives of the loan.
(2) The transfer will not be disadvantageous to the Government or
adversely affect either FmHA or its successor agency under Public Law
103-354's security position or the FmHA or its successor agency under
Public Law 103-354 program in the area.
(3) Transfers to eligible applicants will receive preference over
transfers to ineligible applicants if recovery to FmHA or its successor
agency under Public Law 103-354 is not less than it would be if the
transfer were to an ineligible applicant.
(4) If the FmHA or its successor agency under Public Law 103-354
debt(s) exceed the present market value of the security as determined by
the State Director, the transferee will assume an amount at least equal
to the present value.
(5) If the transfer and assumption is to one or more members of the
borrower's organization, there must not be a loss to the government.
(6) FmHA or its successor agency under Public Law 103-354 concurs in
plans for disposition of funds in the transferor's debt service,
reserve, operation and maintenance, and any other project account,
including supervised bank accounts.
(7) When the property to be transferred is to be used for the same
or similar purposes for which the loan was made, the transferee will
execute Form FmHA or its successor agency under Public Law 103-354 400-4
to continue nondiscrimination covenants and provide to FmHA or its
successor agency under Public Law 103-354 a written certification
assuming all terms of the Grant Agreement executed by the transferor.
All instruments of conveyance will contain the covenant referenced in
Sec. 1951.204 of this subpart.
(8) This subpart does not preclude the transferor from receiving
equity payments when the full account of the FmHA or its successor
agency under Public Law 103-354 debt is assumed. However, equity
payments will not be made on more favorable terms than those on which
the balance of the FmHA or its successor agency under Public Law 103-354
debt will be paid.
(9) Transferees must have the ability to pay the FmHA or its
successor agency under Public Law 103-354 debt as provided in the
assumption agreement and the legal capacity to enter into the contract.
The applicant will submit a current balanced sheet using Form FmHA or
its successor agency under Public Law 103-354 442-3, ``Balance Sheet,''
and budget and cash flow information using Form FmHA or its successor
agency under Public Law 103-354 442-2, or similar forms. For ineligible
applicants, such information may be supplemented by a credit report from
an independent source or verified by an independent certified public
accountant.
(10) For purposes of this subpart, transfers to eligible applicants
will include mergers and consolidations. Mergers occur when two or more
corporations combine in such a manner that only one remains in
existence. In a consolidation, two or more corporations combine to form
a new, consolidated corporation, with all of the original corporations
ceasing to exist. In both mergers and consolidations, the surviving or
emerging corporation takes the assets and assumes the liabilities of the
corporation(s) which ceased to exist. Such transactions must be
distinguished from transfers and assumptions, in which a transferor will
[[Page 51]]
not necessarily go out of existence and the transferee will not always
take all assets or assume all liabilities of the transferor.
(11) A current appraisal report to establish the present market
value of the security will be completed in accordance with Sec.
1951.220(i) of this subpart when the full debt is not being assumed.
(12) There must be no lien, judgment, or similar claims of other
parties against the FmHA or its successor agency under Public Law 103-
354 security being transferred unless the transferee is willing to
accept such claims and the FmHA or its successor agency under Public Law
103-354 approval official determines that they will not prevent the
transferee from repaying the FmHA or its successor agency under Public
Law 103-354 debt, meeting all operating and maintenance costs, and
maintaining required reserves. The written consent of any other
lienholder will be obtained where required.
(b) Authorities. The State Director is authorized to approve
transfers and assumptions of FmHA or its successor agency under Public
Law 103-354 loans in accordance with the provisions of paragraphs (c)
and (d) of this section, except for the following, which require prior
approval of the Administrator:
(1) Proposals which will involve a loss to the Government;
(2) Proposals involving a transfer to one or more members of the
present borrower's organization;
(3) Proposals involving rates and terms which are more liberal than
those set forth in Sec. 1951.230(c) of this subpart;
(4) Proposals involving a cash payment to the present borrower which
exceeds the actual sales expenses;
(5) The transferee refuses to assume all terms of the Grant
Agreement for a project financed in part with FmHA or its successor
agency under Public Law 103-354 grant funds; and
(6) Proposed transfers to ineligible applicants when there is no
significant downpayment and/or the repayment period is to exceed 25
years.
(c) Eligible applicants. Except as noted in Sec. 1951.230(b) of
this subpart, the State Director is authorized to approve transfers of
security property to and assumptions of FmHA or its successor agency
under Public Law 103-354 debts by transferees who would be eligible for
financial assistance under the loan program involved for the type of
loan being transferred. The State Director must determine and document
that eligibility requirements have been satisfied.
(1) If a loan is evidenced and secured by a note and lien on real or
chattel property, Form FmHA or its successor agency under Public Law
103-354 1951-15, ``Community Programs Assumption Agreement,'' will be
executed by the transferee. When the terms of the loan are changed, the
new repayment period may not exceed the lesser of the repayment period
for a new loan of the type involved or the expected life of the
facility. Interest will accrue at the rate currently reflected in
Finance Office records.
(2) If the loan is evidenced and secured by a bond, procedures will
be followed which are acceptable to the State Director and legally
permissible under State law in the opinion of the borrower's counsel and
OGC. The interest rate will be the rate currently reflected in Finance
Office records. Any new repayment period provided may not exceed the
lesser of the repayment period for a new loan of the type involved or
the expected life of the facility.
(3) Loans being transferred and assumed may be combined when the
security is the same, new terms are being provided, a new debt
instrument will be issued, and the loans have the same interest rate and
are for the same purpose. If applicable, Sec. 1942.19(h)(11) will
govern the preparation of any new debt instruments required.
(4) A loan may be made in connection with a transfer if the
transferee meets all eligibility and other requirements for the kind of
loan being made. Such a loan will be considered as a separate loan, and
must be evidenced by a separate debt instrument. However, it is
permissible to have one authorizing loan resolution or ordinance if
permitted by State statutes.
(5) Any development funds remaining in a supervised bank account
which are not to be refunded to FmHA or its successor agency under
Public Law 103-354
[[Page 52]]
will be transferred to a supervised bank account for the transferee
simultaneously with the closing of the transfer for use in completing
planned development.
(d) Ineligible applicants. Except as noted in Sec. 1951.230(b) of
this subpart, the State Director is authorized to approve transfer and
assumptions to transferees who would not be eligible for financial
assistance under the loan program involved for the type of loan being
transferred. However, the State Director is authorized to approve all
transfers of incorporated Economic Opportunity Cooperative loans to
ineligible applicants without regard to the requirements set forth in
Sec. 1951.230(b). Such transfers are considered only when an eligible
transferee is not available or when the recovery to FmHA or its
successor agency under Public Law 103-354 from a transfer to an
available eligible transferee would be less. Transfers are not to be
considered as a means by which members of the transferor's governing
body can obtain an equity or as a method of providing a source of easy
credit for purchasers.
(1) Ineligible applicants must pay a one-time nonrefundable transfer
fee when they submit an application or proposal.
(i) The National Office will issue a directive annually advising the
field of the amount of the fee. Any cost for appraisals performed by
non-FmHA or its successor agency under Public Law 103-354 personnel will
be handled in accordance with FmHA or its successor agency under Public
Law 103-354 Instruction 2024-A (available in any FmHA or its successor
agency under Public Law 103-354 office), and will be added to the basic
fee.
(ii) Transfer fees will be deposited in accordance with current
instructions governing the handling of collections. The fees will be
identified as transfer fees on Form FmHA or its successor agency under
Public Law 103-354 451-2, ``Schedule of Remittances,'' and will be
included on the Daily Activity Report. The amount will be credited to
the Rural Development Insurance Fund.
(iii) If the State Director determines waiver of the transfer fee is
in the best interest of the government, he or she will request prior
approval by submitting the transfer case file established in accordance
with processing requirements set forth below to the National Office,
Attention (appropriate program division).
(2) Any funds remaining in a supervised bank account will be
refunded to FmHA or its successor agency under Public Law 103-354 and
applied to the debt as a condition of transfer.
(3) The interest rate will be the greater of the rate specified for
the note in current Finance Office records or the market rate for
Community Programs as of the transfer closing date.
(4) The transferred loan will be identified as an NP loan and
serviced in accordance with Sec. 1951.216 of this subpart.
(5) Form FmHA or its successor agency under Public Law 103-354 465-
5, ``Transfer of Real Estate Security,'' will be used, and will be
modified as appropriate before execution.
(6) Consideration will be given to obtaining individual liability
agreements from members of the transferee organization.
(e) Release from liability. Except when nonprogram loans or Economic
Opportunity Cooperative loans are involved, transferors may be released
from liability in accordance with the following:
(1) If the full amount of the debt is assumed, the State Director
may approve the release from liability by use of Form FmHA or its
successor agency under Public Law 103-354 1965-8.
(2) If less than the full amount of the debt is assumed, any balance
remaining will be handled in accordance with procedures for debt
settlement actions set forth in subpart C of part 1956 of this chapter.
(i) In determining whether a borrower should be released from
liability, the State Director will consider the borrower's debt-paying
ability based on its assets and income at the time of the sale.
(ii) Release from liability will be accomplished by using Form FmHA
or its successor agency under Public Law 103-354 1965-8 and obtaining
from the County Committee a memorandum recommending the release which
contains the statement set forth in Sec. 1951.226(d)(2)(ii) of this
subpart.
[[Page 53]]
(f) Processing. Transfers and assumptions will be processed in
accordance with the following:
(1) A transfer case file organized in accordance with FmHA or its
successor agency under Public Law 103-354 Instruction 2033-A (available
in any FmHA or its successor agency under Public Law 103-354 office)
will be established, and will contain all documents and correspondence
relating to the transfer. The forms utilized for transfers and
assumptions are listed in Exhibit D (available in any FmHA or its
successor agency under Public Law 103-354 office). All forms listed must
be completed and included in the case file unless inappropriate for the
particular situation.
(2) A letter of conditions establishing requirements to be met in
connection with the transfer and assumption will be issued, and the
transferee will be required to execute an Agency approved form, ``Letter
of Intent to Meet Conditions,'' prior to the closing of the transfer.
(3) Both the transferee and transferor are responsible for obtaining
the legal services necessary to accomplish the transfer.
(4) Transfers will be closed in accordance with instructions
provided by OGC.
(5) When the transferee is a public body and Form FmHA or its
successor agency under Public Law 103-354 1951-15 is not suitable, the
transferee's attorney will prepare the documents necessary to effect the
transfer and assumption and submit them for approval by FmHA or its
successor agency under Public Law 103-354 and OGC.
(6) Accrued interest to be entered in either Table 1 of Form FmHA or
its successor agency under Public Law 103-354 1951-15 or other
appropriate assumption agreement is to be obtained using the status
screen option in ADPS.
(7) The following forms, if utilized, will be sent immediately to
the Finance Office:
(i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 or other appropriate assumption agreement;
(ii) A conformed copy of Form FmHA or its successor agency under
Public Law 103-354 1965-8.
(8) If an FmHA or its successor agency under Public Law 103-354
grant was made in conjunction with the loan being transferred, the
transferee must agree in writing to assume all rights and obligations of
the original grantee. See Sec. 1951.215 for additional guidance on
grant agreements.
(9) The transferee will obtain insurance according to requirements
for the loan(s) being transferred unless the approval official requires
additional insurance. When the entire FmHA or its successor agency under
Public Law 103-354 debt is being assumed and an amount has been advanced
for insurance premiums or any other purposes, the transfer will not be
completed until the Finance Office has charged the advance to the
transferor's account.
(10) Rates and terms. (i) If the transfer will be closed at the same
rates and terms, the transferee will be informed of the amount needed to
be on schedule by the next installment due date.
(ii) If the transfer will be closed at new rates and terms, the
transferee will be informed of the amount of principal and interest owed
based on information obtained using the ADPS status screen option.
(11) The effective date of a transfer is the actual date the
transfer is closed, which is the same date Form FmHA or its successor
agency under Public Law 103-354 1951-15 or other appropriate assumption
agreement is signed.
(12) Title to all assets will be conveyed from the transferor to the
transferee unless other arrangements are agreed upon by all parties
concerned, including FmHA or its successor agency under Public Law 103-
354. All instruments of conveyance will contain the covenant referenced
in Sec. 1951.204 of this subpart.
(13) If an insured loan being held by an investor is involved, the
Finance Office will have to repurchase the note prior to processing the
assumption agreement.
(14) When National Office approval is required, the transfer case
file will be submitted to the Administrator, Attention: (appropriate
program division),
[[Page 54]]
with Exhibit A of this subpart (available in any FmHA or its successor
agency under Public Law 103-354 office), appropriately completed, and a
cover memorandum which denotes any unusual circumstances.
(15) The District Director must review Form FmHA or its successor
agency under Public Law 103-354 1910-11, ``Applicant Certification,
Federal Collection Policies for Consumer or Commercial Debts,'' with the
applicant, and the form must be signed by the applicant and included in
the file.
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36590, Aug. 14, 1992; 66
FR 1569, Jan. 9, 2001; 69 FR 70884, Dec. 8, 2004]
Sec. 1951.231 Special provisions applicable to Economic Opportunity (EO)
Cooperative Loans.
(a) Withdrawal of member and transfer to and assumption by new
members of Unincorporated Cooperatives. (1) Withdrawal of a member who
is no longer utilizing the services of an association and transfer of
withdrawing member interest in the association to a new member who will
assume the entire unpaid balance of the indebtedness of the withdrawing
member may be permitted, if the remaining members agree to accept the
new member and the transfer will not adversely affect collection of the
loan. The servicing office will submit to the State Office the borrow
case file and the following:
(i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 executed by the proposed new member;
(ii) Statement of the current amount of the indebtedness involved;
(iii) A description and statement of the value of the security
property;
(iv) A memorandum to justify the transaction;
(v) Form FmHA or its successor agency under Public Law 103-354 440-
2, ``County Committee Certification or Recommendation;''
(vi) Exhibit B of this subpart, ``Agreement for New Member (With or
Without Withdrawing Member),'' (available in any FmHA or its successor
agency under Public Law 103-354 office), executed by the remaining
members of the association, the proposed new member, and the withdrawing
member; and
(vii) Form FmHA or its successor agency under Public Law 103-354
450-12, ``Bill of Sale (Transfer by Withdrawing Member),'' executed by
the withdrawing member.
(2) If the State Director determines after review of the above
information that the proposed new member is eligible and the transfer is
justified, the State Director may approve the transfer and assumption by
executing Form FmHA or its successor agency under Public Law 103-354
1951-15.
(3) Upon completion of the above actions, the State Director may
release the outgoing member from personal liability using Form FmHA or
its successor agency under Public Law 103-354 1965-8.
(4) If Finance Office records must be changed due to changes in
borrower name, address and/or case number, necessary documents,
including Form FmHA or its successor agency under Public Law 103-354
1951-15 and, if applicable, Form FmHA or its successor agency under
Public Law 103-354 1965-8, will be forwarded to the Finance Office
immediately with a memorandum indicating that the purpose of the
submission is only to establish liability for a new member and release
an old member from liability.
(b) Withdrawal of members from Unincorporated Cooperatives when new
member not available. Withdrawal of a member who no longer utilizes the
services of an association may be permitted even though a new member is
not available, provided:
(1) The State Director determines that the remaining members have
sufficient need for the property, and that the withdrawal of the member
will not adversely affect collection of the loan; and
(2) The remaining members obtain from the outgoing member an
agreement conveying his or her interest in the cooperative property to
them. They may also wish to agree to protect the outgoing member against
liability on the debt owed to FmHA or its successor agency under Public
Law 103-354 as well as any other debts. Exhibit C of this subpart,
``Agreement for Withdrawal of Member (Without New Member),'' (available
in any FmHA or its successor agency under Public Law 103-
[[Page 55]]
354 office), may be used by the cooperative. FmHA or its successor
agency under Public Law 103-354 will not be a party to the agreement.
(c) Addition of new members (no withdrawing member or transfer
involved) for both Incorporated and Unincorporated Cooperatives. (1) A
new member may be admitted to the association even though there is no
withdrawing member, if:
(i) The members of the association agree to accept the proposed new
member, and
(ii) The State Director determines that the association owns
adequate facilities to provide service to the new member.
(2) The servicing office will submit to the State Office the case
file and items (i) through (vi) of Sec. 1951.231(a)(1).
(3) If the State Director determines after the review of the above
information that the proposed new member is eligible and the transaction
is justified, the State Director may approve the transaction by
executing Form FmHA or its successor agency under Public Law 103-354
1951-15.
(4) Form FmHA or its successor agency under Public Law 103-354 1951-
15 will be forwarded immediatly to the Finance Office with a memorandum
indicating that the form is intended only to establish liability for a
new member.
(d) Deceased members of Unincorporated Cooperatives. Form FmHA or
its successor agency under Public Law 103-354 442-24, ``Operating
Agreement,'' (now obsolete) was executed by recipients of these loans.
Paragraph 10 of that form provides that in case of the death of any
member, the heirs or personal representative of the deceased member
shall take the deceased member's place in the association. This
provision also covers sale of the decedent's interest in the association
if the sale is necessary to pay debts of the estate.
(1) If the heirs or personal representative do not wish to continue
membership in the association, the remaining members may be permitted to
continue to operate the property if FmHA or its successor agency under
Public Law 103-354's financial interest will not be jeopardized. The
remaining members should obtain from the deceased member's estate an
agreement conveying the estate's interest in the cooperative property to
them. The remaining members may wish to agree to protect the estate
against liability on the debt to FmHA or its successor agency under
Public Law 103-354 as well as any other debts of the cooperative.
(2) The requirement of Sec. 1962.46(h) of subpart A of part 1962
will also be followed.
(e) Action which affects individual members of Unincorporated EO
Cooperative security. The borrower will be expected to protect its own
interest in condemnation, trespass, quiet title, and other cases
affecting the security. The servicing office will immediately furnish
the complete facts concerning any action taken against individual
members of Unincorporated Cooperatives to the State Director together
with the case file.
(f) Debt Settlement. Debt settlement actions for Economic
Opportunity Cooperative loans must be handled under the Federal Claims
Collection Act; proposals will be submitted to the National Office for
review and approval.
Sec. 1951.232 Water and waste disposal systems which have become part of an
urban area.
A water and/or waste disposal system serving an area which was
formerly a rural area as defined in Sec. 1942.17(b)(2)(iii) and (iv) of
subpart A of part 1942 of this chapter, but which has become in its
entirety part of an urban area, will be serviced in accordance with this
section.
(a) Curtailment or limitation of service. Service may not be
curtailed or limited by the inclusion of a system within an urban area.
(b) Sale or transfer and assumption. (1) The urban community or
another entity may purchase the facility involved and immediately pay
the FmHA or its successor agency under Public Law 103-354 debt in full;
or
(2) The urban community or another entity may accept a transfer of
the FmHA or its successor agency under Public Law 103-354 debt on an
ineligible applicant basis.
(3) When a grant is involved, the entity will agree in writing to
assume all rights and obligations of the original
[[Page 56]]
grantee. See Sec. 1951.215 for additional guidance on grant agreements.
(c) Lease-purchase arrangement. If Sec. 1951.232(b) (l) and (2) of
this section are not practicable, the urban community may, with prior
approval of the National Office, operate and maintain the system under a
lease-purchase arrangement which provides that:
(1) The urban community will:
(i) Assume responsibility for operation and maintenance of the
facility, subject to nondiscrimination and all other requirements which
are applicable to the borrower, which are to be specified in the
agreement between the parties; and
(ii) Pay the association annually an amount sufficient to enable it
to meet all its obligations, including reserve account requirements.
(2) The FmHA or its successor agency under Public Law 103-354
borrower will:
(i) Meet its debt service and reserve account requirements to FmHA
or its successor agency under Public Law 103-354;
(ii) Retain its corporate existence until FmHA or its successor
agency under Public Law 103-354 has been paid in full; and
(iii) If agreed upon by both parties, convey title to the facility
to the urban community when the FmHA or its successor agency under
Public Law 103-354 debt has been paid in full.
(d) Processing. (1) Sale of a borrower's assets will be handled in
accordance with Sec. 1951.226 of this subpart.
(2) Transfer and assumption of a borrower's assets and indebtedness
will be handled in accordance with Sec. 1951.230 of this subpart.
(3) Lease-operation-to-purchase arrangements are not permitted.
(4) When a lease-purchase arrangement is proposed, the State
Director will obtain a proposed agreement drafted by either the borrower
or the urban community. The following will be forwarded to the
Administrator, Attention: Water and Waste Disposal Division, for review
and approval authorization:
(i) A copy of the proposed agreement;
(ii) Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), appropriately
completed;
(iii) OGC comments;
(iv) The case file, including all documentation appropriate for the
type of servicing action involved.
[55 FR 4399, Feb. 8, 1992, as amended at 57 FR 21199, May 19, 1992]
Sec. Sec. 1951.233-1951.239 [Reserved]
Sec. 1951.240 State Director's additional authorizations and guidance.
(a) Promote financing purposes and improve or maintain
collectibility. The State Director is authorized to perform the
following functions when the action is determined likely to promote the
loan or grant purposes without jeopardizing collectibility of the loan
or imparing the adequacy of the security; will strengthen the security;
or will facilitate, improve, or maintain the orderly collection of the
loan:
(1) Approve requests for permission to modify bylaws, articles of
incorporation, or other rules and regulations of recipients, including
changes in rate or fee schedules. Changes affecting the recipient's
legal organizational structure must be approved by OGC.
(2) Consent to requests by the recipient to incur additional
indebtedness, subject to applicable FmHA or its successor agency under
Public Law 103-354 instructions and covenants in the loan or grant
agreement.
(3) Renew existing security instruments.
(4) Approve the extension or expansion of facilities and services.
(5) Require additional security when:
(i) Existing security is inadequate and the loan or security
instruments obligate the borrower to give additional security; or
(ii) The loan is in default and additional security is acceptable in
lieu of other servicing actions.
(6) Release properties being sold by the borrower from mortgages
securing Rural Renewal loans if the amount of the notes and mortgages
given by the purchaser to the borrower equal the present market value
and are assigned and pledged to FmHA or its successor agency under
Public Law 103-354, and any money payable to the borrower is applied as
an extra payment on the Rural Renewal loan.
[[Page 57]]
(7) Approve requests for rights-of-way and easements and any
subordination necessary in connection with such requests.
(b) Referrals to National Office. All proposed servicing actions
which the State Director is not authorized by this subpart to approve
will be referred to the National Office.
(c) Defeasance of FmHA or its successor agency under Public Law 103-
354 indebtedness. Defeasance is the use of invested proceeds from a new
bond issue to repay outstanding bonds in accordance with the repayment
schedule of the outstanding bonds. The new issue supersedes the
contractual agreements the borrower agreed to in the prior issue.
Defeasance, or amending outstanding loan instruments and agreements to
permit defeasance, of FmHA or its successor agency under Public Law 103-
354 debt instruments is not authorized, since defeasance limits, or
eliminates entirely, the borrower's ability to comply with statutory
refinancing requirements implemented by subpart F of part 1951 of this
chapter.
Sec. 1951.241 Special provision for interest rate change.
(a) General. Effective October 1, 1981, and thereafter, upon request
of the borrower, the interest rate charged by FmHA or its successor
agency under Public Law 103-354 to water and waste disposal and
community facility borrowers shall be the lower of the rates in effect
at either the time of loan approval or loan closing. Pub. L. 99-88
provides that any FmHA or its successor agency under Public Law 103-354
grant funds associated with such loans shall be set in the amount based
on the interest rate in effect at the time of loan approval. Loans
closed October 1, 1981, through October 25, 1985, were closed at the
interest rate in effect at the time of loan approval and that interest
rate is reflected in the borrower's debt instrument. For community
facility and water and waste disposal loans closed on or after October
1, 1981, and for which the interest rate in effect at the time of loan
closing is lower than the interest rate in effect at the time of loan
approval, the borrower may request to be charged the lower interest
rate. The loan closing interest rate will be determined by FmHA or its
successor agency under Public Law 103-354 based upon requirements in
effect at the date of loan closing. Exhibit E of this subpart (available
in any FmHA or its successor agency under Public Law 103-354 office)
contains a summary of interest rate requirements for specific time
periods. Exhibit C of Subpart O of this part (available in any FmHA or
its successor agency under Public Law 103-354 office) will be used to
determine the interest rate and effective dates by category of poverty,
intermediate, and market rates. Exhibit F of this subpart (available in
any FmHA or its successor agency under Public Law 103-354 office)
contains the instructions on how to process a change of interest rate.
Loans meeting the criteria of this section that have been paid in full
are eligible for the borrower to request the lower interest rate. For
loan(s) that involved multiple advances of FmHA or its successor agency
under Public Law 103-354 funds using temporary debt instruments, wherein
the borrower requests the interest rate in effect at loan closing, the
interest rate charged shall be the rate in effect on the date when the
first temporary debt instrument was issued.
(b) Notification to borrower and borrower selection of interest
rate. (1) FmHA or its successor agency under Public Law 103-354
servicing officials will notify each borrower meeting the provisions of
this section of the availability of a choice of interest rate. The
notification will be made in writing at the earliest possible date,
utilizing Exhibit G of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), and sent by certified
mail, return receipt requested. Borrowers will be advised at the time of
notification that if a change of interest rate is requested, the change
will be accomplished administratively by FmHA or its successor agency
under Public Law 103-354. The effect of the change on the loan account
will also be fully explained to the borrower.
(2) Borrowers must notify FmHA or its successor agency under Public
Law 103-354 within 90 calendar days of the date of FmHA or its successor
agency under Public Law 103-354 notification
[[Page 58]]
indicating their election to retain the rate in effect at loan approval
or to change the rate to the rate in effect at the time of loan closing.
If the borrower does not respond within the 90-day period, FmHA or its
successor agency under Public Law 103-354 will not consider a future
request for a lower interest rate under the provisions of this subpart.
(3) The borrower is responsible for assuring that the official
executing the letter requesting the change of interest rate is duly
authorized and any action(s) necessary for this authorization have been
taken as required. Any costs associated with a change of interest rate
will be the responsibility of the borrower.
(c) Processing loan interest rate change. The State Director is
authorized to approve loan interest rate changes which meet the
requirements of this section. Loan interest rate changes will be
accomplished as follows:
(1) All loan payments already applied to the account(s) will be
reversed and reapplied by FmHA or its successor agency under Public Law
103-354 utilizing the changed interest rate. The balance remaining after
the completion of the reversal and reapplication procedures will be
applied first to any delinquency on the account and then to principal.
(2) For paid-in-full accounts which meet the criteria of Sec.
1951.241(a) of this subpart, the balance of loan payments after
completion of the reversal and reapplication procedures will be returned
to the borrower unless the borrower is delinquent on another FmHA or its
successor agency under Public Law 103-354 loan of the same type. In
those cases the amount will be applied to the delinquent amount owed,
with any balance refunded to the borrower.
(3) The Finance Office will administratively change the interest
rate on a borrower's account in accordance with notification from the
servicing official. The installment schedule set forth in each
borrower's debt instrument will not change. The original principal
schedule for principal-plus-interest accounts where principal only is
stipulated will continue to be used for payment calculation by the
Finance Office. Amortized accounts will adhere to the original payment
schedule and amount. The last scheduled principal installment will be
reduced by the amount of the balance previously generated by the
reversal and reapplication of payments.
(4) When FmHA or its successor agency under Public Law 103-354 has
processed a change of interest rate for an amortized loan and a
reduction in installment amounts is needed to provide for a sound
operation, the borrower may request reamortization in accordance with
Sec. 1951.223 of this subpart.
(5) The borrower will be notified in writing of the new interest
rate as changed.
Sec. 1951.242 Servicing delinquent Community Facility loans.
(a) For the purpose of this section, a loan is delinquent when a
borrower fails to make all or part of a payment by the due date.
(b) The delinquent loan borrower and the Agency, at its discretion,
may enter into a written workout agreement.
(c) For loans that are delinquent, the borrower must provide,
monthly comparative financial statements in a format that is acceptable
to the Agency by the 15th day of the following month. The Agency may
waive this requirement if it would cause a hardship for the borrower or
the borrower is actively marketing the security property.
[69 FR 70884, Dec. 8, 2004]
Sec. Sec. 1951.243-1951.249 [Reserved]
Sec. 1951.250 OMB control number.
The reporting and recordkeeping requirements contained in this
regulation have been approved by the Office of Management and Budget and
have been assigned OMB Control Number 0575-0066. Public reporting burden
for this collection of information is estimated to vary from fifteen
minutes to three hours per response including time for reviewing
instructions, searching existing data sources, gathering and maintaining
the data needed, and completing and reviewing the collection of
information.
[55 FR 4399, Feb. 8, 1990, as amended at 69 FR 70884, Dec. 8, 2004]
[[Page 59]]
Exhibits to Subpart E of Part 1951
Editorial Note: Exhibits A through H are not published in the Code
of Federal Regulations.
Exhibit A--Report on Servicing Action
Exhibit B--Agreement for New Member (With or Without Withdrawing Member)
Exhibit C--Agreement for Withdrawal of Member (Without New Member)
Exhibit D--Items to be Included in Transfer and Assumption Dockets (if
applicable)
Exhibit E--Interest Rate Requirements and Effective Dates
Exhibit F--Instruction to FmHA or Its Successor Agency Under Public Law
103-354 Personnel To Implement Public Law 100-233
Exhibit G--Letter to Borrower Notifying of Choice of Interest Rate
Exhibit H--Rescheduling Agreement--Public Bodies
Subpart F_Analyzing Credit Needs and Graduation of Borrowers
Source: 61 FR 35927, July 9, 1996, unless otherwise noted.
Sec. 1951.251 Purpose.
This subpart prescribes the policies to be followed when analyzing a
direct borrower's needs for continued Agency supervision, further
credit, and graduation. All loan accounts will be reviewed for
graduation in accordance with this subpart, with the exception of
Guaranteed, Watershed, Resource Conservation and Development, Rural
Development Loan Funds, and Rural Rental Housing loans made to build or
acquire new units pursuant to contracts entered into on or after
December 15, 1989, and Intermediary Relending Program loans. The term
``Agency'' used in this subpart refers to the Farm Service Agency (FSA)
including its county and state committees and their personnel), Rural
Utilities Service (RUS), Rural Housing Service (RHS), or Rural Business-
Cooperative Service (RBS), depending upon the loan program discussed
herein. This subpart does not apply to RHS direct single family housing
(SFH) customers.
[61 FR 35927, July 9, 1996, as amended at 61 FR 59778, Nov. 22, 1996]
Sec. 1951.252 Definitions.
Commercial classified. The Agency's highest quality Farm Credit
Programs (FCP) accounts. The financial condition of the borrowers is
strong enough to enable them to absorb the normal adversities of
agricultural production and marketing. There is ample security for all
loans, there is sufficient cash flow to meet the expenses of the
agricultural enterprise and the financial needs of the family, and to
service debts. The account is of such quality that commercial lenders
would likely view the loans as a profitable investment.
Farm Credit Programs (FCP) loans. FSA Farm Ownership (FO), Operating
(OL), Soil and Water (SW), Recreation (RL), Emergency (EM), Economic
Emergency (EE), Economic Opportunity (EO), Special Livestock (SL),
Softwood Timber (ST) loans, and Rural Housing loans for farm service
buildings (RHF).
Graduation, FCP. The payment in full of all FCP loans or all FCP
loans of one type (i.e., all loans made for chattel purposes or all
loans made for real estate purposes) by refinancing with other credit
sources either with or without an Agency loan guarantee. A loan made for
both chattel and real estate purposes, for example an EM loan, will be
classified according to how the majority of the loan's funds were
expended. Borrowers must continue with their farming operations to be
considered as graduated.
Graduation, other programs. The payment in full of any direct loan
for Community and Business Programs, and all direct loans for housing
programs, before maturity by refinancing with other credit sources.
Graduated housing borrowers must continue to hold title to the property.
Graduation, for other than FCP, does not include credit which is
guaranteed by the United States.
Prospectus, FCP. Consists of a transmittal letter with a current
balance sheet and projected year's budget attached. The applicant's or
borrower's name and address need not be withheld from the lender. The
prospectus is used to determine lender interest in financing or
refinancing specific Agency direct loan applicants and borrowers.
[[Page 60]]
The prospectus will provide information regarding the availability of an
Agency loan guarantee and interest assistance.
Reasonable rates and terms. Those commercial rates and terms which
borrowers are expected to meet when borrowing for similar purposes and
similar periods of time. The ``similar periods of time'' of available
commercial loans will be measured against, but need not be the same as,
the remaining or original term of the loan. In the case of Multi-Family
Housing (MFH) loans, ``reasonable rates and terms'' would be considered
to mean financing that would allow the units to be offered to eligible
tenants at rates consistent with other multi-family housing.
Servicing official. The district or county office official
responsible for the immediate servicing functions of the borrower.
Standard classified. These loan accounts are fully acceptable by
Agency standards. Loan risk and potential loan servicing costs are
higher than would be acceptable to other lenders, but all loans are
adequately secured. Repayment ability is adequate, and there is a high
probability that all loans will be repaid as scheduled and in full.
Sec. 1951.253 Objectives.
(a) [Reserved]
(b) Borrowers must graduate to other credit at reasonable rates and
terms when they are able to do so.
(c) If a borrower refuses to graduate, the account will be
liquidated under the following conditions:
(1) The borrower has the legal capacity and financial ability to
obtain other credit.
(2) Other credit is available from a commercial lender at reasonable
rates and terms. In the case of Labor Housing (LH), Rural Rental Housing
(RRH), and Rural Cooperative Housing (RCH) Programs, reasonable rates
and terms must also permit the borrowers to continue providing housing
for low and moderate income persons at rental rates tenants can afford
considering the loss of any subsidy which will be canceled when the loan
is paid in full.
(d) The Agency will enforce borrower graduation.
Sec. 1951.254 [Reserved]
Sec. 1951.255 Nondiscrimination.
All loan servicing actions described in this subpart will be
conducted without regard to race, color, religion, sex, familial status,
national origin, age, or physical or mental handicap.
Sec. Sec. 1951.256-1951.261 [Reserved]
Sec. 1951.262 Farm Credit Programs--graduation of borrowers.
(a)-(d) [Reserved]
(e) Graduation candidates. Borrowers who are classified
``commercial'' or ``standard'' are graduation candidates. At least every
2 years, all borrowers who have a current classification of commercial
or standard must submit a year-end balance sheet, actual financial
performance information for the most recent year, and a projected budget
for the current year to enable the Agency to reclassify their status and
determine their ability to graduate.
(f) Sending prospectus information to lenders. (1) The Agency will
distribute a borrower's prospectus to local lenders for possible
refinancing. The borrower's permission is not required, however, the
borrower must be notified of this action.
(2) The borrower is responsible for any application fees. The
borrower has 30 days from the date the borrower is notified of lender
interest in refinancing to make application, if required by the lender,
and refinance the FLP loan. For good cause, the borrower may be granted
a reasonable amount of additional time by the Agency.
[61 FR 35927, July 9, 1996, as amended at 62 FR 10120, Mar. 5, 1997]
Sec. 1951.263 Graduation of non-Farm Credit programs borrowers.
(a)-(b) [Reserved]
(c) The thorough review. Borrowers are required to supply such
financial information as the Agency deems necessary to determine whether
they are able to graduate to other credit. At a minimum, the financial
statements requested from the borrower must include a balance sheet and
a statement of income and expenses. Ordinarily, the
[[Page 61]]
financial statements will be those normally required at the end of the
particular borrower's fiscal year. For borrowers who are not requested
to furnish audited financial statements, the balance sheet and statement
of income and expenses may be of the borrower's own format if the
borrower's financial situation is accurately reflected. The borrower has
60 days for group type loans and 30 days for individual type loans to
supply the financial information requested.
(d) [Reserved]
(e) Requesting the borrower to graduate. (1) The Agency will send
written notice to borrowers found able to graduate requesting them to
graduate. The borrower must seek a loan only in the amount necessary to
repay the unpaid balance.
(2) Borrowers must provide evidence of their ability or inability to
graduate within 30 days for RH borrowers, and 90 days for group type
borrowers, after the date of the request. The Agency may allow
additional time for good cause, for example when a borrower expects to
receive income in the near future for the payment of accounts which
would substantially reduce the amount required for refinancing, or when
a borrower is a public body and must issue bonds to accomplish
graduation.
(3) If a borrower is unable to graduate the full amount of the loan,
the borrower must furnish evidence to the Agency, showing:
(i) The names of other lenders contacted;
(ii) The amount of loan requested by the borrower and the amount, if
any, offered by the lenders;
(iii) The rates and terms offered by the lenders or the specific
reasons why other credit is not available; and
(iv) The purpose of the loan request.
(4) The difference in interest rates between the Agency and other
lenders will not be sufficient reason for failure to graduate if the
other credit is available at rates and terms which the borrower can
reasonably be expected to pay. An exception is made where there is an
interest rate ceiling imposed by Federal law or contained in the note or
mortgage.
(5) The Agency will notify the borrower in writing if it determines
that the borrower can graduate. The borrower must take positive steps to
graduate within 15 days for individual loans and 60 days for group loans
from such notice to avoid legal action. The servicing official may grant
a longer period where warranted.
Sec. 1951.264 Action when borrower fails to cooperate, respond or graduate.
(a) When borrowers with other than FCP loans fail to:
(1) Provide information following receipt of both FmHA Guide Letters
1951-1 and 1951-2 (available in any Agency office), or letters of
similar format, they are in default of the terms of their security
instruments. The approval official may, when appropriate, accelerate the
account based on the borrower's failure to perform as required by this
subpart and the loan and security instruments.
(2) Apply for or accept other credit following receipt of both FmHA
Guide Letters 1951-F-5 and 1951-6 (available in any Agency office), or
letters of similar format, they are in default under the graduation
requirement of their security instruments. If the Agency determines the
borrower is able to graduate, foreclosure action will be initiated in
accordance with Sec. 1955.15(d)(2)(ii). If the borrower's account is
accelerated, the borrower may appeal the decision.
(b) If an FCP borrower fails to cooperate after a lender expresses a
willingness to consider refinancing the Agency loan, the account will be
referred for legal action.
Sec. 1951.265 Application for subsequent loan, subordination, or consent to
additional indebtedness from a borrower who has been requested to graduate.
(a) Any borrower who appears to meet the local commercial lending
standards, taking into consideration the Agency's loan guarantee
program, will not be considered for a subsequent loan, subordination, or
consent to additional indebtedness until the borrower's ability or
inability to graduate has been confirmed. An exception may be made where
the proposed action is needed to alleviate an emergency situation, such
as meeting applicable
[[Page 62]]
health or sanitary standards which require immediate attention.
(b) If the borrower has been requested to graduate and has also been
denied a request for a subsequent loan, subordination, or consent to
additional indebtedness, the borrower may appeal both issues.
Sec. 1951.266 Special requirements for MFH borrowers.
All requirements of 7 CFR part 3560, subpart K must be met prior to
graduation and acceptance of the full payment from an MFH borrower.
[69 FR 69105, Nov. 26, 2004]
Sec. Sec. 1951.267-1951.299 [Reserved]
Sec. 1951.300 OMB control number.
The reporting requirements contained in this regulation have been
approved by the Office of Management and Budget (OMB) and have been
assigned OMB control number 0575-0093.
Exhibit A to Subpart F of Part 1951 [Reserved]
Exhibit B to Subpart F of Part 1951--Suggested Outline for Seeking
Information From Lenders on Credit Criteria for Graduation of Single
Family Housing Loans
Date:___________________________________________________________________
Name of Lender:_________________________________________________________
Title:__________________________________________________________________
Address:________________________________________________________________
Name of County Supervisor:______________________________________________
Service Area:___________________________________________________________
1. Is the lender interested in making loans to refinance rural
housing borrowers? Yes:----; No:----.
If later, when?_________________________________________________________
How much credit does the lender expect to have available in the next
three to four months for making such loans? $------------
In the next twelve (12) months? $------------
2. What are the loan terms? ------------
3. What is the current interest rate? ------------ [squ] Variable
rate. [squ] Fixed rate.
If variable, how is it determined? ------------
4. Is a risk differential used in establishing interest rates
charged for new customers? Yes: ----; No: ----.
If yes, explain:________________________________________________________
5. What can a typical loan applicant be expected to pay for:
------------------------------------------------------------------------
Dollars Or percent
------------------------------------------------------------------------
a. Filing an application................ .............. ..............
b. Real estate appraisal................ .............. ..............
c. Credit report........................ .............. ..............
d. Loan orgination fee.................. .............. ..............
e. Loan closing costs................... .............. ..............
------------------------------------------------------------------------
6. Is mortgage guarantee insurance required? Yes: ----; No: ----. If
yes, how many years? ----. Cost? ------------.
7. Is there a minimum or maximum loan size policy? Yes: ----; No: --
--.
If yes, explain:________________________________________________________
8. Is there a minimum and maximum home value the lender will loan
on? Yes: ----; No: ----. If yes, minimum: $------------; maximum: $----
--------.
9. Does the lender use a loan to market value ratio? ------------
10. Is there a minimum net and gross income criteria? Yes: ----; No:
----. If yes, net: $------------; gross: $------------.
11. Does the lender use a minimum loan or home value to income
ratio? Yes: ----; No: ----. If yes, loan to income ratio: ------------
Value to income ratio: ------------
12. Is there a percentage of gross income a typical applicant should
have available to pay housing costs? ------------
a. To pay for principal, interest, taxes and insurance (PITI)? ----
%.
b. To pay for the total housing costs and other credit obligations?
----%.
13. Are there any age of home, housing type, site size, and/or
geographic restriction policies? Yes: ----; No: ----.
If yes, List:___________________________________________________________
14. Other Comments:____________________________________________________
15. For the purpose of reducing the number of inappropriate
referrals, would the lender like the opportunity to review specific
borrower financial information prior to the borrower being asked to file
a formal application? Yes: ----; No: ----. If the answer is yes, only
those borrowers who are listed on Form FmHA or its successor agency
under Public Law 103-354 1951-24 will be referred to the bank. The
lenders should be advised, however, the information supplied to them
will not include the borrower's name, social security number, exact
address, or place of employment that could be used to link a specific
borrower to the information being provided by FmHA or its successor
agency under Public Law 103-354.
[48 FR 40203, Sept. 6, 1983; 48 FR 41142, Sept. 14, 1983]
Subparts G-I [Reserved]
[[Page 63]]
Subpart J_Management and Collection of Nonprogram (NP) Loans
Source: 58 FR 52646, Oct. 12, 1993, unless otherwise noted.
Sec. 1951.451 General.
This subpart contains policies and procedures of the Farm Service
Agency (FSA) for making, managing, collecting, liquidating, and
servicing loans on nonprogram (NP) terms. All references in this subpart
to farm real estate, farm property and farm chattels also include
nonfarm property that was security for a Farm Credit debt of the FSA.
(a) An NP loan is a loan on terms more stringent than terms for a
program loan and it is an extension of credit for the convenience of the
Government because the applicant does not qualify for program assistance
or the property to be financed is not suited for program purposes. Such
loans are made or continued only when it is in the best interest of the
Government. NP loans include:
(1) Sale of inventory property on NP terms;
(2) Assumption of a program loan on NP terms;
(3) Loans converted to NP status as a result of receipt of
unauthorized assistance;
(4) Loans converted to NP status when only a portion of the security
property is being transferred and the FmHA or its successor agency under
Public Law 103-354 debt is not paid in full;
(5) Sale of the real property that was security for an FP loan to
the previous owner under the Leaseback/Buyback program on NP terms;
(6) Sale of the real property of an FP borrower under the Homestead
Protection program; or
(7) FP accounts rescheduled under an accelerated repayment
agreement.
(b) C&BP/NP and MFH/NP transactions involving transfer of the
security property will be submitted to the National Office for review,
authorization and processing guidance. The submission must include a
justification for the proposed action, a servicing and management plan,
the State Director's recommendations, and the case files. The sale of
C&BP and MFH inventory property to NP purchasers will be handled in
accordance with subpart C of part 1955 of this chapter.
(c) Borrowers who have program and NP loans will have their loan
accounts serviced and liquidated in accordance with the regulation
applicable to the particular loan(s). Therefore, NP loans are not
eligible for any program servicing except those permitted in this
subpart. However, even though the NP loan will not be eligible for
program servicing benefits or entitlements, the borrower is not
precluded from receiving assistance on the program loan (e.g., having an
NP farm loan should not preclude a borrower from being considered for
debt restructuring assistance in the form of a deferral, rescheduling,
consolidation, etc., on a FP program loan). When the decision has been
made to liquidate the program loan of a borrower who is also indebted
for an NP loan and the NP security is also additional security for the
program loan the NP loan will be accelerated at the same time as the
program loan using the program acceleration notice. Likewise, if an NP
loan is to be liquidated and the borrower is also indebted for a program
loan which serves as additional security for the NP loan the program
loan will be accelerated at the same time as the NP loan using the
program acceleration notice. Any appeal of an adverse decision involving
both an NP and program loan would affect only the program loan.
[58 FR 52646, Oct. 12, 1993, as amended at 61 FR 59778, Nov. 22, 1996]
Sec. 1951.452 Policy.
NP credit is extended for the convenience of the Government in
servicing an existing loan or to facilitate sale of inventory property.
Where a borrower has both program and NP loans outstanding, servicing
will be according to the regulation applicable to the particular
loan(s). NP borrowers are not eligible for program entitlements or
servicing actions such as subsidy, moratorium, reamortization,
rescheduling, consolidation, deferral, limited resource assistance,
buyout, writedown and conservation easements. Neither are NP borrowers
subject to occupancy/
[[Page 64]]
operation requirements, graduation or other similar requirements imposed
on program borrowers. NP borrowers are required to adequately maintain
the security, pay real estate taxes and/or assessments when due or make
scheduled escrow installments for taxes and insurance when required by
FmHA or its successor agency under Public Law 103-354, and keep
buildings insured according to the promissory note and mortgage or
security agreement, but may lease all or a portion of the security
without FmHA or its successor agency under Public Law 103-354's consent,
except as provided in Sec. 1951.460 (a) and (b) of this subpart.
Sec. 1951.453 [Reserved]
Sec. 1951.454 Review of adverse decisions.
NP applicants and borrowers are not entitled to appeal rights under
subpart B of part 1900 of this chapter or parts 11 and 780 of this
title. However, decisions involving NP applicants, borrowers or property
are reviewable by the next level supervisor.
[58 FR 52646, Oct. 12, 1993, as amended at 62 FR 10120, Mar. 5, 1997]
Sec. 1951.455 NP loan making for Single Family Housing (SFH) and farm
property (real and chattel).
(a) Application for NP credit. Applications for credit on NP terms
are made at the County Office serving the area where the property is
located or through an approved packager or real estate broker if so
instructed by County Office personnel. To apply for NP credit, except
Homestead Protection program, standard forms used to process program
applications may be utilized or comparable documentation which contains
information to establish financial stability, creditworthiness, and
repayment ability for the requested credit. However, the loan approval
official will have the discretion to determine what information is
required to support approval of the loan. For property purchased under
the Homestead Protection program the information required to support
approval of the loan will be in accordance with subpart S of part 1951
of this chapter. The creditworthiness standards in Sec. 1944.9 of
subpart A of part 1944 of this chapter will be used to evaluate an NP
applicant's eligibility for assistance to purchase a single family
residence. The application is not complete until all information
requested by the Agency is received.
(b) Fees. In addition, credit reports will be ordered to determine
the eligibility of NP applicants requesting FLP credit. A nonrefundable
credit report fee will be charged the applicant. The amounts of these
fees change periodically; current fees will be quoted by county office
personnel upon request. A borrower whose loan is reclassified as NP
because unauthorized assistance was received; or only a portion of the
security property is being transferred and the FLP debt is not paid in
full; or FLP accounts rescheduled under an accelerated repayment
agreement will not be required to submit an application or pay the
application fee.
(c) Eligibility restrictions. If farm property is being purchased or
the debt assumed, and an individual or member, stockholder, partner, or
joint operator of a proposed entity transferee or purchaser has been
convicted after December 23, 1985, under Federal or State law of
planting, cultivating, growing, producing, harvesting, or storing a
controlled substance (see 21 CFR part 1308, which is exhibit C of
subpart A of part 1941 of this chapter (available in any agency office),
for the definition of ``controlled substance'') prior to the approval of
the credit sale or assumption in any crop year, the individual or entity
shall be ineligible for FLP credit for the crop year in which the
individual was convicted four succeeding crop years following the
conviction. Purchasers will attest on the application form used that as
individuals or that its members, if an entity, have not been convicted
of such crime after December 23, 1985.
(d) [Reserved]
(e) Downpayment. A downpayment must be collected at closing. The
minimum downpayment will be based on the purchase price for a credit
sale and the current market value (less any prior liens for chattel
security) or the debt, whichever is lower, for an assumption.
Downpayment requirements vary from time to time and vary by
[[Page 65]]
type of property. Current downpayment requirements will be provided by
county office personnel upon request.
(f) Interest rate. The FP/NP interest rate for real property or
chattel property, as applicable, in effect at the time of loan approval,
will be charged on NP assumptions and credit sales involving all other
types of sales, except as otherwise stated. The Homestead Protection
program interest rate in effect at the time of loan approval will be
charged on Homestead Protection properties.
(g) Terms. The purchase price for credit sales or the FLP debt being
assumed, less the downpayment amount, will be amortized as follows,
except the term will never be longer than the period for which the
property will serve as adequate security:
(1) Farm property (real estate security) and CONACT residential
property classified as surplus. The note amount will be amortized over a
period not to exceed 15 years. When an NP loan was initially scheduled
for repayment in 15 years or less together with a 25-year amortization,
the agency may authorize an extension not to exceed a total of 25 years
from the date the NP assumption or credit sale was closed provided it is
in the Government's best interest and the agency retains the same lien
priority.
(2) Farm property (chattels security). The note amount will be
amortized over a period not to exceed 5 years.
(3) Homestead protection. The note amount will be amortized over a
period not to exceed 35 years.
(h) Modification of security instruments. Any convenants in the
promissory note and/or security instruments (mortgage or deed of trust)
relating to graduation to other credit, inability to secure other
financing, restrictions on leasing, FLP operation requirements, and
consent to junior lien encumbrance will be deleted.
(i) Security. The security requirements for NP loans on farm real
estate will be in accordance with subpart A of part 1943 of this chapter
and NP loans on chattel property will be secured in accordance with
subpart A of part 1962 of this chapter. Except that, an NP loan will be
secured only by the property purchased.
(j) Closing. Title clearance, preparation of deeds, loan closing and
property insurance requirements are the same as for a program loan on
the same type property, except the purchaser must pay his/her own
closing costs.
[58 FR 52646, Oct. 12, 1993, as amended at 62 FR 10120, Mar. 5, 1997; 68
FR 61331, Oct. 28, 2003]
Sec. 1951.456 [Reserved]
Sec. 1951.457 Payments.
(a) Receiving payments. Borrowers will mail or bring their payments
to the county office. Borrowers will be responsible for any fees
associated with converting cash payments to money orders. If the fee is
not paid, it will be deducted from the payment.
(b) Payments not received when due. NP borrowers are expected to
make scheduled payments when due. The Agency personnel are not required
to provide program supervision, servicing, management or credit
counseling in accordance the agency servicing instructions if payments
are not received when due. To ensure consistency, a series of contacts
will be made when servicing delinquent accounts. All actions taken,
agreements reached and recommendations made in the servicing of the
borrower's account are to be documented. When appropriate, the Agency
may work out a reasonable agreement with an NP borrower to cure a
delinquency; however, such an agreement will not usually exceed 1 year.
Failure to make payments as agreed will result in actions determined by
the agency to best protect the Government's interest. Collection of a
delinquency from an Internal Revenue Service (IRS) offset will be used
to the extent permitted by law.
[58 FR 52646, Oct. 12, 1993, as amended at 60 FR 55146, Oct. 27, 1995;
62 FR 10120, Mar. 5, 1997]
Sec. 1951.458 Servicing real estate taxes.
Refer to subpart A of part 1925 of this chapter for servicing real
estate taxes.
[62 FR 10120, Mar. 5, 1997]
[[Page 66]]
Sec. 1951.459 Preservation of security.
(a) Inspections of NP security property. Inspections will be made on
NP security as necessary to protect FmHA or its successor agency under
Public Law 103-354's security interest. In the event of abandonment,
servicing actions will be taken according to Sec. 1955.55 of subpart B
of part 1955 of this chapter.
(b) Subordination. Subordination is not authorized where an NP
borrower only owes FmHA or its successor agency under Public Law 103-354
an NP loan(s). Subordination of a mortgage may be permitted to
refinance, extend, reamortize, increase the amount of an existing prior
lien, or to permit a prior lien only when the security for the NP loan
is also security for an FmHA or its successor agency under Public Law
103-354 program loan, the request for the subordination meets all the
requirements for the subordination of the FmHA or its successor agency
under Public Law 103-354 program loan and is in the best interest of the
Government.
(c) Bankruptcy. NP loans on single family residences will be
serviced in accordance with subpart C of part 1965 of this chapter, farm
real estate in accordance with subpart A of part 1965 of this chapter,
and farm chattel in accordance with subpart A of part 1962 of this
chapter.
Sec. 1951.460 Release of security property or sale or lease of related
property rights.
(a) Partial release. Release of a portion of the security property
may be made when the borrower requests it and FmHA or its successor
agency under Public Law 103-354 determines the release will not
adversely affect the Government's interest. Release may be approved when
payment is received by FmHA or its successor agency under Public Law
103-354 in the amount of the market value, as determined by FmHA or its
successor agency under Public Law 103-354, of the property to be
released. Proceeds from such transactions (less related expenses
authorized by FmHA or its successor agency under Public Law 103-354)
will be applied to the FmHA or its successor agency under Public Law
103-354 indebtedness as an extra payment or to prior liens in order of
lien priority.
(b) Easements, right-of-ways, and lease of mineral rights or other
rights. Consent may be given by FmHA or its successor agency under
Public Law 103-354 for the borrower to grant an easement or lease
mineral rights when it is determined by FmHA or its successor agency
under Public Law 103-354 the action will not adversely affect the
Government's interest. The granting of an easement or right-of-way and
lease of mineral rights may be approved when payment is received by FmHA
or its successor agency under Public Law 103-354 in the amount of the
market value, as determined by FmHA or its successor agency under Public
Law 103-354, for rights granted or benefits are derived which are equal
to or greater than the value of the property being disposed of. Proceeds
from these transactions (less related expenses authorized by FmHA or its
successor agency under Public Law 103-354) will be applied to the FmHA
or its successor agency under Public Law 103-354 debt as an extra
payment or to prior liens in order of lien priority.
(c)-(d) [Reserved]
Sec. 1951.461 Release of valueless FmHA or its successor agency under Public
Law 103-354 lien without monetary consideration.
Release of an FmHA or its successor agency under Public Law 103-354
lien without monetary consideration may be granted when it is determined
by FmHA or its successor agency under Public Law 103-354 to have no
present or prospective value or when enforcement would be ineffectual or
uneconomical. Judgment liens or statutory redemption rights may be
released only with prior consent of OGC.
Sec. 1951.462 Deceased borrower.
When an NP borrower dies, FmHA or its successor agency under Public
Law 103-354 will determine whether or not arrangements can be effected
for continuation of the loan under one of the provisions of this
section. If not, the loan may be liquidated according to Sec. 1951.468
of this subpart. The servicing actions and the circumstances under
[[Page 67]]
which they may be considered are outlined in paragraphs (a) through (d)
of this section.
(a) Continue with jointly liable borrower. If a jointly liable
borrower will repay the loan and fulfill other obligations of the loan,
FmHA or its successor agency under Public Law 103-354 will take no
action to liquidate the loan.
(b) Assumption by spouse not liable for the FmHA or its successor
agency under Public Law 103-354 debt. The spouse of a deceased borrower
who is not liable for the FmHA or its successor agency under Public Law
103-354 debt and who wishes to assume the debt may do so in accordance
with Sec. 1951.463(d)(1) of this subpart.
(c) Continue with joint tenant, tenant by the entirety, or other
person. When a joint tenant, tenant by the entirety, or other person who
inherits title to (or an interest in) the security property, on which
the principal residence is located, by devise, descent, or operation of
law upon the death of a borrower makes payments as scheduled in the
promissory note (or assumption agreement), FmHA or its successor agency
under Public Law 103-354 may not take action to liquidate the loan as
long as the property is adequately maintained, real estate taxes and
assessments are paid when due, and the dwelling is not known to be
uninsured (if funds for taxes and insurance are being escrowed, the
escrow is a part of the scheduled payments). The loan may be assumed in
accordance with Sec. 1951.463(d) of this subpart; however, assumption
of the indebtedness is not required. Continuation with a joint tenant,
tenant by the entirety, or other person under the provisions of this
paragraph applies only to the transfer of title resulting from death of
the borrower; it does not apply to any subsequent transfer of title by
the inheritor(s) except by devise, descent, or operation of law upon the
death of the inheritors or sale of interests among inheritors to
consolidate title. Any other subsequent transfer of title will be
treated as a sale and is subject to the requirements of Sec. 1951.463
of this subpart.
(d) Assumption by a person, other than the spouse, who is not liable
for the FmHA or its successor agency under Public Law 103-354 loan. A
person other than the deceased borrower's spouse who wishes to assume
the loan for the benefit of persons who were dependent on the deceased
borrower at the time of death, without receiving title to the property,
may do so in accordance with Sec. 1951.463(d)(1) of this subpart
provided:
(1) The residence will continue to be occupied by one or more
persons who were dependent on the borrower at the time of death; and
(2) There is reasonable prospect for orderly repayment of the loan
and other obligations of the loan will be met.
Sec. 1951.463 Transfer of security and assumption of indebtedness.
When a borrower proposes to sell security property, assumption of
the indebtedness may be approved on program or NP terms, as applicable,
subject to the provisions of paragraphs (c) and (d) of this section.
Assumptions under paragraphs (b)(2), (b)(3), (b)(4), (b)(5) and (d) of
this section only are authorized on existing terms. When security
property is sold (or title is otherwise conveyed), whether by full
conveyance or by land contract, contract-for-deed, or other similar
instrument, and the FmHA or its successor agency under Public Law 103-
354 debt is not assumed by the purchaser (new owner) or paid in full,
the conveyance will not be approved, except as provided in paragraphs
(b)(2) and (b)(5) of this section or Sec. 1951.462 of this subpart. If
the conveyance is not approved the loan must be liquidated unless FmHA
or its successor agency under Public Law 103-354 determines it is not in
the Government's best interest. If FmHA or its successor agency under
Public Law 103-354 decides to continue with the loan, the account will
be serviced in the borrower's name and the borrower will remain liable
for the loan under the terms of the security instrument.
(a) [Reserved]
(b) General. The following policies apply to all transfers and
assumptions under this subpart:
(1) Amount of assumption. Except for transfers covered in paragraphs
(b)(2), (b)(3), (b)(4), (b)(5) and (d) of this section, the transferee
will assume the lesser of the indebtedness, or current
[[Page 68]]
market value as determined by FmHA or its successor agency under Public
Law 103-354, less any prior liens and the downpayment.
(2) Conveyance of security property by borrower to spouse or child.
When a borrower conveys security property to his/her spouse or children,
assumption of the indebtedness is not required and FmHA or its successor
agency under Public Law 103-354 may not take action to liquidate the
loan as long as payments are made as scheduled and other obligations of
the loan are met. In the event the transferee(s) wishes to assume the
indebtedness, it may be assumed on the terms outlined in paragraph
(d)(1) of this section as applicable to the circumstances.
(3) Withdrawal of jointly liable borrower. When a stockholder/
member/partner/joint operator of an entity who is personally liable on
the note withdraws from the entity or dies, and all of the remaining
individuals are not personally liable on the note(s), the loan must be
assumed by all remaining parties.
(4) Addition of new transferee(s). When new stockholders/members/
partners/joint operators enter an entity, assumption of the indebtedness
is required, however, the indebtedness may be assumed on existing terms.
A downpayment based on the unpaid balance of the loan is required when
the assumption is closed.
(5) Conveyance of security property into an inter vivos trust. When
the borrower conveys security property into an inter vivos trust,
whereby the borrower does not transfer rights of occupancy in the
property, FmHA or its successor agency under Public Law 103-354 may not
take action to liquidate the loan as long as payments are made as
scheduled and other obligations of the loan are met.
(c) Program assumption. A NP loan may be assumed by an eligible
program applicant if the property meets the eligibility requirements for
a currently authorized program (SFH, Farm Ownership (FO), etc.). In such
cases, the assumption will be at the interest rate and up to the maximum
term in effect for the type loan involved at the time the assumption is
approved. After assumption on program terms, the loan will be
reclassified as Rural Housing (RH), FO, etc., as applicable.
(d) NP assumption. The rates and terms for an NP assumption will be
as provided in Sec. 1951.455 of this subpart. A loan may be assumed on
existing terms only in the situations outlined in paragraphs (b)(2),
(b)(3), (b)(4), (b)(5), (d)(1), (d)(2), and (d)(3) of this section. An
individual not liable for the loan who acquires title to or an interest
in the security by means of one of the situations mentioned may assume
the indebtedness on existing terms or current terms if more favorable,
in which case a downpayment based on the unpaid balance would be
required. The interest rate, final due date, payment date, and account
status (current, delinquent, ahead of schedule) will not be changed by
virtue of an assumption on existing terms, after assumption compliance
with loan conditions is required. If a same terms assumption is
consummated and the account is delinquent, it may be reamortized in
accordance with applicable program regulations. Situations where these
terms are authorized are:
(1) An individual who acquires title to or an interest in the
security property by virtue of death, divorce, or deed from a spouse or
parent but is not liable for the debt and who wishes to assume the loan
may do so. Any subsequent transfer of title, except between inheritors
to consolidate title, will be treated as a sale and is not covered by
these provisions. Individuals in this category are:
(i) A deceased borrower's surviving spouse.
(ii) A divorced borrower's spouse.
(iii) A joint tenant with right of survivorship or relative of a
deceased borrower.
(2) The spouse or child of a living borrower to whom title to the
security property has been conveyed by spouse or parent.
(3) A person other than the deceased borrower's spouse who wishes to
continue with the loan under conditions outlined in Sec. 1951.462 (c)
or (d) of this subpart may do so.
(e) [Reserved]
(f) Title clearance and loan closing. Title clearance and closing
will be the
[[Page 69]]
same as for any program loan of the same type.
(g) Release from liability. Release from liability of NP borrowers
is not authorized.
[58 FR 52646, Oct. 12, 1993, as amended at 68 FR 7698, Feb. 18, 2003]
Sec. Sec. 1951.464-1951.467 [Reserved]
Sec. 1951.468 Liquidation.
When it is determined an NP borrower cannot or will not successfully
repay the loan, FmHA or its successor agency under Public Law 103-354
will attempt to have the borrower liquidate voluntarily.
(a) Voluntary. If an NP borrower in default indicates a willingness
to voluntarily liquidate, other liquidation actions by FmHA or its
successor agency under Public Law 103-354 may be delayed for a
reasonable period, usually not to exceed 120 days for real estate, if
the borrower is earnestly seeking other financing, or has the security
property listed or offered for sale and it is being actively marketed at
a reasonable price.
(b) Foreclosure. If an NP borrower in default (monetary or
nonmonetary) does not cure the default and is not willing or able to
voluntarily liquidate, the servicing official will refer the case to the
next level supervisor with a recommendation for further action. If
foreclosure is approved, the account will be accelerated. NP borrowers
do not have appeal rights under subpart B of part 1900 of this chapter;
however, the NP borrower may request a review of the decision to
foreclose by the next level supervisor to consider evidence that the
loan is not in default. If the borrower fails to satisfy the account
during the period specified in the demand letter, FmHA or its successor
agency under Public Law 103-354 will proceed with foreclosure without
further notice or extension of time.
(c) Conveyance to FmHA or its successor agency under Public Law 103-
354. FmHA or its successor agency under Public Law 103-354 does not
solicit or encourage conveyance of NP security property to the
Government and will consider a borrower's offer to convey by deed in
lieu of foreclosure only after the debt has been accelerated and when it
is in the Government's best interest. Release of the borrower from
liability is not authorized. Upon receipt of an offer to convey, FmHA or
its successor agency under Public Law 103-354 will remind the borrower
of provisions for voluntary liquidation under paragraph (a) of this
section. The borrower will also be informed of the consequences of a
conveyance by deed in lieu of foreclosure as follows:
(1) All costs related to the conveyance which FmHA or its successor
agency under Public Law 103-354 pays will be added to the debt;
(2) A credit equal to the market value of the property, as
determined by FmHA or its successor agency under Public Law 103-354,
less prior liens, will be applied to the debt; and
(3) If the credit does not satisfy the debt, the debtor remains
liable for the payment of the account balance and the account will be
debt settled.
(d) Consent to sale of real estate security when the FmHA or its
successor agency under Public Law 103-354 debt and authorized selling
expenses exceed market value. If an NP borrower proposes to sell real
estate security for an amount which will be insufficient to pay the FmHA
or its successor agency under Public Law 103-354 debt, prior lien(s) if
any, and sale expenses authorized by FmHA or its successor agency under
Public Law 103-354, an appraisal will be completed and FmHA or its
successor agency under Public Law 103-354 may consent to the sale if the
proposed sale price is not less than the market value. No commission
will be allowed or paid under this paragraph when the sale is to the
broker, broker's salesperson(s), to persons living in his/her or
salesperson(s) immediate household or to legal entities in which the
broker or salesperson(s) have an interest if the sale involves FmHA or
its successor agency under Public Law 103-354 credit. If credit is not
being extended to the persons mentioned in the preceding sentence (a
cash sale), a commission will be allowed or paid. In no case will the
borrower (seller) receive any cash proceeds from the sale. Any real
estate taxes due from the transferor and other authorized selling
expenses for which there is insufficient equity proceeds for payment at
closing will be charged to
[[Page 70]]
the borrower's account prior to loan closing. Authorized selling
expenses will not be considered or included in the amount assumed.
Release from liability is not authorized.
Sec. 1951.469 Actions after liquidation of property.
(a) [Reserved]
(b) Servicing unsatisfied account balances. A current financial
statement will be obtained, if possible, when application of sale
proceeds does not satisfy an NP loan; or if a conveyance to FmHA or its
successor agency under Public Law 103-354 has been accepted and credit
of the market value less prior liens and estimated inventory handling
expenses does not satisfy the debt, FmHA or its successor agency under
Public Law 103-354 will pursue collection if there appears to be income
or assets from which to collect. Where the borrower owns other real
estate, or if the borrower is known to be in the process of purchasing
other real estate (such as another dwelling), a judgment for the
remaining debt including expenses paid by FmHA or its successor agency
under Public Law 103-354 will be sought.
(c) [Reserved]
Sec. Sec. 1951.470-1951.478 [Reserved]
Sec. 1951.479 Pilot projects.
From time to time FmHA or its successor agency under Public Law 103-
354 conducts pilot projects to test concepts related to the management
and/or sale of SFH inventory property which may deviate from the
provisions of this subpart, but will not be inconsistent with provisions
of the authorizing statutes, or other Acts affecting FmHA or its
successor agency under Public Law 103-354's loan programs. Prior to
initiation of a pilot project, FmHA or its successor agency under Public
Law 103-354 will publish in the Federal Register a Notice outlining the
nature, scope, and duration of the pilot. The pilot projects may be
handled by FmHA or its successor agency under Public Law 103-354
employees and/or under contract with persons, firms, or other entities
in the private sector.
Sec. 1951.480 [Reserved]
Sec. 1951.481 FmHA or its successor agency under Public Law 103-354
Instructions.
Detailed FmHA or its successor agency under Public Law 103-354
Instructions for administering this subpart are available in any FmHA or
its successor agency under Public Law 103-354 office (FmHA or its
successor agency under Public Law 103-354 Instruction 1951-J).
Sec. Sec. 1951.482-1951.500 [Reserved]
Subpart K [Reserved]
Subpart L_Servicing Cases Where Unauthorized Loan or Other Financial
Assistence was Received_Farmer Programs
Source: 50 FR 45777, Nov. 1, 1985, unless otherwised noted.
Sec. 1951.551 Purpose.
This subpart prescribes the policies and procedures for servicing
insured Operating (OL), Farm Ownership (FO), Soil and Water (SW),
Recreation (RL), Emergency (EM), Economic Emergency (EE), Special
Livestock (SL), Softwood Timber (ST), Economic Opportunity (EO) loans,
and Rural Housing loans for farm service buildings (RHF) (referred to as
farmer program (FP) loans), when it is determined that the borrower was
not eligible for all or part of the financial assistance received in the
form of a loan or subsidy granted. It does not apply to guaranteed
loans.
[52 FR 26138, July 13, 1987]
Sec. 1951.552 Definitions.
As used in this subpart, the following definitions apply:
(a) Active borrower. A borrower who has an outstanding account in
the records of the Finance Office, including collection-only or an
unsatisfied account balance where a voluntary conveyance was accepted
without borrower being released from liability or where liquidation did
not satisfy the indebtedness.
[[Page 71]]
(b) Assistance. Financial assistance in the form of a loan or
interest subsidy received.
(c) Debt instrument. Used as a collective term to include promissory
note or assumption agreement.
(d) False information. Information, known to be incorrect, provided
with the intent to obtain benefits which would not have been obtainable
based on correction information.
(e) Inaccurate information. Incorrect information provided
inadvertently without intent to obtain benefits fraudulently.
(f) Inactive borrower. A former active borrower whose loan(s)
has(have) been paid in full or assumed by another party(ies), and who
does not have an outstanding account in the records of the Finance
Office.
(g) Unauthorized Assistance. Any loan, primary loan servicing
action, including Net Recovery Buyout, or interest subsidy received for
which there was no authorization, for which the borrower was not
eligible, or which was obligated from the wrong appropriation or fund.
An unauthorized interest subsidy is a benefit received through a loan
that was made at a lower interest rate than that to which the borrower
was entitled, whether the incorrect interest rate was selected
erroneously by the approval official, or the documents were prepared in
error.
[50 FR 45777, Nov. 1, 1985, as amended at 56 FR 33862, July 24, 1991]
Sec. 1951.553 Policy.
When it is determined that unauthorized assistance has been
received, an effort must be made to collect from the borrower the sum
which is determined to be unauthorized, regardless of amount, unless any
applicable Statute of Limitations has expired.
Sec. Sec. 1951.554-1951.555 [Reserved]
Sec. 1951.556 Initial determination that unauthorized assistance was
received.
Unauthorized assistance may be identified through audits conducted
by the Office of the Inspector General (OIG), USDA; through reviews made
by Farmers Home Administration or its successor agency under Public Law
103-354 (FmHA or its successor agency under Public Law 103-354)
personnel; or through other means such as information provided by a
private citizen which documents that unauthorized assistance has been
received by a borrower. If FmHA or its successor agency under Public Law
103-354 has reason to believe unauthorized assistance was received, but
is unable to determine whether or not the assistance was in fact
unauthorized, the case will be referred to the Office of the General
Counsel (OGC) or the National Office, as appropriate, for review and
advice. In every case where it is known or believed by FmHA or its
successor agency under Public Law 103-354 that the assistance was based
on false information, investigation by the OIG will be requested, as
provided for in FmHA or its successor agency under Public Law 103-354
Instruction 2012-B (available in any FmHA or its successor agency under
Public Law 103-354 office). If OIG conducts an investigation, the
actions outlined in Sec. 1951.557 of this subpart will be deferred
until the OIG investigation is completed and the report is received. The
reason(s) for the unauthorized assistance being received by the borrower
will be well documented in the case file, and will specifically state
whether it was due to:
(a) Submission of inaccurate information by the borrower;
(b) Submission of false information by the borrower;
(c) Submission of inaccurate or false information by another party
on the borrower's behalf such as a seller, developer, real estate
broker, or attorney, when the borrower did not know the other party had
submitted inaccurate or false information;
(d) Error by FmHA or its successor agency under Public Law 103-354
personnel, either in making computations or failure to follow published
regulations or other agency issuances; or
(e) Error in preparation of a debt instrument which caused a loan to
be closed at an interest rate lower than the correct rate in effect when
the loan was approved.
Sec. 1951.557 Notification to borrower.
(a) Collection efforts will be initiated by the County Supervisor by
a letter
[[Page 72]]
substantially similar to Exhibit A of this Subpart (available in any
FmHA or its successor agency under Public Law 103-354 office), and
mailed to the borrower by ``Certified Mail, Return Receipt Requested,''
with a copy to the State Director; and, for a case identified in an OIG
audit report, copies to the OIG office which conducted the audit and the
Planning and Analysis Staff of the National Office. This letter will be
sent to all borrowers who received unauthorized assistance, regardless
of amount. The letter will:
(1) Specify in detail the reason(s) the assistance was determined to
be unauthorized;
(2) State the amount of unauthorized assistance to be repaid
according to Exhibit D of this Subpart (available in any FmHA or its
successor agency under Public Law 103-354 office); and
(3) Establish an appointment for the borrower to discuss with the
County Supervisor the basis for FmHA or its successor agency under
Public Law 103-354's claim; and give the borrower an opportunity to
provide facts, figures, written records or other information which might
refute FmHA or its successor agency under Public Law 103-354's
determination that the assistance received was unauthorized.
(b) If the borrower meets with the County Supervisor, the County
Supervisor will outline to the borrower why the assistance was
determined to be unauthorized. The borrower will be given an opportunity
to provide information to refute FmHA or its successor agency under
Public Law 103-354's findings. When requested by the borrower, the
County Supervisor may grant additional time for the borrower to assemble
documentation. When an extension is granted, the County Supervisor will
specify a definite number of days to be allowed and establish the follow
up necessary to assure that servicing of the case continues without
undue delay.
Sec. 1951.558 Decision on servicing actions.
When the County Supervisor is the same official who approved the
unauthorized assistance, the District Director must review the case
before further actions are taken by the County Supervisor.
(a) Payment in full. If the borrower agrees with FmHA or its
successor agency under Public Law 103-354's determination and agrees to
repay in a lump sum, the County Supervisor may allow a reasonable period
of time (not to exceed 90 days) for the borrower to arrange for
repayment. The amount due will be the amount stated in the letter as
shown in Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office). The County Supervisor
will remit collections to the Finance Office according to the Forms
Manual Insert (FMI) for Form FmHA or its successor agency under Public
Law 103-354 451-2, ``Schedule of Remittances,'' for application to the
borrower's account as an extra payment. After a borrower repays an
unauthorized interest subsidy benefit in a lump sum, the loan will be
serviced in accordance with Sec. 1951.561(a)(3) of this subpart. In the
case of unauthorized assistance which was identified in an OIG audit,
the County Supervisor will report the repayment as outlined in Sec.
1951.568(a) of this subpart.
(b) Continuation with borrower. If the borrower agrees with FmHA or
its successor agency under Public Law 103-354's determination or is
willing to repay but cannot repay the unauthorized assistance in a lump
sum within a reasonable period of time, continuation may be authorized.
Servicing actions outlined in Sec. 1951.561 of this subpart will be
taken, provided all of the following conditions are met:
(1) The borrower did not provide false information as defined in
Sec. 1951.552(d) of this subpart.
(2) It would be highly inequitable to require prompt repayment of
the unauthorized assistance; and
(3) Failure to collect the unauthorized assistance in full will not
adversely affect FmHA or its successor agency under Public Law 103-354's
financial interests.
(c) Liquidation of loan(s) or legal action to enforce collection.
When a case cannot be handled according to the provisions of paragraph
(a) or (b) of this section, or if the borrower refuses to execute
[[Page 73]]
the documents necessary to make account adjustments or establish an
obligation to repay the unauthorized assistance as provided in Sec.
1951.561 of this subpart, or when a borrower fails to respond to the
initial letter prescribed in Sec. 1951.557 of this subpart within 30
days, one of the following actions will be taken:
(1) Active borrower with a secured loan. (i) The County Supervisor
will send Exhibit B of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office.)
(ii) If the borrower wants to voluntarily convey, the County
Supervisor will follow the directions in Sec. 1955.10 or Sec. 1955.20
as applicable, of subpart A of part 1955 of this chapter.
(iii) If the borrower does not appeal, does not repay the
unauthorized assistance in full, does not voluntarily convey,
voluntarily sell or refinance the entire FmHA or its successor agency
under Public Law 103-354 debt, the borrower's account will be
accelerated and there will be no appeal of this action. The County
Supervisor and District Director will follow the directions in Sec.
1955.15 of subpart A of part 1955 of this chapter.
(iv) Forced liquidation will not be pursued when:
(A) The amount of unauthorized assistance outstanding, including
principal, accrued interest, and recoverable costs charged to the
account, is less that $1,000; or
(B) It can be clearly documented that it would not be in the best
financial interest of the Government to force liquidation. If the
servicing official wishes to make an exception to forced liquidation
under paragraph (c)(1)(B) of this section, a request for an exception
under Sec. 1951.569 of this subpart will be made.
(v) Account adjustments will be made by FmHA or its successor agency
under Public Law 103-354 without the signature of the borrower according
to Sec. 1951.568(a)(5) of this subpart. In these cases, the borrower
will be notified by letter of the actions taken with a copy of Forms
FmHA or its successor agency under Public Law 103-354 1951-12,
``Correction of Loan Account,'' or 1951-13, ``Change in Interest Rate,''
as applicable, enclosed to reflect the adjustments.
(2) Inactive borrower or active borrower with unsecured loan such as
collection-only or unsatisfied balance after liquidation. The County
Supervisor will document the facts in the case and submit it to the
State Director who will request the advice of OGC on pursuing legal
action to effect collection. The State Director will tell OGC what
assets, if any, are available from which to collect.
[50 FR 45777, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988]
Sec. Sec. 1951.559-1951.560 [Reserved]
Sec. 1951.561 Servicing options in lieu of liquidation or legal action.
When all of the conditions outlined in Sec. 1951.558(b) of this
subpart are met, servicing options outlined in this section will be
considered; and accounts will be serviced according to this section and
Sec. 1951.568 of this subpart.
(a) Active borrower--(1) Entire loan, or loan servicing
unauthorized. When the entire loan, or all or a portion of primary loan
servicing, is determined to be unauthorized because the borrower was not
eligible, or because the loan or primary loan servicing was approved for
unauthorized purposes, the following alternatives will be considered in
the order listed:
(i) Execution of Form FmHA or its successor agency under Public Law
103-354 1965-11, ``Accelerated Repayment Agreement,'' according to Sec.
1965.26(e) of subpart A of part 1965 of this chapter, for loans secured
by real estate, or rescheduling according to Subpart A of this part, for
loans not secured by real estate, based on the borrower's repayment
ability.
(ii) Refinancing with another type of FmHA or its successor agency
under Public Law 103-354 loan to repay the unauthorized loan, if the
borrower is eligible for the type loan being considered.
(iii) When the case cannot be handled according to paragraph
(a)(1)(i) or (a)(1)(ii) of this section, continuance with the loan on
the existing terms may be approved, and the loan will, thereafter, be
serviced as an authorized loan.
[[Page 74]]
(2) Portion of loan unauthorized. When a portion of a loan is
determined to be unauthorized, the Finance Office will be instructed to
separate the authorized and unauthorized portions of the loan, setting
up each as a separate loan at the correct interest rate. The correct
interest rate will be taken from Exhibit C of this subpart (available in
any FmHA or its successor agency under Public Law 103-354 office) as of
the date of loan approval. All payments made on the loan being corrected
will be reversed and reapplied to the unauthorized portion. If after
reapplication of payments the unauthorized portion is not paid in full,
the options outlined in paragraph (a) of this section may be considered
for repayment of the balance of the unauthorized portion; and the
authorized portion will be serviced as an outlined loan. See Sec.
1951.568 of this subpart for instructions on setting up separate
accounts.
(3) Unauthorized interest subsidy benefits received. When the
borrower was eligible for the loan, but should properly have been
charged a higher interest rate than that shown in the debt instrument on
all or a portion of the loan, resulting in the receipt of unauthorized
interest subsidy benefits, the case will be handled as outlined below.
The unauthorized interest rate will be corrected to the interest rate in
effect on the date the original loan was approved as outlined in
paragraph (a)(3)(iii) of this section.
(i) When a subsidized interest rate was incorrectly charged on the
entire loan, all payments made will be reversed and reapplied at the
correct interest rate; and future installments will be scheduled at the
correct interest rate. After reapplication of payments, the loan will be
treated as an authorized loan.
(ii) When a subsidized interest rate was incorrectly charged on only
a portion of the loan, the Finance Office will be instructed by the
County Supervisor to separate the loan into two portions, with the
correct interest rate established for the portion having the incorrect
subsidized interest rate. All payments made on the loan being adjusted
will be reversed and reapplied, first to the portion with the corrected
interest rate. After reapplication of payments at the correct interest
rate, both portions will be serviced as authorized loans.
(iii) Incorrect interest rates will be corrected as follows
referring to Exhibit C of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office) for interest rates in
effect on specific dates:
(A) For disaster Emergency (EM) loans, to the rate for EM annual
production loans.
(B) For Operating Loans--Limited Resource (OL-LR), to the rate for
regular Operating Loans (OL).
(C) For Farm Ownership--Limited Resource (FO-LR), to the rate for
regular Farm Ownership (FO).
(D) For all other types of FP loans, to the correct rate for the
type loan involved which was in effect when the loan was approved.
(b) Inactive borrower. When the individual or entity does not have
an outstanding account in the records of the Finance Office, the
following actions will be taken:
(1) Have the inactive borrower execute a promissory note in the
amount of the assistance determined to be unauthorized according to
Sec. 1951.557 of this subpart. This note will bear interest at the rate
which was in effect for the type loan associated with the unauthorized
assistance when it was approved. The term will not exceed 10 years or
the term of the original loan, whichever is the shorter term.
(2) Take the best lien obtainable on any collateral having equity
value to secure the note.
[50 FR 45777, Nov. 1, 1985, as amended at 51 FR 4138, Feb. 3, 1986; 56
FR 33862, July 24, 1991]
Sec. Sec. 1951.562-1951.567 [Reserved]
Sec. 1951.568 Account adjustments and reporting requirements.
When a final determination has been made that unauthorized
assistance has been granted, the Finance Office will be notified of
necessary account adjustments as outlined in this section, depending
upon whether the case of unauthorized assistance was identified by OIG
in an audit report or by another means. The Finance Office will service
[[Page 75]]
the accounts as prescribed in this section.
(a) Audit cases. Only cases of unauthorized assistance identified by
OIG will be reported to the Finance Office by submission on Form FmHA or
its successor agency under Public Law 103-354 1951-12 completed in
accordance with the FMI. The Finance Office will flag the account for
monitoring and reporting as required. Each payment reversed will be
reapplied as of the original date of credit. ``Loan'' refers to an
account with an active borrower unless specified as ``inactive.'' If the
borrower has arranged to repay in a lump sum, the payment will be
remitted with Form FmHA or its successor agency under Public Law 103-354
451-2, according to the FMI. Form FmHA or its successor agency under
Public Law 103-354 1951-12 will reflect the amount and the Schedule
Number.
(1) Entire loan unauthorized. When the entire loan is unauthorized
because the borrower was not eligible or because the loan was approved
for unauthorized purposes, and continuation is authorized, the Finance
Office will be advised as follows:
(i) Accelerated repayment agreement or loan rescheduled. If the
borrower has executed Form FmHA or its successor agency under Public Law
103-354 1965-11 for loans secured by real estate; or has executed Form
FmHA or its successor agency under Public Law 103-354 1951-4 for loans
not secured by real estate, the form(s) will be prepared and distributed
according to the FMIs, attaching the original form(s) to Form FmHA or
its successor agency under Public Law 103-354 1951-12.
(ii) Continuation with loan on existing terms. When it is determined
that all the conditions outlined in Sec. 1951.558(b) of this subpart
are met and continuation with the loan on the existing terms is
approved, the servicing official will submit Form FmHA or its successor
agency under Public Law 103-354 1951-12 to the Finance Office to reflect
this.
(2) Portion of loan unauthorized. When a loan is to be separated
into authorized and unauthorized portions, the authorized portion will
retain the original loan number, and the original principal amount will
be reduced by the unauthorized amount. A new loan in the unauthorized
amount will be established as the unauthorized loan with the next
available number assigned by the Finance Office. Payments made on the
loan being adjusted will be reversed and reapplied first to the
unauthorized loan. If the reapplication of payments does not pay the
unauthorized loan in full, upon receipt of Forms FmHA or its successor
agency under Public Law 103-354 451-26, ``Transaction Record,'' showing
the balances of the authorized and unauthorized loans, the servicing
official will proceed under the provisions of Sec. 1951.561(a)(2) and
will submit a revised Form FmHA or its successor agency under Public Law
103-354 1951-12 (along with a copy of the original Form FmHA or its
successor agency under Public Law 103-354 1951-12).
(3) Unauthorized subsidy benefits received--(i) Entire loan. When
the interest rate on an entire loan is changed, Form FmHA or its
successor agency under Public Law 103-354 1951-12 will be submitted to
notify the Finance Office of the correct interest rate to be charged
from the original loan closing date. Payments made will be reversed and
reapplied at the corrected interest rate, after which the unauthorized
subsidy benefits will be reported to OIG as resolved. The loan will then
be treated as an authorized loan.
(ii) Portion of loan. When the interest rate on only a portion of a
loan must be changed, the portion which has the incorrect interest rate
will be established as a new loan at the correct interest rate shown on
Form FmHA or its successor agency under Public Law 103-354 1951-12.
Payments made on the loan being adjusted will be reversed and reapplied
first to the loan with the corrected interest rate. Both loans will then
be treated as authorized loans.
(4) Liquidation pending. When liquidation is initiated under the
provisions of this subpart, Form FmHA or its successor agency under
Public Law 103-354 1951-12 will be submitted to advise the Finance
Office to establish the unauthorized assistance account. This account
will be flagged ``FAP'' (Foreclosure Action Pending) or ``CAP'' (Court
Action Pending), as applicable.
(5) Liquidation not initiated. Cases in which liquidation would
normally be
[[Page 76]]
initiated, but where it is not because of the provisions of Sec.
1951.558 (c)(1)(iv)(A) or (c)(1)(iv)(B) of this subpart, will be
adjusted according to Sec. 1951.561 (a)(2) or (a)(3) of this subpart
and this section, and the adjustments will be reflected on Form FmHA or
its successor agency under Public Law 103-354 1951-12. In this instance
only, account adjustments will be made even though the borrower does not
sign Form FmHA or its successor agency under Public Law 103-354 1951-12
and any related documents.
(6) Establishment of account of inactive borrower. (i) When an
inactive borrower agrees to repay unauthorized assistance and executes
documents to evidence such an obligation, Form FmHA or its successor
agency under Public Law 103-354 1951-12 will reflect this, and the
Finance Office will establish or the account according to the terms
indicated on Form FmHA or its successor agency under Public Law 103-354
1951-12.
(ii) When a judgment is obtained against such a borrower, Form FmHA
or its successor agency under Public Law 103-354 1962-20, ``Notice of
Judgment,'' will be prepared and distributed in accordance with the FMI
to establish a judgment account. The FmHA or its successor agency under
Public Law 103-354 field office will process the judgment or the third
party judgment via the FmHA or its successor agency under Public Law
103-354 field office terminal system.
(7) Payments on authorized and unauthorized loans concurrently. When
a borrower has both authorized and unauthorized loans outstanding,
installments may be scheduled to be paid concurrently on all loans.
Payments may be adjusted by means of rescheduling or reamortizing to
coincide with the borrower's repayment ability according to servicing
regulations for the type loan involved. The County Supervisor will
complete Form FmHA or its successor agency under Public Law 103-354 451-
2 so that payments received will be applied first to the unauthorized
loan account to maintain it current, with the remainder of the payment
applied to the other loan(s).
(8) Reporting. At prescribed intervals, the Finance Office will
report to the OIG on the status of cases involving unauthorized
assistance which were identified by OIG in audit reports. For reporting
purposes, the following applies:
(i) For an unauthorized loan account established as provided in
paragraph (a) (1), (2), or (6) of this section, reporting will be as
follows:
(A) When unauthorized assistance is paid in full, it will be
reported on the next scheduled report only, giving the amount collected.
(B) When unauthorized assistance is to be repaid under an
accelerated repayment agreement, the unpaid balance will be reported
initially and the collections and status will be included on each
scheduled report until the account is paid in full.
(C) When continuation with the loan on existing terms is approved,
or after a loan is rescheduled or reamortized, it will be reported as
resolved on the next scheduled report, and no further reporting is
required.
(ii) For unauthorized subsidy cases as provided in paragraph (a)(3)
of this section, when the unauthorized amount has been repaid, or
payments have been reversed and reapplied at the correct interest rate,
the unauthorized subsidy will be reported as resolved on the next
scheduled report. No further reporting is required.
(iii) When an account is established with liquidation action pending
as provided in paragraph (a)(4) of this section, the status will be
included on each scheduled report until the liquidation is completed or
the account is otherwise paid in full.
(iv) When liquidation is not initiated as provided in paragraph
(a)(5) of this section, it will be reported on the next scheduled report
(along with collections, if any). No further reporting is required.
(b) Nonaudit cases. Basically, servicing options which may be used
are the same for audit and nonaudit cases; however, when receipt of
unauthorized assistance is identified by a means other than an OIG audit
report, the Finance Office will be notified only if adjustments to an
account or reinstatement of an inactive account are necessary. Once
adjustments are made as provided in this paragraph, the loan(s)
[[Page 77]]
will be treated as an authorized loan(s). Each payment reversed will be
reapplied as of the original date of credit. After payments are reversed
and reapplied, the servicing official will receive Forms FmHA or its
successor agency under Public Law 103-354 451-26 from the Finance Office
reflecting the account status.
(1) Account adjustments will be handled as follows:
(i) When a change in interest rate is necessary, retroactive to the
date of loan closing on all or a portion of a loan, Form FmHA or its
successor agency under Public Law 103-354 1951-13 will be completed
according to the FMI and submitted to the Finance Office. Payments will
be reversed and reapplied accordingly.
(ii) For accounts to be rescheduled or reamortized, Forms FmHA or
its successor agency under Public Law 103-354 1951-4, or 1965-11, as
applicable, will be prepared and submitted in accordance with the
respective FMI.
(iii) When an inactive borrower agrees to repay unauthorized
assistance and executes documents to evidence such an obligation, the
County Supervisor will notify the Finance Office by memorandum,
attaching a copy of the promissory note. The Finance Office will
establish or reinstate the account according to the terms of the
promissory note.
(iv) If a loan is paid in full, the remittance will be handled in
the same manner as any other final payment.
(2) A delinquency created through reversal and reapplication of
payments to effect corrections outlined in paragraph (b)(1) of this
section will be serviced according to the applicable servicing
regulations for the type loan involved.
[50 FR 45777, Nov. 1, 1985, as amended at 55 FR 35295, Aug. 29, 1990]
Sec. 1951.569 Exception authority.
The Administrator may in individual cases make an exception to any
requirement or provision of this subpart which is not inconsistent with
the authorizing statute or other applicable law if the Administrator
determines that application of the requirement or provision would
adversely effect the Government's interest. The Administrator will
exercise this authority only at the request of the State Director and on
the recommendation of the appropriate Program Assistant Administrator.
Requests for exceptions must be made in writing by the State Director
and supported with documentation to explain the adverse effect on the
Government's interest, propose alternative courses of action, and show
how the adverse effect will be eliminated or minimized if the exception
is granted.
Sec. Sec. 1951.570-1951.599 [Reserved]
Sec. 1951.600 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0102.
Subparts M-N [Reserved]
Subpart O_Servicing Cases Where Unauthorized Loan(s) or Other Financial
Assistance Was Received_Community and Insured Business Programs.
Source: 71 FR 75852, Dec. 19, 2006, unless otherwise noted.
Sec. 1951.701 Purpose.
This subpart prescribes the policies and procedures for servicing
Community and Business Program loans and/or grants made by Rural
Development when it is determined that the borrower or grantee was not
eligible for all or part of the financial assistance received in the
form of a loan, grant, or subsidy granted, or any other direct financial
assistance. It does not apply to guaranteed loans. Loans sold without
insurance by Rural Development to the private sector will be serviced in
the private sector and will not be serviced under this subpart. The
provisions of this subpart are not applicable to such loans. Future
changes to this subpart will not be made applicable to such loans.
Sec. 1951.702 Definitions.
As used in this subpart, the following definitions apply:
[[Page 78]]
Active borrower. A borrower who has an outstanding account in the
records of the Office of the Deputy Chief Financial Officer (ODCFO),
including collection-only or an unsatisfied account balance where a
voluntary conveyance was accepted without release from liability of
foreclosure did not satisfy the indebtedness.
Assistance. Finance assistance in the form of a loan, grant, or
subsidy received.
Debt instrument. Used as a collective term to include promissory
note, assumption agreement, grant agreement, or bond.
False information. Information, known to be incorrect, provided with
the intent to obtain benefits which would not have been obtainable based
on correct information.
Inaccurate information. Incorrect information provided inadvertently
without intent to obtain benefits fraudulently.
Inactive borrower. A former borrower whose loan(s) has been paid in
full or assumed by another party(ies) and who does not have an
outstanding account in the records of the ODCFO.
Recipient. ``Recipient'' refers to an individual or entity that
received a loan, or portion of a loan, an interest subsidy, a grant, or
a portion of a grant which was unauthorized.
Rural Development. A mission area within the U.S. Department of
Agriculture consisting of the Office of the Under Secretary for Rural
Development, Office of Community Development, Rural Business-Cooperative
Service, Rural Housing Service, and Rural Utilities Service and their
successors.
Unauthorized assistance. Any loan, interest subsidy, grant, or
portion thereof received by a recipient for which there was no
regulatory authorization or for which the recipient was not eligible.
Interest subsidy includes subsidy benefits received because a loan was
closed at a lower interest rate than that to which the recipient was
entitled, whether the incorrect interest rate was selected erroneously
by the approval official or the documents were prepared in error.
Sec. 1951.703 Policy.
When unauthorized assistance has been received, an expeditious
effort must be made to collect from the recipient the sum which is
determined to be unauthorized, regardless of amount.
Sec. Sec. 1951.704-1951.705 [Reserved]
Sec. 1951.706 Initial determination that unauthorized assistance was received.
Unauthorized assistance may be identified through audits conducted
by the USDA Office of Inspector General (OIG), through reviews made by
Rural Development personnel, or through other means such as information
provided by a private citizen who documents that unauthorized assistance
has been received by a recipient of Rural Development assistance.
Sec. 1951.707 Determination of the amount of unauthorized assistance.
(a) Unauthorized loan amount. The unauthorized loan amount will be
the unauthorized principal plus any interest accruing on the
unauthorized principal at the note interest rate until the date paid
unless otherwise agreed in writing by Rural Development.
(b) Unauthorized grant amount. The unauthorized amount will be the
unauthorized grant amount actually expended under the grant agreement
plus interest accrued beginning on the date of the demand letter at the
interest rate stipulated in the applicable grant agreement, or, if none
is stated, the default rate established by the U.S. Department of the
Treasury, until the date paid unless otherwise agreed in writing by
Rural Development.
Sec. 1951.708 Notification to recipient.
(a) Upon determination that unauthorized assistance was received,
Rural Development will send a demand letter to the recipient that:
(1) Specifies the amount of unauthorized assistance, including any
accrued interest to be repaid, and the standards for imposing accrued
interest;
(2) States the amount of penalties and administrative costs to be
paid, the standards for imposing them, and the date on which they will
begin to accrue;
[[Page 79]]
(3) Provides detailed reason(s) why the assistance was determined to
be unauthorized;
(4) States the amount is immediately due and payable to Rural
Development;
(5) Describes the rights the recipient has for seeking review of
Rural Development's determination pursuant to 7 CFR part 11;
(6) Describes the Agency's available remedies regarding enforced
collection, including referral of debt delinquent more than 180 days for
Federal salary, benefit, and tax offset under the Department of Treasury
Offset Program (TOP); and
(7) Provides an opportunity for the recipient to meet with Rural
Development to provide facts, figures, written records, or other
information which might refute Rural Development's determination.
(b) If the recipient meets with Rural Development, Rural Development
will outline to the recipient why the assistance was determined to be
unauthorized. The recipient will be given an opportunity to provide
information to refute Rural Development's findings. When requested by
the recipient, Rural Development may grant additional time for the
recipient to assemble documentation. Such extension of time for payment
will be valid only if Rural Development documents the extension in
writing and specifies the period in days during which period the payment
obligation created by the demand letter (but not the ongoing accrual of
interest) will be suspended. Interest and other charges will continue to
accrue pursuant to the demand letter during any extension period unless
the terms of the demand letter are modified in writing by Rural
Development.
(c) Unless Rural Development modifies the original demand, it will
remain in full force and effect.
Sec. 1951.709 Decision on servicing actions.
(a) Payment in full. If the recipient agrees with Rural
Development's determination or will pay the amount in question, Rural
Development may allow a reasonable period of time (usually not to exceed
90 days) for the recipient to arrange for repayment. The amount due will
be determined according to Sec. 1951.707.
(b) Continuation with recipient. If the recipient agrees with Rural
Development's determination or is willing to pay the amount in question
but cannot repay the unauthorized assistance within a reasonable period
of time, continuation is authorized and servicing actions outlined in
Sec. 1951.711 may be taken provided all of the following conditions are
met:
(1) The recipient did not provide false information as defined in
Sec. 1951.702.
(2) It would be highly inequitable to require prompt repayment of
the unauthorized assistance.
(3) Failure to collect the unauthorized assistance in full will not
adversely affect Rural Development's financial interest.
(c) Appeals. Appeals resulting from the letter prescribed in Sec.
1951.708 will be handled according to 7 CFR Part 11. All appeal
provisions will be concluded before proceeding with further actions.
(d) Liquidation of loan(s) or legal action to enforce collection.
When a case cannot be handled according to the provisions of paragraph
(a) or (b) of this section, or if the recipient refuses to execute the
documents necessary to establish an obligation to repay the unauthorized
assistance as provided in Sec. 1951.711, one or more of the following
actions will be taken:
(1) Active borrower with a secured loan. (i) Rural Development will
attempt to have the recipient liquidate voluntarily. If the recipient
does not agree to voluntary liquidation, or agrees but it cannot be
accomplished within a reasonable period of time (usually not more than
90 days), forced liquidation action will be initiated in accordance with
applicable provisions of subpart A of part 1955 of this chapter unless:
(A) The amount of unauthorized assistance outstanding, including
principal, accrued interest, and any recoverable costs charged to the
account, is less than $1,000; or
(B) It would not be in the best financial interest of the Government
to force liquidation.
(ii) When all of the conditions of paragraph (a) or (b) of this
section are met, but the recipient does not repay
[[Page 80]]
or refuses to execute documents to effect necessary account adjustments
according of the provisions of Sec. 1951.711, forced liquidation action
will be initiated as provided in paragraph (d)(1)(i) of this section.
(iii) When forced liquidation would be initiated, except that the
loan is being handled in accordance with paragraph (d)(1)(i)(A) or
(d)(1)(i)(B) of this section, continuation with the loan on existing
terms may be provided.
(iv) If the debt is not otherwise resolved, Rural Development will
take appropriate debt collection actions in accordance with 7 CFR Part
3, subparts B and C, and the Federal Claims Collection Standards at 31
CFR Chapter IX, Parts 900-904.
(2) Grantee, inactive borrower, or active borrower with unsecured
loan (such as collection-only, or unsatisfied balance after
liquidation). Rural Development may pursue all reasonable legal
remedies.
Sec. 1951.710 [Reserved]
Sec. 1951.711 Servicing options in lieu of liquidation or legal action to collect.
When the conditions outlined in Sec. 1951.709(b) are met, the
servicing options outlined in this section will be considered.
(a) Continuation on modified terms. When the recipient has the legal
and financial capabilities, the case will be serviced according to one
of the following, as appropriate.
(1) Unauthorized loan. A loan for the unauthorized amount determined
according to Sec. 1951.707(a) will remain accelerated per the demand
letter sent in accordance with Sec. 1951.708 unless modified terms are
timely reached with the recipient and accrued at the interest rate
specified in the outstanding debt instrument or at the present market
interest rate, whichever is greater, for the respective Community and
Business program area. The loan will be amortized per a repayment
schedule satisfactory to Rural Development, but in no event may the
revised repayment schedule exceed a period of fifteen (15) years, the
remaining term of the original loan, or the remaining useful life of the
facility, whichever is shorter.
(2) Unauthorized grant. The unauthorized grant amount determined
according to Sec. 1951.707(b) will be converted to an account
receivable, with interest payable at the market interest rate for the
respective Community Facilities or Business and Industry Program area in
effect on the date the financial assistance was provided. In all cases,
the receivable will be amortized per a repayment schedule satisfactory
to Rural Development, but in no event may the amortization period exceed
fifteen (15) years. The recipient will be required to execute a debt
instrument to evidence this receivable, and the best security position
available to adequately protect Rural Development's interest during the
repayment period will be taken as security.
(3) Unauthorized subsidy benefits received. When the recipient was
eligible for the loan but should have been charged a higher interest
rate than that in the debt instrument, which resulted in the receipt of
unauthorized subsidy benefits, the case will be handled as follows:
(i) The recipient will be given the option to submit a written
request that the interest rate be corrected to the lower of the rate for
which they were eligible that was in effect at the date of loan approval
or loan closing.
(ii) Any accrued unauthorized subsidy will be handled in accordance
with Sec. 1951.709.
(b) Continuation on existing terms. When the recipient does not have
the legal and/or financial capabilities for the options outlined in
paragraph (a)(1), (a)(2), or (a)(3) of this section, the recipient may
be allowed to continue to meet the loan obligations outlined in the
existing loan instruments. Rural Development will not continue with
unauthorized grants on existing terms.
Sec. Sec. 1951.712-1951.716 [Reserved]
Sec. 1951.717 Exception authority.
The Administrator may, in individual cases, make an exception to any
requirement or provision of this subpart, provided that any such
exception is not inconsistent with any applicable
[[Page 81]]
law or opinion of the Comptroller General, and provided further, the
Administrator determines that the application of the requirement or
provision would adversely affect the Government's interest.
Sec. Sec. 1951.718-1951.750 [Reserved]
Subparts P-Q [Reserved]
Subpart R_Rural Development Loan Servicing
Source: 53 FR 30656, Aug. 15, 1988, unless otherwise noted.
Sec. 1951.851 Introduction.
(a) This subpart contains regulations for servicing or liquidating
loans made by the Farmers Home Administration or its successor agency
under Public Law 103-354 (FmHA or its successor agency under Public Law
103-354) under the Intermediary Relending Program (IRP) to eligible IRP
intermediaries and applies to ultimate recipients and other involved
parties. The provisions of this subpart supersede conflicting provisions
of any other subpart.
(b) This subpart also contains regulations for servicing the
existing Rural Development Loan Fund (RDLF) loans previously approved
and administered by the U.S. Department of Health and Human Services
(HHS) under 45 CFR part 1076. This action is needed to implement the
provisions of Section 1323 of the Food Security Act of 1985, Pub. L. 99-
198, which provides for the transfer of the loan servicing authority for
those loans from the HHS to the U.S. Department of Agriculture (USDA).
(c) The portion of this regulation pertaining to loanmaking applies
to RDLF intermediaries cited in Sec. 1951.851(b) which have RDLF funds
from HHS and have not fully utilized relending of those funds to
ultimate recipients at the date of these regulations. The loanmaking of
all other IRP loans serviced by this regulation is in accordance with
part 1948, subpart C of this chapter.
(d) These regulations do not negate contractual arrangements that
were previously made by the HHS, Office of Community Services (OCS), or
the intermediaries operating relending programs that have already been
entered into with ultimate recipients under previous regulations.
(e) The loan program is administered by the FmHA or its successor
agency under Public Law 103-354 National Office. The Director, Business
and Industry Division, is the point of contact for servicing activities
unless otherwise delegated by the Administrator.
Sec. 1951.852 Definitions and abbreviations.
(a) General definitions. The following definitions are applicable to
the terms used in this subpart.
(1) Intermediary (Borrower). The entity receiving FmHA or its
successor agency under Public Law 103-354 loan funds for relending to
ultimate recipients. FmHA or its successor agency under Public Law 103-
354 becomes an intermediary in the event it takes over loan servicing
and/or liquidation.
(2) Loan Agreement. The signed agreement between FmHA or its
successor agency under Public Law 103-354 and the intermediary setting
forth the terms and conditions of the loan.
(3) Low-income. The level of income of a person or family which is
at or below the Poverty Guidelines as defined in section 673(2) of the
Community Services Block Grant Act (42 U.S.C. 9902(2)).
(4) Market value. The most probable price which property should
bring, as of a specific date in a competitive and open market, assuming
the buyer and seller are prudent and knowledgeable, and the price is not
affected by undue stimulus such as forced sale or loan interest subsidy.
(5) Principals of intermediary. Includes members, officers,
directors, and other entities directly involved in the operation and
management of an intermediary organization.
(6) Ultimate recipient. The entity receiving financial assistance
from the intermediary. This may be interchangeable with the term
``subrecipient'' in some documents previously issued by HHS.
(7) Rural area. Includes all territory of a State that is not within
the outer boundary of any city having a population of twenty-five
thousand or more.
(8) State. Any of the fifty States, the Commonwealth of Puerto Rico,
the
[[Page 82]]
Virgin Islands of the United States, Guam, American Samoa, and the
Commonwealth of the Northern Mariana Islands.
(9) Technical assistance or service. Technical assistance or service
is any function unreimbursed by FmHA or its successor agency under
Public Law 103-354 performed by the intermediary for the benefit of the
ultimate recipient.
(10) Working capital. The excess of current assets over current
liabilities. It identifies the liquid portion of total enterprise
capital which constitutes a margin or buffer for meeting obligations
within the ordinary operating cycle of the business.
(b) Abbreviations. The following abbreviations are applicable:
B&I--Business and Industry
CSA--Community Services Administration
EIS--Environmental Impact Statement
HHS--U.S. Department of Health and Human Services
IRP--Intermediary Relending Program
OCS--Office of Community Services
OIG--Office of Inspector General
OGC--Office of the General Counsel
RDLF--Rural Development Loan Fund
USDA--United States Department of Agriculture
[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6052, Feb. 6, 1998]
Sec. 1951.853 Loan purposes for undisbursed RDLF loan funds from HHS.
(a) RDLF Intermediaries. Rural Development Loan funds will be used
by the RDLF intermediary to provide loans to ultimate recipients in
accordance with paragraph (b) of this section. Interest income, service
fees, and other authorized financing charges received by RDLF
intermediaries operating relending programs may be used to pay for: The
costs of administering the RDLF relending program, the provision of
technical assistance to borrowers, the absorption of bad debts
associated with RDLF loans, and repayment of debt. All proceeds in
excess of those needed to cover authorized expenses, as described above,
must be returned to the Agency.
(b) Ultimate recipients.(1) Financial assistance from the
intermediary to the ultimate recipient must be for business facilities
and community development projects in rural areas.
(2) Financial assistance involving Rural Development Loan funds from
the intermediary to the ultimate recipient may include but not be
limited to:
(i) Business acquisitions, construction, conversion, enlargement,
repair, modernization, or development cost.
(ii) Purchasing and development of land, easements, rights-of-way,
building, facilities, leases, or materials.
(iii) Purchasing of equipment, leasehold improvements, machinery or
supplies.
(iv) Pollution control and abatement.
(v) Transportation services.
(vi) Startup operating costs and working capital.
(vii) Interest (including interest on interim financing) during the
period before the facility becomes income producing, but not to exceed 3
years.
(viii) Feasibility studies.
(ix) Reasonable fees and charges only as specifically listed in this
subparagraph. Authorized fees include loan packaging fees, environmental
data collection fees, and other professional fees rendered by
professionals generally licensed by individual State or accreditation
associations, such as engineers, architects, lawyers, accountants, and
appraisers. The amount of fee will be what is reasonable and customary
in the community or region where the project is located. Any such fees
are to be fully documented and justified.
(x) Aquaculture including conservation, development, and utilization
of water for aquaculture. Aquaculture means the culture or husbandry of
aquatic animals or plants by private industry for commercial purposes
including the culture and growing of fish by private industry for the
purpose of granting or augmenting publicly-owned or regulated stock of
fish.
[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6053, Feb. 6, 1998]
[[Page 83]]
Sec. 1951.854 Ineligible assistance purposes.
(a) RDLF Intermediaries. RDLF loans may not be used by the
intermediary:
(1) For payment of the intermediary's own administrative costs or
expenses.
(2) To purchase goods or services or render assistance in excess of
what is needed to accomplish the purpose of the ultimate recipient
project.
(3) For distribution or payment to the owner, partners,
shareholders, or beneficiaries of the ultimate recipient or members of
their families when such persons will retain any portion of their equity
in the ultimate recipient.
(4) For charitable and educational institutions, churches,
organizations affiliated with or sponsored by churches, and fraternal
organizations.
(5) For assistance to government employees, military personnel, or
principals or employees of the intermediary who are directors, officers
or have major ownership (20 percent or more) in the ultimate recipient.
(6) For relending in a city with a population of twenty-five
thousand or more as determined by the latest decennial census.
(7) For a loan to an ultimate recipient which has applied or
received a loan from another intermediary unless FmHA or its successor
agency under Public Law 103-354 provides prior written approval for such
loan.
(8) For any line of credit.
(9) To finance more than 75 percent of the total cost of a project
by the ultimate recipient. The total amount of RDLF loan funds requested
by the ultimate recipient plus the outstanding balance of any existing
RDLF loan(s) will not exceed $150,000. Other loans, grants, and/or
intermediary or ultimate recipient contributions or funds from other
sources must be used to make up the difference between the total cost
and the assistance provided with RDLF funds.
(10) For any investments in securities or certificates of deposit of
over 30-day duration without the concurrence of FmHA or its successor
agency under Public Law 103-354. If the RDLF funds have been unused to
make loans to ultimate recipients for 6 months or more, those funds will
be returned to FmHA or its successor agency under Public Law 103-354
unless FmHA or its successor agency under Public Law 103-354 provides an
exception to the RDLF intermediary. Any exception would be based on
evidence satisfactory to FmHA or its successor agency under Public Law
103-354 that every effort is being made by the intermediary to utilize
the RDLF funding in conformance with program objectives.
(b) Ultimate recipients. Ultimate recipients may not use assistance
received from RDLF intermediaries involving RDLF funds:
(1) For agricultural production, which means the cultivation,
production (growing), harvesting, either directly or through integrated
operations, of agricultural products (crops, animals, birds and marine
life, either for fiber or food for human consumption, and disposal or
marketing thereof, the raising, housing, feeding, breeding, hatching,
control and/or management of farm and domestic animals). Exceptions to
this definition are:
(i) Aquaculture as identified under eligible purposes.
(ii) Commercial nurseries primarily engaged in the production of
ornamental plants and trees and other nursery products such as bulbs,
florists' greens, flowers, shrubbery, flower and vegetable seeds, sod,
the growing of vegetables from seed to the transplant stage.
(iii) Forestry, which includes establishments primarily engaged in
the operation of timber tracts, tree farms, forest nurseries, and
related activities such as reforestation.
(iv) Financial assistance for livestock and poultry processing as
identified under eligible purposes.
(v) The growing of mushrooms or hydroponics.
(2) For the transfer of ownership unless the loan will keep the
business from closing, or prevent the loss of employment opportunities
in the area, or provide expanded job opportunities.
(3) For community antenna television services or facilities.
(4) For any legitimate business activity when more than 10 percent
of the annual gross revenue is derived from legalized gambling activity.
(5) For any illegal activity.
[[Page 84]]
(6) For any otherwise eligible project that is in violation of
either a Federal, State or local environmental protection law or
regulation or an enforceable land use restriction unless the financial
assistance required will result in curing or removing the violation.
(7) For any hotels, motels, tourist homes, or convention centers.
(8) For any tourist, recreation, or amusement centers.
Sec. Sec. 1951.855-1951.858 [Reserved]
Sec. 1951.859 Term of loans.
(a) No loans shall be extended for a period exceeding 30 years.
Principal payments on loans will be made at least annually. The initial
principal payment may be deferred not more than 3 years.
(b) The terms of loan repayment will be those stipulated in the loan
agreement and/or promissory note.
Sec. 1951.860 Interest on loans.
(a) RDLF intermediaries: When the RDLF loan portfolio was
transferred from HHS to USDA as required under Pub. L. 99-198, section
1323 of the Food Security Act of 1985, there were provisions that
affected the interest rates on those loans.
(1) Those loans made in 1980 and 1981 carried an original note rate
of 1 percent interest when they were first issued. The legislation
provides for those loans made in 1980 and 1981 to have a permanent
interest rate reduction to 1 percent effective December 23, 1985, to
maturity. However, the interest rates on the loans made in 1983 and 1984
may remain the same as the original note rate.
(2) Loans made in 1983 and 1984 do not automatically qualify for a
lower rate than the level of interest rates when the notes were first
issued. Section 407 of Pub. L. 99-425 provides for a weighted average
requirement that would affect those loans made in 1983 and 1984 to
intermediary borrowers.
(3) In those cases where loans were made in RDLF intermediaries and
the weighted average of all loans made by the RDLF intermediary after
December 31, 1982, does not exceed the sum of 6 percent plus the
interest rate to the intermediary (7 percent), the interest rate to be
charged the RDLF intermediary will be the rate charged on such loans
made in 1980, or 1 percent. Should the weighted average exceed 7
percent, the note rate will control.
(i) In order for FmHA or its successor agency under Public Law 103-
354 to determine the weighted average of the loan portfolio, the RDLF
intermediary will be required to complete a weighted loan average rate
on its outstanding portfolio. The schedule prepared for FmHA or its
successor agency under Public Law 103-354's review should include:
(A) Calculations of the interest amount scheduled to accrue on each
loan outstanding over a 1-year period based on the current interest rate
of each ultimate recipient's loan.
(B) The sum total of interest on each individual loan will be added
together to determine the total interest amount scheduled to accrue over
a 1-year period.
(C) Divide the total of paragraph (a)(2) of this section by the
total principal outstanding to determine the average interest percent
yield in the intermediary's loan portfolio.
(D) The loans to be included in determining the weighted interest
average will be those made from January 1, 1983, forward.
(E) FmHA or its successor agency under Public Law 103-354 will use
the anniversary date of October 1 of each year to request the
intermediary to complete a weighted interest average to determine the
interest rate on its RDLF loan for the coming calendar year, January 1
through December 31. All loans made in 1980 and 1981 have had the
interest rate permanently reduced by legislation to 1 percent, effective
December 25, 1985.
(F) The weighted loan average interest rate on the outstanding loan
portfolio as referenced in this section will be forwarded to FmHA or its
successor agency under Public Law 103-354 along with sufficient
documentation which should include calculations, list of outstanding
loans, current interest rate being charged on the loan, etc.
(b) Interest rates charged by intermediaries to the ultimate
recipients shall be at rates negotiated by those parties. Intermediaries
are encouraged
[[Page 85]]
to make loans to ultimate recipients at the lowest possible rate, taking
into account the cost of the loan funds to the intermediary and the cost
of administering the loan portfolio.
Sec. Sec. 1951.861-1951.865 [Reserved]
Sec. 1951.866 Security.
(a) Loans from RDLF intermediaries to ultimate recipients. Security
requirements for loans from intermediaries to ultimate recipients will
be negotiated between the intermediaries and ultimate recipients. FmHA
or its successor agency under Public Law 103-354 concurrence in the
intermediary's security proposal is required only when security for the
loan from the intermediary to the ultimate recipient will also serve as
security for the FmHA or its successor agency under Public Law 103-354
loan.
(b) Additional security. The FmHA or its successor agency under
Public Law 103-354 may require additional security at any time during
the term of a loan to an intermediary if, after review and monitoring,
an assessment indicates the need for such security.
(c) Appraisals. Real property serving as security for all loans to
intermediaries and for loans to ultimate recipients serving as security
for loans to intermediaries will be appraised by a qualified appraiser.
For all other types of property, a valuation shall be made using any
recognized, standard technique for the type of property involved
(including standard reference manuals), and this valuation shall be
described in the loan file.
Sec. 1951.867 Conflict of interest.
The intermediary will, for each proposed loan to an ultimate
recipient, inform FmHA or its successor agency under Public Law 103-354
in writing and furnish such additional evidence as FmHA or its successor
agency under Public Law 103-354 requests as to whether and the extent to
which the intermediary or its principal officers (including immediate
family) hold any legal or financial interest or influence in the
ultimate recipient or the ultimate recipient or any of its principal
officers (including immediate family) holds any legal or financial
interest or influence in the intermediary. FmHA or its successor agency
under Public Law 103-354 shall determine whether such ownership,
influence or financial interest is sufficient to create potential
conflict of interest. In the event FmHA or its successor agency under
Public Law 103-354 determines there is a conflict of interest, the
intermediary's assistance to the ultimate recipient will not be approved
until such conflict is eliminated.
Sec. 1951.868-1951.870 [Reserved]
Sec. 1951.871 Post award requirements.
(a) RDLF intermediaries with undisbursed RDLF loan funds shall be
governed by these regulations, the loan agreement, the approved work
program, security interests, and other conditions which FmHA or its
successor agency under Public Law 103-354 may require in awarding a
loan.
(b) Unless otherwise specifically agreed to in writing by the FmHA
or its successor agency under Public Law 103-354, any loan funds held by
an intermediary and any funds obtained from loaning FmHA or its
successor agency under Public Law 103-354-derived funds and recollecting
them that are not immediately needed by the intermediary for an ultimate
recipient should be deposited in an interest-bearing account in a bank
or other financial institution which will be covered by a form of
Federal deposit insurance. Any interest or income earned as a result of
such deposits shall be used by the intermediary only for purposes
authorized by FmHA or its successor agency under Public Law 103-354.
(c) Intermediaries operating relending programs must maintain
separate ledgers and segregated accounts for RDLF funds at all times.
(d) Reporting requirements shall be those delineated in the loan
agreement between the United States and the intermediary and such
subsequent requirements as FmHA or its successor agency under Public Law
103-354 deems appropriate. The intermediaries must document periodically
the extent to which increased employment, income and ownership
opportunities are provided to rural residents for each loan made by such
intermediary.
[[Page 86]]
(e) No intermediary may make a loan to an ultimate recipient who has
applied for or received a loan from another intermediary unless FmHA or
its successor agency under Public Law 103-354 provides prior written
approval for such loan.
(f) All loan payments that are due on RDLF loans will be made
payable to the Farmers Home Administration or its successor agency under
Public Law 103-354, using the number assigned, and mailed directly to:
Farmers Home Administration or its successor agency under Public Law
103-354, Finance Office, FC 35, 1520 Market Street, St. Louis, Missouri
63103.
Sec. 1951.872 Other regulatory requirements.
(a) Intergovenmental consultation. The RDLF program is subject to
the provisions of Executive Order 12372 which requires intergovernmental
consultation with State and local officials. For each ultimate recipient
to be assisted with a loan under this subpart and for which the State in
which the ultimate recipient is to be located has elected to review the
program under their intergovernmental review process, the State Point of
Contact must be notified. Notification, in the form of a project
description, can be initiated by the intermediary or the ultimate
recipient. Any comments from the State must be included with the
intermediary's request to use the loan funds for the ultimate recipient.
Prior to FmHA or its successor agency under Public Law 103-354's
decision on the request, compliance with the requirements of
intergovernmental consultation must be demonstrated for each ultimate
recipient. These requirements should be carried out in accordance with
FmHA or its successor agency under Public Law 103-354 Instruction 1940-
J, ``Intergovernmental Review of Farmers Home Administration or its
successor agency under Public Law 103-354 Programs and Activities,''
available in any FmHA or its successor agency under Public Law 103-354
office.
(b) Environmental requirements. (1) Unless specifically modified by
this section, the requirements of subpart G of part 1940 of this chapter
apply to this subpart. FmHA or its successor agency under Public Law
103-354 will give particular emphasis to ensuring compliance with the
environmental policies contained in Sec. Sec. 1940.303 and 1940.304 in
subpart G of part 1940 of this chapter. Intermediaries and ultimate
recipients of loans must consider the potential environmental impacts of
their projects at the earliest planning stages and develop plans to
minimize the potential to adversely impact the environment.
(2) As part of the intermediary's request to FmHA or its successor
agency under Public Law 103-354 for concurrence to make a loan to an
ultimate recipient, the intermediary will include for the ultimate
recipient a properly completed Form FmHA or its successor agency under
Public Law 103-354 1940-20, ``Request for Environmental Information,''
if it is classified as a Class I or Class II action. FmHA or its
successor agency under Public Law 103-354 will complete the
environmental review required by subpart G of part 1940 of this chapter.
The results of this review will be used by FmHA or its successor agency
under Public Law 103-354 in making its decision on the request.
(c) Equal opportunity and nondiscrimination requirements.(1) In
accordance with Title V of Pub. L. 93-495, the Equal Credit Opportunity
Act, neither the intermediary nor FmHA or its successor agency under
Public Law 103-354 will discriminate against any applicant on the basis
of race, color, religion, national origin, age, physical or mental
handicap (provided that the applicant has the capacity to enter into a
binding contract), sex or marital status with respect to any aspect of a
credit transaction anytime Federal funds are involved.
(2) The regulations contained in part 1901, subpart E of this
chapter apply to loans made under this program.
(3) The Administrator will assure that equal opportunity and
nondiscrimination requirements are met in accordance with Title VI of
the Civil Rights Act of 1964, ``Nondiscrimination in Federally Assisted
Programs,'' 42 U.S.C. 2000d-2000d-4. If there is indication of
noncompliance with these requirements, such facts will be reported in
writing to the Administrator, ATTN: Equal Opportunity Officer.
[[Page 87]]
Sec. Sec. 1951.873-1951.876 [Reserved]
Sec. 1951.877 Loan agreements.
(a) A loan agreement will have been executed by the RDLF
intermediary and OCS or HHS for each loan. The loan agreement ordinarily
would contain the following provisions:
(1) The amount of the loan.
(2) The interest rate.
(3) The term and repayment schedule.
(4) The provisions for late charges.
(5) Provisions regarding default.
(6) Disbursement procedure.
(7) Insurance requirements.
(i) Hazard insurance with a standard mortgage clause naming the
intermediary as beneficiary will be required on every ultimate recipient
in an amount that is at least the lesser of the depreciated replacement
value of the property being insured or the amount of the loan. Hazard
insurance includes fire, windstorm, lightning, hail, business
interruption, explosion, riot, civil commotion, aircraft, vehicle,
marine, smoke, builder's risk, public liability, property damage, flood
or mudslide, or any other hazard insurance that may be required to
protect the security. The RDLF intermediary's interest in the insurance
ordinarily will be assigned to the FmHA or its successor agency under
Public Law 103-354.
(ii) Ordinarily, life insurance, which may be decreasing term
insurance, is required for the principals and key employees of the
ultimate recipient and will be assigned or pledged to the RDLF
intermediary and subsequently to FmHA or its successor agency under
Public Law 103-354. A schedule of life insurance available for the
benefit of the loan will be included as part of the application.
(iii) Workmen's compensation insurance on ultimate recipients is
required in accordance with State law.
(iv) The RDLF intermediary is responsible for determining if an
ultimate recipient is located in a special flood or mudslide hazard area
anytime Federal funds are involved. If the ultimate recipient is in a
flood or mudslide area, then flood or mudslide insurance must be
provided.
(b) The RDLF intermediary will agree:
(1) Not to make any changes in the RDLF intermediary's articles of
incorporation, charter or bylaws without the concurrence of FmHA or its
successor agency under Public Law 103-354.
(2) Not to make a loan commitment to an ultimate recipient without
first receiving FmHA or its successor agency under Public Law 103-354's
written concurrence in the proposed use of loan funds.
Sec. Sec. 1951.878-1951.880 [Reserved]
Sec. 1951.881 Loan servicing.
(a) These regulations do not negate contractual arrangements that
were previously made by the HHS, Office of Community Services (OCS), or
the intermediaries operating relending programs that have already been
entered into with ultimate recipients under previous regulations.
preexisting documents control when in conflict with these regulations.
The loan is governed by terms of existing legal documents of each
intermediary. The RDLF/IRP intermediary is responsible for compliance
with the terms and conditions of the loan agreement.
(b) Each intermediary will be monitored by FmHA or its successor
agency under Public Law 103-354 based on progress reports submitted by
the intermediary, audit findings, disbursement transactions,
visitations, and other contract with the intermediary as necessary.
(c) Loan servicing is intended to be preventive rather than a
curative action. Prompt followup on delinquent accounts and early
recognition of potential problems and pursuing a solution to them are
keys to resolving many problem loan cases.
(d) Written notices on payments coming due will be prepared and sent
to the intermediary by the FmHA or its successor agency under Public Law
103-354 Finance Office approximately 15 days in advance of the due date
of the payments. A copy of the notice will be sent to the FmHA or its
successor agency under Public Law 103-354 Administrator or designee.
(e) If the scheduled payment is not made by the intermediary within
30 days after the due date of the payment,
[[Page 88]]
the Finance Office will send a past due notice to the intermediary. The
notice will show the late charge amount, if applicable, and the interest
amount past due. The late charge amount, if applicable, and the interest
past due amount will be capitalized as principal due 30 days after the
due date of the monthly payment unless existing loan documents prior to
this regulation state otherwise. If the loan documents state when late
charge amounts or interest accruals are to be capitalized, the loan
documents will prevail.
(1) A per diem amount will be shown on the late notice sent to the
intermediary. The Finance Office will send this notice to the
Administrator or designee 30 days after the past due notice has been
sent to the intermediary and the account remains delinquent. Thereafter,
further notices by FmHA or its successor agency under Public Law 103-354
designee will be sent to the intermediary on the late payments or any
further payments until the account is in a current status.
(2) The Finance Office will notify the Administrator or designee on
any payments due from the delinquent intermediary. It will be the
responsibility of the Administrator or designee to follow up on
delinquent payments to bring the account to a current status.
(3) A copy of any correspondence or notice generated by the
Administrator or designee on any delinquent loan will be sent to the
Finance Office.
(4) Interest will be computed on a 365-day basis unless legal
documents state otherwise.
(f) It is the responsibility of the Finance Office to maintain
complete accounting records for each intermediary. The Finance Office
will:
(1) Coordinate with the Administrator or designee to assure that
interest and principal payments received are in accordance with the
promissory notes and its companion documents, and the effective
amortization schedule. If the payments received appear to be incorrect,
the Finance Office will advise the Administrator or designee. The
Administrator or designee will take the necessary action to clear the
issue and promptly advise the Finance Office of the proper accounting
procedure.
(2) Send monthly statements to the National Office reflecting all
payments received to date on each borrower.
(3) Send to the Administrator or designee a monthly summary of all
intermediary loans as follows:
(i) Number and amount of all loans.
(ii) Total advanced on all loans.
(iii) Total interest and principal received on the loans.
(iv) Total outstanding balance on all loans.
(4) Prepare reamortization schedules needed as a result of
restructuring any loans and send to the Administrator or designee.
(5) Furnish in writing to the Administrator or designee a per diem
amount on the actual interest amount due when requested by the
Administrator.
(g) It is the responsibility of the Administrator or designee to:
(1) Review and analyze the semiannual report of the intermediaries
and reconcile same to the annual audits.
(2) Review the annual audits of intermediaries.
(3) Review the semiannual reports of the intermediaries and take
appropriate action when necessary.
(4) Follow up on delinquent intermediaries to bring the account
current.
(5) Notify the Finance Office in writing when a loan is determined
to be uncollectible in order for the Finance Office to make provisions
for an appropriate timely entry to the loss account.
(6) Furnish to the Finance Office the necessary information to
produce reamortization schedules.
(7) Provide the Finance Office a copy of any correspondence in
regard to the restructuring of the loans.
(8) Review reamortization schedules, the schedule will then be
forwarded to the intermediary.
(9) Confirm account balances. Payment history of loans and any other
related matter will be furnished to the requesting party, (i.e. third
party auditing firms) if warranted and proper. If there are
discrepancies in any loan balances being confirmed, the Finance Office
should be consulted before the Administrator or designee writes the
requested parties.
[[Page 89]]
(10) Furnish upon request by the Finance Office, the information
necessary to help reconcile account balances, obtain evidence of
payments made by the borrower, and any other related data necessary to
keep the financial records correct and in balance.
(11) Answer Congressional and other correspondence.
(12) Review intermediary's plans, cash flow projections, balance
sheets, and operating statements.
Sec. 1951.882 [Reserved]
Sec. 1951.883 Reporting requirements.
(a) Intermediaries are to provide FmHA or its successor agency under
Public Law 103-354 with reports as required in their respective loan
agreements, applicable statutes and as required by FmHA or its successor
agency under Public Law 103-354. The report shall include the following:
(1) An annual audit; dates of audit report period need not
necessarily coincide with other reports on the RDLF/IRP. Audits shall be
due 90 days following the audit period. Audits must cover all of the
intermediary's activities. Audits will be performed by an independent
certified public accountant or by an independent public accountant
licensed and certified on or before December 31, 1970, by a regulatory
authority of a State or other political subdivision of the United
States. An acceptable audit will be performed in accordance with
generally accepted auditing standards and include such tests of the
accounting records as the auditor considers necessary in order to
express an opinion on the financial condition of the intermediary. FmHA
or its successor agency under Public Law 103-354 does not require an
unqualified audit opinion as a result of the audit. Compilations or
reviews do not satisfy the audit requirement.
(2) Quarterly or semiannual reports (due 30 days after the end of
the period).
(i) Reports will be required quarterly during the first year after
loan closing and, if all loan funds are not utilized during the first
year, quarterly reports will be continued until at least 90 percent of
the Agency IRP loan funds have been advanced to ultimate recipients.
Thereafter, reports will be required semiannually. Also, the Agency may
require quarterly reports if the intermediary becomes delinquent in
repayment of its loan or otherwise fails to fully comply with the
provisions of its work plan or Loan Agreement, or the Agency determines
that the intermediary's IRP revolving fund is not adequately protected
by the current sound worth and paying capacity of the ultimate
recipients.
(ii) These reports shall contain only information on the IRP
revolving loan fund, or if other funds are included, the IRP loan
program portion shall be segregated from the others; and in the case
where the intermediary has more than one IRP revolving fund from the
Agency a separate report shall be made for each of the IRP revolving
funds.
(iii) The reports will include, on a form provided by the Agency,
information on the intermediary's lending activity, income and expenses,
financial condition, and a summary of names and characteristics of the
ultimate recipients the intermediary has financed.
(3) An annual report on the extent to which increased employment
income and ownership opportunities are provided to low-income persons,
farm families, and displaced farm families for each loan made by such
intermediary.
(4) Proposed budget for the following year.
(5) Other reports as FmHA or its successor agency under Public Law
103-354 may require from time to time.
(b) Intermediaries shall report to FmHA or its successor agency
under Public Law 103-354 whenever an ultimate recipient is more than 90
days in arrears in the repayment of principal or interest.
[53 FR 30656, Aug. 15, 1988, as amended at 63 FR 6053, Feb. 6, 1998]
Sec. 1951.884 Non-Federal funds.
Once all the FmHA or its successor agency under Public Law 103-354-
derived loan funds have been utilized by the intermediary for assistance
to ultimate recipients according to the provisions of these regulations
and the loan agreement, assistance to new ultimate recipients financed
thereafter from the intermediary's revolving loan fund shall not be
considered as being derived
[[Page 90]]
from Federal funds and the requirements of these regulations will not be
imposed on those new ultimate recipients. Ultimate recipients assisted
by the intermediary with FmHA or its successor agency under Public Law
103-354-derived loan funds shall be required to comply with the
provisions of these regulations and/or loan agreement.
Sec. 1951.885 Loan classifications.
All loans to intermediaries in the FmHA or its successor agency
under Public Law 103-354 portfolio will be classified by FmHA or its
successor agency under Public Law 103-354 at loan closing and again
whenever there is a change in the loan which would impact on the
original classification. No one classification should be viewed as more
important than others. The uncollectibility aspect of Doubtful and Loss
classifications is of obvious importance. However, the function of the
Substandard classification is to indicate those loans that are unduly
risky which may result in future losses. Substandard, Doubtful and Loss
are adverse classifications. The special mention classification is for
loans which are not adversely classified but which require the attention
and followup of FmHA or its successor agency under Public Law 103-354.
The loans will be classified as follows:
(a) Seasoned loan classification. To be classified as a seasoned
loan, a loan must:
(1) Have a remaining principal loan balance of two-thirds or less of
the original aggregate of all existing loans made to that intermediary.
(2) Be in compliance with all loan conditions and FmHA or its
successor agency under Public Law 103-354 regulations.
(3) Have been current on the loan(s) payments for 24 consecutive
months.
(4) Be secured by collateral which is determined to be adequate to
ensure there will be no loss on the loan.
(b) Current non-problem classification. This classification includes
those loans which have been current for less than 24 consecutive months
and are in compliance with the loan conditions and FmHA or its successor
agency under Public Law 103-354 regulations, and are not considered to
pose a credit risk to FmHA or its successor agency under Public Law 103-
354. These loans would be classified as seasoned but for the ``24
months'' and ``two-thirds'' requirements for seasoned loans.
(c) Special mention classification. This classification includes
loans which do not presently expose FmHA or its successor agency under
Public Law 103-354 to a sufficient degree of risk to warrant a
Substandard classification but do possess credit deficiencies deserving
FmHA or its successor agency under Public Law 103-354's close attention
because the failure to correct these deficiencies could result in
greater risk in the future. This classification would include loans that
may be high quality, but which FmHA or its successor agency under Public
Law 103-354 is unable to supervise properly because of an inadequate
loan agreement, the condition or lack of control over the collateral,
failure to obtain proper documentation or any other deviations from
prudent lending practices. Adverse trends in the intermediary's
operation or an imbalanced position in the balance sheet which has not
reached a point that jeopardizes the repayment of the loan should be
assigned to this classification. Loans in which actual, not potential,
weaknesses are evident and significant should be considered for a
Substandard classification.
(d) Substandard classification. This classification includes loans
which are inadequately protected by the current sound worth and paying
capacity of the obligor or of the collateral pledged, if any. Loans in
this classification must have a well defined weakness or weaknesses that
jeopardize the payment in full of the debt. If the deficiencies are not
corrected, there is a distinct possibility that FmHA or its successor
agency under Public Law 103-354 will sustain some loss.
(e) Doubtful classification. This classification includes those
loans which have all the weaknesses inherent in those classified
Substandard with the added characteristic that the weaknesses make
collection or liquidation in full, based on currently known facts,
conditions and values, highly questionable and improbable.
[[Page 91]]
(f) Loss classification. This classification includes those loans
which are considered uncollectible and of such little value that their
continuance as loans is not warranted. Even though partial recovery may
be effected in the future, it is not practical or desirable to defer
writing off these basically worthless loans.
Sec. Sec. 1951.886-1951.888 [Reserved]
Sec. 1951.889 Transfer and assumption.
(a) All transfers and assumptions must be approved in advance in
writing by FmHA or its successor agency under Public Law 103-354. Such
transfers and assumptions must be to an eligible intermediary.
(b) Available transfer and assumption options to eligible
intermediaries include the following:
(1) The total indebtedness may be transferred to another eligible
intermediary on the same terms.
(2) The total indebtedness may be transferred to another eligible
intermediary on different terms not to exceed those terms for which an
initial loan can be made to an organization that would have been
eligible originally.
(3) Less than total indebtedness may be transferred to another
eligible intermediary on the same terms.
(4) Less than total indebtedness may be transferred to another
eligible intermediary on different terms.
(c) The transferor will prepare the transfer document for FmHA or
its successor agency under Public Law 103-354's review prior to the
transfer and assumption.
(d) The transferee will provide FmHA or its successor agency under
Public Law 103-354 with a copy of its latest financial statement and a
copy of its annual financial statement for the past 3 years if
available; its Federal Tax Identification number; organizational
charter; minutes from the Board of Directors authorizing the
transaction; certification of good standing from the Secretary of State
or whatever regulatory agency oversees nonprofit corporations for that
State or Commonwealth where the entity is headquartered; and any other
information that FmHA or its successor agency under Public Law 103-354
deems necessary for its review.
(e) The assumption agreement will contain the FmHA or its successor
agency under Public Law 103-354 case nunber of the transferor and
transferee.
(f) When the transferee makes a cash downpayment in connection with
the transfer and assumption, any proceeds received by the transferor
will be credited on the transferor's loan debt in inverse order of
maturity.
(g) The Administrator or designee will approve or decline all
transfers and assumptions.
Sec. 1951.890 Office of Inspector General and Office of General Counsel referrals.
When facts or circumstances indicate that criminal violations, civil
fraud, misrepresentations, or regulatory violations may have been
committed by an applicant or an intermediary, FmHA or its successor
agency under Public Law 103-354 will refer the case to the appropriate
Regional Inspector General for Investigations, OIG, USDA, in accordance
with FmHA or its successor agency under Public Law 103-354 Instruction
2012-B (available in any FmHA or its successor agency under Public Law
103-354 office) for criminal investigation. Any questions as to whether
a matter should be referred will be resolved through consultation with
OIG and FmHA or its successor agency under Public Law 103-354 and
confirmed in writing. In order to assure protection of the financial and
other interests of the Government, a duplicate of the notification will
be sent to the OGC. OGC will be consulted on legal questions. After OIG
has accepted any matter for investigation, FmHA or its successor agency
under Public Law 103-354 staff must coordinate with OIG in advance
regarding routine servicing actions on existing loans.
Sec. 1951.891 Liquidation; default.
(a) In the event that FmHA or its successor agency under Public Law
103-354 takes over the servicing of the ultimate recipient of an
intermediary, those loans will be serviced by this regulation and in
accordance with the contractual arrangement between the
[[Page 92]]
intermediary and the ultimate recipient. Should the FmHA or its
successor agency under Public Law 103-354 determine that it is necessary
or desirable to take action to protect or further the interests of FmHA
or its successor agency under Public Law 103-354 in connection with any
default or breach of conditions under any loan made hereunder, the FmHA
or its successor agency under Public Law 103-354 may:
(1) Declare that the loan is immediately due and payable.
(2) Assign or sell at public or private sale, or otherwise dispose
of for cash or credit at its discretion and upon such terms and
conditions as FmHA or its successor agency under Public Law 103-354
shall determine to be reasonable, any evidence of debt, contract, claim,
personal or real property or security assigned to or held by the FmHA or
its successor agency under Public Law 103-354 in connection with
financial assistance extended hereunder.
(3) Adjust interest rates, use fixed or variable rates, grant
moratoriums on repayment of principal and interest, collect or
compromise any obligations held by FmHA or its successor agency under
Public Law 103-354 and take such actions in respect to such loans as are
necessary or appropriate, consistent with the purpose of the program and
this subpart. The Administrator will notify the FmHA or its successor
agency under Public Law 103-354 Finance Office of any change in payment
terms, such as reamortizations or interest rate adjustments, and
effective dates of any changes resulting from servicing actions.
(b) Failure by an ultimate recipient to comply with the provisions
of these regulations and/or loan agreement shall constitute grounds for
a declaration of default and the demand for immediate and full repayment
of its loan.
(c) Failure by an intermediary to comply with the provisions of
these regulations or to relend funds in accordance with an approved work
plan or loan agreement shall constitute grounds for a declaration of
default and the demand for immediate and full repayment of the loan.
(d) In the event of default, the intermediary will promptly be
informed in writing of the consequences of failing to comply with loan
covenant(s).
(e) Protective advances to the intermediary will not be made in lieu
of additional loans, in particular working capital loans. Protective
advances are advances made by FmHA or its successor agency under Public
Law 103-354 for the purpose of preserving and protecting the collateral
where the intermediary has failed to and will not or cannot meet its
obligations. The Administrator or designee must approve in writing all
protective advances.
(f) In the event of bankruptcy by the intermediary and/or ultimate
recipient, FmHA or its successor agency under Public Law 103-354 is
responsible for protecting the interests of the Government. All
bankruptcy cases should be reported immediately to the Regional
Attorney. The Administrator must approve in advance and in writing the
estimated liquidation expenses on loans in liquidation backruptcy. These
expenses must be considered by FmHA or its successor agency under Public
Law 103-354 to be reasonable and customary.
(g) Liquidation, management, and disposal of inventory property will
be handled in accordance with subparts A, B, and C of part 1955 of this
chapter.
Sec. Sec. 1951.892-1951.893 [Reserved]
Sec. 1951.894 Debt settlement.
Debt settlement of all claims will be handled in accordance with the
Federal Claims Collection Standards (4 CFR parts 101-105).
Sec. 1951.895 [Reserved]
Sec. 1951.896 Appeals.
Any appealable adverse decision made by FmHA or its successor agency
under Public Law 103-354 which affects the borrower may be appealed upon
written request of the aggrieved party in accordance with subpart B of
part 1900 of this chapter.
Sec. 1951.897 Exception authority.
The Administrator may, in individual cases, grant an exception to
any requirement or provision of this subpart which is not inconsistent
with an
[[Page 93]]
applicable law or opinion of the Comptroller General, provided the
Administrator determines that application of the requirement or
provision would adversely affect the Government's interest. The basis
for this exception will be fully documented. The documentation will:
demonstrate the adverse impact; identify the particular requirement
involved; and show how the adverse impact will be eliminated.
Sec. Sec. 1951.898-1951.899 [Reserved]
Sec. 1951.900 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
Control Number 0575.0131. In accordance with 5 CFR part 1320, summarized
below is the annualized public reporting burden for this regulation.
Sec. 1951.900 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
Control Number 0575.0131. In accordance with 5 CFR part 1320, summarized
below is the annualized public reporting burden for this regulation.
----------------------------------------------------------------------------------------------------------------
Total Est. No. Est.
Estimated annual of man- total
Sect. of Title (B) Form No. (if No. of Report filed responses hrs. per manhours
regulations (A) any) (C) respondents annually (E) (d) x (e) response (f) x (g)
(D) (F) (G) (H)
----------------------------------------------------------------------------------------------------------------
Reporting Requirements--No Forms
----------------------------------------------------------------------------------------------------------------
1951.860(a)(3)(i) Weighted Written 12 1 12 3.0 36
average
interest
calculation
1951.877(a)(7)(i) Insurance Assignment 36 On occasion 100 1.0 100
1951.882(a) Intermediary Meeting 36 1 36 4.5 162
visitations
1951.882(b) Audited Written 36 1 36 .5 18
financial
statement
1951.883(a)(2)(ii) Program Written
narrative
IRP borrower ............ 10 4 40 4.0 160
RDLF borrower ............ 26 2 52 4.0 208
1951.833(a)(2)(iii Employment/ Written 36 1 36 1.5 54
) income
narrative
1951.883(a)(2)(iv) Proposed budget Written 36 1 36 2.5 90
1951.883(c) Intermediary's Written 36 On occasion 50 1.0 50
report of
loans 90 days
in arrears
1951.889(c) Assumption Written 2 1 2 3.5 7
Agreement
1951.889(d) Transferee Written 2 1 2 .5 1
financial
statement
----------------------------------------------------------------------------------------------------------------
Form Approved with this Docket
----------------------------------------------------------------------------------------------------------------
1951.883(a)(2) IRP Lending 1951-4
Activity
Report
IRP borrower ............ 10 4 40 20 800
RDLF borrower ............ 26 2 52 20 1040
----------------------------------------------------------------------------------------------------------------
Reporting Requirements Under Other Numbers
----------------------------------------------------------------------------------------------------------------
1951.872(b) Request for 1940-20
Environmental (0575-0094)
Information
........... \1\494 ......... \2\2,726
----------------------------------------------------------------------------------------------------------------
\1\ Docket totals.
\2\ Total hours.
[[Page 94]]
Subpart S_Farm Loan Programs Account Servicing Policies
Source: 57 FR 18626, Apr. 30, 1992, unless otherwise noted.
Sec. 1951.901 Purpose.
This subpart describes the policies and procedures that the agency
will use in servicing most Farm Loan Program (FLP) loans. The loans
include Operating Loan (OL), Farm Ownership Loan (FO), Soil and Water
Loan (SW), Softwood Timber Production Loan (ST), Emergency Loan (EM),
Economic Emergency Loan (EE), Economic Opportunity Loan (EO), Recreation
Loan (RL), and Rural Housing Loan for farm service buildings (RHF)
accounts. Shared Appreciation amortized payments (SA) may be reamortized
in accordance with Sec. Sec. 1951.907(e), 1951.909(c)(6) and
1951.909(e)(2). Cases involving unauthorized assistance will be serviced
as described in subpart L of this part. When it has been determined that
all the conditions outlined in Sec. 1951.558(b) of subpart L of this
part have been met, the loan will be treated as an authorized loan and
may be serviced under this subpart. Cases involving graduation of
borrowers to other sources of credit will be serviced as described in
subpart F of this part. This subpart does not apply to FLP Non-Program
(NP) loans. Examples of Primary Loan Servicing actions are:
consolidation, rescheduling and/or reamortization, deferral of principal
and interest payments, reclassifying to ST loans, reducing interest rate
on the loan, writedown of debt and conservation contract, or a
combination of these actions. Preservation loan servicing is the
Homestead Protection program. Any processing or servicing activity
conducted pursuant to this subpart involving authorized assistance to
agency employees, members of their families, known close relatives, or
business or close personal associates, is subject to the provisions of
subpart D of part 1900 of this chapter. Applicants for this assistance
are required to identify any known relationship or association with an
agency employee.
[62 FR 10120, Mar. 5, 1997, as amended at 63 FR 6628, Feb. 10, 1998; 67
FR 7943, Feb. 21, 2002; 69 FR 5263, Feb. 4, 2004]
Sec. 1951.902 General.
Supervision and Servicing. It is a primary objective of the Agency
to provide supervised credit to borrowers in financial, production or
other difficulty in a manner that will assure the maximum opportunity
for their recovery and, at the same time, get the best recovery for the
Government. Supervision and servicing are continuing processes that
begin the day a farmer comes into the office. Providing supervised
credit has two objectives:
(a) To help farmers set goals, work on problem areas and work toward
graduation to commercial credit;
(b) To recover the maximum possible amount for the Government.
[62 FR 10120, Mar. 5, 1997]
Sec. 1951.903 Authorities and responsibilities.
(a) Responsibilities. Servicing officials will make full use of the
National automated tracked system to track and manage the FLP primary
and preservation loan servicing and debt settlement programs.
(b) Authorities. All loan servicing decisions except as set forth in
this section will be made by the servicing official except the approval
of writedown and buyout of a borrower's debt. Also, all applications for
debt settlement of FLP loans must be approved by the State Executive
Director or the Administrator (depending upon the amount of debt to be
settled), and processed in accordance with the provisions of subpart B
of part 1956 of this chapter. Servicing officials are authorized to
accept a buyout payment when the borrower(s) pays the current market
value of the security set forth in Sec. 1951.909 of this Instruction.
Only State Executive Directors are authorized to approve writedown and
buyout in accordance with Sec. 1951.909 of this part and release a
divorced spouse from liability
[[Page 95]]
on the debt in accordance with Sec. 1951.909(a) of this part.
[62 FR 10121, Mar. 5, 1997, as amended at 68 FR 7698, Feb. 18, 2003]
Sec. 1951.904 Mediation, reviews and appeals.
(a) Participant rights. (1) For loan servicing under this subpart,
mediation or a voluntary meeting of creditors will be offered if the
DALR$ calculations indicate that a feasible plan of operation cannot be
developed considering all primary loan service programs, Softwood
Timber, and Conservation Contracts. In states with a USDA Certified
Mediation Program, mediation will be offered. In all other states, a
voluntary meeting of creditors will be offered.
(2) Any negotiation of an Agency appraisal must be completed prior
to the meeting of creditors or mediation.
(3) If the borrower does not request mediation or a voluntary
meeting of creditors as offered in Exhibit E of this subpart within 45
days, the servicing official will issue the appropriate ``Notice of
Intent to Accelerate or to Continue Acceleration and Notice of
Borrowers' Rights.''
(4) Whenever the servicing official makes a decision that will
adversely affect a participant, the participant will be informed that
the decision can be reviewed in accordance with 7 CFR part 780 and
indicate whether it can be appealed to the USDA National Appeals
Division (NAD) according to regulations set forth in 7 CFR part 11.
Nonprogram (NP) participants are not entitled to appeal rights.
(b) Non-appealable decisions. The following types of decisions are
not appealable:
(1) Decisions made by parties outside the agency, even when those
decisions are used as a basis for the agency's decisions.
(2) Decisions that do not meet the eligibility requirements of 7 CFR
part 11.
(3) Interest rates as set forth in Agency procedures, except appeals
alleging application of the incorrect interest rate.
(4) Refusal to request or grant an administrative waiver permitted
by program regulations.
(5) Denials of assistance due to lack of funds.
(6) In cases where the adverse decision is based on both appealable
and non-appealable actions, the adverse action is not appealable.
(7) Determinations previously made by the Agency that have been
appealed, and a NAD decision adverse to the participant has been
entered; or upon which the time frame for appeal has expired with no
appeal being requested.
(c) Next-level review. Any adverse decision, whether appealable or
non-appealable, may be reviewed in accordance with 7 CFR part 780.
(d) NAD review. (1) A participant may request that NAD review the
Agency's determination that the decision may not be appealed.
(2) A participant may request that NAD review any decision that is
appealable.
(3) NAD will review the participant's request in accordance with 7
CFR part 11.
(e) Agency actions pending outcome of appeal. Assistance will not be
discontinued pending the outcome of an appeal of any adverse action.
Releases for essential family living and farm operating expenses will
not be terminated until the account has been accelerated.
(f) Time limits. Time limits for action under this subpart will be
tolled during the pendency of an appeal, but not during the pendency of
a request that NAD determine that a matter is or is not appealable.
[62 FR 10121, Mar. 5, 1997]
Sec. 1951.905 [Reserved]
Sec. 1951.906 Definitions.
As used in this subpart, the following definitions apply:
Borrower. An individual or entity which has outstanding obligations
to the agency under any Farm Loan Programs (FLP) loan, without regard to
whether the loan has been accelerated. This does not include any such
debtor whose total loans and accounts have been foreclosed or
liquidated, voluntarily or otherwise. Collection-only borrowers are
considered borrowers. Borrower also includes any other party liable for
the FLP debt. Nonprogram
[[Page 96]]
(NP) borrowers are not considered borrowers for the purposes of this
subpart.
CONACT or CONACT property. Property which secured a loan made or
insured under the Consolidated Farm and Rural Development Act. Within
this part, it shall also be construed to cover property which secured
other FLP loans.
Conservation contract. A contract under which a borrower agrees to
set aside land for conservation, recreation or wildlife purposes in
exchange for cancellation of a portion of an outstanding FLP debt.
Relief obtained in this manner is not considered debt forgiveness as
defined in this section.
Consolidation. The combining and rescheduling of the rates and terms
of two or more notes of the same type of OL or EO loans, EE operating-
type loans or EM loans. EM actual loss loans will not be consolidated.
Current market value buyout. Termination of a borrower's loan
obligations to the agency in exchange for payment of the current
appraised value of the security property, less any prior liens.
Debt forgiveness. For the purposes of loan servicing, debt
forgiveness is defined as a reduction or termination of a direct FLP
loan in a manner that results in a loss to the Agency. Included, but not
limited to, are losses from a writedown or writeoff under this subpart,
subpart J of this part, subpart B of part 1956 of this chapter, after
discharge under the bankruptcy code, and associated with release of
liability. Debt cancellation through conservation contracts is not
considered debt forgiveness under this subpart.
Debt settlement. The settlement of debts owed the United States for
FLP loans. The types of debt settlement programs are: compromise,
adjustment, cancellation and chargeoff.These programs are administered
in accordance with subpart B of part 1956 of this chapter. Any action
through debt settlement which results in a loss to the Agency will be
considered debt forgiveness.
Deferral. An approved delay in making regularly scheduled payments,
including softwood timber (ST) loans. Deferral is not considered debt
forgiveness.
Delinquent or past-due borrower. A borrower who has failed to make
all or part of a payment by the due date.
Entity. A corporation, partnership, joint operation, or cooperative.
Farm Loan Programs (FLP) loans. This refers to Farm Ownership (FO),
Soil and Water (SW), Recreation (RL), Economic Opportunity (EO),
Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood Timber
(ST) loans, and Rural Housing loans for farm service buildings (RHF).
Farm plan. Form FmHA 431-2, ``Farm and Home Plan,'' or other plans
or documents acceptable to the agency that will accurately reflect the
production and financial management of the farming operation for one
production cycle. The agency will not require the use of consolidated
financial statements.
Feasible plan. A feasible plan must be based upon the applicant or
borrower's actual records that show the farming operation's actual
income, production and expenses. These records will include income tax
returns and supporting documents (hereafter called income tax records).
The records must be for the most recent five-year period or, if the
borrower has been farming less than five years, for the period which the
borrower has farmed. For borrowers who have been farming for less than
five years, other available records will be used in the order listed in
section Sec. 1924.57(d)(1) of subpart B of part 1924 of this chapter to
complete a five-year history. Future production yields will be based on
an average of the most recent past five years' actual production yields.
Borrowers with yields affected by disasters in at least two of the five
most recent years may exclude the crop year with the lowest actual
yield. In addition, in accordance with section Sec. 1924.57(d)(1) of
subpart B of part 1924 of this chapter, if the applicant's remaining
disaster years' yields are less than the County average yield, and the
borrower's yields were affected by the disaster, County average yields
will be used for those years. If County average yields are not
available, State average yields will be used. These records will be used
along with realistic anticipated prices, including any planned FLP loan
payments, to determine that the income from the farming
[[Page 97]]
operation, and any reliable off-farm income, will provide the income
necessary for an applicant or borrower to at least be able to:
(1) Pay all operating expenses and taxes which are due during the
projected farm business accounting period.
(2) Meet scheduled payments on all debts.
(3) Meet up to 110 percent, but not less than 100 percent, of the
amount indicated for payment of farm operating expenses, debt servicing
obligations and family living expenses. The Agency will assume that a
borrower needs this margin to meet all obligations and continue farming.
However, this will not prohibit a borrower from receiving debt
restructuring because the farm and home plan shows less than such a
margin. In no case will a borrower with a cash flow of less than 100
percent receive restructuring.
(d) Provide living expenses for the family members of an individual
borrower or a wage for the farm operator in the case of a cooperative,
corporation, partnership, or joint operation borrower, which is in
accordance with the essential family needs. Family members include the
individual borrower or farm operator in the case of an entity, and the
immediate members of the family which reside in the same household.
Financially distressed. A financially distressed borrower is one who
will not be able to make payments as planned for the current or next
business accounting period. Borrowers will also be considered as in
financial distress if it is determined that they will not be able to
project a feasible plan of operation for the next business accounting
period.
Foreclosed. The completed act of selling security either under the
``power of sale'' in the security instrument or through court
proceedings.
Good faith. An eligibility requirement for Primary Loan Servicing
and Current Market Value Buyout. Borrowers are considered to have acted
in ``good faith'' if they have demonstrated ``honesty'' and
``sincerity'' in complying with the requirements of Form 1962-1,
``Agreement for the Use of Proceeds/Release of Chattel Security,'' and
any other written agreements made with the agency, as documented in the
case file. In addition, the agency must substantiate any allegations of
fraud, waste, or conversion with a written legal opinion from the Office
of the General Counsel (OGC) when such allegations are used to deny a
servicing request. A borrower will not be considered to lack ``good
faith'' if the sole basis for such a determination was the disposition
of normal income security (Sec. 1962.4 of subpart A of part 1962 of
this chapter) prior to October 14, 1988, without the Agency's consent
and the borrower demonstrates that the proceeds were used to pay
essential family living and farm operating expenses that could have been
approved according to Sec. 1962.17 of subpart A of part 1962 of this
chapter.
Homestead Protection. The right of a former owner to apply to lease,
with an option to purchase the Homestead Protection property, not to
exceed 10 acres.
Homestead Protection property. This refers to the principal
residence which secured a FLP loan.
Indian Reservation. Indian reservation means all land located within
the limits of any Indian reservation under the jurisdiction of the
United States, notwithstanding the issuance of any patent, and including
rights-of-way running through the reservation; trust or restricted land
located within the boundaries of a former reservation of a Federally
recognized Indian tribe in the State of Oklahoma; or all Indian
allotments the Indian titles to which have not been extinguished if such
allotments are subject to the jurisdiction of a Federally recognized
Indian Tribe.
Limited Resource Program. A reduction of interest rates for
operating loans (OL), farm ownership loans (FO) and soil and water loans
(SW).
Liquidated. The completed act of voluntarily selling security to end
the obligation for the debt, or involuntarily as the result of a
completed civil suit against a borrower to recover collateral against
the debt. The filing of a claim in a bankruptcy action is not a complete
liquidation of the borrower's accounts. Collection-only accounts are not
considered liquidated.
Loan service program. A Primary Loan Servicing program or a
Preservation
[[Page 98]]
Loan Servicing program (Homestead Protection) for FLP loan borrowers.
New application. An application submitted on or after November 28,
1990, for loan servicing programs. This does not include an application
reconsidered after an appeal or revision of an application submitted
before November 28, 1990.
Nonessential assets. Nonessential assets are those in which the
borrower has an ownership interest, that:
(1) Do not contribute a net income to pay essential family living
expenses or to maintain a sound farming operation (see 1962.17 of
subpart A of part 1962 of this chapter); and
(2) Are not exempt from judgment creditors or in a bankruptcy
action. Each State Executive Director, with the guidance of the Office
of the General Counsel, will issue a State Supplement to establish
guidelines on items that are exempt from judgment creditors and are
exempt under bankruptcy law in accordance with statute.
Nonprogram (NP) loan. An NP loan results when a loan is made to an
ineligible applicant or transferee in connection with a loan assumption
and sale of inventory properties at ineligible terms. Borrowers
originally determined eligible by the agency and found to be ineligible
after the loan was made due to an agency error are not considered to
have nonprogram loans.
Preservation loan service program. See Homestead Protection.
Primary loan service program. Primary loan service program means:
(1) Loan consolidation, rescheduling, or reamortization;
(2) Interest rate reduction, including use of the limited resource
program;
(3) Loan restructuring, including deferral, or writing down of the
principal or accumulated interest; or
(4) Any combination of the above.
Reamortization. Reamortization is rearranging the installment
payments of a real estate loan, and may include changing the interest
rate and terms of a loan made for Subtitle A purposes.
Rescheduling. Rescheduling is rewriting the rates and/or terms of
OL, SL, EO loans, EE operating-type loans or EM loans made for Subtitle
B purposes.
Writedown. For purposes of this subpart, writedown is reducing a
borrower's debt to an amount that will result in a feasible plan of
operation.
[62 FR 10121, Mar. 5, 1997, as amended at 69 FR 5267, Feb. 4, 2004]
Sec. 1951.907 Notice of Loan Service Programs.
In those instances where the applicable notice is sent certified
mail, and the certified mail is not accepted by the borrower, the County
Supervisor will immediately send the documents from the certified mail
package to the borrower's last known address, first class mail. The
appropriate response time will commence 3 days following the date of
first class mailing.
(a) Notification of borrowers who file bankruptcy. The account will
be serviced in accordance with instructions from the Regional Office of
the General Counsel (OGC), and in accordance with Sec. 1962.47(a)(3) of
subpart A of part 1962 of this chapter.
(b) Notification of borrowers who have been discharged in bankruptcy
or who have plans confirmed by bankruptcy courts. If the borrower has
been discharged in bankruptcy or the borrower is operating under a
confirmed plan, the account will be serviced in accordance with
instructions from the Regional OGC and in accordance with Sec. 1962.47
(a) or (c) of subpart A of part 1962 of this chapter.
(c) Notification of borrowers 90 days past due on payments. FLP
borrowers who are at least 90 days past due (60 days delinquent) will be
sent Exhibit A of this subpart with attachments 1 and 2 by certified
mail, return receipt requested. Delinquent borrowers who have also
violated their loan agreements with the agency will be handled in
accordance with paragraph (d) of this section. In addition to the
requirements set forth above, servicing officials will provide
Attachments 1 and 2 of Exhibit A of this subpart to these borrowers, as
set forth below:
(1) At the time an application is made for participation in an FLP
loan service program, unless such application is the result of the
notice provided to the borrower in accordance with this section,
(2) On written request of any FLP borrower, whether delinquent or
not,
[[Page 99]]
prior to the sending of a packet under paragraph (c) of this section,
and
(3) If a borrower has not previously received exhibit A and
attachments 1 and 2 of this subpart, such exhibit and attachments will
be provided before the earliest of:
(i) Initiating any liquidation action,
(ii) Accepting a voluntary conveyance of security, or the borrower
requesting permission to sell security,
(iii) Accelerating payments on the loan,
(iv) Repossessing the borrower's property,
(v) Foreclosing on property, or
(vi) Taking any other collection action.
(d) Notification of borrowers in non-monetary default; delinquent
borrowers also in non monetary default, or when a junior or senior
lienholder is foreclosing. FLP borrowers who are in non-monetary default
will be sent attachments 1, 3, and 4 of exhibit A of this subpart by
certified mail, return receipt requested. If a case is in the hands of
the Department of Justice or in litigation, no loan servicing action
will be taken without Department of Justice or OGC concurrence (see
1962.49 of this chapter). Any servicing request will be processed as
indicated in Sec. 1951.909. The account will not be liquidated until
the borrower has the opportunity to appeal any adverse decision. After
any final appeal decision that does not result in a resolution of the
loan defaults, the account will be accelerated.
(e) The Agency will notify delinquent NP borrowers who have only SA
amortization agreements within 15 days of the missed payment of their
rights with regard to the debt. All items in paragraph (f)(5) of this
section, with the exception of Attachments 2 or 4 of exhibit A and
information for conservation contracts or debt settlement, must be
submitted within 60 days of such notice for the borrower to be
considered for reamortization.
(f) Request for primary and preservation loan service programs. (1)
To request consideration for Primary and Preservation Loan Service
programs, borrowers who are sent exhibit A, with attachments 1 and 2 or
attachments 1, 3, and 4 must complete and return attachment 2 or
attachment 4, as appropriate, to the local county office within 60 days
after receiving those documents, with the forms required by this
paragraph for a completed application.
(2) If borrowers are sent attachments 3 and 4 and do not request
servicing within 60 days, the agency will proceed with liquidation in
accordance with Sec. 1955.15 of this chapter.
(3) If borrowers are sent exhibit A and attachments 1 and 2 of this
subpart and do not submit a completed application within the 60-day time
period, the servicing official will send attachments 9 and 10, or 9-A
and 10-A of exhibit A of this subpart, as applicable. These attachments
will not be sent to borrowers who are being serviced in accordance with
Sec. 1951.908. For borrowers receiving attachments 9 and 10 or 9-A and
10-A, the agency will proceed with liquidation in accordance with Sec.
1955.15 of this chapter.
(4) If a borrower has moved and left a forwarding address, the
certified mail will be forwarded. If no forwarding address is given, the
mail will be returned to the county office. The servicing official will
immediately send the documents from the certified mail package to the
borrower's last known address, first class mail. The borrower's response
date for a completed application will begin on the date of receipt of
the certified mail or 3 days following the date of first class mailing,
whichever is earlier.
(5) An application for loan service programs must include the
following forms (available in any agency office), and data, unless the
information is already in the borrower's case file and still current, as
determined by the approval official:
(i) Attachment 2 or 4 of exhibit A to this subpart, response form to
apply for loan servicing.
(ii) Form 410-1, ``Application for FmHA Services,'' including a
current (within 90 days) financial statement of all individuals and
entities personally liable for the FLP debt.
(iii) Form 431-2, ``Farm and Home Plan,'' or any other form or
submission acceptable to the agency that sets forth a plan of operation
and the necessary information. Commodity prices supplied by the agency
will be used to complete the forms.
[[Page 100]]
(iv) Form 440-32, ``Request for Statement of Debts and Collateral.''
(v) Form RD 1910-5, ``Request for Verification of Employment.''
(vi) Form AD-1026, ``Highly Erodible Land Conservation (HELC) and
Wetland Conservation (WC) Certification,'' if the one on file with the
agency does not reflect all the land owned and leased by the borrower.
(vii) Form SCS CPA-26, ``Highly Erodible Land and Wetland
Determination,'' if not previously on file with the agency for the farm
operation. This form is included as part of the application after being
completed by NRCS. (This form is available at NRCS local offices.)
(viii) If the applicant wants to be considered for a conservation
contract, a map or copy of an aerial photo of the farm, on which the
applicant must show that portion of the farm and approximate acres to be
considered in a request for debt restructuring provided for in the
conservation contract program.
(ix) The most recent five years' income tax returns and supporting
documents, unless the borrower has been farming for less than five
years. In such case, income tax returns and supporting documents for the
tax years that the borrower farmed.
(x) If the borrower is applying for debt settlement, Form RD1956-1,
``Application for Settlement of Indebtedness.''
(6) The borrower will be provided with copies of these forms when
Exhibit A is sent, and may request copies of regulations and the forms
manual inserts (FMI) in writing within 30 days of receipt of the loan
servicing notice. If these latter items are not provided within 10 days
of such a request, the borrower's time for submission of a complete
application will be increased by the period of delay in excess of 10
days caused by the Agency.
(7) Not more than one 60-day period will be provided to a borrower
to respond to the notice of loan service programs except in accordance
with Sec. 1951.908. Subsequent notices as provided for in this section
will not be issued until the first notice is resolved.
[57 FR 18626, Apr. 30, 1992, as amended at 62 FR 10123, Mar. 5, 1997; 69
FR 5263, Feb. 4, 2004]
Editorial Note: At 69 FR 5267, Feb. 4, 2004, Sec. 1951.907(c) was
amended; however, due to unclear amendatory instruction, the amendment
could not be incorporated.
Sec. 1951.908 Servicing financially distressed current borrowers.
A borrower who is financially distressed, but is not yet delinquent
on FLP payments, may request servicing at any time.
(a) Notification. If a current plan of operation demonstrates that
the borrower is or will be financially distressed, as defined in Sec.
1951.906, or if the borrower otherwise requests servicing, the servicing
official will provide attachments 1 and 2 of exhibit A of this subpart.
(b) Eligibility. To be considered for servicing in accordance with
this section, the borrower must submit to the county office within 60
days Attachment 2 of exhibit A of this subpart and a complete
application in accordance with the requirements of Sec. 1951.907(e).
(1) The eligibility requirements of Sec. 1951.909(c) (1) and (2)
apply to servicing under this section.
(2) Eligible financially distressed borrowers who are current on
their FLP loan payments may be considered for the Primary Loan Service
programs described in Sec. Sec. 1951.909(e) (1), (2) and (3).
(3) Financially distressed borrowers who are not delinquent are not
eligible for writedown of debt or buyout as described in 1951.909.
(c) Processing the application. The servicing official must process
a completed application and notify the borrower of the decision.
(1) Current borrowers will be considered only for the Primary Loan
Servicing programs described in Sec. Sec. 1951.909 (e) (1), (2), and
(3). The servicing official must use the Debt and Loan Restructuring
System (DALR$) program, in accordance with exhibit J-1 of this subpart,
to determine if a feasible plan can be developed as defined in Sec.
1951.906.
(2) If a feasible plan can be developed, the borrower will be sent
exhibit B of this subpart with attachment 1 and the printout of the
DALR$ calculations as notification of the favorable decision. The
borrower must accept the offer within 45 days of its receipt by
returning attachment 1 to exhibit B of this subpart or the offer will
expire. If the
[[Page 101]]
borrower accepts, loan restructuring will be processed in accordance
with Sec. Sec. 1951.909 (e) (1), (2), or (3), as applicable.
(3) If a feasible plan cannot be developed, the borrower will be
informed of the reasons for the adverse decision. The DALR$ printout
will be attached.
(4) Current borrowers who have received notices under this section
and who do not apply for primary loan servicing, or who refuse an offer
to restructure their debt, and later become 90 days past due on the FLP
loan payment, will be sent notices as described in Sec. 1951.907.
(5) Borrowers whose accounts are not delinquent may receive
rescheduling, reamortization, consolidation, or deferral under this
subpart only after they have paid at least a portion of the interest due
on their FLP debt. The portion due will be based on the applicant's
ability to pay, as determined by thoroughly analyzing the farm
operation, including any off-farm income. The payment must be made on or
before the date that restructuring is closed. Borrowers in non-monetary
default, but not delinquent on their FLP debt, must cure the non-
monetary default before they may be considered for servicing under this
paragraph.
[62 FR 10124, Mar. 5, 1997]
Sec. 1951.909 Processing primary loan service programs requests.
(a) Servicing official responsibilities. (1) After receipt of
attachment 2 or 4 and a completed application in accordance with Sec.
1951.907(e), the servicing official will consider all primary service
programs options in this subpart. That official must use the Debt and
Loan Restructuring System (DALR$) computer program, in accordance with
exhibit J-1 of this subpart for borrowers who submit a new application,
to attempt to find the combination of loan service programs that will
result in a feasible plan. Borrowers who request loan servicing and who
have disposed of all the FLP loan security, including Collection-Only
borrowers, will be processed in accordance with part 1956, subpart B, of
this chapter. If the application includes a request for the Conservation
Contract program, as indicated by the submission of the information
required in Sec. 1951.907(e)(5)(viii), the servicing official will
determine whether the borrower is eligible, based on criteria as set
forth in exhibit H of this subpart. If the borrower is eligible, the
servicing official will make an estimate of the information needed to
permit the DALR$ program to make the calculations of feasibility of the
Conservation Contract. The assumptions used to establish the estimates
will be based on the servicing official's knowledge of the farmland
values, the borrower's repayment ability, and the proposed contract
acreage. When the DALR$ calculations for restructuring are completed,
the borrower will be notified as set forth in paragraph (h) of this
section.
(2) When jointly liable individual borrowers have been divorced and
one has withdrawn from the operation, the State Executive Director will
consider, upon the recommendation of the servicing official, the release
of liability for the individual who has withdrawn if the following
conditions are met.
(i) A divorce decree or property settlement document held the
withdrawing party not responsible for the loan payments;
(ii) The withdrawing party's interest in the security is conveyed to
the borrower with whom the loan will be continued;
(iii) The person withdrawing does not have any repayment ability for
the loan, and does not own any nonessential assets, as defined in Sec.
1951.906;
(iv) The individual withdrawing has never received debt forgiveness
on another direct loan; and.
(v) The withdrawing party provides a copy of the divorce decree and
property settlement, evidence of conveyance, a current financial
statement, verification of income and debts, and Form 431-2 or Form RD-
1944-3 as applicable.
(3) If a completed application includes a request for a waiver from
the training required by paragraph (c)(5) of this section, the Agency
will, prior to any offer of Primary Loan Servicing, evaluate the
borrower's knowledge and ability in production and financial management
and determine the need for additional training as set out in Sec.
1924.74 of this chapter.
[[Page 102]]
(b) Adverse determination. (1) If the approval official determines
that the borrower is not eligible for any of the Primary Loan Service
programs or restructuring is not feasible because of debt held by other
lenders, the borrower will be advised of mediation or meeting of
creditors as provided in paragraph (h)(3) of this section. If mediation
or the meeting of creditors does not result in a feasible plan, the
borrower will be sent attachments 5 and 6, or 5-A and 6-A, of exhibit A
of this subpart, as applicable.
(2) Borrowers who do not buy out their debt at its current market
value, or who indicate in writing that they do not wish to buy out, will
automatically be considered for debt settlement if they submitted an
``Application For Debt Settlement.'' Any appeal of a primary loan
servicing denial will be completed before the servicing official begins
any further processing of a Debt Settlement or Homestead Protection
request. If the adverse decision on restructuring is upheld on appeal,
the borrower will be considered for these options. The servicing
official will complete the processing of the borrower's application for
Debt Settlement in accordance with part 1956 of this chapter. Homestead
Protection will be processed in accordance with Sec. 1951.911. No
acceleration or foreclosure will occur until the appeal process has been
completed for servicing or debt settlement requests timely submitted
under this subpart.
(3) Applicants may request a negotiated appraisal in accordance with
paragraph (i) of this section if they object to the agency's appraisal.
Negotiation of the appraisal, if requested by the borrower, will take
place before mediation or a voluntary meeting of creditors.
(c) Eligibility. Applicants will be eligible for Primary Loan
Service programs if the servicing official has determined that they meet
all of the following requirements:
(1) The delinquency or financial distress does exist and is due to
circumstances beyond the control of the borrower, due to a reduction in
income which reduces cash flow to a point where outflows exceed inflows,
only as follows:
(i) The reduction in essential income from a non-farm job due to
unemployment or underemployment of the borrower-operator or spouse is
caused by circumstances beyond their control;
(ii) Illness, injury, or death of an individual borrower,
stockholder, member or partner who operates the farm;
(iii) Natural disasters, an outbreak of uncontrollable disease, or
uncontrollable insect damage which caused severe loss of agricultural
production that reduced repayment ability so that scheduled payments
cannot be made; or
(iv) Economic factors that are widespread and not limited to an
individual case, such as high interest rates or low market prices for
agricultural commodities as compared to production costs, that reduce
repayment ability so that the scheduled payments cannot be made.
(2) The borrower has acted in good faith.
(3) Borrowers who do not meet the eligibility requirements of this
section will be notified of the adverse decision by sending attachments
5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as appropriate.
(4) Borrowers with sufficient nonessential assets to bring the FLP
loan account current are not eligible for assistance under this subpart
and will be processed in accordance with Sec. 1951.910 of this subpart.
(5) The borrower must agree to meet the training requirements of
Sec. 1924.74 of this chapter unless a waiver is granted in accordance
with that section. The training requirement applies to all primary loan
servicing programs.
(6) Non-Program borrowers who have only SA amortization agreements
must meet the requirements in paragraph (c)(1) of this section, have
acted in good faith in attempting to repay the recapture amount, and
develop a feasible plan. Borrowers who are not eligible under this
paragraph will be notified of the adverse decision. After review rights
are provided in accordance with Sec. 1951.454, the account will be
liquidated in accordance with Sec. 1951.468.
(d) Feasibility determinations. The servicing official must
determine:
(1) That the borrower will be able to develop a feasible plan.
[[Page 103]]
(2) If restructured, the loan will result in a net recovery to the
Government that will be equal to or greater than the net recovery value
from involuntary liquidation or foreclosure as calculated in accordance
with paragraph (f) of this section. A comparison with net recovery to
the Government, however, will not be made when establishing conservation
contracts under exhibit H of this subpart.
(e) Primary loan service programs. Any FLP borrower may request
Primary Loan Servicing Programs described in this subpart at any time
prior to becoming 90 days past due. However, borrowers must show that
they are not able to pay their debt as scheduled before the agency will
approve Primary Loan Servicing Programs. The agency will consider the
borrower's other assets in accordance with Sec. 1951.910 of this
subpart. Rescheduling, reamortization, consolidation, or deferral may be
utilized for any eligible borrower. Existing deferrals will be cancelled
at the same time additional primary loan servicing is received. The loan
will be entered into DALR$ as if the deferral were already cancelled. If
DALR$ shows that a borrower can develop a feasible plan without a
writedown at a lower cash flow margin than with a writedown, that
borrower will be provided the opportunity to choose between
restructuring with or without a writedown.
(1) Consolidation and rescheduling of OL and EO loans, EE operating-
type loans and EM loans made for subtitle B purposes including EM loss
loans. This subsection explains how to consolidate and/or reschedule
existing loans, providing the borrower agrees to such actions. When the
servicing official determines that consolidation and/or rescheduling
will assist in the orderly collection of the loan, the servicing
official should take such action provided all of the following
conditions exist:
(i) The borrower meets the eligibility requirements in paragraph (c)
of this section;
(ii) Such action is not taken to circumvent the FLP graduation
requirements;
(iii) The borrower's account is not being serviced by the OGC or the
U.S. Attorney and there are no plans to have the account serviced by
either of these offices in the near future;
(iv) Loans may be rescheduled or reamortized, as appropriate, to
bring the account current or to keep the account from becoming
delinquent. A sufficient number of notes including all delinquent notes
will be rescheduled to permit the development of a feasible plan of
operation;
(v) The borrower will comply with the highly Erodible Land and
Wetland Conservation provisions of exhibit M of subpart G of part 1940
of this chapter, if applicable;
(vi) Loans secured by real estate will not be consolidated and/or
rescheduled, until the servicing official reviews the Government's real
estate lien priority and value of security and decides that such an
action will be in the best interest of the Government and the borrower.
If there are any liens which were not in existence at the time the note
was signed, the servicing official will ask the OGC for an opinion as to
what lien position the Government will have if a new note is taken
unless a State supplement authorizing this action has been issued on
this subject;
(vii) Only loans of the same type will be consolidated;
(viii) EM actual loss loans will not be consolidated;
(ix) Loans serviced under subpart L of this part will not be
consolidated with another loan;
(x) Loans that have been deferred under this section will not be
consolidated and/or rescheduled during the deferral period;
(xi) Terms of consolidated and/or rescheduled loans are as follows:
(A) Consolidated and/or rescheduled loans will be repaid according
to the borrower's repayment ability, but will not exceed 15 years from
the date of the consolidation and/or rescheduling action, except:
(B) Repayment of loans solely for recreation and/or nonfarm
enterprise purposes may not exceed seven years from the date of the
consolidation and/or rescheduling action (the date the new note is
signed).
(C) Repayment of EE loans may not exceed 15 years from the date of
rescheduling.
[[Page 104]]
(xii) Interest rates of consolidated and/or rescheduled loans will
be as follows:
(A) The interest rate for loans made at the regular interest rate
will be the lesser of:
(1) The lowest interest rate for that type of loan on the date a
complete servicing application was received;
(2) The lowest interest rate for that type of loan on the date of
restructure; or
(3) The lowest original loan note rate on any of the original notes
being consolidated and/or rescheduled.
(B) The interest rate for loans made at the limited resource
interest rate will be the lesser of:
(1) The limited resource interest rate for that type of loan on the
date a complete servicing application was received;
(2) The limited resource interest rate for that type of loan on the
date of restructure; or
(3) The lowest original loan note rate on any of the original notes
being consolidated and/or rescheduled.
(C) OL loans that were not assigned a limited resource rate when the
loan was received, may be assigned a limited resource rate if:
(1) The borrower meets the requirements for the limited resource
interest rate; and
(2) A feasible plan cannot be developed at regular interest rates
and maximum terms permitted in this section.
(xiii) The original (old) note(s) will be marked ``Rescheduled'' and
stapled to the new rescheduled promissory note and will be filed in the
operation file. Copy(ies) for the borrower's(s') case file should be
marked and stapled the same and filed in position 2 of the case file. If
a transfer is involved, assumption agreement(s) will be marked and
stapled with the note(s) and copies filed as indicated above. If part of
a note is written down, the written down note will be marked
``Rescheduled with Debt Write Down,'' and will be filed in the operation
file.
(xiv) For applications received before November 28, 1990, the amount
of outstanding accrued interest more than 90 days overdue and any
outstanding protective advances, as defined in Sec. 1965.11(b) of
subpart A of part 1965 of this chapter, made on the loan will be added
to the principal at the time of consolidation and/or rescheduling (the
date the new note is signed by the borrower). Protective advances are
not authorized for the payment of prior or junior liens except real
estate tax liens. See section II E of exhibit J of this subpart for an
explanation of how to schedule payment of interest not more than 90 days
overdue; and
(xv) For new applications, the amount of outstanding accrued
interest and any outstanding protective advances, as defined in Sec.
1965.11(b) subpart A of part 1965 of this chapter, made on the loan will
be added to the principal at the time of consolidation and/or
rescheduling (the date the new note is signed by the borrower) in
accordance with the provisions of exhibit J-1 of this subpart.
Protective advances are not authorized for the payment of prior or
junior liens except real estate tax liens.
(2) Reamortization of FO, SW, RL, RHF, EE, or EM loans made for real
estate purposes and SA amortization agreements. When the servicing
official determines that a reamortization action will assist in the
orderly collection of the loan, the servicing official should take such
action, provided:
(i) The borrower meets the eligibility requirements of Sec.
1951.909(c) of this subpart;
(ii) Such action is not taken to circumvent the FLP graduation
requirements;
(iii) The borrower's account is not being serviced by the OGC or the
U.S. Attorney, and there are no plans to have the account serviced by
either of these offices in the foreseeable future;
(iv) A feasible plan for the borrower cannot be developed with the
existing repayment schedule. A sufficient number of notes, including all
delinquent notes, will be reamortized to permit the development of a
feasible plan of operation;
(v) The borrower will comply with the Highly Erodible Land and
Wetland Conservation requirements of exhibit M of subpart G of part 1940
of this chapter, if applicable;
(vi) Loans that have been deferred in this supbart will not be
reamortized
[[Page 105]]
during the deferral period unless the deferral is cancelled;
(vii) Reamortized installments usually will be scheduled for
repayment within the remaining time period of the note or assumption
agreement being reamortized. If repayment is extended, the new repayment
period plus the period the loan has been in effect may not exceed the
maximum number of years for that type of loan as set forth below, or the
useful life of the security, whichever is less:
(A) FO, SW, RL, EE, and EM loans may not exceed 40 years from the
date of the original note or assumption agreement.
(B) EE loans for real estate purposes, which are secured by chattels
only, may be reamortized over a period not to exceed 20 years from the
date of the original note or assumption agreement.
(C) RHF loans may not exceed 33 years from the date of the original
note or assumption agreement.
(D) SA payment agreements may not exceed 25 years from the date of
the original amortized agreement.
(viii) Interest rates of reamortized loans will be as follows:
(A) The interest rate for loans made at the regular interest rate
will be the lesser of:
(1) The interest rate for that type of loan on the date a complete
servicing application was received;
(2) The interest rate for that type of loan on the date of
restructure; or
(3) The original loan note rate of the note being reamortized.
(B) The interest rate of FO or SW loans made at the limited resource
interest rate will be the lesser of:
(1) The limited resource interest rate for that type of loan on the
date a complete servicing application was received;
(2) The limited resource interest rate for that type of loan on the
date of restructure; or
(3) The original loan note rate on the note being reamortized.
(C) FO or SW loans that were not assigned a limited resource rate
when the loan was received, may be assigned a limited resource rate if:
(1) The borrower meets the requirements for the limited resource
interest rate;
(2) A feasible plan cannot be developed at regular interest rates
and maximum terms permitted in this section; and
(3) For SW loans, the loan funds were used for soil and water
conservation and protection purposes as set forth in Sec. 1943.66
(a)(1) through (a)(5) of this chapter.
(D) SA payment agreement will be reamortized at the current SA
amortization rate in effect on the date of approval or the rate on the
original payment agreement, whichever is less.
(ix) If there are no deferred installments, the first installment
payment under the reamortization will be at least equal to the interest
amount which will accrue on the new principal between the date the
Promissory Note is processed and the next installment due date. The
amount of outstanding accrued interest and any outstanding protective
advances made on the loan will be added to the principal at the time of
reamortization (the date the new note is signed by the borrower).
Protective advances are not authorized for the payment of prior or
junior liens except real estate tax liens.
(x) The original (old) note(s) will be marked ``Reamortized'' and
will be stapled to the new promissory note and filed in the operational
file. Copies for the borrower(s) case file should be marked and stapled
the same and filed in position 2 of the case file. If a transfer is
involved, assumption agreement(s) will be marked and stapled with the
note(s) and copies filed as indicated above. If a part of a note is
written down, the written down note will be marked ``Reamortized with
Debt Writedown'' and will be filed as indicated above in this paragraph.
(3) Deferral of existing OL, FO, SW, RL, EM, EO, RHF, and EE loans--
(i) Loan deferrals. Deferrals will be considered only after it has been
determined that consolidation, rescheduling, and reamortization, in
accordance with this subpart, will not provide a feasible plan.
(ii) Conditions. In order to be considered for a deferral, the
borrower must meet both of the following conditions:
(A) The need for the deferral must be temporary. To be temporary
means that the borrowers will be able to show to
[[Page 106]]
the satisfaction of the servicing official that they will be able to
resume payment on the debt by the end of the deferral period, or the new
payments, as established by using consolidation, rescheduling, or
reamortization can be resumed at the end of the deferral period; and
(B) Continuation of loan payments as presently scheduled without
change, will unduly impair the borrower's standard of living. An unduly
impaired standard of living is a condition whereby the borrower, due to
circumstances beyond the borrower's control, is unable to pay essential
family living expenses (partnerships, joint operators, corporations, and
cooperatives do not have family living expenses), pay normal farm
operating expenses, including reasonable and customary hired labor and/
or salary paid to the operator(s) of a partnership, a joint operation, a
corporation, or a cooperative, maintain essential chattels and real
estate, and meet the scheduled payments of all debts.
(iii) Approval offical determinations. The approval official must:
(A) Determine that the borrower meets the eligibility requirements
of Sec. 1951.909(c) of this subpart;
(B) Determine that a deferral of payments is necessary and
appropriately document the conditions causing the need for deferral;
(C) If a borrower owns 50 acres or more of marginal land as defined
in exhibit G of this subpart and a feasible plan cannot be developed
after consideration of a deferral, the servicing official will inform
the borrower about the Softwood Timber (ST) loan program authorized by
exhibit G of this subpart by sending Attachment 1 of exhibit G of this
subpart by certified mail, return receipt requested, within 5 days after
the adverse deferral determination. If the borrower requests the
servicing official to determine that an ST loan may allow the borrower
to continue to farm, within 15 days of the borrower's receipt of
attachment 1, the servicing official will determine if the borrower is
eligible, based on criteria as set forth in exhibit G of this subpart.
If the borrower is eligible the servicing official will help the
borrower to develop a plan to determine if a feasible operation can be
developed utilizing this program. The discussion will be documented in
the borrower's case file.
(iv) Loan deferral considerations. The servicing official will
assist the borrower in completing a typical-year plan. If there is no
typical year, the servicing official will assist the borrower with
completing a plan of operation for each year of the deferral. The plans
must be considered in DALR$.
(A) A sufficient number of loans must be considered for deferral to
permit the borrower to have a feasible plan.
(B) A deferral plan may include a reorganization of the farming
operation, including the use of new enterprises, to overcome existing
financial, economic or other limitations of the operation. If the
proposed restructuring requires capital expenditures, a subordination or
additional loan will be considered. Deferral of additional loan
installments beyond those needed to allow the borrower to develop a
feasible plan will not be used to create additional cash reserve for
capital purchases. Such purchases are not considered operating expenses.
(C) A typical year during the deferral period is a year which most
closely represents the borrower's average operation for the entire
deferral period. There may be no typical year for farming or ranching
operations undergoing a major reorganization. If there is no typical
year, then it will be necessary to develop a plan of operation for each
year of the deferral. The plans must be considered in DALR$ to determine
if each plan is feasible.
(D) The deferral of loan installments is not intended to create a
high net cash reserve where revenue substantially exceeds expenses. If
the deferral of a complete note would cause a high net cash reserve
during the entire deferral period, a full deferral should not be
granted. In such a case, a partial deferral should be considered to
obtain a feasible plan of operation. The same approach should be used
for situations in which there is no typical year and debt payments must
vary throughout the deferral period.
(E) The borrower must have feasible plans of operation to support
any deferral request. Plans of operation in conjunction with loan
deferrals must be
[[Page 107]]
realistic and supported by the borrower's actual records.
(v) Additional and subsequent deferrals. If, during the period of
the initial deferral, the borrower is unable to make the scheduled
payments, the borrower may again request primary loan service actions.
When considering primary servicing actions, existing deferred notes must
be entered into DALR$ as if they had not been deferred. If it is
necessary to defer additional loans to develop a feasible plan, such
action will be taken if the deferral will result in a greater net
recovery to the Government than debt writedown. Borrowers may obtain
subsequent deferrals after the deferral period provided the conditions
of this subsection are met.
(vi) Term and interest rate. A deferral period will not exceed five
(5) annual installments. Deferral interest rates will be determined as
specified in paragraphs (e)(1)(xii) and (e)(2)(viii) of this section.
(A) All loans being deferred will be consolidated, rescheduled or
reamortized, as applicable. The promissory note rescheduled, reamortized
or consolidated for the deferral will show ``zero'' as the installments
due during the period of the deferral if the whole note is deferred and
will not be changed during the deferral period unless the conditions of
paragraph (e)(3)(v) of this section are met. The servicing official will
determine the amount of interest that will accrue during the deferred
period. This interest will be repaid in equal amortized installments
during the term of the loan remaining after the deferral period. The
calculated installments will be added to the remaining installments for
the remaining principal balance and inserted on the promissory note as a
scheduled installment for the remaining period of the loan. The Finance
Office will apply the payments made on the note in accordance with
subpart A of this part. For applications received before November 28,
1990, the amount of outstanding accrued interest more than 90 days
overdue and any outstanding protective advances, as described in Sec.
1965.11(b) of subpart A of part 1965 of this chapter, made on the loan
will be added to the principal at the time of the deferral (the date the
new note is signed by the borrower). Protective advances are not
authorized for the payment of prior or junior liens except real estate
taxes. See section II E of exhibit J of this subpart for an explanation
of how to schedule payment of interest not over 90 days overdue. For new
applications, the amount of outstanding accrued interest and any
outstanding protective advances made on the loan will be added to the
principal at the time of deferral (the date the new note is signed by
the borrower).
(B) The field office will process the deferral via the Automated
Discrepancy Processing System (ADPS).
(C) If a deferral is approved, the borrower's name and the date of
approval will be recorded and maintained in accordance with subpart A of
part 1905 of this chapter. The Finance Office will provide the county
office with a quarterly status report for each borrower who has received
a deferral.
(D) Six months prior to the end of the deferral period the servicing
official will notify the borrower in writing of the expiration of the
deferral and the amount and date of the borrower's first upcoming
installment of the debt.
(E) A deferral will be cancelled if the loan is later restructured
in accordance with this subpart. The cancellation will be processed via
ADPS.
(vii) Increase in repayment ability. At the time the servicing
official makes the analysis required by Sec. 1924.60 of subpart B of
part 1924 of this chapter, the servicing official will determine whether
the borrower has had an increase in income and repayment ability. If an
income increase is substantial enough to enable the borrower to
graduate, the case will be handled in accordance with subpart F of this
part. If an increase would enable the borrower to make some payments
during the deferral period, the servicing official will, in writing, ask
the borrower to sign a Form 440-9, ``Supplementary Payment Agreement,''
within 30 days of the date of the written request. The borrower will be
provided appeal rights. When doing the analysis to determine whether
there is a substantial increase in income and repayment ability, the
servicing official will determine whether this increase exists by
comparing it to
[[Page 108]]
the original plan developed in the deferral application and also to
plans developed for the current operating year to determine that the
excess income is not needed for essential living and operating expenses
or scheduled debt payment. Refusal to sign Form 440-9 will be considered
a non-monetary default and will be handled as set forth in Sec.
1951.907(e) of this subpart. If the borrower signs Form 440-9 and later
does not honor the terms and conditions of the repayment agreement, the
borrower's account will be handled as set forth in Sec. 1951.907 of
this subpart.
(4) Writedown. The following conditions shall be met in order for a
borrower to receive writedown of FLP debts:
(i) No other Primary Loan Service programs, including deferral, nor
any combination thereof, will produce a feasible plan that will permit
the borrower to continue the operation. However, if DALR$ shows that a
borrower can develop a feasible plan without a writedown at a lower cash
flow margin than with a writedown, then the borrower will be provided
the opportunity to choose between restructuring with or without a
writedown;
(ii) The borrower must never have received debt forgiveness on
another direct loan at any time;
(iii) The amount written off may not exceed $300,000.
(iv) A feasible plan must be developed that will result in a present
value of loans to be repaid to the Government which is equal to or more
than a net recovery from an involuntary liquidation or foreclosure;
(v) The borrower must comply with the Highly Erodible Land and
Wetland Conservation requirements of exibibit M of subpart G of part
1940 of this chapter, if applicable;
(vi) The borrower must agree to a Shared Appreciation Agreement if
the loan is secured by real estate;
(vii) Loans written down with the Primary Loan Servicing programs
will be rescheduled, reamortized, or deferred in accordance with
paragraph (e) of this section; and
(viii) Borrower must agree to a lien on certain assets as provided
in 1951.910 of this subpart, including nonessential assets, where the
net recovery value of these assets was not paid to the Agency. (The
Agency's lien will be taken only at the time of closing the restructured
loans); and
(ix) Debt reduction received through conservation easements or
contracts will not be counted toward the limitations in paragraphs
(e)(4) (ii) and (iii) of this section.
(f) Determining value of net recovery from involuntary liquidation.
After receipt of a complete application for Primary and Preservation
Loan Service programs, the servicing official will make the calculations
required in this section and notify the borrower of the result. For New
Applications, nonessential assets will be considered in accordance with
Sec. 1951.910(a) of this subpart.
(1) The servicing official will use the computer program, DALR$, to
determine the net recovery to the Government equivalent to involuntary
liquidation of the collateral securing the FLP debt in accordance with
Exhibit J or J-1 of this subpart, ``Debt and Loan Restructuring
System,'' as applicable, and will follow the guidance provided by State
supplements and Exhibit I of this subpart, ``Guidelines for Determining
Adjustments for Net Recovery Value of Collateral.'' The servicing
official will determine the current market value of the collateral in
the borrower's possession including tangible property in existence and
of record in accordance with Sec. 761.7 of this title for real estate
property, and on Form 440-21, ``Appraisal of Chattel Property.'' The
servicing official also will determine the current market value of any
bank accounts, stocks and bonds, certificates of deposit and the like
pledged to and/or in the possession of the Agency. Collateral may
include real estate, chattels, tangible property and property such as
bank accounts, stocks and bonds, certificates of deposit, and the like.
Chattels include machinery, equipment, livestock, growing crops, and
crops in storage. Tangible property may include accounts receivable
(including Government payments), inventories, supplies, feed, etc. From
the current market value of the collateral in the borrower's possession,
or pledged to and/or in the possession of the Agency (in the case of
bank accounts, stock
[[Page 109]]
and bonds, certificates of deposit, and the like), the following
adjustments will be made:
(i) Subtract the amount which would be required to pay prior liens
on the collateral;
(ii) Subtract taxes and assessments, depreciation, management costs,
and interest cost to the Government based on the 90-day Treasury Bills
(published in a National Office issuance). Taxes and assessments,
depreciation, management costs, as well as interest costs will be
calculated on the current market value of the property for the average
inventory holding period. The holding period for suitable inventory farm
property will be established by each State as of July 1 each year using
Report Code 597. The months that the suitable property is under lease
will not be included in determining the average holding period for
purposes of this subpart;
(iii) Adjust the current market value for estimated increases or
decreases in value of the property for the holding period specified in
paragraph (f)(1)(ii) of this section;
(iv) Subtract resale expenses, such as repairs, commissions, and
advertising;
(v) Other administrative and attorney's expenses;
(vi) Add income which will be received after acquisition; and
(vii) For a borrower who submits a ``new application'' as defined in
Sec. 1951.906 of this subpart, add the value of any collateral that is
not in the borrower's possession and that has not been approved on the
Form 1962-1 or released in writing by the Agency, minus the value of any
prior lienholder's interest. Collateral not in possession of the
borrower is defined as any property specified in any agency security
instruments for such borrower's FLP debt that the borrower has disposed
of and that the Agency has not approved or released in writing. The
value of normal income security not in possession of the borrower will
not be added to the NRV if it could be post-approved for release in
accordance with Sec. 1962.17 of subpart A of part 1962. The value of
any collateral that is not in the possession of the borrower will be
determined by the servicing official based upon the best information
available about the value of the collateral on or about the time of its
disposition. In determining the value of such property, the Agency will
use such sources as the publications Hotline (Farm Equipment Guide) and
Official Guide (Tractor and Farm Equipment), sale prices at local public
auctions, public livestock sale barn prices, comparable real estate
sales, etc. Agency appraisal forms will be used to record the value of
the missing collateral and the basis for the valuation.
(2) The State Executive Director will determine costs of involuntary
liquidation of collateral for farm loans by analyzing the costs of
involuntary liquidation within the geographic areas of their
jurisdiction. The State Executive Director also will issue a State
supplement of estimated costs and average holding time to be used as
guidelines by servicing officials in making calculations of net recovery
value under this subsection. Such cost analyses will be carried out in
July of each year. The State Executive Director will consult with State
Executive Directors of adjoining States, other lenders, real estate
agents, auctioneers, and others in the community to gather and analyze
the information specified in this subpart.
(g) Determining net recovery value resulting from primary servicing.
The value of the restructured debt will be based on the present value of
payments the borrower would make to the Agency using any combination of
primary loan service programs that will provide a feasible plan. Present
value is a calculation concept which assigns a lower current value to
dollars received in later years than to dollars received at the present
time. Servicing officials will use a discount rate based on 90-day
Treasury Bills as of the date the borrower files the application for
restructuring. The National Office will publish the 90-day Treasury Bill
rate in a National Office issuance.
(h) Notification requirements. In those instances where the
applicable notice is sent certified mail, and the certified mail is not
accepted by the borrower, the servicing official will immediately send
the documents from the certified mail package to the borrower's last
[[Page 110]]
known address, first class mail. The appropriate response time will
commence 3 days following the date of mailing.
(1) Offer. If the calculations show that the value of the
restructured debt is greater than or equal to the NRV as determined in
paragraph (f) of this section, the servicing official will forward to
the State Executive Director the borrower's Farm and Home Plan and the
original printout of the DALR$ calculations. The servicing official will
certify that the borrower meets all requirements for debt restructuring
with the writedown amount specified on the printout. The State Executive
Director's authorization to the servicing official to proceed with the
writedown will be evidenced by the State Executive Director's signature
affixed to the original copy of the DALR$ printout returned to the
servicing official. Within 60 days after receiving a complete
application, the servicing official will notify the borrower of the
results of the calculations by sending Exhibit F of this subpart,
certified mail, return receipt requested, and offer to restructure the
debt. A printout of the DALR$ calculations will be attached to Exhibit F
of this subpart.
(i) Exhibit F of this subpart will inform the borrower(s) of the
Agency's offer to restructure the debt, the right to request a copy of
the agency's appraisal, and other options which may include payment of
nonessential assets and negotiation of the appraisal. If the borrower
accepts the offer within 45 days following any appeal, the servicing
official will restructure the debt within 45 days after receipt of the
written notice of the borrower's acceptance.
(ii) If the borrower does not respond to exhibit F within 45 days,
or declines the Agency's offer to restructure the debt without
requesting an appeal or negotiation, the servicing official will send
attachments 9 and 10, or 9-A and 10-A of exhibit A of this subpart, as
applicable. If the borrower requests an appeal and the Agency is upheld,
attachments 9-A and 10-A will not be sent until the borrower is given
the opportunity to accept the original offer within 45 days following
the final appeal decision. These borrowers will not have an additional
opportunity to appeal the offer in attachments 9-A and 10-A. If
attachment 10 or 10-A is not returned within 30 days of the borrower's
receipt of the attachments, the account will be accelerated or
foreclosed in accordance with Sec. 1955.15 of subpart A of part 1955 of
this chapter.
(iii) If the borrower submitted a new application and requests a
negotiated appraisal within 30 days of receiving exhibit F, the
negotiation of the appraisal will be completed in accordance with
paragraph (i) of this section.
(A) After completing a negotiation of the appraisal, if the debt can
be restructured, the servicing official will send exhibit F to the
borrower making the new offer in accordance with paragraph (h)(1)(i) of
this section.
(B) If the negotiated appraisal changes the DALR$ calculations so
that the debt cannot be restructured, the borrower will be sent exhibit
E, ``Notification of Adverse Decision for Primary Loan Servicing,
Mediation or Meeting of Creditors and Other Options,'' in accordance
with paragraph (h)(3) of this section. The appraisal cannot be
negotiated again and is not subject to appeal.
(2) Conservation contracts. If the borrower returned attachment 2 or
4 to Exhibit A of this subpart within 60 days, requesting a conservation
contract by submitting a map or aerial photo showing the portion of the
farm and approximate acres to be considered in the request, the
servicing official will proceed with processing the request for debt
relief as set forth in Exhibit H of this subpart. Borrowers who did not
previously ask for this option can make a request for the contract at
this time by submitting a map or copy of an aerial photo indicating that
portion of the farm and appropriate acres to be considered. Borrowers
must submit the photo within 30 days of receiving Exhibit E of this
subpart.
(3) Mediation/voluntary meeting of creditors. If the DALR$
calculations indicate a feasible plan of operation cannot be developed
considering all Primary Loan Service Programs, Softwood Timber, or
Conservation Contracts, the servicing official will take the following
actions within 15 days from the date of the determination
[[Page 111]]
that the borrower's debt cannot be restructured as requested:
(i) Exhibit E, ``Notification of Adverse Decision for Primary Loan
Servicing, Mediation or Meeting of Creditors and Other Options,'' of
this subpart will be sent to the borrower in all cases by certified
mail, return receipt requested. A printout of the DALR$ calculations
will be attached to exhibit E of this subpart.
(A) When the borrower is in a State with a USDA Certified Mediation
Program, paragraph I in exhibit E will be used. Paragraph I tells the
borrower that the Agency is requesting mediation with the borrower's
creditors in an effort to obtain debt adjustment which would permit the
development of a feasible plan of operation. If the borrower submitted a
new application, the borrower must respond to exhibit E of this subpart
if the borrower wants to negotiate the Agency's appraisal in accordance
with paragraph (i) of this section. The borrower may request a copy of
the Agency's appraisal. The Agency must participate in USDA Certified
Mediation Programs whether or not the borrower responds to exhibit E of
this subpart. Any negotiation of the appraisal must be completed prior
to any mediation.
(B) In States without a certified mediation program, exhibit E of
this subpart will be sent by certified mail, return receipt requested,
to inform the borrower about the applicable options which may include a
request for a copy of the Agency's appraisal, a meeting of creditors,
payment of nonessential assets, negotiation of the appraisal and a
request for an independent appraisal. Paragraph I of exhibit E of this
subpart will be deleted. The purpose of the voluntary meeting of
creditors is to develop a feasible plan. Paragraph II of exhibit E of
this subpart, therefore, will be used to offer a voluntary meeting of
creditors when the borrower has undersecured creditors who hold a
substantial part of the borrower's total debt. A ``substantial part of
the borrower's total debt'' means that the debt of the undersecured
creditors is large enough so that if it were written down to zero, a
feasible plan could be developed considering all primary servicing
options. The servicing official will document such determination in the
case file, and the servicing official will not offer to carry out a
voluntary meeting of creditors when the undersecured debt is not a
substantial part of the borrower's total debt. Such borrower will be
informed later of additional rights, including appeal rights, when the
Agency sends attachments 5 and 6, or attachments 5-A and 6-A, of exhibit
A of this subpart. Any appeal may challenge the Agency's determination
not to offer a voluntary meeting of creditors because the undersecured
debt is not a substantial part of the borrower's total debt.
(C) Any negotiation of the Agency's appraisal must be completed
prior to the meeting of creditors or mediation. If the borrower does not
request any of the options offered in exhibit E of this subpart within
45 days, the servicing official will send attachments 5 and 6, or 5-A
and 6-A of exhibit A of this subpart, as applicable, certified mail,
return receipt requested.
(ii) If mediation or the voluntary meeting of creditors is held but
is not successful, the borrower will be sent attachments 5 and 6, or 5-A
and 6-A, of exhibit A of this subpart, as applicable, certified mail,
return receipt requested, within 15 days of the unsuccessful mediation
or meeting. The DALR$ computer printout will be attached to attachment 5
or 5-A of exhibit A of this subpart.
(4) Buyout of loans. The following notification and processing
provisions also apply to buyout as offered in Attachments 5 and 5-A of
Exhibit A of this subpart. After July 3, 1996, buyout will be at the
Current Market Value (CMV) of the security.
(i) Eligible borrowers will have 90 days after the receipt of the
notification of ineligibility for Primary Loan Service programs to buy
out their loans at Current Market Value, or the balance of their unpaid
FLP debt, whichever is lower.
(ii) The present value of the restructured loan must be less than
the net recovery value to receive buyout.
(iii) The Agency will not provide direct or guaranteed credit for a
buyout.
(iv) The borrower must never have received debt forgiveness on
another
[[Page 112]]
direct loan. (Applies if any debt will be written off.)
(v) The amount written off may not exceed $300,000.
(vi) The borrower must have acted in good faith.
(vii) Debt reduction received through conservation easements or
contracts will not be counted toward the limitations in paragraphs
(h)(4) (iv) and (v) of this section.
(viii) Upon payment by the borrower of current market value buyout,
the security instruments will be released for the Farm Loan Programs
loans bought out.
(ix) The State Executive Director must approve the buyout prior to
offering buyout to the borrower if the Agency will be writing off any
debt.
(i) Administrative appeals and negotiation of appraisals--(1)
Appeals. The time limit to pay the current market value of the security,
as set out in paragraph (h)(4) of this section, will start on the day
the borrower receives the final appeal or review decision upholding the
initial decision. The borrower will have conclusively presumed to have
received that decision within 3 days of mailing.
(2) Appeal process. (i) If the administrative appeal process results
in a determination that the borrower is eligible for Primary Loan
Servicing, the servicing official will process the request pursuant to
this section. The servicing official will use the information the appeal
officer used in making the decision on the appeal, unless stated
otherwise in the final appeal decision letter. In cases of debt
restructuring resulting from appeals, the interest rate will be
determined in accordance with paragraphs (e)(1)(xii) and (e)(2)(viii) of
this section as applicable. If implementation of the appeal decision
would cause writedown or writeoff of more than $300,000 because of
interest accrued after the adverse decision, the servicing official will
process the action so as to complete the transaction.
(ii) If the administrative appeal process results in a determination
that the borrower is ineligible for Primary Loan Servicing, the
servicing official will send Exhibit K and Attachment 1 of this subpart
and continue processing any application for debt settlement that may
have been submitted in accordance with subpart B of part 1956 of this
chapter. If the borrower does not return Attachment 1 of Exhibit K
within 15 days of the date that it is sent, the servicing official will
continue to process the application for Preservation Loan Servicing and
any debt settlement. The account will not be accelerated or foreclosure
will not continue until the borrower has the opportunity to appeal any
denial of the Preservation Loan Servicing and any Debt Settlement
request. If the borrower returns Attachment 1 of Exhibit K within 15
days of its mailing, the account will be accelerated.
(3) Appraisal appeals. (i) Borrowers appealing the current market
appraisal completed by the Agency may obtain an appraisal by an
independent appraiser selected from a list of at least three names
provided by the servicing official. A borrower who submitted a new
application may appeal the Agency's appraisal, if it has not previously
been negotiated under paragraph (i)(4) of this section, and the denial
of other issues of Primary Loan Service programs in which the appraisal,
as part of the NRV calculation, is relevant. The cost of the independent
appraisal must be paid by the borrower. The borrower will, upon request,
have access to the case file and receive a copy of the Agency's
appraisal. The independent appraiser must be a State certified general
appraiser.
(ii) The appraisal report must conform to Sec. 761.7 of this title
for real estate and chattels.
(iii) If either the servicing official or the borrower discovers any
mathematical or property description errors in the appraisal prior to or
at the time of the review and comparison, necessary corrections may be
made if both parties agree. The party discovering the error must contact
the other for a meeting to approve the corrections.
(iv) If the Agency's appraisal and the borrower's independent
appraisal vary in value by five percent or less, the borrower will
select the appraisal to be used for servicing under this subpart.
(4) Negotiation of appraisals. A borrower who submits a new
application may request to negotiate the appraisal
[[Page 113]]
one time only. Negotiation of appraisals is offered in Exhibits E and F
of this subpart, as discussed in paragraph (h) of this section. All
appraisals used in the negotiations must reflect the value of the
property as of the same time frame as the Agency's initial appraisal.
Errors will be handled in accordance with paragraph (i)(3)(iii) of this
section.
(i) The borrower can request the list of independent appraisers from
the servicing official on Attachment 2 of Exhibits E and F of this
subpart. The borrower must provide the servicing official with a copy of
his or her independent appraisal within 30 days of requesting
negotiation. The borrower must pay for this independent appraisal. The
borrower's independent appraiser and appraisal report must meet the
qualifications described in paragraph (i)(3)(ii) of this section, but
the independent appraiser need not be on the Agency's list of qualified
appraisers. If the Agency's appraisal and the borrower's independent
appraisal vary in value by five percent or less, the borrower will
select the appraisal to be used for servicing under this subpart. No
further negotiation will occur.
(ii) If the two appraisals differ by more than five percent, the
servicing official will give the borrower a list of qualified,
independent appraisers. The borrower will select one appraiser from the
Agency's list to conduct a third appraisal. The appraiser cannot have
conducted either the Agency's or the borrower's independent appraisal,
and must meet the qualifications set out in paragraph (i)(3) of this
section. The borrower, the appraiser and the servicing official will
complete and sign the Appraisal Agreement (Attachment 3 of Exhibit F of
this subpart). The appraiser will be sent a copy of the appraisal
standards, subpart E of part 1922 of this chapter, for real estate and
Form 440-21 for chattels. The borrower will submit to the servicing
official the original or a copy of the third appraisal and its
attachments and the appraiser's bill. The Agency will pay 50 percent of
the cost. The borrower is responsible for paying the appraiser directly
the remaining 50 percent of the cost.
(iii) Following the completion of the third appraisal, the three
appraisals will be compared by the servicing official, who will average
the two that are the closest in value. The average of the two closest in
value will become the final appraised value. Errors will be handled in
accordance with paragraph (i)(3)(iii) of this section.
(j) Processing of writedown. The DALR$ computer program will be used
to determine the notes and amount to be written down. The borrower's
account will be credited for the amount written down and the loans
remaining after writedown will be rescheduled or reamortized.
(1) A separate note will be signed for each loan being reamortized.
(2) If any loan written down was secured by real estate, the
borrower must enter into a ``Shared Appreciation Agreement.'' This
agreement provides for FSA to collect back all or part of the amount
written down by taking a share in any positive appreciation in the value
of the real property securing the SAA and the remaining debt after the
writedown. The maximum amount of shared appreciation collected will not
exceed the amount written down. If a borrower's FLP loan was not secured
by real estate, the borrower will not be required to enter into a shared
appreciation agreement.
(3) A lien will be taken on assets in accordance with Sec.
1951.910. The Agency's real estate liens will be maintained even if the
writedown of the borrower's debt results in all real estate debts to the
Agency being written down. The Agency's real estate lien will not be
surbordinated to increase the amount of the prior liens during the
shared appreciation period.
[62 FR 10124, Mar. 5, 1997, as amended at 63 FR 6628, Feb. 10, 1998; 63
FR 56290, Oct. 21, 1998; 64 FR 62568, Nov. 17, 1999; 65 FR 50404, Aug.
18, 2000; 67 FR 7943, Feb. 21, 2002; 68 FR 7698, Feb. 18, 2003; 69 FR
5263, Feb. 4, 2004]
Sec. 1951.910 Consideration of borrower's other assets for new applications.
If a delinquent borrower has other assets that are not serving as
collateral for the FLP debt, the servicing official will determine
whether these assets are nonessential, as defined in Sec. 1951.906 of
this subpart.
[[Page 114]]
(a) Nonessential assets. The net recovery value (NRV) of
nonessential assets must be considered when the borrower's application
is processed for loan servicing in accordance with this subpart. The
Agency will not write down or write off any debt or portion of a debt
that could be paid by liquidation of nonessential assets, or by payment
of the loan value of the assets that could be received from non-Agency
sources. The loan value of the assets will be considered as the same as
the NRV of the assets.
(1) Determining the value of nonessential assets. The NRV of the
nonessential assets is the market value less any prior liens and any
selling costs which may include such items as taxes due, commissions and
advertising costs. The determination of NRV of nonessential assets does
not include a deduction for carrying the property in inventory. The
market value of the nonessential assets must be estimated by a current
appraisal in accordance with Sec. 761.7 of this title for real estate
property, and on Form 440-21, ``Appraisal of Chattel Property,'' for
chattels. Borrowers who disagree with the Agency's appraisal may request
a negotiated appraisal or appeal in accordance with Sec. 1951.909(i) of
this subpart.
(2) Eligibility. If the NRV of the nonessential assets is sufficient
to bring the delinquent FLP account current, the borrower is not
eligible for primary loan servicing including buyout in accordance with
this subpart. The borrower, instead, will be sent attachments 5-A and 6-
A of exhibit A of this subpart. The servicing official will indicate the
values of both the NRV of nonessential assets and the FLP security on
attachment 5-A. The borrower's nonessential assets and their NRVs also
will be listed on attachment 5-A. The borrower will have 90 days to
bring the FLP account current from the date of the receipt of
attachments 5-A and 6-A. If the borrower does not pay current within
this time period, the account will be accelerated after all appeal
rights have been exhausted. If the NRV of the nonessential assets is not
sufficient to bring the FLP account current, then the nonessential
assets will be considered as set out in paragraph (a)(3) of this
section.
(3) Inclusion in NRV. If the NRV of the nonessential assets is not
sufficient to bring the FLP account current, then the servicing official
will add the NRV of these assets to the NRV of the FLP collateral
according to Sec. 1951.909(f) of this subpart. The servicing official
will encourage, but not require the borrower to liquidate those
nonessential assets and apply the proceeds to his/her outstanding debts.
If the borrower liquidates the nonessential assets, or obtains a loan
against the equity in such assets, and pays the Agency the NRV of the
nonessential assets within 45 days of receiving exhibit E or F of this
subpart, as appropriate, the payment will be subtracted from the FLP
debt and then the servicing official will recalculate the debt
restructuring without considering the NRV of the nonessential assets. If
the borrower does not sell these assets, the servicing official will
include their NRV in calculating the debt restructuring and take a lien
on the assets at the time of closing the restructured loan.
(b) Lien on certain assets. Delinquent borrowers must pledge certain
assets, essential and nonessential, unencumbered to the Agency as
security at the time FLP loans are restructured, as follows:
(1) The best lien obtainable will be taken on all assets owned by
the borrower. When the borrower is an entity, the best lien obtainable
will be taken on all assets owned by the entity, and all assets owned by
all members of the entity. Different lien positions on real estate are
considered separate and identifiable collateral.
(2) Security will include, but is not limited to, the following:
land, buildings, structures, fixtures, machinery, equipment, livestock,
livestock products, growing crops, stored crops, inventory, supplies,
accounts receivable, certain cash or special cash collateral accounts,
marketable securities, certificates of ownership of precious metals, and
cash surrender value of life insurance.
(3) Security will also include assignments of leases or leasehold
interests having mortgageable value, revenues, royalties from mineral
rights, patents and copyrights, and pledges of security by third
parties.
[[Page 115]]
(4) The exceptions set forth in Sec. 1941.19(c) of subpart A of
part 1941 of this chapter apply.
(5) These assets will be considered as additional security for the
loans as well as any shared appreciation agreement. The value of the
essential assets will not be included in the NRV calculation to
determine restructuring. The Agency's lien will be taken only at the
time of closing the restructured FLP loans.
[62 FR 10132, Mar. 5, 1997, as amended at 64 FR 62568, Nov. 17, 1999]
Sec. 1951.911 Homestead protection.
(a) General. If the Agency has only chattel property as security,
preservation servicing will not be offered. Borrowers who submitted a
complete application prior to April 4, 1996 will be considered for
leaseback/buyback in accordance with the previous CFR volume containing
revisions as of January 1, 1996 and Agency procedures, (available in any
county office.) Inventory property which is located within the
boundaries of an Indian reservation of a Federally recognized Indian
Tribe and the previous owner is a member of the Indian Tribe that has
jurisdiction over that reservation should be handled in accordance with
Sec. 1955.66(d) of subpart A of part 1955 of this chapter.
(b) Homestead protection. Borrowers and former borrowers who had or
have an FLP loan secured by the real property containing the dwelling
owned by them and used as their principal residence may apply for
homestead protection before or after the Agency acquires the property.
Real property that is in inventory as of the effective date of the
statute or is acquired in the future will be considered for homestead
protection as set forth in this subpart.
(1) Purpose. The purpose of the Homestead Protection Program is to
permit borrowers or former borrowers to retain their dwellings through a
lease or purchase. Such lease or purchase could permit these individuals
to have a home and providing an opportunity to continue to farm.
(2) Notification and processing. If a feasible plan for
restructuring debt cannot be developed using Primary Loan Service
programs, the borrower will be advised by the use of Exhibit K with
Attachment 1 of this subpart that the Agency will continue with the
processing of Preservation Service programs, if applicable. A borrower
who desires homstead protection must request it in accordance with Sec.
1951.907. A borrower who meets the eligibility requirements of paragraph
(b)(3) of this section will be permitted to retain possession of the
homestead, in accordance with paragraph (b)(2)(ii) of this section,
before title is acquired or under a lease with an option to purchase
after title is acquired.
(i) Determining homestead protection property. (A) The homestead
protection property will include the borrower's principal residence and
not more than 10 acres of adjoining land that is used to maintain the
borrower's family and a reasonable number of farm service buildings
located on land adjoining the residence which are useful to the
occupants of the dwelling.
(B) The servicing official will review the proposed homestead
protection property. If the servicing official does not agree with the
proposed shape or size of the property, an alternate configuration will
be negotiated with the borrower.
(C) If the borrower and the servicing official cannot agree on the
proposed shape and size of the property, the servicing official will
make the determination.
(D) When the size and shape of the property is agreed upon and the
borrower has been found eligible, the servicing official will request a
licensed surveyor to survey the property, have a legal description
prepared, and mark the property lines with permanent type markers.
(E) Appraisals will be completed in accordance with paragraphs
(b)(6) and (b)(7)(ii)(B) of this section.
(ii) Processing homestead protection before the Agency acquires
title. (A) A borrower will be considered for homestead protection when
it is determined that the Primary Loan Service programs cannot resolve
the delinquency. To process an application, the borrower must indicate
the buildings and land to be included in the request for homestead
protection. If determined eligible for homestead protection, the
borrower and the servicing official will enter
[[Page 116]]
into a Homestead Protection Program Agreement (Exhibit L of this
subpart) to lease the property if and when the Agency acquires title. A
copy of Form 1955-20, ``Lease of Real Property,'' will be attached to
the agreement as an exhibit.
(B) Concurrently with the execution of the preacquisition Homestead
Protection Program Agreement, the borrower will deliver a completed Form
RD 1955-1 to the Agency. The Agreement is subject to the provisions of
subpart A of part 1955 of this chapter. If the Agency acquires title
during the processing of a preacquisition Homestead Protection
Agreement, processing of the agreement will be terminated and the owner
will be given homestead protection rights pursuant to paragraph
(b)(2)(iii) of this section.
(C) The Agency's obligation to lease the dwelling to the borrower
will be contingent on the Agency's prior compliance with all State and
local laws, ordinances and regulations governing the subdivision of
land. If the Agency cannot satisfy the conditions within 2 years from
the date of the agreement, the agreement (and the Agency's obligation to
lease with option to purchase) will terminate. If an agreement has been
entered into, but title to the property has not been conveyed to the
Agency (or acquisition has been determined not to be in its financial
interest), the Agency will continue with acceleration and foreclosure of
the property. It is not the intent of the 2-year term of the agreement
to limit the Agency's ability to foreclose on the property, provided
that all the terms have been met except that title has not been
conveyed.
(iii) Application for homestead protection when the Agency acquires
title. When the Agency acquires title to the farm property, the borrower
will be sent Exhibit M of this subpart, by certified mail, return
receipt requested, no later than the date of acquisition. The borrower
must request homestead protection by notifying the servicing official in
writing not later than 30 days after the date of acquisition and must
provide the information set forth in Sec. 1951.907(e) of this subpart
and indicate the buildings and land to be included in the request.
(iv) Lease with option. A lease with an option to purchase will be
entered into with an eligible borrower on Form 1955-20 after the Agency
acquires title to the property. Form 1955-20 will be completed in
accordance with Sec. 1951.911 (b)(8) of this subpart.
(3) Eligibility. The servicing official will make the determination
on eligibility. To qualify for homestead protection, the borrower must
meet the following requirements:
(i) An applicant must be an individual who is or was personally
liable for the Farm Loan Programs (FLP) loan that was secured in part by
the Homestead Protection property, or, if a non-borrower pledged the
property to secure the FLP loan, the owner of the property. In either
case, the applicant must be or have been the owner of the Homestead
Protection property. A member of an entity who is or was personally
liable for a loan that is or was secured by the Homestead protection
property is considered an owner for homestead protection purposes, so
long as either the member of the entity or the entity itself held fee
title to the property.
(ii) When more than one member of an entity was personally liable
for an FLP loan, each such member who possessed and occupied a separate
dwelling as his or her principal residence, on property that is or was
security for the loan may apply separately for homestead protection of
their individual dwellings;
(iii) The applicant and any spouse must have received, from the
farming or ranching operations, gross farm income reasonably
commensurate with the size and location of the farm and reasonably
commensurate with local agricultural conditions (including natural and
economic conditions) in at least 2 calendar years during the 6-year
period preceding the calendar year in which the application is made.
Farms used for comparison purposes must be of similar size, type of
operation and locality. For the purposes of Sec. Sec. 1951.911(b)(3)
(iii) and (iv) of this subpart, income from farming or ranching
operations will include rent paid by a lessee of agricultural land
during any period in which the borrower, due to
[[Page 117]]
circumstances beyond his or her control, such as economic, natural
disaster or health problems, was unable to actively farm that property.
The borrower's records will be used in determining whether the gross
farm income was reasonably commensurate with the farm size and location
and local agricultural conditions. When applying for homestead
protection, the borrower will give the servicing official at least 2
calendar years of records of planned and actual gross farm income for
the 6-year period preceding the calendar year in which the application
is made. If such records do not exist, they may be developed by the
applicant and servicing official from information relating to yields,
expenses and prices found in the borrower's county office case file,
agency records, or other reliable sources;
(iv) The applicant and any spouse must have received, from the
farming or ranching operations, at least 60 percent of their gross
annual income in at least 2 of the 6 calendar years preceding the
calendar year in which the application is made;
(v) The applicant must have continuously occupied the homestead
protection property during the 6-year period preceding the calendar year
in which the application is made, unless it was necessary to leave for a
period of time not to exceed 12 months during the 6-year period due to
circumstances beyond the borrower's control, such as illness,
employment, or conditions that made the dwelling uninhabitable; and
(vi) The applicant must have sufficient income to make rental
payments for the term of the lease and the ability to maintain the
property in good condition, and must agree to all the terms and
conditions set forth in paragraph (b)(7) of this section and in Form
1955-20.
(4) Transfer of homestead protection. An applicant's right to
request homestead protection and rights under the Agreement or lease
entered into pursuant to this section are not transferable or assignable
by the applicant or by operation of law, except that, in the case of
death or incompetency of the applicant, such rights and agreements shall
be transferable to the spouse upon agreement to comply with the terms
and conditions of the lease.
(5) Property requirements. (i) The proposed homestead protection
property tract must meet all requirements for the division into a
separate legal lot as required by State and local laws. All
environmental considerations required under subpart G of part 1940 of
this chapter will be complied with.
(ii) Costs for a survey, legal description or other service needed
to establish, appraise, define or describe the homestead protection
property as a separate tract, will be paid for by the Agency. No repairs
or improvements will be paid for by the Agency except as provided for in
Sec. 1955.64 (a) of subpart A of part 1955 of this chapter.
(iii) If necessary, the Agency will grant or retain for the benefit
of adjoining property reasonable easements for ingress, egress,
utilities, water rights, etc.
(6) Appraisal. The current market value of the homestead protection
property shall be determined by an independent appraisal made within 6
months from the date of the borrower's application for homestead
protection. The applicant will select an independent real estate
appraiser from a list of appraisers approved by the servicing official.
The cost of such an appraisal will be handled in accordance with
paragraph (b)(5)(ii) of this section.
(7) Terms of the lease and exercising the option. (i) All leases
will have an option to purchase. Any reference to a lease for homestead
protection purposes will mean a lease with an option to purchase. The
lease will be offered with an option to purchase on Form 1955-20 and
will be for a period of not more than 5 years as requested by the
applicant. A lease of less than 5 years may be extended, but not beyond
5 years from the date of the beginning of the term of the original
lease.
(A) The amount of the rent will be based upon equivalent rents
charged for similar residential properties in the area in which the
dwelling is located.
(B) Lease payments will be retained by the Government.
(C) Failure to make lease payments as scheduled or to maintain the
property in good condition shall constitute cause for the termination of
all rights
[[Page 118]]
of the lessee to possession and occupancy of the dwelling and property
under this section. If a lease default is not cured within 30 days of
notice, the servicing official will notify the lessee in writing of the
termination of the lease and option.
(D) Any interference by the lessee with the Government's efforts to
lease or sell the remainder of farm inventory property shall constitute
cause for the termination of all rights of the lessee to possession and
occupancy of the dwelling and property including the right to exercise
the option to purchase.
(ii) Exercising the option to purchase.
(A) The lessee may exercise the option in writing at any time prior
to the expiration of the lease by delivering to the servicing official a
signed, written statement notifying the Agency that the lessee is
exercising the option to purchase the property. Failure to exercise the
option within the lease period will end the lessee's rights under the
option to purchase.
(B) When the lessee exercises the option to purchase the property,
the purchase price will be the current market value of the property.
That value will be determined by an appraisal in accordance with
paragraph (b)(6) of this section providing the appraisal is not more
than 1 year old. If the appraisal is more than 1 year old, the current
market value will be determined by a new appraisal requested in
accordance with paragraph (b)(6) of this section.
(C) At the time the lessee exercises the option, the lessee must
notify the servicing official if he or she wants to purchase the
property for cash or finance it through a credit sale from the Agency.
(D) If a credit sale is involved, the applicant must furnish the
servicing official the information required by Sec. 1951.907 (e) to
assist in determining whether or not the applicant has adequate
repayment ability.
(8) Rates and terms for a credit sale. Terms for a credit sale of
homestead protection property when the lessee is exercising the option
to purchase will be in accordance with subpart J of this part.
(9) Closing. A credit sale will be closed in accordance with subpart
J of this part.
(10) Conflict with State law. In the event of a conflict between a
borrower's homestead protection rights and any provisions of the law of
any State relating to the right of a borrower to designate for separate
sale or redeem part or all of the property securing a loan foreclosed on
by a lender, such provision of State law shall prevail. A State
supplement will be prepared as necessary to supplement paragraph (b) of
this section.
(11) Servicing homestead protection loans. Homestead protection
loans will be serviced as set forth in subpart J of this part.
[62 FR 10132, Mar. 5, 1997]
Sec. 1951.912 Mediation.
(a) States with a USDA certified mediation program. The FmHA or its
successor agency under Public Law 103-354 is required to participate in
USDA Certified State Mediation Programs. The purpose of mediation is to
participate with farm borrowers, and their creditors, in an effort to
resolve issues necessary to overcome the borrower's financial
difficulties. Any negotiation of an FmHA or its successor agency under
Public Law 103-354 appraisal pursuant to Sec. 1951.909(i) of this
subpart will be completed prior to mediation.
(1) FmHA or its successor agency under Public Law 103-354 shall
participate in a USDA Certified Mediation Program under the same terms
and conditions as other creditors. Decisions will not be binding on FmHA
or its successor agency under Public Law 103-354 unless approved by the
representative assigned by FmHA or its successor agency under Public Law
103-354 in accordance with paragraph (a)(4) of this section.
(2) FmHA or its successor agency under Public Law 103-354 will pay
the same mediation fees to the USDA Certified State Mediation Board that
are charged to all creditors that participate in mediation. The
Contracting Officer (CO) will complete Form AD-838, ``Purchase Order,''
to establish a mediation contract and submit Form FmHA or its successor
agency under Public Law 103-354 838-B, ``Invoice-Receipt
[[Page 119]]
Certification,'' for payment upon receipt of an invoice from the
Mediator or the Contracting Officer's Representative (COR) recommending
payment.
(3) Failure of creditors and/or borrowers to participate in
mediation will not preclude FmHA or its successor agency under Public
Law 103-354 from granting Primary Loan Service Programs to assist
borrowers.
(4) The FmHA or its successor agency under Public Law 103-354 State
Director will designate a representative to represent FmHA or its
successor agency under Public Law 103-354 in the mediation process.
Authorities of the representatives can vary from complete authority to
act for FmHA or its successor agency under Public Law 103-354, to a
requirement for review and concurrence by the State Director or designee
prior to approving a mediation agreement. The State Director will set
forth in writing the specific authority delegated to the designated
representative.
(5) The FmHA or its successor agency under Public Law 103-354 State
Director will arrange for adequate training for representatives
designated to represent FmHA or its successor agency under Public Law
103-354 in mediation.
(6) When mediation is not successful in resolving the borrower's
financial difficulty, the County Supervisor will send the borrower
attachments 5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as
applicable.
(7) The FmHA or its successor agency under Public Law 103-354 State
Director will develop a State supplement that describes how FmHA or its
successor agency under Public Law 103-354 will participate in the State
Mediation Program. In developing the State supplement the State Director
should confer with the State Attorney General's Office, farm
organizations that are interested in the development of the State's
Certified Agricultural Loan Meditation Program, and Departments of State
Governments to ensure that all interested parties have input on the
content of the State supplement. The State Director will consult with
the Regional OGC as necessary to develop the State supplement. State
supplements will be submitted to the National Office for post approval
in accordance with FmHA or its successor agency under Public Law 103-354
Instruction 2006-B (available in any FmHA or its successor agency under
Public Law 103-354 office).
(b) States without a Certified Mediation Program. To service those
borrowers in States where there is no USDA Certified Mediation Program
established, the State Director will provide the means of conducting a
voluntary meeting of creditors, either with a mediator or a designated
FmHA or its successor agency under Public Law 103-354 representative.
``Creditors,'' for purposes of this paragraph, means all the borrower's
undersecured creditors holding a substantial part of the borrower's debt
in accordance with Sec. 1951.909(h)(3)(i) of this subpart. State
Directors are encouraged to contract for qualified mediators within
their jurisdictional areas to conduct the voluntary meeting of creditors
in an effort to help farmers resolve their financial difficulty. The
National Office will provide the State a list of qualified mediators for
contracting purposes. Any negotiation of an FmHA or its successor agency
under Public Law 103-354 appraisal pursuant to Sec. 1951.909(i) of this
subpart will be completed prior to meeting with other creditors.
(1) When a mediator is available, the County Supervisor will assist
the meditator in scheduling a meeting with the borrower and all of the
borrower's creditors and will encourage them to participate in such a
meeting. The mediator will be responsible for conducting the meeting in
accordance with accepted mediation practices and to develop an Agreement
to assist the farmer in resolving their financial difficulties.
(2) When a mediator is not available, the State Director will
designate an FmHA or its successor agency under Public Law 103-354
representative to conduct a meeting of creditors and attempt to develop
a plan with borrowers and their creditors that will assist the borrowers
to resolve their financial difficulty. The State Director will designate
a representative not previously involved in servicing the borrower's
account. State Directors will designate a representative, or FmHA or its
successor agency under Public Law 103-354
[[Page 120]]
employees who have demonstrated good human relations skills and ability
to resolve problems and settle disputes.
(3) The designated FmHA or its successor agency under Public Law
103-354 representative for conducting a meeting of creditors will do the
following:
(i) Schedule a meeting between the borrower and the borrower's
creditors and encourage them to participate in such a meeting;
(ii) State that the parties understand that the representative is
neutral and does not represent any of the parties;
(iii) Inform the borrower and creditors concerning FmHA or its
successor agency under Public Law 103-354 programs available to assist
the borrowers;
(iv) Encourage the parties to utilize all available means to assist
the borrower to overcome the financial difficulty;
(v) Advise, counsel, and facilitate the development of a debt
restructure agreement between the borrower and creditors which will
permit the borrower to remain in farming;
(vi) Review with the parties any proposed solution to determine if
it can be effectively implemented and to help the parties understand the
consequences of the proposed solution;
(vii) Review the obligations of the participants, including but not
limited to the maintenance of confidentiality and the promotion of good
faith discussions in an effort to reach agreement; and
(viii) Develop a written document that specifies the agreements
reached in the meeting. The agreement will be signed by all parties with
authority to approve the agreement for the participating creditors. When
signed, copies will be distributed to the borrower and participating
creditors. A copy will be filed in the borrower's County Office case
file.
(4) If agreements are reached which will permit the development of a
feasible plan of operation, the County Supervisor will proceed with
processing and approval of the borrower's request for primary loan
servicing.
(5) When the FmHA or its successor agency under Public Law 103-354
representative has exhausted all efforts to develop an agreement between
the borrower and creditors and an agreement cannot be reached, the FmHA
or its successor agency under Public Law 103-354 representative will
report the results of this meeting to the State Director by memorandum.
Copies of the memorandum will be sent to the borrower and all creditors
participating in the meeting. When the County Supervisor receives a copy
of this memorandum indicating that an agreement cannot be reached,
attachments 5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as
applicable, will be sent to the borrower.
(6) State Directors will provide the necessary training to ensure
that the FmHA or its successor agency under Public Law 103-354
representative has the necessary skills to effectively conduct a
voluntary meeting between a borrower and creditors which may result in
reaching an agreement.
(7) Failure of creditors to participate in a voluntary meeting of
creditors will not preclude FmHA or its successor agency under Public
Law 103-354 from using debt writedown if it would result in a greater
net recovery to FmHA or its successor agency under Public Law 103-354
than liquidation. Whenever the net recovery to FmHA or its successor
agency under Public Law 103-354 will be greater using the writedown than
to go through foreclosure, FmHA or its successor agency under Public Law
103-354 will use the writedown, regardless of the actions of the other
creditors. Voluntary meetings of creditors cannot delay consideration of
a borrower for Primary Loan Service Programs, except with the consent of
the borrower.
(8) If the borrower does not participate in the voluntary meeting of
creditors without good cause and a feasible plan of operation cannot be
developed, the County Supervisor will send the borrower attachments 5
and 6, or 5-A and 6-A, of exhibit A of this subpart, as applicable.
Sec. 1951.913 Servicing Net Recovery Buyout Recapture Agreements.
(a) Death or retirement. If upon the death or retirement of a
borrower who submitted a ``new application,'' as defined in Sec.
1951.906 of this subpart, the borrower executed exhibit C-1 of this
subpart and transferred title of the
[[Page 121]]
borrower's real estate security to a spouse or child who is actively
engaged in farming on the property, then the transaction will not be
treated as a ``sale'' or ``conveyance'' under the recapture agreement.
The borrower's spouse or child, however, must assume the full liability
of the borrower under the provisions of the borrower's Net Recovery
Buyout Recapture Agreement and real estate lien instrument in accordance
with instructions from OGC.
(b) Record of net recovery buyout. The Finance Office will credit
the borrower's account with the net recovery value (NRV) amount paid by
the borrower. An equity record will be established in accordance with
the provisions of the ADPS manual.
(1) For borrowers who applied for Loan Servicing and Preservation
Service Programs before November 28, 1990, and executed exhibit C of
this subpart, a recapture equity record will be established in an amount
equal to the difference between the NRV and the market value of the real
estate security as of the date the net recovery buyout agreement was
signed by the borrower.
(2) For borrowers who submit ``new applications,'' as defined in
Sec. 1951.906 of this subpart, and execute exhibit C-1 of this subpart,
an equity record will be established in an amount equal to the amount of
debt secured by real estate that was written off as of the date the net
recovery buyout agreement was signed by the borrower. This is the
maximum amount that can be recaptured.
(c) Review by County Supervisor. The County Supervisor will
establish a follow-up to review the County real estate records every 24
months starting from the date of the Net Recovery Buyout Recapture
Agreement to determine if the borrower has sold or conveyed the real
estate property covered by the agreement. Scheduled reviews to be
conducted must be posted on the borrower's Form FmHA or its successor
agency under Public Law 103-354 1905-1, ``Management System Card--
Individual,'' for follow-up purposes. The results of the review will be
recorded in the borrower's County Office case file. These reviews will
end at the expiration of the agreement. If there is no recapture due,
then the County Supervisor will proceed in accordance with paragraph (g)
of this section.
(d) Notification of recapture due. If the County Supervisor
determines that the borrower has sold the real estate, the borrower will
be notified in writing, certified mail, return receipt requested, of the
following:
(1) The amount of recapture due in accordance with exhibits C or C-1
of this subpart, as applicable. The County Supervisor will establish an
equity receivable account in accordance with the provisions of the ADPS
manual;
(2) The date the recapture is due (not to exceed 30 days from the
date the Notice of Recapture Letter is received by the borrower);
(3) Appeal rights as set forth in subpart B of part 1900 of this
chapter; and
(4) If the borrower fails to pay any amount due to FmHA or its
successor agency under Public Law 103-354 as the result of a sale of the
property, the account will be accelerated as set forth in Sec. 1955.15
of subpart A of part 1955 of this chapter after all appeal rights have
been exhausted.
(e) Processing payments. The County Supervisor will issue Form FmHA
or its successor agency under Public Law 103-354 451-2, ``Schedule of
Remittance,'' for all the payments received under the Recapture
Agreement. The following should be recorded in the body of the form:
``Equity Receivable Payment.''
(f) Release of liability. When the total amount due under the
agreement has been paid and credited to the borrower's account, the
borrower will be released from personal liability. The recapture
agreement will be marked ``Recapture Agreement Satisfied'' and returned
to the debtor or to the debtor's legal representative. In such cases,
the security instrument(s) will be released of record in accordance with
subpart A of part 1965 of this chapter.
(g) No recapture due. If the County Supervisor determines there is
no recapture due, the County Supervisor will close the borrower's equity
record in accordance with the provisions of the ADPS manual. Exhibit C
or C-1 of this subpart, as applicable, will be terminated and security
instruments will
[[Page 122]]
be processed as set forth in paragraph (f) of this section.
Sec. 1951.914 Servicing shared appreciation agreements.
(a) [Reserved]
(b) When shared appreciation is due. For agreements entered into on
or after August 18, 2000, the term of the agreement is five years.
Shared appreciation is due at the end of either a five or ten year term,
as specified in the Shared Appreciation Agreement, or sooner, if one of
the following events occur:
(1) The sale or conveyance of any or all the real estate security,
including gift, contract for sale, purchase agreement, or foreclosure.
Transfer to the spouse of the borrower in case of the death of the
borrower will not be treated as a conveyance; until the spouse further
conveys the property;
(2) Repayment of the loans; or the loans are otherwise satisfied;
(3) The borrower or surviving spouse ceases farming operations or no
longer receives farm income, including lease income; or
(4) The notes are accelerated.
(c) Determining the amount of shared appreciation due. (1) The value
of the real estate security at the time of maturity of the Shared
Appreciation agreement (current market value) shall be the appraised
value of the security at the highest and best use less the increase in
the value of the security resulting from capital improvements added
during the term of the Shared Appreciation Agreement (contributory
value) as set out herein. The current market value of the real estate
security property will be determined based on a current appraisal in
accordance with 7 CFR Sec. 761.7 and subject to the following:
(i) Upon request, the borrower will identify any capital
improvements that have been added to the property since the execution of
the Shared Appreciation Agreement.
(ii) The appraisal must specifically identify the contributory value
of capital improvements made to the Agency real estate security during
the term of the Shared Appreciation Agreement in order to make
deductions for that value under this subsection.
(iii) For calculation of Shared Appreciation recapture, the
remaining contributory value of capital improvements added during the
term of the Shared Appreciation Agreement will be deducted from the
current market value of the property. Such capital improvements must
also meet at least one of the following criteria:
(A) It is the borrower's primary residence. If the new residence is
affixed to the real estate security as a replacement for a home which
existed on the security property when the Shared Appreciation Agreement
was originally executed, or the living area square footage of the
original dwelling was expanded, only the value added to the real
property by the new or expanded portion of the original dwelling (if it
added value) will be deducted from the current market value. Living area
square footage will not include square footage of patios, porches,
garages, and similar additions.
(B) The item is an improvement to the real estate with a useful life
of over 1 year and is affixed to the property. The item must have been
capitalized and not taken as an annual operating expense on the
borrower's Federal income tax records. The borrower must provide copies
of appropriate tax documentation to verify that capital improvements
claimed for shared appreciation recapture reduction are capitalized on
borrower income taxes.
(2) In the event of a partial sale, an appraisal of the property
being sold may be required to determine the market value at the time the
Shared Appreciation Agreement was signed if such value cannot be
obtained through another method.
(3) Shared appreciation will be due if there is a positive
difference between the market value of the security property at the time
of calculation and the market value of the security property as of the
date of the SAA. The maximum appreciation requested will not be more
than the total amount written down. The amount of shared appreciation
will be:
(i) 75% of any positive appreciation if any one of the events listed
in paragraphs (b)(1) through (4) of this section occur within 4 years or
less from the date of the SAA; or
[[Page 123]]
(ii) 50% of any positive appreciation if any one of the events
listed in paragraphs (b)(1) through (4) of this section occurs more than
4 years from the date of the SAA, or if the term of the SAA expires.
(4) [Reserved]
(5) When the full amount of the appreciation due under this section
and any remaining FSA debt is paid in full and credited to the account,
the borrower will be released from liability.
(6) Shared appreciation that will become due will be included in the
amount owed to FSA, such as with any debt settlement. Nonamortized
shared appreciation may be assumed and amortized on program or
nonprogram terms based on the transferee's eligibility as contained in
subpart A of part 1965 of this chapter.
(d) [Reserved]
(e) Shared appreciation amortization. Shared appreciation due under
this section may be amortized to a Non-program amortized payment unless
the amount is due because of acceleration or the borrower ceases
farming. The amount due may be amortized as an SA amortized payment
under the following conditions:
(1) The borrower must have a feasible plan as defined in Sec.
1951.906 including the SA amortized payment.
(2) The borrower must be unable to pay the shared appreciation, or
obtain the funds elsewhere to pay the shared appreciation.
(3)-(4) [Reserved]
(5) The payment agreement term will be based on the borrower's
repayment ability and the life of the security, not to exceed 25 years.
(6) The interest rate will be the SA amortization rate contained in
RD Instruction 440.1 (available in any FSA office).
(7) A lien will be obtained on any remaining FSA security, or if
there is no security remaining, the best lien obtainable on any other
real estate or chattel property sufficient to secure the SA payment
agreement, if available.
(8) The borrower will sign a payment agreement for each SA amortized
payment established.
(9)-(10) [Reserved]
(11) If a borrower with an SA amortized payment also has outstanding
Farm Loan Programs loan and becomes delinquent or financially distressed
in accordance with Sec. 1951.906 or if a borrower with an SA amortized
payment has no outstanding Farm Loan Programs loan and becomes
delinquent on the SA amortized payment, the SA payment agreement may be
reamortized in accordance with Sec. 1951.909.
(f) Priority of collection application. Proceeds from the sale of
security property will first be applied to any prior lienholder's debt,
then to any shared appreciation due, and to the balance of outstanding
FLP loans in accordance with subpart A of this part.
(g) Subordination. Subordination of FSA's lien on property securing
the Shared Appreciation Agreement may be approved and processed in
accordance with subpart A of part 1965 of this chapter provided the
prior lien debt is not increased.
(h) Suspension of Recapture Payment Obligation under a Shared
Appreciation Agreement. (1) A borrower may request from a Farm Loan
Program (FLP) servicing official, a suspension of the obligation to pay
the recapture amount under a shared appreciation agreement, if:
(i) The shared appreciation agreement recapture payment is now due
but there has been no agreement to pay the recapture payment;
(ii) The 10 year term of the agreement ends on or before December
31, 2000;
(iii) The secured real estate has not yet been conveyed so that the
entire amount of the shared appreciation agreement recapture payment is
due;
(iv) The borrower has complied with the other terms of the
agreement;
(v) The borrower certifies in writing that the borrower is not able
to pay the recapture amount;
(vi) The agreement or the obligations thereunder have not been
accelerated and there are pending servicing rights under this subpart
still available to the borrower; and
(vii) The Agency's mortgage which secures the agreement remains in
effect for a period not less than the suspension period under this
paragraph plus 3 additional years or the Agency
[[Page 124]]
determines that the mortgage can be extended for an additional 3 years
beyond the suspension period.
(2) A request for suspension of the obligation to pay the recapture
amount must be submitted in writing to the FLP servicing official after
the borrower has received notification of the recapture amount due by
the later of:
(i) 30 days after the borrower has received notification of the
recapture amount due; or
(ii) May 24, 1999.
(3) The term of the suspension of the obligation to pay the
recapture amount is 1 year.
(4) A suspension may be renewed by the Agency at the request of a
borrower in writing not more than twice. Prior to renewal of a
suspension, the Agency will determine, based on a Farm and Home Plan,
the portion of the recapture amount the borrower is still unable to pay,
or obtain credit to pay, from any other source (including nonprogram
loans from the Agency, in accordance with this part), the suspension
will be limited to such an amount. The Agency must also determine that
the conditions prescribed in paragraphs (h)(1)(i) through (h)(1)(vi) are
still met.
(5) The amount of the recapture payment suspended will accrue
interest at a rate equal to the applicable rate of interest of Federal
borrowing, as determined by the Agency.
(6) Thirty days before the end of the suspension period, the FLP
Servicing Official shall inform the borrower by letter of the suspended
amount, including accrued interest that is owed and the date such
payment is due.
(7) At the end of the suspension period, the borrower will be
obligated to pay the amount suspended, plus any accrued interest and the
borrower will be so notified.
(8) If the real estate that is the subject of the Shared
Appreciation Agreement during the suspension period is conveyed, the
suspended amount, plus any accrued interest shall be come immediately
due and payable by the borrower in accordance with paragraph (c) of this
section.
(9)-(10) [Reserved]
(11) Capital improvement deductions are available to a borrower on
any unpaid recapture amount under an existing Suspension Agreement in
accordance with 1951.914(c).
[63 FR 6629, Feb. 10, 1998, as amended at 64 FR 19865, Apr. 23, 1999; 65
FR 50404, Aug. 18, 2000; 65 FR 81326, Dec. 26, 2000; 67 FR 7943, Feb.
21, 2002; 69 FR 5263, Feb. 4, 2004]
Sec. 1951.915 [Reserved]
Sec. 1951.916 Exception authority.
(a) Administrator. The Administrator or delegate may, in individual
cases, make an exception to any requirement or provision of this subpart
or address any omission of this subpart which is not inconsistent with
the authorizing statute or other applicable law if the Administrator
determines that the Government's interest would be adversely affected.
The Administrator will exercise this authority upon request of the State
Director with recommendation of the appropriate Program Assistant
Administrator, or upon request initiated by the appropriate Program
Assistant Administrator. In certain situations such as a natural
disaster, the Administrator may delegate this authority to specific
State Director positions in certain states. In such cases, the State
Director will exercise the delegation of authority upon the request of
the County Supervisor with the recommendation of the District Director,
rather than the appropriate Program Assistant Administrator. Requests
for exceptions must be made in writing and supported with documentation
to explain the adverse effect, propose alternative courses of action,
and show how the adverse effect will be eliminated or minimized if the
exception is granted.
(b) State Director. The State Director may, in individual cases of
extraordinary circumstances, make an exception to the requirement that
attachments 2 or 4 of exhibit A of this subpart, as appropriate, must be
completed and returned to the FmHA or its successor agency under Public
Law 103-354 County Office with the appropriate forms and documents for a
complete application within 60 days after receiving attachments 1 and 2
or 3 and 4 of exhibit A of this subpart. If the borrower requests
additional time to submit a complete application or submits
[[Page 125]]
a complete application after the deadline, the County Supervisor must
ask the borrower why the additional time is or was needed. The County
Supervisor must ask the borrower whether there are extraordinary
circumstances like serious medical illness, severe adverse weather, or a
family emergency, and explain that only the State Director can authorize
an extension of time for extraordinary circumstances. In such cases, the
County Supervisor must document the situation in the case file and
immediately submit the request with his or her recommendation on whether
the State Director should grant an exception for an extension of time.
The request should describe the circumstances in accordance with the
examples of extraordinary circumstances mentioned above and recommend an
estimate of the additional time needed. Normally, such an extension of
time should not exceed 30 days.
[58 FR 4066, Jan. 13, 1993, as amended at 58 FR 15418, Mar. 23, 1993]
Sec. Sec. 1951.917-1951.949 [Reserved]
Sec. 1951.950 OMB control number.
The reporting and recordkeeping requirements contained in this
regulation have been approved by the Office of Management and Budget and
have been assigned OMB control number 0560-0161. Public reporting burden
for this collection of information is estimated to average five minutes
per response including time for reviewing instructions, searching
existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments
regarding this burden estimate or any other aspect of this collection of
information, including suggestions for reducing this burden, to
Department of Agriculture, Clearance Officer, OIRM, room 404-W,
Washington, DC 20250; and to the Office of Management and Budget,
Paperwork Reduction Project (OMB 0560-0161), Washington, DC
20503.
[57 FR 18626, Apr. 30, 1992, as amended at 63 FR 6629, Feb. 10, 1998]
Exhibit A to Subpart S of Part 1951--Notice of the Availability of Loan
Servicing and Debt Settlement Programs for Delinquent Farm Borrowers
Dear (Borrower's Name):
This notice is to inform you that you are behind with your loan
payments and to inform you of your options.
I. Loan Servicing Programs Available
Primary loan servicing programs are intended to adjust the debt so
that you can continue farming and the Agency will receive a better
recovery on the money it loaned you.
The Preservation loan servicing program (Homestead Protection) is
intended to help farmers who may lose their land to the Agency get their
home back through a lease with an option to buy.
II. Application Information
Time Limits
You must notify the county office within 60 days of getting this
notice if you want to be considered for these programs.
How To Apply
To apply, you must complete and return the required forms enclosed
with this notice, including your signed Acknowledgment Of Notice Of
Program Availability within the 60-day time limit. The county office
will process your completed forms and let you know if you qualify.
Included With This Notice You Will Find:
(1) A summary of primary loan servicing programs options;
(2) A summary of the preservation loan servicing program;
(3) A summary of debt settlement programs;
(4) The forms you need to apply for services;
(5) Information on how to get copies of the Agency's regulations;
(6) A description of the National Appeals Division appeal process.
III. Foreclosure and Liquidation
What Happens if You Do Not Apply Within 60 Days?
The Agency will accelerate your loan if you continue to be
delinquent or in nonmonetary default. Acceleration of your loan is very
severe. This means the Agency will take legal action to collect all the
money you owe them.
After acceleration, the Agency will start foreclosure proceedings.
They will repossess or take legal action to take any real estate,
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personal property, crops, livestock, equipment, or any other assets in
which the Agency has a security interest. The Agency will also stop
allowing you to use your crop, livestock, and milk checks to pay living
and operating expenses. The Agency will also take by administrative
offset money which other federal agencies owe you.
Sincerely,
Attachment 1--Primary and Preservation Loan Servicing and Debt
Settlement Programs Purpose
Purpose
These programs are to help you repay the loan and keep your farm
property and settle your Farm Loan Programs loan debt. This notice tells
you:
(1) How To get more information
(2) How to apply
(3) Your appeal rights if you apply and are turned down
How To Get More Information
Ask at any county office for copies of the rules describing these
programs. These rules must be given to you within 10 days of when we
receive your request.
Who Can Apply?
All ``farm loan programs borrowers'' who have one of the following
loans:
Operating (OL)
Farm Ownership (FO)
Emergency (EM)
Economic Emergency (EE)
Soil and Water (SW)
Recreation (RL)
Rural Housing Loans made for farm service buildings (RHF)
Economic Opportunity (EO)
Borrowers that are current on their scheduled payments but are
financially distressed through no fault of their own may be eligible for
some assistance to restructure their debt.
You May Need Help in Applying
The legal requirements for these programs are very complicated. You
may need help to understand them. You may want to ask an attorney to
help you. If you cannot get an attorney, there are organizations that
give free or low-cost advice to farmers. Ask your State Department of
Agriculture or the USDA Extension Service what services are available to
your state.
Note: Agency employees cannot recommend a particular attorney or
organization.
I. Primary Loan Service Programs
(1) Loan Consolidation
Two or more of the same type of loans can be combined into one
larger loan. For example, operating loans can only be joined with
operating loans.
(2) Loan Rescheduling
The payment schedule can be altered to give you longer to repay
loans secured by equipment, livestock, or crops. For example, the time
for repayment of an operating-type loan can be extended up to 15 years
from the date the loan is rescheduled. When a loan is rescheduled, the
interest rate may be reduced.
(3) Loan Reamortization
The payment schedule can be changed to give you longer to repay
loans secured by real estate. For example, a Farm Ownership loan payback
period may be extended to 40 years from the date the original loan was
signed. When a loan is reamortized, the interest rate may be reduced.
(4) Interest Rate Reduction
Regular Interest Rate
FSA has specific interest rates for each type of loan. These
interest rates change quite often. They depend on what it costs the
Government to borrow money. Each type of loan will have a regular rate.
Limited Resource Interest Rate
If you have an Operating Loan (OL), Soil and Water (SW) loan or a
Farm Ownership (FO) loan, it may be possible for you to get a ``limited
resource interest rate.'' The limited resource interest rate can be as
low as 5 percent. It changes quite often and depends on what it cost the
Government to borrow money.
Interest Rate for Loan Servicing
When loans are consolidated, rescheduled, or reamortized, the
interest rate of the new loan will be either the interest rate on the
original loan, the interest rate on the date you submit a complete
application for loan servicing, or the interest rate for that type of
loan on the date of restructure, whichever is less. If you meet the
eligibility requirements, you may be able to get the limited resource
interest rate on OL, SW, or FO loans, if the loan was not originally
approved with a limited resource rate. For information about current
interest rates, contact the FSA county office.
(5) Loan Deferral
Payments of principal and interest can be temporarily delayed for up
to 5 years. You
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must show that you cannot pay essential living expenses or maintain your
property and pay your debts. You must also show you will be able to pay
at the end of the deferral period.
The interest rate on a deferred loan will be either the current rate
of interest for loans of the same type or the original rate on the loan,
whichever one is lower.
The interest that builds up during the deferral period will be added
to the principal of the loan. You must pay this interest in yearly
payments for the rest of the loan term.
Note: You can only get a loan deferral if the FSA determines options
1-4 will not work for you.
(6) Softwood Timber Program
Marginal land including highly erodible land and pasture can be
planted in softwood timber. If you qualify, a debt of up to $1000 an
acre can be deferred up to 45 years. Interest will be charged during the
deferral period. The debt must be paid when the timber is sold.
(7) Conservation Contract Program
You may enter into a contract with the Secretary of Agriculture to
protect highly erodible land, wetlands, or wildlife habitat located on
your property that serves as security for your farm loan debt. In
exchange for the contract, FSA will reduce your FSA debt. The amount of
land left after the contract must be enough to continue your farming
operation.
(8) Debt Writedown
This is not available to borrowers who are current in their loan
payments or to borrowers who have had previous debt forgiveness on
another direct loan.
Debt writedown means the FSA debt you owe is reduced. FSA can reduce
both the principal and interest of your debt. Your debt can be reduced
to the recovery value.
Recovery value. The recovery value is the fair market value of the
collateral pledged as security for FSA loans minus all of the expenses
such as sale costs, attorneys fees, management costs, taxes and payment
of prior liens on the collateral that FSA would have to pay if it
foreclosed on and sold the collateral. The fair market value of any
collateral that is not in your possession and has not been released for
sale by FSA in writing will also be used in determining recovery value.
Also considered, will be the fair market value of any other assets
that you may own that are not essential for family living or for farm
operation, and are not exempt from your judgment creditors or in a
bankruptcy action, minus the value of any creditors' prior security
interests and your selling costs. The value of the collateral and any
other assets must be decided by a qualified appraiser.
In order to get debt writedown, you must show that after the
writedown, you will have up to 110 percent, but not less than 100
percent, of income available to pay all of your family living and
farming operating expenses and scheduled debt payments. This means you
must have a feasible plan of operation. FSA will not write down more of
the debt than is necessary for you to show a feasible plan. You have the
choice to select a smaller cash flow margin without a writedown. If you
choose to do this, you will avoid taking your one time debt forgiveness
as explained below.
The writedown is used only when the loan servicing programs listed
in 1-7 above alone will not be enough for you to have a feasible plan.
If you get writedown, some of the principal and interest on your loans
will be written down in addition to changing the payback period, and
possibly the interest rate, using 1-7 above.
You can receive a writedown if you have not previously received any
form of debt forgiveness from FSA on any other direct farm loan. The
maximum debt that can be written down on all loans is $300,000.
II. Who Can Qualify for Primary Loan Service Programs
To qualify you must prove that:
(1) You cannot repay your FSA debt due to circumstances beyond your
control. If you have certain nonessential assets with a value high
enough to bring your account current, then you are not eligible for
Primary Loan Service Programs. These assets are only those that are not
essential for necessary family living or for your farm operation. FSA
cannot reduce or write off any of your debt that you could pay by
selling any of these assets or borrowing against your equity in the
assets.
You must have had less income than expected due to such things as:
(a) A natural disaster, weather, or insect problems;
(b) Family illness or injury;
(c) Loss or reduction of off-farm income;
(d) Disease in your livestock;
(e) Low commodity prices and high operating expenses in your local area;
or
(f) Other circumstances beyond your control.
(2) You have acted in ``good faith'' to keep your agreements with
FSA in that you have kept all written agreements with FSA including
those for the use of proceeds and release of property used to secure the
loan, and your file shows no fraud, waste, or conversion.
You must agree to give FSA a lien on certain other assets for
additional security for
[[Page 128]]
the FSA debt. If you are offered restructuring and accept the offer, you
must provide this lien at closing.
You must agree to meet, at your own cost, FSA's training
requirements in production and financial management. The cost will be
included in your farm plan as an operating expense. The training must be
completed within 2 years from the date of restructuring. This
requirement may be waived if you are able to demonstrate that you have
adequate training in this area. To request a waiver of this training
requirement, complete Form FmHA 1924-27, ``Request for Waiver of
Borrower Training Requirements,'' and submit with your request for FSA
servicing. This training requirement is not applicable if you have
previously received a waiver or you have successfully completed the
required FSA Borrower Training program.
Who Will Decide if You Qualify?
The FSA servicing official will decide if you qualify. The servicing
official will decide whether you can pay as much or more on the loan as
FSA would get if they foreclosed and sold the collateral for the loan
plus the value of any nonessential assets. To do this, the servicing
official must decide whether the total payments of principal and
interest on your adjusted debt will be at least as much as the
``recovery value'' defined in part I above.
Can You Get Your Debts Written Down?
Only if FSA will get as much or more by writing down part of your
debt than through foreclosure or sale of the collateral for the loan and
any nonessential assets. You also must be delinquent on your FSA debt
payments.
Conditions of the New Agreement if You Qualify
You must sign a shared appreciation agreement for 5 years. Under the
terms of the agreement:
(1) You must repay a part of the sum written down.
(2) The amount you must repay depends on how much your real estate
collateral increases in value.
During the 5 years, FSA will ask you to repay part of the debt
written down if you do one of the following:
(1) Sell or convey the real estate;
(2) Stop farming; or
(3) Pay off the entire debt
If you do not do one of these things during the 5 years, FSA will
ask you to repay part of the debt written down at the end of the 5 year
period.
FSA can only ask you to repay if the value of your real estate
collateral goes up.
If either 1, 2, or 3 above occurs in the first four years of the
agreement, FSA will ask you to pay 75 percent of the increase in value
of the real estate. In the last year, you will be asked to pay only 50
percent of the increase in value. FSA will not ask you to pay more than
the amount of the debt written down.
Date To Begin Restructured Agreement
If you are found eligible, you will be informed of the date for an
appointment so your debt can be restructured. You must notify FSA that
you accept its offer to restructure your debt within 45 days of when you
receive the offer.
III. Preservation Loan Servicing Program
Purpose
This program applies when the primary loan service programs cannot
help you.
Homestead Protection. (Keeping your farm home.) You may lease your
farm home, certain outbuildings and up to 10 acres of land. The lease
time will be for up to 5 years. The lease will include an option for you
to purchase the property you lease.
IV. Who Can Qualify for Homestead Protection?
(1) Your gross annual income from your farm or ranch must have been
similar to other comparable operations in your area. This must be true
for at least 2 years of the last 6 years.
(2) Sixty percent (60%) of your gross annual income in at least 2 of
the last 6 years must have come from the farming operation.
(3) You must have lived in your homestead property for 6 years
immediately before your application. If you had to leave for less than
12 months during the 6-year period and you had no control over the
circumstances, you still may qualify.
(4) You must be the owner or former owner of the property.
(5) If FSA has already taken your property, you must apply within 30
days of the date FSA took your property.
How To Lease Your Dwelling
(1) You may lease your home and up to 10 acres if you pay FSA
reasonable rent. The rent prices FSA charges you will be similar to
comparable property in your area.
(2) You must maintain the property in good condition during the term
of the lease.
(3) You may lease for up to 5 years.
(4) You cannot sublease your property.
(5) If you do not keep up your rental payments to FSA, FSA will
force you to leave.
You can buy back your homestead property at current market value at
any time during the lease. FSA may place an easement on your property to
protect and restore any wetlands or converted wetlands. Current market
value will be decided by an independent appraiser. The appraisal will be
made within 6 months of your application for
[[Page 129]]
homestead protection. The appraised value of your property will reflect
the value of the land after any placement of a wetland conservation
easement.
You should be aware that any real property, located in special areas
or having special characteristics, which comes into FSA's inventory, may
have restrictions or easements placed on the property which prevent your
use of all or a portion of the property, should you choose to lease or
buy your former dwelling. These restrictions and encumbrances will be
placed in leases and in deeds on properties containing wetlands,
floodplains, endangered species, wild and scenic rivers, historic and
cultural properties, coastal barriers, and highly erodible soils.
V. Debt Settlement Programs.
Purpose
These programs apply after it has been determined that primary loan
service programs cannot help you. You may be eligible for both debt
settlement and homestead protection. If you do not have FSA collateral
you will need to apply for debt settlement only. Under these programs,
the debt you owe FSA may be settled for less than the amount you owe.
Please apply for debt settlement from FSA by submitting an application
for debt settlement on Form RD 1956-1 within 30 days of receiving an
additional debt settlement notice. See section IX. These programs are
subject to the discretion of the agency and are not a matter of
entitlement or right.
Programs Available
(1) Compromise offer: A lump-sum payment of less than the total FSA
debt owed.
(2) Adjustment offer: One or more payments of less than the total
amount owed to FSA. Your payments can be spread out over a maximum of
five years if FSA decides you will be able to make the payments as they
become due.
(3) Cancellation: The final settlement of a debt without any
payment. FSA must decide there is no FSA security or other asset from
which FSA can collect. You must be unable to pay any part of the debt
now or in the future.
Approval Requirements
If you sell your collateral, you must apply the proceeds from the
sale to your FSA account before you can be considered for debt
settlement. In the case of compromise or adjustment, however, you may
keep your collateral if you are unable to pay your total FSA debt and
pay FSA the present market value of your collateral along with any
additional amount you are able to pay as determined by FSA. You will be
allowed to retain a reasonable equity in essential nonsecurity property
to continue your normal operations and meet minimum family living
expenses. FSA will not finance a compromise or adjustment offer.
The County Committee will be consulted on all debt settlements of
FLP loans. FSA must find that the statements on your application are
true, and that you do not have assets or income in addition to what you
stated in your application. You must also have not previously received
any form of debt forgiveness from FSA on any other direct farm loan. If
you qualify, your application must also be approved by the FSA State
Executive Director or the FSA Administrator depending on the amount of
the debt to be settled.
VI. How To Apply for Primary and Preservation Loan Servicing Programs.
Application Forms and Information Needed
The forms set out below should be included with this notice. If they
are not, you can obtain them from the FSA county office or as directed
below.
(1) Attachment 2 or 4 of Exhibit A Response form to apply for loan
services.
(2) FmHA 410-1 Application for FSA Services (The financial statement
on this form must include information no more than 90 days old. The
financial statement must be for all individuals and entities personally
liable for the FSA debt.
(3) FmHA 431-2 Farm and Home Plan, or other acceptable plan of
operation. The commodity prices to use for this plan of operation or
Farm and Home Plan are included with the form. You may request the
servicing official to assist you in completing your plans.
(4) FmHA 440-32 Request for Statement of Debts and Collateral.
Complete the name and address of the creditor, account number, if
applicable, and your name. All parties liable to the creditor must sign
and date the forms. FSA will obtain the creditor information.
(5) FmHA 1910-5 Request for Verification of Employment. Complete
employer's name and address, employee's name and address, social
security number, sign and date. FSA will send the form to your employer
to obtain the needed information.
(6) SCS-CPA-026 Highly Erodible Land and Wetland Conservation
Determination (This form must be obtained from and completed by the
Natural Resources Conservation Service office, if not already on file
with FSA.)
(7) AD-1026 Highly Erodible Land Conservation (HELC) and Wetland
Conservation (WC) Certification (You will be required to complete this
form in the FSA office if the one you have on file does not reflect all
the land you own and lease.)
(8) FmHA 1960-12 Financial and Production Farm Analysis Summary
(Complete the backside of the form or other similar type worksheets to
provide production and expense history for crops, livestock, livestock
[[Page 130]]
products, etc. for each of the five years immediately preceding the year
of application or the years you have been farming, whichever is less and
if not already in the FSA case file. You must be able to support this
information with farm or income tax records.)
(9) Copies of income tax records and any supporting documents for
the last five years immediately preceding the year of application if not
already on file with the FSA county office. (If you have been farming
for less than 5 years, submit the tax records for the tax years
immediately preceding the year of application during which you farmed.
If copies of tax records are not readily available, you can obtain
copies from the Internal Revenue Service (IRS).)
(10) Map or aerial photo of your farm from FSA or Natural Resources
Conservation Service if you are applying for the conservation contract
program. (Identify on the map or photo the portion of the land and
approximate number of acres to be considered in the contract.)
(11) RD 1956-1 Application for Settlement of Indebtedness (Complete
this form only if you wish to apply for debt settlement.)
Time To Apply for Primary and Preservation Loan Servicing Programs
To apply, you must complete the appropriate forms and return them
and the required information to the FSA county office within 60 days
from the date you received this notice.
VII. What Happens When You Are Not Eligible for Primary Loan Service
Programs?
If the servicing official decides you are not eligible, you may
request a meeting with that official so the official can explain the
decision.
If you do not agree with the FSA servicing official's decision, you
can tell the official why. If you can make the necessary realistic
changes to your Farm and Home Plan to show a feasible plan, you should
show these changes to the servicing official.
Negotiation of the Appraisal
A negotiation of the appraisal is a process whereby the borrower
objects to the FSA appraisal, obtains an independent appraisal at the
borrower's own costs, pays one-half of the cost for a third appraisal,
and the average of the two appraisals closest in value is taken as the
final appraised value to be used in considering restructuring. In all
cases of primary and preservation loan servicing where the borrower
presents an independent appraisal which is conducted by a qualified
appraiser and is within 5 percent of the value of the FSA appraisal, the
borrower must choose one of these two appraisals for the servicing
official to use to continue processing the request. Negotiation of
appraisal may affect your right to appeal the appraisal.
You May Request Mediation of Other Loans
If you cannot show a feasible farm plan because you owe too much to
other creditors and suppliers, FSA will help you try to get your other
creditors to adjust your debts. This will be done by FSA asking for
mediation if your State has a mediation program approved by the United
States Department of Agriculture. If there is no State mediation
program, FSA will try to set up a meeting with your other creditors and
suppliers if it can be shown that a reduction in these debts can provide
a feasible farm plan.
You Have the Right To Appeal
Appeal. Appeal rights will be provided to you after FSA has made a
decision on your request for primary loan servicing. If you first
request a meeting with the servicing official instead of an appeal, the
time for requesting an appeal will be extended until you are advised of
the results of your meeting. You will be provided with the address of
USDA's National Appeals Division. Your request for an appeal must be
postmarked no later than 30 days from the date you received the agency's
adverse decision. If you disagree with FSA's determination that any
determination is not appealable, you may request a determination of
appealability from the National Appeals Division.
You May Buyout (Pay Off) Your Loan at the ``Current Market Value''
(1) Current market Value. If the analysis of your debt shows that
you cannot ``cash flow'' even if your debt to FSA is reduced to the
value of the collateral, the servicing official will advise you in
writing that you can buyout the loan by paying the ``current market
value'' minus any prior liens. The current market value is determined by
a current appraisal completed by a qualified appraiser.
(2) Limits. You may receive a buyout if you have not previously
received any form of debt forgiveness from FSA on any other direct farm
loan. The maximum debt that can be written off with buyout is $300,000.
(3) Eligibility. To qualify you must prove that:
You cannot repay your FSA delinquent debt and the reason you cannot
repay was due to circumstances beyond your control,
You have acted in good faith, and
The value of your restructured loan is less than the recovery value.
(4) Time Limit. If you want to buy out your farm loan debt at the
current market value, you must pay FSA within 90 days of the date
[[Page 131]]
you receive the offer. If you appeal the servicing official's decision
not to give you primary loan servicing, this 90 days will not start
until the administrative appeal process ends.
(5) Cash. If you pay off the loan at the current market value, you
must pay in cash. FSA will not make or guarantee a loan for this
purpose.
Consideration for Preservation Loan Service Program
(Homestead Protection)
You will be considered for homestead protection if:
(1) You applied for primary loan servicing as required and did not
qualify.
(2) You do not appeal your primary loan servicing denial, or do not
win your appeal.
(3) You do not pay off the loan through buyout.
(4) You agree to give FSA title to your land at the time FSA signs
the written homestead protection agreement with you. FSA will not accept
title and will deny your preservation request if it is not in FSA's best
financial interest to accept title. FSA will compute the costs of taking
title including the cost of paying other creditors who have outstanding
liens on the property. FSA will take title only if it can obtain a
recovery on its cost. Any written agreement for preservation loan
servicing will include the amount you must pay for rent, the number of
years you can rent, and an option to purchase the property at the fair
market value at the time you exercise the option to purchase.
(5) You must request Homestead Protection within 30 days of FSA
obtaining title to the property.
Consideration for Debt Settlement Programs
If you wish to be considered for debt settlement, you will need to
request and return a completed Form RD 1956-1. You may request debt
settlement from FSA within 30 days of receiving an additional debt
settlement notice. See section IX. Usually, the most appropriate time
for making this request is when FSA has determined that Primary Loan
Servicing options will not provide the best net recovery to the
Government and you are requesting preservation loan servicing. If you no
longer have any security remaining for the outstanding FSA loans, you
may want to request debt settlement instead of primary and preservation
loan servicing.
VIII. What Happens When You Are Turned Down for Homestead Protection or
Debt Settlement Programs?
If FSA decides that you cannot get homestead protection or debt
settlement you can ask for
(1) A meeting with FSA to discuss the decision, or
(2) Appeal the determination.
The Right to a Meeting
The servicing official will send you a letter telling you why FSA
decided not to give you homestead protection or debt settlement. That
letter will give you 15 days to ask for a meeting with FSA.
The Right to an Appeal
Appeal rights will be provided to you after FSA has made a decision
on your request for homestead protection. If you first request a meeting
with the servicing official instead of an appeal, the time for
requesting an appeal will be extended until you are advised of the
results of your meeting. You will be provided with the address of USDA's
National Appeals Division. Your request for an appeal must be postmarked
no later than 30 days from the date you received the final
determination.
On appeal, you can contest FSA's rental amount and its decision not
to give you homestead protection. You can also contest FSA's decision to
reject your debt settlement application.
IX. Acceleration and Foreclosure
If you do not appeal an adverse determination or if you are denied
relief on appeal, FSA will accelerate your loan account and make demand
for payment of the whole debt. FSA will stop allowing you to use any of
your crop, livestock, and milk checks, on which they have a claim, to
pay for living and operating expenses. FSA will repossess the collateral
or start legal foreclosure or liquidation proceedings to take and sell
the collateral, including your equipment, livestock, crops, and land.
FSA will continue to take by administrative offset, money which FSA and
other Federal Government agencies owe you.
FSA may refrain from taking these actions if you agree to do one, or
a combination of the following actions, within an agreed upon time, with
FSA's approval:
(1) Sell all the collateral for the loan at market value.
(2) Convey (legally transfer) the collateral to FSA. You may apply
or reapply for homestead protection jointly with this action, even if
you applied before and were not accepted.
(3) Apply to transfer the collateral to someone else and have that
person assume all or part of the FSA debt. (This is called transfer and
assumption.)
If any of these options, or foreclosure, result in payment of less
than you legally owe, the servicing official will send you a notice
providing you with 30 days to submit a debt settlement application. If
you do not respond in a timely manner, your account will be
[[Page 132]]
sent to the U.S. Department of the Treasury (Treasury) for collection
through cross-servicing. If you submit a debt settlement application
within the required time frame, and the application is rejected, your
debt will be referred to Treasury for cross-servicing after all appeal
rights on the debt settlement application are exhausted. Referral of
debt to Treasury for cross-servicing is not an appealable action. If
your debt is referred for cross-servicing, Treasury may:
(1) Take action to collect the debt by offset or garnishment,
including offset of tax refunds and garnishment of salary,
(2) Refer the debt to a private collection agency for collection, or
(3) Refer the debt for collection by the U.S. Department of Justice
(DOJ).
Collection fees may be charged to you when collections are made. In
addition, FSA will report the debt to a credit bureau. After your
account is referred to Treasury, any debt settlement offer must be
submitted to Treasury, or its private collection agency contractor. If
your account is referred to DOJ for collection, your offer must be made
to DOJ.
[62 FR 10134, Mar. 5, 1997, as amended at 64 FR 62972, 62973, Nov. 18,
1999; 65 FR 50405, Aug. 18, 2000; 67 FR 12458, Mar. 19, 2002; 68 FR
7699, Feb. 18, 2003]
Exhibits B-F to Subpart S of Part 1951 [Reserved]
Exhibit G to Subpart S of Part 1951--Deferral, Reamortization and
Reclassification of Distressed Farmer Program (FP) Loans for Softwood
Timber Production (ST) Loans
I. General.
Borrowers with distressed FP loans, as defined in this exhibit, with
50 or more acres of marginal land may request FmHA or its successor
agency under Public Law 103-354 assistance under the provisions of this
section. Such distressed FP loans may be reamortized with the use of
future revenue produced from the planting of softwood timber on marginal
land as set out in this section. The basic objectives of the FmHA or its
successor agency under Public Law 103-354 in reamortizing and deferring
payments of distressed FP loans (ST loans) to financially distressed
farmers are to develop a feasible plan to assist eligible FmHA or its
successor agency under Public Law 103-354 borrowers to improve their
financial condition, to repay their outstanding FmHA or its successor
agency under Public Law 103-354 debts in an orderly manner, to carry on
a feasible farming operation, and to take marginal land, including
highly erodible land, out of the production of agricultural commodities
other than for the production of softwood timber. County Supervisors are
authorized to approve softwood timber (ST) loans subject to the
limitations in paragraph VI of this exhibit.
(A) Management assistance. FmHA or its successor agency under Public
Law 103-354 management assistance will be provided to borrowers to
assist them to achieve loan objectives and protect the Government's
financial interests, in accordance with subpart B of part 1924 of this
chapter.
(B) Definitions.
(1) Distressed FmHA or its successor agency under Public Law 103-354
loan. An FP loan which is delinquent or in financial distress because a
borrower cannot project a feasible plan by using the other loan
modification actions including rescheduling, reamortizing or deferral
for the maximum term.
(2) Marginal land. Land determined suitable for softwood timber
production by the Soil Conservation Service (SCS) that was previously
pasture land or within the last five years used for the production of
agricultural commodities, as defined in Sec. 12.2 of subpart A of part
12 of this chapter and which is Attachment 1 of Exhibit M of subpart
1940 of this chapter. This could include:
(a) Highly erodible land as defined or classified by the SCS under
Sec. 12.2 of subpart A of part 12 of this chapter, or
(b) Marginal lands that predominantly include soils that are in
Class IV, V, VI, VII, or VIII in the SCS's Land Capability
Classification System. However, marginal land shall not include wetlands
as defined in Sec. 12.2 (a)(26) of subpart A of part 12 of this chapter
and which is attachment 1 of exhibit M of subpart G of part 1940 of this
chapter.
(3) Softwood timber. The wood of a coniferous tree having soft wood
that is easy to work or finish and is commonly grown and commercially
sold for pulpwood, chip, and sawtimber.
(c) ST loan eligibility. A borrower must:
(1) Have the debt repayment ability and reliability, managerial
ability and industry to carry out the proposed timber production
operation.
(2) Be willing to place not less than 50 acres of marginal land in
softwood timber production; such land (including timber) may not have
any lien against it other than a lien for ST loans.
(3) Have properly maintained chattel (i.e. movable property) and
real estate security and accurately accounted for the sale of security,
including crops, and livestock production.
(4) Be an FmHA or its successor agency under Public Law 103-354 FP
loan borrower who owns 50 acres or more of marginal land which SCS
determines to be suitable for softwood timber.
[[Page 133]]
(5) Have sufficient training or farming experience to assure
reasonable prospects of success in the proposed timber operation.
(6) Have one or more distressed FmHA or its successor agency under
Public Law 103-354 loans as defined by this exhibit.
(7) Not have a total indebtedness of ST loan(s) that will exceed
$1,000 per acre for the marginal land at closing. Example: If 50 acres
of marginal land is put in softwood timber production, the total ST loan
indebtedness may not exceed $50,000 at closing.
(8) Be able to obtain sufficient money through FmHA or its successor
agency under Public Law 103-354 or other sources including cost-sharing
programs for forestry purposes for the planting, caring, and harvesting
of the softwood timber trees.
II. Reamortization requirements.
(A) A Timber Management Plan must be developed with the assistance
of the Federal Forest Service (FS), State Forest Service or such other
State or Federal agencies or qualified private forestry service. The
plan will outline the necessary site preparation, planting practices,
environmental protection practices, tree varieties, the harvesting
projection, the planned use of the timber, etc.
(B) The following requirements must also be met:
(1) If the borrower is otherwise eligible, the County Supervisor
must determine that a feasible farm plan as defined by subpart B of part
1924 of this chapter on the present farm operation is not possible
without using the provisions of this section. The County Supervisor must
calculate the borrower's plan of operation, using the maximum terms for
the rescheduling, reamortization and deferral authorities set out in
this subpart. If a feasible projection can be achieved by using any of
these authorities, the borrower's account will be rescheduled,
reamortized or deferred, as applicable. Limited Resource rates must be
considered, if the borrower is eligible, in determining whether a
feasible plan can be achieved. The County Supervisor must document the
steps taken to develop these cash flow projections and must place this
documentation in the borrower's case file. A copy of this documentation
must also be given to the borrower. If a feasible plan is shown, the
borrower is not eligible for a reamortization of a distressed loan(s) as
set out in this section. The borrower will be given an opportunity to
appeal the FmHA or its successor agency under Public Law 103-354 denial,
as provided in Sec. 1951.909(i) of this subpart after the County
Supervisor determines the borrower's eligibility for the other servicing
programs in this subpart.
(2) If a feasible plan cannot be developed on the present farm
operation, the County Supervisor will determine if a feasible plan would
be possible by deferring and reamortizing a portion of one or more
distressed FP loans as ST loans. The ST loan is limited to the loan
amount (rounded up to the nearest $1,000) sufficient to produce a
feasible plan. However, the amount of the loan cannot exceed the $1,000
per acre specified in paragraph I (C)(7) of this exhibit. The borrower,
with assistance from the County Supervisor, must be able to develop a
feasible farm plan for the first full crop year of the deferral.
(3) For applications received before November 28, 1990, when a loan
is reamortized the accrued interest less than 90 days overdue will not
be capitalized. For new applications, as defined in Sec. 1951.906 of
this subpart, the total amount of outstanding accrued interest will be
added to the principal at the time of reamortization. Payments may be
deferred for up to 45 years or until the timber crop produces revenue,
whichever comes first, except as required in paragraph VIII(B) of this
section. If income is available, payments will be required as determined
in paragraph II(B)(4) of this exhibit. Repayment of such a reamortized
loan shall be made not later than 46 years after the date of the
reamortization unless the borrower qualifies for a further
reamortization as authorized in section IX(H) of this exhibit.
(4) If assistance is granted, an annual plan will be developed each
year to determine if there is any balance available to pay interest and/
or principal on ST loans before the deferral period ends. If a balance
is available, the borrower will sign Form FmHA or its successor agency
under Public Law 103-354 440-9, ``Supplementary Payment Agreement.''
(5) Applicable requirements of subpart G of part 1940 of this
chapter must be met.
(C) If a borrower has requested an ST loan that has a portion of the
debt set-aside under this subpart, the set-aside will be cancelled at
the time the reamortization is granted. The borrower may retain the set-
aside on other loans. A borrower who requests a reamortization of a
distressed set-aside loan must agree in writing to the cancellation of
the set-aside. The written agreement must be placed in the borrower's
case file.
(D) If the total amount of the distressed FP loan(s) exceeds $1,000
per acre of the marginal land designated for softwood timber production,
the FP loan must be split. The split portion of the loan may not exceed
$1,000 per acre for the marginal land. A new mortgage will be required
to secure this portion of the loan unless the FmHA or its successor
agency under Public Law 103-354 State supplement allows otherwise. The
mortgage must ensure that FmHA or its successor agency under Public Law
103-354 has a security interest in the timber. The remaining balance of
such a split loan will be secured by the remaining portion of the farm
and such other security previously held as security prior to the split.
Separate promissory notes will be executed for each portion of the split
loan. The remaining portion of the note
[[Page 134]]
will be rescheduled, deferred, or reamortized, as applicable, in
accordance with this subpart. The ST loan will be deferred and
reamortized in accordance with this section. The ST loan(s) will be
secured by the marginal land including timber.
(E) The County Supervisor will release all other liens securing FmHA
or its successor agency under Public Law 103-354 loans including NP
loans on such marginal land when the ST loan is closed. Only ST loans
will be secured by such marginal land including timber. Releases will be
processed in accordance with subpart A of part 1965 of this chapter.
Such releases are authorized by this paragraph. If other lenders have
liens on this marginal land, the lenders must release their liens before
or simultaneously with FmHA or its successor agency under Public Law
103-354's release of liens. No additional liens can be placed on the
marginal land and timber after the closing of a ST loan.
III. Interest rate of ST loans.
See Exhibit B of FmHA or its successor agency under Public Law 103-
354 Instruction 440.1 for the applicable interest rate (available in any
FmHA or its successor agency under Public Law 103-354 office). The
interest rate will be the lower of (1) the rate of interest on the
original loan which has been deferred and reamortized as the ST loan or
(2) the Exhibit B rate.
IV. Special requirements.
(A) Size of the timber tract. The minimum parcels of marginal land
selected as a tract for softwood timber production must be contiguous
parcels of land containing at least 50 acres. Small scattered parcels
will be excluded.
(B) Farm or residence situated in different counties. If a farm is
situated in more than one State, county, or parish, the loan will be
processed and serviced in the State, county, or parish in which the
borrower's residence on the farm is located. However, if the residence
is not situated on the farm, the loan will be serviced by the county
office serving the county in which the farm or a major portion of the
farm is located unless otherwise approved by the State Director.
(C) Graduation of ST borrowers. If, at any time, it appears that the
borrower may be able to obtain a refinancing loan from cooperative or
private credit source at reasonable rates and terms, the borrower will,
upon FmHA or its successor agency under Public Law 103-354 request,
apply for and accept such financing.
V. Planning.
A farm plan will be completed as provided in subpart B of part 1924
of this chapter. The State Director will supplement this subpart with a
State supplement to guide the County Supervisor regarding the sources
available to obtain a Timber Management Plan. The required Timber
Management Plan developed with the assistance of the FS, State Forest
Service or such other State or Federal agencies or qualified private
forestry service should provide management recommendations to assist the
borrower in establishing, managing and harvesting softwood timber.
Borrowers are responsible for implementing the Timber Management Plan.
VI. Distressed reamortized loan approval or disapproval.
County Supervisors are authorized to approve or disapprove the
reamortization of distressed FmHA or its successor agency under Public
Law 103-354 loans as described in this section. No more than 50,000
acres nationwide can be placed in the program. Acres for the program
will be allocated to borrowers on a first-come, first-serve basis.
``Administrative Notices'' containing reporting requirements will be
issued to field offices so that the National Office can keep a tally of
the acres placed in the program. The County Supervisor will obtain a
verification from the State Director that the acres can be allocated to
the program prior to approval of the reamortization of the distressed FP
loan(s). Normally, the verification of allocated acres will be obtained
when the loan docket is complete and ready for approval. Loans for the
program will not be approved until a confirmation is received for the
allocation of acres for the loan(s). When a reamortization is approved,
the County Supervisor will notify the borrower by letter of the approval
of the ST loan(s). The FmHA or its successor agency under Public Law
103-354 field office will process the reamortization via the FmHA or its
successor agency under Public Law 103-354 field office terminal system
in accordance with Form FmHA or its successor agency under Public Law
103-354 1940-18.
VII. Reamortizing disapproval.
When a reamortization is disapproved, the County Supervisor will
notify the borrower in writing of the action taken and the reasons for
the action, and include any suggestions that could result in favorable
action. The borrower will be given written notice of the opportunity to
appeal as provided in Sec. 1951.909 (i) of this subpart after the
County Supervisor has determined whether the borrower is eligible for
the remaining servicing programs authorized by this subpart.
VIII. Processing of ST loans.
(A) If the reclassified ST loan is approved, all other FmHA or its
successor agency under Public Law 103-354 loans must be current on or
before the date the reclassified ST
[[Page 135]]
notes are signed except for FmHA or its successor agency under Public
Law 103-354-authorized recoverable cost items that cannot be rescheduled
or reamortized. All other delinquent loans including NP loans will be
rescheduled, reamortized, consolidated, deferred or paid current as
applicable to bring the borrower's account current.
(B) ST loans on the dwelling. If the only liens on the borrower's
dwelling are the reclassified ST loans, the borrower must make payments
on the loan(s):
(1) The total of which will be at least equal to the market value
rent for the dwelling as determined by the County Supervisor, or
(2) The minimum equally amortized installment for the term of the
loan, whichever is less. Such payments cannot be deferred and will be
shown in the promissory note as a regular scheduled payment for the
reclassified ST loan.
(C) Form FmHA or its successor agency under Public Law 103-354 1940-
18, ``Promissory Note for ST Loans,'' will be used for ST loans. Form
FmHA or its successor agency under Public Law 103-354 1940-17,
``Promissory Note,'' will be used for any remaining portion of a split
distressed loan. The forms will be completed, signed and distributed as
provided in the Forms Manual Inset.
(D) For applications for Primary and Preservation Loan Service
Programs received before November 28, 1990, interest payments which are
90 days or more past due will be added to the principal balance to form
a new principal balance upon which interest will accrue over the
Softwood Timber deferral period; interest less than 90 days past due
will not be capitalized and will be payable at the end of the Softwood
Timber deferral period. For new applications, as defined in Sec.
1951.906 of this subpart, the total amount of outstanding accrued
interest will be added to the principal balance to form a new principal
balance upon which interest will accrue over the Softwood Timber
deferral period. The FMI for Form FmHA or its successor agency under
Public Law 103-354 1940-17 has examples (IV, V) which explain this
procedure. The Finance Office will apply the payments made on the note
in accordance with subpart A of part 1951 of this chapter.
(E) The following addendum will be typed and signed by the borrower
and attached to the promissory note:
Addendum For Deferred Interest For Softwood Timber Loans
Addendum to promissory note dated -------- in the original amount of
$-------- at an annual interest rate of -------- percent. This agreement
amends and attaches to the above note. $-------- of each regular payment
on the note will be applied to the interest which will accrue during the
deferral period. The remainder of the regular payment will be applied in
accordance with 7 CFR part 1951, subpart A. I (we) agree to sign a
supplementary payment agreement and make additional payments if during
the deferral period we have a substantial increase in income and
repayment ability.
[fxsp0]_________________________________________________________________
Borrower
(F) New mortgages on farm property or related assets must be filed
unless otherwise excused from being filed by the State supplement. If a
new mortgage or separate security agreement is taken, the new mortgage
and/or security agreement should be filed and perfected in the manner
described by the State supplement. In many cases a survey of the land
securing the ST loan will be required.
(G) The borrower will obtain any required releases for previous
mortgages from other lienholders and the County Supervisor will release
any other FmHA or its successor agency under Public Law 103-354 liens in
accordance with paragraph II (E) of this exhibit.
IX. Servicing.
ST loans will be serviced in accordance with Subpart A of Part 1965
of this chapter with the following exceptions:
(A) ST loans will not be subordinated for any purpose.
(B) Security property for ST loans will not be leased except for
softwood timber production as authorized by the ST loan.
(C) During the life of the ST loan, land designated for softwood
timber production cannot be used for grazing or the production of other
agricultural commodities, as defined in Sec. 12.2(a)(1) of Subpart A of
Part 12 of this chapter and which is in Attachment 1 of Exihibit M of
subpart G of part 1940 of this chapter.
(D) ST loans will only be transferred as NP loans in accordance with
subpart A of part 1965 of this chapter except in the case of the death
of the borrower. Deceased borrower cases involving transfers will be
handled by FmHA or its successor agency under Public Law 103-354 in
accordance with Subpart A of Part 1962 of this chapter.
(E) Land designated for softwood timber production under this
subpart must remain in the production of softwood timber for the life of
the loan. If the trees die or are destroyed or the production of timber
ceases, as recognized by acceptable timber management practices, and the
borrower is unable to develop feasible plans for the reestablishing of
the timber production, the account will be liquidated in accordance with
the provisions of Subpart A of Part 1965 of this chapter. Any appeal to
FmHA or its successor agency under Public Law 103-354 must be concluded
before any adverse action can be taken on the loan.
(F) The Timber Management Plan will be updated and revised, as
needed, every five years or more often if necessary.
[[Page 136]]
(G) Harvesting softwood timber for Christmas trees is prohibited.
(H) An ST loan will only be reamortized if:
(1) The timber is not harvested in the year stated in the initial
promissory note, and
(2) The borrower is unable to pay the note as agreed.
Interest charges more than 90 days overdue will be capitalized at
the time of the reamortization. The term of the reamortized note will
not exceed 50 years from the date of the initial ST note. The total
years of deferred payments will not exceed 45 years, including the
payments deferred in the initial note. The note should be scheduled for
payment when the timber is expected to be harvested, or when income will
be available to pay on the note, whichever comes first. However, partial
payments must be scheduled for those years that exceed the deferral
period.
(3) For applications received before November 28, 1990, the interest
less than 90 days past due will not be capitalized. For new
applications, the total amount of outstanding accrued interest will be
capitalized. The term of the reamortized note will not exceed 50 years
from the date of the initial ST note. The total years of deferred
payments will not exceed 45 years, including the payments deferred in
the initial note. The note should be scheduled for payment when the
timber is expected to be harvested, or when income will be available to
pay on the note, whichever comes first. However, partial payments must
be scheduled for those years that exceed the deferral period.
S. State supplements.
State supplements will be issued immediately and updated as
necessary to implement this section.
Attachment 1--Notice of Availability of Option To Reamortize Certain
Loans Secured by Future Revenue Produced by Planting Softwood Timber
(Used by the County Supervisor to inform borrowers of the availability
of Softwood Timber Loans)
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
(Name and Address)
Dear ----------------------:
To implement a provision in the 1985 Farm Bill, the Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) is offering the
additional loan servicing option of reamortizing Farmer Program loans
with repayment secured by and postponed until the harvesting of a
Softwood timber crop. Eligible applicants may request or receive an
operating loan to cover the actual cost of the required planting. If you
are using marginal land for farming or pasture, and desire to use at
least 50 acres of this marginal land to plant and produce softwood
timber, contact this office within 15 days of the receipt of this letter
to apply for this option so that your request can be processed in a
timely manner. Please note the following limitations to this program:
FmHA or its successor agency under Public Law 103-354 must be the sole
lienholder of both the land growing the softwood timber and the revenues
from the timber; the total amount of loans secured by the land and
softwood timber cannot exceed $1,000 per acre; and the program is
limited to 50,000 acres of softwood timber nationwide.
Sincerely,
County Supervisor
[53 FR 35718, Sept. 14, 1988, as amended at 56 FR 3396, Jan. 30, 1991;
57 FR 18661, Apr. 30, 1992]
Exhibit H to Subpart S of Part 1951--Conservation Contract Program
I. General
A Conservation Contract (CC) may be exchanged, when requested by a
borrower (current or delinquent), for a cancellation of a portion of the
borrower's FSA indebtedness. The CC may be considered alone, or with
other Primary Loan Servicing Programs as set forth in 7 CFR 1951.909.
These contracts can be established for conservation, recreational, and
wildlife purposes on farm property that is wetland, wildlife habitat,
upland or highly erodible land. Such land must be suitable for the
purposes involved. All Farm Loan Programs loans which are secured by
real estate may be considered for a CC. Non-program loan debtors are not
eligible to receive any benefits under this section.
Definitions
(1) Conservation purposes. These include protecting or conserving
any of the following environmental resources or land uses:
(a) Wetland, except when such term is part of the term Converted
wetland, is land that the Natural Resources Conservation Service (NRCS)
has determined has a predominance of hydric soils and that is inundated
or saturated by surface or ground water at a frequency and duration
sufficient to support, and that under normal circumstances does support,
a prevalence of hydrophytic vegetation typically adapted for life in
saturated soil conditions, except that this term does not include lands
in Alaska identified as having a high potential for agricultural
development and a predominance of permafrost soils.
(i) Hydric soils means soils that, in an undrained condition, are
saturated, flooded, or ponded long enough during a growing season to
develop an anaerobic condition that
[[Page 137]]
supports the growth and regeneration of hydrophytic vegetation;
(ii) Hydrophytic vegetation means a plant growing in--
(A) Water; or
(B) A substrate that is at least periodically deficient in oxygen
during a growing season as a result of excessive water content;
(b) Highly erodible land is land that NRCS has determined has an
erodibility index of 8 or more.
(c) Upland is a term used in the law to refer to land other than
highly erodible land and wetland. Although upland in its normal use
implies many types of land, it has been more narrowly defined for this
purpose to include land or water areas that meet any one of the
following criteria:
(i) One-hundred year floodplain,
(ii) Aquatic life, or wildlife habitat or endangered plant habitat
of local, regional, State or Federal importance,
(iii) Aquifer recharge area of local, regional or State importance,
including lands in the wellhead protection program for public water
supplies authorized by the Safe Drinking Water Act Amendments of 1986,
(iv) Area of high water quality or scenic value,
(v) Area containing historic or cultural property, which is listed
in or eligible for the National Register of Historic Places, as provided
by the National Historic Preservation Act (NHPA),
(vi) Area that provides a buffer zone necessary for the adequate
protection of proposed conservation contract areas,
(vii) Area within or adjacent to a National Park, U.S. Fish and
Wildlife Service administered area, State Fish and Wildlife agency
administered area, a National Forest, a Bureau of Land Management
administered area, a Wilderness Area, a National Trail, a unit of the
Coastal Barrier Resource System, abandoned railroad corridors contained
in local, State or Federal open space, recreation or trail plans,
Federal or State Wild or Scenic River, U.S. Army Corps of Engineers land
designated for flood control or recreation purposes, State and local
recreation, natural or wildlife areas or State Conservation Agency
administered areas.
(viii) Area that NRCS determines contains soils that are generally
not suited for cultivation such as soils in land capability classes IV,
V, VI, VII or VIII in the NRCS's Land Capability Classification System.
(d) Wildlife habitat is a term used to include the area that
provides direct support for given wildlife species, species life stages,
populations, or communities determined appropriate by the Conservation
Agency within the State as being of State, regional or local importance
or as determined by the Fish and Wildlife Service to be of national
importance. This wildlife habitat area includes all acceptable
environmental features such as air quality, water quality, vegetation,
and soil characteristics.
(2) Management authority. Any agency of the United States, a State,
or a unit of local Government of a State, a person, or an individual
that is designated in writing by FSA to carry out all or a portion of
the activities necessary to manage and implement the terms and
conditions of a contract or its management plan. The borrower whose land
is subject to the contract may be eligible to be designated as a
management authority.
(3) Person. Any agency of the United States, a State, a unit of
local Government within a State, or a private or public nonprofit
organization.
(4) Recreational purposes. These activities include providing public
use for both consumption (e.g. hunting, fishing) and nonconsumption
(e.g. camping, hiking) recreational activities, in a manner that
conserves wildlife and their habitats, ensures public safety, complies
with applicable laws, regulations, and ordinances and permits the
operation of the remaining farm enterprise.
(5) Wildlife. Means any wild animal, whether alive or dead,
including any wild mammal, bird, reptile, amphibian, fish, mollusk,
crustacean, arthropod, coelenterate, or other invertebrate, whether or
not bred, hatched, or born in captivity, and includes any part, product,
egg, or offspring.
(6) Wildlife purposes. These program objectives include establishing
and managing areas that contain fish and wildlife habitats of local,
regional, State or Federal importance.
II. Eligibility
The following steps must be taken to determine if the borrower is
eligible for a conservation contract. If the borrower is found to be
ineligible, the FSA servicing official will notify the borrower of the
opportunity to appeal the adverse decision on the eligibility for the
contract after a final decision is made on whether the borrower
qualifies for any other servicing options. The servicing official must
find that:
(1) All Farm Loan Programs loans which are secured by real estate
may be considered for a CC. A real estate mortgage or deed of trust
taken on a borrower's real estate as additional security for a Farm Loan
Programs loan qualifies as real estate security.
(2) The proposed contract helps a qualified borrower to repay the
loan in a timely manner.
(3) If the land being proposed for the contract is within the FSA
Conservation Reserve Program, both the requirements of that program and
this section can be met.
[[Page 138]]
III. Establishing the Contract Review Team
The servicing official will establish a contract review team by
notifying the appropriate field offices of the Natural Resources
Conservation Service (NRCS), U.S. Fish and Wildlife Service (FWS), State
Fish and Wildlife Agencies, Conservation Districts, National Park
Service, Forest Service (FS), State Historic Preservation Officer, State
Conservation Agencies, State Environmental Protection Agency, State
Natural Resource Agencies, adjacent public landowner, and any other
entity that may have an interest and qualifies to be a management
authority for a contract. The notified parties may in turn notify other
eligible entities. NRCS, for example, may want to notify the appropriate
Conservation District. As part of the notification, the servicing
official will provide an approximate location and a general description
of the potentially affected land. All notified parties will be invited
to serve on the contract review team.
IV. Responsibilities of the Contract Review Team
NRCS will lead the contract review team which in every case will be
composed of an NRCS, FSA and FWS representative, plus all other parties
that accepted the invitation to participate. To the extent practicable,
a site visit will be conducted within fifteen days from the date the
review team members are invited to participate. Any lien holder and the
borrower will be informed of the site visit time and invited to attend.
Within thirty days after the site visit, a report will be developed by
the review team and provided to the servicing official. The report will
cover the items listed in paragraphs (A) through (F) of this paragraph
and will be prepared by the review team. The items to be addressed in
the review team report are:
(A) The amount of land, if any, which is wetland, wildlife habitat,
upland or highly erodible land and the approximate boundaries of each
type of land. If applicable, contract boundaries may be recommended
which go beyond the wetland, upland, or highly erodible land but are
necessary for either the establishment of identifiable contract
boundaries or are required for the efficient management of the
contract's terms and conditions.
(B) A finding of whether the land is suitable for conservation,
recreation or wildlife habitat purposes and a priority ranking of
purposes included, if the land can be so classified and ranked.
First, priority will be given to land contract opportunities to
benefit wildlife species of Federal Trust responsibility (e.g.,
migratory birds and endangered species) and their habitats (e.g.,
wetlands). Special consideration will be given to opportunities to
benefit a combination of conservation, recreation and wildlife habitat
purposes. When there are other land contracts already established or
under review within the local area and the intent of these contracts has
been established, the review team will consider these actions as purpose
rankings are developed.
(C) If appropriate, any special terms or conditions that would need
to be placed on the contract plus unique or important features of the
property which would not be adequately addressed by the standard
contract terms and conditions.
(D) A proposed management plan consistent with the purpose or
purposes for which the contract would be established. The management
plan will outline the various management alternatives for the proposed
contract. The selection of the alternatives to be followed will be based
upon future needs, fund availability, and identification within the
management plan. The management plan will provide guidance as to the
conservation practices to be followed and the costs which may occur in
the establishment and maintenance of the contract. This management plan
will specifically recommend whether or not public recreational use and
public hunting should be allowed on the contract and provide supporting
reasons for the recommendation made. Whenever changes are required in
the management plan, FSA, may update the management plan to reflect the
changes.
V. FSA's Review of Contract Team's Report
Upon receipt, the Servicing Official will review the contract team's
report. If the report indicates that a contract is not feasible given
the nature of the land, or other factors, the servicing official will
inform the borrower of the reasons that the contract has been denied and
that the borrower may appeal the denial of the contract or meet with the
servicing official.
VI. Terms of Contracts
Borrowers participating in the debt cancellation conservation
contract program will be given the option of selecting a 50, 30 or 10
year contract term. The amount of debt to be canceled will be directly
proportional to the length of the contract. The area placed under the
conservation contract cannot be used for the production of agricultural
commodities during the term of the contract.
VII. Determining the Amount of Farm Loan Programs (FLP) Debt That Can Be
Canceled
(A) Calculate the amount of debt to be canceled for a delinquent
borrower as follows:
(1) Step 1. Determine what percent the number of contract acres is
of the total acres of land that secures the borrower's FLP
[[Page 139]]
loans by dividing the contract acres that secure the borrower's FLP
loans by the total acres that secure the borrower's FLP loans.
Contract acres divided by Total Farm and Ranch Acres = Percent of
Contract Acres to Total Acres.
(2) Step 2. Determine the amount of FLP debt that is secured by the
contract acreage by multiplying the borrower's total unpaid FLP loan
balance (principal, interest and recoverable costs already paid by FSA)
by the percentage calculated in step 1. Total FLP Debt x Percent
Calculated in step 1 = --------
(3) Step 3. Determine the current value of the land in the contract
by multiplying the present market value of the farm that secures the
borrower's FLP loans by the percent calculated in step 1. PMV of Total
Farm x Percent Calculated in step 1 = --------
(4) Step 4. Subtract the current value of the contract acres in step
3 from the FLP debt that is secured by the contract acres in step 2.
Result from step 2-Result from step 3 = --------
(5) Step 5. Select the greater of the amounts calculated in step 3
and step 4.
(6) Step 6. Select the lessor of the amounts calculated in steps 2
and 5. This will be the maximum amount of debt that can be canceled for
a 50-year contract term.
(7) Step 7. For a 30-year contract term, the borrower will receive
60 percent of the amount calculated in step 6. Result from Step 6 x 60%
= --------
(8) Step 8. For a 10-year contract term, the borrower will receive
20 percent of the amount calculated in step 6. Result from Step 6 x 20%
= --------
(B) Calculate the amount of debt to be canceled for a current
borrower as follows:
(1) Step 1. Determine what percent the number of contract acres is
of the total acres of land that secures the borrower's FLP loans by
dividing the contract acres that secure the borrower's FLP loans by the
total acres that secure the borrower's FLP loans. Contract Acres divided
by Total Farm and Ranch Acres = --------%
(2) Step 2. Determine the amount of FLP debt that is secured by the
contract acreage by multiplying the borrower's total unpaid FLP loan
balance (principal, interest and recoverable costs already paid by FSA)
by the percentage calculated in step 1. Total FLP Debt x Percent
Calculated in step 1 = --------
(3) Step 3. Multiply the borrower's total unpaid FLP loan balance
(principal, interest and recoverable costs already paid by thirty-three
(33) percent. Total FLP Debt x 33% = --------
(4) Step 4. Select the lessor of the amounts calculated in steps 2
and 3. This is the maximum amount of debt that can be canceled for a
current borrower receiving a 50-year contract.
(5) Step 5. For a 30-year contact term, the borrower will receive 60
percent of the amount calculated in step 4. Amount calculated in step 4
x 60% = --------
(6) Step 6. For a 10-year contract term, the borrower will receive
20 percent of the amount calculated in step 4. Amount calculated in Step
4 X 20% = --------
(C) Feasibility of debt cancellation. The servicing official will
determine whether or not the borrower, if provided the amount of debt
cancellation allowed by paragraph (VII) coupled with other servicing
options will be able to develop a feasible plan for farm operations for
the current and coming year. In no instance will the total debt
cancellation exceed the maximum amount calculated in paragraphs (A) or
(B) above. If the borrower would not be able to develop a feasible plan,
the servicing official will notify the borrower of the reason that the
contract has been denied and that the borrower may appeal this adverse
decision after the servicing official has decided whether the borrower
qualifies for the additional servicing programs in this subpart.
(D) The boundaries of the contract area will be determined by the
most appropriate method including rectangular surveys, and aerial
photographs. A professional survey of the contract area will not be
required but can be used where needed.
(E) Reaching an agreement with the borrower. The borrower will be
informed of the contract's value, the impact on the remaining financial
obligation, and the terms and conditions of the contract. The borrower
also will be provided a copy of the contract review team's report. If
the borrower decides to enter into the contract, approval will be made
by the servicing official, and the borrower by signing Form FSA 1951-39.
(F) Recording of noncash credit. The total credit to the borrower's
account will not exceed the greater of the value of the land on which
the contract is acquired; or the difference between the amount of the
outstanding indebtedness secured by the real estate, and the value of
the real estate taking into consideration the term of the contract. In
the case of a non-delinquent borrower, the amount to be credited will
not exceed 33 percent of the amount of the loan secured by the real
estate on which the contract is obtained taking into consideration the
term of the contract. In all cases, the amount credited will be applied
on the FSA loan as an extra payment in order of lien priority on the
security. The loan may be reamortized if needed for both current and
delinquent borrowers.
(G) [Reserved]
(H) Contract Records. If State law allows, the CC will be recorded
in the real estate records.
VIII. Violation of Terms and Conditions
If the borrower violates any of the terms or conditions of the
contract, the violations
[[Page 140]]
will be handled in accordance with the provisions outlined in the
contract.
IX. Authorization Requests
When under the circumstances stated in the contract's terms and
conditions (Form FSA 1951-39), the grantor needs the Government's
written authorization to proceed with an action, a written request for
such authorization must be provided by the grantor to the servicing
official. In order to provide the requested written authorization, the
servicing official must determine that the request does not violate the
contract's terms and conditions and must receive the written concurrence
of the enforcement authority.
[62 FR 10147, Mar. 5, 1997]
Subpart T_Disaster Set-Aside Program
Source: 60 FR 46756, Sept. 8, 1995, unless otherwise noted.
Sec. 1951.951 Purpose.
This subpart sets forth the policies and procedures for the Disaster
Set-Aside (DSA) Program. The DSA program is available to Farm Loan
Program (FLP) borrowers, as defined in subpart S of this part, who
suffered losses as a result of a natural disaster. FLP loans that may be
serviced under this subpart include Farm Ownership (FO), Operating (OL),
Soil and Water (SW), Emergency (EM), Economic Emergency (EE), Special
Livestock (SL), Economic Opportunity (EO), Softwood Timber (ST),
Recreation (RL), and Rural Housing loans for farm service buildings
(RHF). Nonprogram (NP) farm type loans may be serviced under this
subpart for borrowers who also have FLP loans.
[60 FR 46756, Sept. 8, 1995, as amended at 64 FR 393, Jan. 5, 1999; 65
FR 31249, 31250, May 17, 2000; 68 FR 55303, Sept. 25, 2003]
Sec. 1951.952 General.
DSA is a program whereby borrowers who are current or less than 90
days past due on all FLP loans, may apply to move the scheduled annual
installment for each eligible FLP loan to the end of the loan term. The
intent of this program is to relieve some of the borrower's immediate
financial stress caused by a natural disaster. DSA will not be used to
circumvent the servicing available under subpart S of this part.
[68 FR 55303, Sept. 25, 2003]
Sec. 1951.953 Notification and request for DSA.
(a) [Reserved]
(b) Deadline to apply. Subject to Sec. 1951.954(a)(5), all FLP
borrowers liable for the debt must request DSA within 8 months from the
date the natural disaster was designated in accordance with 7 CFR part
1945, subpart A.
(c) Information needed for a complete application. (1) A written
request for DSA signed by all parties liable for the debt;
(2) Actual production, income, and expense records for the past five
years, including the production and marketing period in which the
natural disaster occurred; and
(3) Other information requested by the servicing official when
needed to make an eligibility determination.
[68 FR 55303, Sept. 25, 2003]
Sec. 1951.954 Eligibility and loan limitation requirements.
(a) Eligibility requirements. The following requirements must be met
to be eligible for DSA:
(1) The borrower must have:
(i) Operated a farm or ranch in a county designated a natural
disaster area or a contiguous county as provided in 7 CFR part 1945,
subpart A, and
(ii) Been a borrower and operated the farm or ranch at the time of
the disaster period.
(2) A borrower cannot have more than one installment set aside under
the DSA program on each loan. If all previously approved set-asides are
paid in full, or cancelled through restructuring under subpart S of this
part, the set-aside will no longer exist and the loan may again be
considered for DSA.
(3) The borrower must have acted in good faith as defined in Sec.
1951.906 of subpart S of this part and the borrowers inability to make
the upcoming scheduled FSA payments must be for reasons which are not
within the borrower's control.
(4) All nonmonetary defaults must have been resolved. This means
that even though the borrower has acted in
[[Page 141]]
good faith, the borrower may still be in default for reasons, such as,
but not limited to: no longer farming; prior lienholder foreclosure;
bankruptcy or under court jurisdiction; not properly maintaining chattel
and real estate security; not properly accounting for the sale of
security; or not carrying out any other agreement made with the Agency.
(5) The borrower must be current or less than 90 days past due on
all FLP loans at the time the application for DSA is complete. Borrowers
paying under a debt settlement adjustment agreement in accordance with
subpart B of part 1956 of this chapter are not eligible.
(6) The borrower must not be 165 or more days past due when Exhibit
A of Agency Instruction 1951-T (available in any FSA office) is
executed.
(7) As a direct result of the designated natural disaster, the
borrower does not have sufficient income available to pay all family
living and operating expenses, other creditors, and FSA. This
determination will be based on the borrower's actual production, income
and expense records for the disaster or affected year and any other
records required by the servicing official. Compensation received for
losses shall be considered as well as increased expenses incurred
because of the disaster.
(8) For the next business accounting year, the borrower must develop
a positive cash flow projection showing that the borrower will at least
be able to pay all operating expenses and taxes due during the year,
essential family living expenses and meet scheduled payments on all
debts, including FLP debts. The cash flow projection must be prepared in
accordance with 7 CFR 1924.56. The borrower will provide any
documentation required to support the cash flow projection.
(9) After the amount for each loan is set-aside, all FLP and NP farm
type loans of the borrower must be current.
(10) The borrower's FLP loans have not been accelerated.
(11) The borrower's FLP loans have not been restructured under
subpart S of this part since the natural disaster occurred.
(b) Loan limitation requirements. (1) The loan must have been
outstanding at the time of the natural disaster.
(2) The term remaining on the loan receiving DSA equals or exceeds 2
years from the due date of the installment being set-aside.
(3) The amount set-aside may not exceed the amount of the first or
second scheduled annual installment due after the disaster occurred.
(4) The amount set-aside may not exceed the amount the borrower was
unable to pay FSA due to the disaster. Borrowers are required to pay any
portion of an installment that they are able to pay.
(5) The amount set-aside will equal the unpaid balance remaining on
the installment at the time the borrower signs Exhibit A of Agency
Instruction 1951-T (available in any FSA office.) This amount will
include the unpaid interest and any principal that would be credited to
the account as if the installment were paid on the due date taking into
consideration any payments applied to principal and interest since the
due date. Recoverable cost items may not be set aside and the account
must be serviced in accordance with Sec. 1951.907(d).
[68 FR 55303, Sept. 25, 2003; 68 FR 69955, Dec. 16, 2003]
Sec. Sec. 1951.955-1951.956 [Reserved]
Sec. 1951.957 Eligibility determination and processing.
(a) Eligibility determination. (1) Within 30 days of a complete DSA
application, the Agency official will determine if the borrower meets
the requirements set forth in Sec. 1951.954. Approval shall be
contingent upon the borrower's continuing eligibility through the
signing of Exhibit A of Agency Instruction 1951-T (available in any FSA
office).
(2) The borrower has 45 days to sign Exhibit A of Agency Instruction
1951-T (available in any FSA office) for each loan installment set-aside
approved. Subject to Sec. 1951.954(a)(6), the Agency may provide for a
longer period of time under extenuating circumstances, such as where the
Agency's approval is contingent upon the borrower paying a
[[Page 142]]
portion of the FLP payments from proceeds that may not be immediately
available.
(b) Processing.(1) [Reserved]
(2) Interest will accrue on any principal amount set-aside at the
same rate charged the non-set-aside portion. Interest will not accrue on
the interest portion set-aside. Limited resource interest rate changes
will affect the principal set-aside.
(3) The amount set-aside, including interest accrual on any
principal set-aside, will be due on or before the final due date of the
loan.
(4) If the borrower is not current on all FLP loans when Exhibit A
of Agency Instruction 1951-T (available in any FSA office) is executed,
the borrower, and all obligors in the case of an entity, must execute
and provide to the Agency a best lien obtainable on all of their assets
except:
(i) When taking a lien on such property will prevent the borrower
from obtaining credit from other sources;
(ii) When the property could have significant environmental problems
or costs;
(iii) When the Agency cannot obtain a valid lien;
(iv) When the property is the borrower's personal residence and
appurtenances; provided:
(A) They are located on a separate parcel; and
(B) The real estate that serves as collateral for the Agency loan
plus crops and chattels are valued at greater than or equal to 150
percent of the unpaid balance due on the loan.; or
(v) When the property is subsistence livestock, cash, special
collateral accounts the borrower uses for the farming operation or for
necessary living expenses, retirement accounts, personal vehicles
necessary for family living or farm operating purposes, household goods
and small tools and small equipment such as hand tools and lawn mowers,
and other similar items.
(5)-(6) [Reserved]
(7) Payments applied to the amount set-aside will be applied first
to interest and then to principal. If more than one installment is set-
aside on the loan, payments will be applied to the oldest installment
set-aside until paid in full, before applying payments to the second
installment set-aside.
(c) Adverse determination. If the borrower becomes more than one
installment behind on any FLP loan while processing the DSA request, or
while an appeal is being considered, and the second installment cannot
be paid current prior to exhibit A of FmHA Instruction 1951-T (available
in any FSA office) being signed, the DSA request will be denied.
[60 FR 46756, Sept.8, 1995, as amended at 62 FR 41253, Aug. 1, 1997; 65
FR 31250, May 17, 2000; 68 FR 55303, Sept. 25, 2003]
Sec. 1951.958 Cancellation and reversal of DSA.
(a) Reasons for cancellation. The set-aside may be reversed and
exhibit A of FmHA Instruction 1951-T cancelled under the following
described situations:
(1) The loan is later restructured with primary loan servicing, (the
total unpaid balance must be restructured);
(2) If prior to the first scheduled installment due date after set-
aside, the servicing official determines that the current borrower, if
delinquent, would qualify for a writedown or buyout in accordance with
subpart S of this part; or
(3) When it has been determined that the borrower was provided
unauthorized DSA assistance. (The set-aside will be cancelled after all
appeal rights are exhausted. The set-aside will be removed from the
account and the payment terms of the original promissory note will be
retained as if DSA was never granted. Borrowers financially distressed
or delinquent after reversal of the set-aside will be serviced in
accordance with subpart S of this part).
(b) [Reserved]
[60 FR 46756, Sept. 8, 1995, as amended at 62 FR 10157, Mar. 5, 1997]
Sec. 1951.959 Exception authority.
The Administrator may, in individual cases, make an exception to any
requirement or provision of this subpart which is not inconsistent with
the authorizing statute or other applicable law if it is determined that
application of the requirement or provision would adversely affect the
Government's interest. The Administrator will exercise
[[Page 143]]
this authority upon the request of the State Director with the
recommendation of the Deputy Administrator for Farm Credit Programs, or
upon request initiated by the Deputy Administrator for Farm Credit
Programs.
Sec. Sec. 1951.960-1951.1000 [Reserved]
PART 1955_PROPERTY MANAGEMENT--Table of Contents
Subpart A_Liquidation of Loans Secured by Real Estate and Acquisition of
Real and Chattel Property
Sec.
1955.1 Purpose.
1955.2 Policy.
1955.3 Definitions.
1955.4 Redelegation of authority.
1955.5 General actions.
1955.6-1955.8 [Reserved]
1955.9 Requirements for voluntary conveyance of real property located
within a federally recognized Indian reservation owned by a
Native American borrower-owner.
1955.10 Voluntary conveyance of real property by the borrower to the
Government.
1955.11 Conveyance of property to FmHA or its successor agency under
Public Law 103-354 by trustee in bankruptcy.
1955.12 Acquisition of property which served as security for a loan
guaranteed by FmHA or its successor agency under Public Law
103-354 or at sale by another lienholder, bankruptcy trustee,
or taxing authority.
1955.13 Acquisition of property by exercise of Government redemption
rights.
1955.14 [Reserved]
1955.15 Foreclosure by the Government of loans secured by real estate.
1955.16-1955.17 [Reserved]
1955.18 Actions required after acquisition of property.
1955.19 [Reserved]
1955.20 Acquisition of chattel property.
1955.21 Exception authority.
1955.22 State supplements.
1955.23-1955.49 [Reserved]
1955.50 OMB control number.
Exhibits A-F to Subpart A [Reserved]
Subpart B_Management of Property
1955.51 Purpose.
1955.52 Policy.
1955.53 Definitions.
1955.54 Redelegation of authority.
1955.55 Taking abandoned real or chattel property into custody and
related actions.
1955.56 Real property located in Coastal Barrier Resources System
(CBRS).
1955.57 Real property containing underground storage tanks.
1955.58-1955.59 [Reserved]
1955.60 Inventory property subject to redemption by the borrower.
1955.61 Eviction of persons occupying inventory real property or
dispossession of persons in possession of chattel property.
1955.62 Removal and disposition of nonsecurity personal property from
inventory real property.
1955.63 Suitability determination.
1955.64 [Reserved]
1955.65 Management of inventory and/or custodial real property.
1955.66 Lease of real property.
1955.67-1955.71 [Reserved]
1955.72 Utilization of inventory housing by Federal Emergency Management
Agency (FEMA) or under a Memorandum of Understanding between
the Agency and the Department of Health and Human Services
(HHS) for transitional housing for the homeless.
1955.73-1955.80 [Reserved]
1955.81 Exception authority.
1955.82 State supplements.
1955.83-1955.99 [Reserved]
1955.100 OMB control number.
Exhibit A to Subpart B--Memorandum of Understanding Between the Federal
Emergency Management Agency and the Farmers Home
Administration or Its Successor Agency Under Public Law 103-
354 [Note]
Exhibit B to Subpart B--Notification of Tribe of Availablity of Farm
Property for Purchase
Exhibit C to Subpart B--Cooperative Agreement (Example) [Note]
Exhibit D to Subpart B--Fact Sheet--The Federal Interagency Task Force
on Food and Shelter for the Homeless [Note]
Subpart C_Disposal of Inventory Property
Introduction
1955.101 Purpose.
1955.102 Policy.
1955.103 Definitions.
1955.104 Authorities and responsibilities.
Consolidated Farm and Rural Development Act (CONACT) Real Property
1955.105 Real property affected (CONACT).
1955.106 Disposition of farm property.
1955.107 Sale of FSA property (CONACT).
1955.108 Sale of (CONACT) property other than FSA property.
1955.109 Processing and closing (CONACT).
Rural Housing (RH) Real Property
1955.110 [Reserved]
[[Page 144]]
1955.111 Sale of real estate for RH purposes (housing).
1955.112 Method of sale (housing).
1955.113 Price (housing).
1955.114 Sales steps for program property (housing).
1955.115 Sales steps for nonprogram (NP) property (housing).
1955.116 Requirements for sale of property not meeting decent, safe and
sanitary (DSS) standards (housing).
1955.117 Processing credit sales on program terms (housing).
1955.118 Processing cash sales or MFH credit sales on NP terms.
1955.119 Sale of SFH inventory property to a public body or nonprofit
organization.
1955.120 Payment of points (housing).
Chattel Property
1955.121 Sale of acquired chattels (chattel).
1955.122 Method of sale (chattel).
1955.123 Sale procedures (chattel).
1955.124 Sale with inventory real estate (chattel).
1955.125-1955.126 [Reserved]
Use of Contractors To Dispose of Inventory Property
1955.127 Selection and use of contractors to dispose of inventory
property.
1955.128 Appraisers.
1955.129 Business brokers.
1955.130 Real estate brokers.
1955.131 Auctioneers.
General
1955.132 Pilot projects.
1955.133 Nondiscrimination.
1955.134 Loss, damage, or existing defects in inventory real property.
1955.135 Taxes on inventory real property.
1955.136 Environmental Assessment (EA) and Environmental Impact
Statement (EIS).
1955.137 Real property located in special areas or having special
characteristics.
1955.138 Property subject to redemption rights.
1955.139 Disposition of real property rights and title to real property.
1955.140 Sale in parcels.
1955.141 Transferring title.
1955.142-1955.143 [Reserved]
1955.144 Disposal of NP or surplus property to, through, or acquisition
from other agencies.
1955.145 Land acquisition to effect sale.
1955.146 Advertising.
1955.147 Sealed bid sales.
1955.148 Auction sales.
1955.149 Exception authority.
1955.150 State supplements.
Exhibit A to Subpart C--Notice of Flood, Mudslide Hazard, or Wetland
Area
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; 42 U.S.C. 1480.
Source: 50 FR 23904, June 7, 1985, unless otherwise noted.
Subpart A_Liquidation of Loans Secured by Real Estate and Acquisition of
Real and Chattel Property
Sec. 1955.1 Purpose.
This subpart delegates authority and prescribes procedures for the
liquidation of loans to individuals and to organizations as identified
in Sec. 1955.3. It pertains to the Farm Credit programs of the Farm
Service Agency (FSA), Water and Waste programs of the Rural Utilities
Service (RUS), Multi-Family Housing (MFH) and Community Facility (CF)
programs of the Rural Housing Service (RHS), and direct programs of the
Rural Business-Cooperative Service (RBS). Guaranteed RBS loans are
liquidated upon direction from the Deputy Administrator, Business
Program, RBS. This subpart does not apply to RHS single family housing
loans, or to CF loans sold without insurance in the private sector.
These CF loans will be serviced in the private sector and future
revisions to this subpart no longer apply to such loans. This subpart
does not apply to the Rural Rental Housing, Rural Cooperative Housing,
or Farm Labor Housing programs of RHS.
[61 FR 59778, Nov. 22, 1996, as amended at 69 FR 69105, Nov. 26, 2004]
Sec. 1955.2 Policy.
When it has been determined in accordance with applicable loan
servicing regulations that further servicing will not achieve loan
objectives and that voluntary sale of the property by the borrower
(except for Multiple Family Housing (MFH) loans subject to prepayment
restrictions) cannot be accomplished, the loan(s) will be liquidated
through voluntary conveyance of the property to FmHA or its successor
agency under Public Law 103-354 or by foreclosure as outlined in this
subpart. For MFH loans subject to the prepayment restrictions, voluntary
liquidation may be accomplished only through voluntary conveyance to
FmHA or its successor agency under
[[Page 145]]
Public Law 103-354 in accordance with applicable portions of Sec.
1955.10 of this subpart. Nonprogram (NP) loans, except for Community and
Business Programs, will be liquidated as provided in subpart J of part
1951 of this chapter, unless specifically referenced in this subpart.
[51 FR 4138, Feb. 3, 1986, as amended at 53 FR 27826, July 25, 1988; 58
FR 52652, Oct. 12, 1993]
Sec. 1955.3 Definitions.
As used in this subpart, the following definitions apply:
Closing agent. An attorney or title insurance company which is
approved as a loan closing agent in accordance with subpart B of part
1927 of this chapter.
CONACT or CONACT property. Property acquired or sold pursuant to the
Consolidated Farm and Rural Development Act. Within this subpart, it
shall also be construed to cover property which secured loans made
pursuant to the Agriculture Credit Act of 1978; the Emergency
Agricultural Credit Adjustment Act of 1978; the Emergency Agricultural
Credit Act of 1984; the Food Security Act of 1985; and other statutes
giving agricultural lending authority to FmHA or its successor agency
under Public Law 103-354.
Farmer Programs loans. The term ``Farmer Program loans'' (FP) refers
to the following types of loans: Farm Ownership (FO), Soil and Water
(SW), Recreation (RL), Economic Opportunity (EO), Operating (OL),
Emergency (EM), Economic Emergency (EE), Softwood Timber (ST), and Rural
Housing Loans for farm service buildings (RHF).
Government. The United States of America acting through the Farmers
Home Administration or its successor agency under Public Law 103-354
(FmHA or its successor agency under Public Law 103-354), U.S. Department
of Agriculture; used interchangeably herein with ``FmHA or its successor
agency under Public Law 103-354.''
Homestead protection. The Farmer Programs borrower-owner's right to
lease with an option to purchase the principal residence located on or
off the farm and up to 10 acres of adjoining land possessed and occupied
by the borrower-owner, including a reasonable number of farm
outbuildings located on the adjoining land that are useful to the
occupants of the homestead.
Interest credit. The terms ``interest credit'' and ``interest credit
assistance,'' as they relate to Single Family Housing (SFH) loans, are
interchangeable with the term ``payment assistance.'' Payment assistance
is the generic term for the subsidy provided to eligible SFH borrowers
to reduce mortgage payments.
Loans to individuals. Farm Ownership (FO), Soil and Water (SW),
Recreation (RL), Special Livestock (SL), Economic Opportunity (EO),
Operating (OL), Emergency (EM), Economic Emergency (EE), Softwood Timber
(ST), and Rural Housing loans for farm service buildings (RHF), whether
to individuals or entities, referred to in this subpart as Farmer
Programs (FP) loans; and Land Conservation and Development (LCD); and
Single-Family Housing (SFH), including both Section 502 and 504 loans.
Loans to Native Americans. Farmer Program loans secured by real
estate located within the boundaries of a federally recognized Indian
reservation. The Native American borrower-owner is defined as the party
who pledged real estate as collateral for an FP loan and is the tribe or
a member of the tribe with control over the reservation.
Loans to organizations. Community Facility (CF); Water and Waste
Disposal (WWD); Association Recreation; Watershed (WS); Resource
Conservation and Development (RC&D); insured Business and Industrial
(B&I) both to individuals and groups; Rural Development Loan Fund
(RDLF); Intermediary Relending Program (IRP); Nonprofit National
Corporations (NNC); loans to associations for Irrigation and Drainage
(I&D) and other Soil and Water conservation measures; loans to Indian
Tribes and Tribal Corporations; Shift-In-Land Use (Grazing Association);
Economic Opportunity Cooperative (EOC); Rural Housing Site (RHS); Rural
Cooperative Housing (RCH); Rural Rental Housing (RRH) and Labor Housing
(LH) to both individuals and groups. The housing-type organization loans
identified here are referred to in this subpart collectively as
Multiple-family Housing (MFH) loans.
[[Page 146]]
Market value. The most probable price which property should bring,
as of a specific date, in a competitive and open market, assuming the
buyer and seller are prudent and knowledgeable, and the price is not
affected by undue stimulus such as forced sale or loan interest subsidy.
Nonrecoverable cost is a contractual or noncontractual program loan
cost expense not chargeable to a borrower, property account, or part of
the loan subsidy.
OGC. The Office of the General Counsel, U.S. Department of
Agriculture; refers to the Regional Attorney or Attorney-in-Charge in an
OGC field office unless otherwise indicated.
Prior lien. A security instrument (such as a mortgage or deed of
trust) or a judgment which was of public record before the FmHA or its
successor agency under Public Law 103-354 security instrument(s) as well
as real estate taxes or assessments which are or will become a lien
against the property which is superior to FmHA or its successor agency
under Public Law 103-354's security instrument(s).
Recoverable cost is a contractual or noncontractual program loan
cost expense chargeable to a borrower, property account, or part of the
loan subsidy.
Servicing official. For loans to individuals as defined in paragraph
(d) of this section, the servicing official is the County Supervisor.
For insured B&I loans, the servicing official is the State Director. For
RDLF and IRP, the servicing official is the Director, Business and
Industry Division. For NNC, the servicing official is the Director,
Community Facility Division. For all other types of loans, the servicing
official is the District Director.
[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 52
FR 26138, July 13, 1987; 53 FR 27826, July 25, 1988; 53 FR 30664, Aug.
15, 1988; 53 FR 35762, Sept. 14, 1988; 56 FR 15821, Apr. 18, 1991; 56 FR
29402, June 27, 1991; 56 FR 67484, Dec. 31, 1991; 58 FR 68723, Dec. 29,
1993; 60 FR 55147, Oct. 27, 1995; 62 FR 44395, Aug. 21, 1997; 63 FR
41716, Aug. 5, 1998]
Sec. 1955.4 Redelegation of authority.
Authorities will be redelegated to the extent possible, consistent
with program requirements and available resources.
(a) Except as provided in Sec. 1900.6(c) of this chapter, any
authority in this subpart which is specifically delegated to the
Administrator or to an Deputy Administrator may only be delegated to a
State Director. The State Director cannot redelegate such authority.
(b) Except as provided in paragraph (a) of this section, the State
Director is authorized to redelegate, in writing, any authority
delegated to the State Director in this subpart to a Program Chief,
Program Specialist or Property Management Specialist on the State Office
staff; except the authority to approve or disapprove foreclosure as
outlined in Sec. 1955.115(a)(2) of this subpart may not be redelegated.
However, a duly-designated Acting State Director may approve or
disapprove foreclosure.
(c) The District Director is authorized to redelegate, in writing,
any authority delegated to the District Director in this subpart to an
Assistant District Director or District Loan Specialist determined by
the District Director to be qualified; except the authority to approve
or disapprove foreclosure as outlined in Sec. 1955.15(a)(1) of this
subpart may not be redelegated. However, a duly designated Acting
District Director may approve or disapprove foreclosure. Authority of
District Directors in this subpart applies to Area Loan Specialists in
Alaska and the Director for the Western Pacific Territories.
(d) The County Supervisor is authorized to redelegate, in writing,
any authority delegated to the County Supervisor in this subpart to an
Assistant County Supervisor, GS-7, or above, determined by the County
Supervisor to be qualified. Authority of County Supervisors in this
subpart applies to Area Loan Specialists in Alaska and Area Supervisors
in the Western Pacific Territories and American Samoa.
(e) The monetary limitations on acceptance of voluntary conveyance
as provided in Sec. 1955.10(a) of this subpart may not be redelegated
from a higher-level official to a lower level official.
[53 FR 27826, July 25, 1988, as amended at 54 FR 6875, Feb. 15, 1989; 59
FR 43441, Aug. 24, 1994; 62 FR 44395, Aug. 21, 1997]
[[Page 147]]
Sec. 1955.5 General actions.
(a) Assignment of notes to FmHA or its successor agency under Public
Law 103-354. When liquidation action is approved and the insured note is
not held in the County or District Office, the approval official will
request the Finance Office to purchase the note and forward it to the
appropriate office. Voluntary conveyance may be closed pending receipt
of the note(s), and foreclosure may also be processed pending receipt of
the note(s), unless the original note is required in connection with the
foreclosure action.
(b) Execution of documents. (1) After liquidation of loans to
individuals has been approved by the appropriate official, the County
Supervisor is authorized to execute all necessary forms and documents
except notices of acceleration required to complete transactions covered
by this subpart.
(2) After liquidation of loans to organizations has been approved by
the appropriate official, the District Director is authorized to execute
all forms and documents for completion of the liquidation except:
(i) Notice of acceleration; or
(ii) Other form or document which specifically required State or
National Office approval because of monetary limits or policy statement
established elsewhere in this subpart.
(c) Unused loan funds. (1) Funds remaining in a supervised bank
account will be handed in accordance with Sec. 1902.15 of subpart A of
part 1902 of this chapter before a voluntary conveyance or foreclosure
is processed.
(2) Funds remaining in a construction or other account will be
applied to the borrower's FmHA or its successor agency under Public Law
103-354 accounts.
(d) Payment of costs. Costs related to liquidation of a loan or
acquisition of property will be paid according to FmHA or its successor
agency under Public Law 103-354 Instruction 2024-A (available in any
FmHA or its successor agency under Public Law 103-354 office) as either
a recoverable or nonrecoverable cost as defined in Sec. 1955.3 of this
subpart.
(e) Escrow funds. Any funds remaining in the borrower's escrow
account at the time of liquidation by voluntary conveyance or
foreclosure are nonrefundable and will be credited to the borrower's
loan account.
[50 FR 23904, June 7, 1985, as amended at 56 FR 6953, Feb. 21, 1991, 57
FR 36590, Aug. 14, 1992]
Sec. Sec. 1955.6-1955.8 [Reserved]
Sec. 1955.9 Requirements for voluntary conveyance of real property located
within a federally recognized Indian reservation owned by a Native American
borrower-owner.
(a) The borrower-owner is a member of the tribe that has
jurisdiction over the reservation in which the real property is located.
An Indian tribe may also meet the borrower-owner criterion if it is
indebted for Farm Credit Programs loans.
(b) A voluntary conveyance will be accepted only after all
preacquisition primary and preservation servicing actions have been
considered in accordance with subpart S of part 1951 of this chapter.
(c) When all servicing actions have been considered under subpart S
of part 1951 of this chapter and a positive outcome cannot be achieved,
the following additional actions are to be taken:
(1) The county official will notify the Native American borrower-
owner and the tribe by certified mail, return receipt requested, and by
regular mail if the certified mail is not received, that:
(i) The borrower-owner may convey the real estate security to FSA
and FSA will consider acceptance of the property into inventory in
accordance with paragraph (d) of this section.
(ii) The borrower-owner must inform FSA within 60 days from receipt
of this notice of the borrower and owner's decision to deed the property
to FSA;
(iii) The borrower-owner has the opportunity to consult with the
Indian tribe that has jurisdiction over the reservation in which the
real property is located, or counsel, to determine if State or tribal
law provides rights and protections that are more beneficial than those
provided the borrower-owner under Agency regulations;
(2) If the borrower-owner does not voluntarily deed the property to
FSA,
[[Page 148]]
not later than 30 days before the foreclosure sale, FSA will provide the
Native American borrower-owner with the following options:
(i) The Native American borrower-owner may require FSA to assign the
loan and security instruments to the Secretary of the Interior. If the
Secretary of the Interior agrees to such an assignment, FSA will be
released from all further responsibility for collection of any amounts
with regard to the loans secured by the real property.
(ii) The Native American borrower-owner may require FSA to complete
a transfer and assumption of the loan to the tribe having jurisdiction
over the reservation in which the real property is located if the tribe
agrees to the assumption. If the tribe assumes the loans, the following
actions shall occur:
(A) FSA shall not foreclose the loan because of any default that
occurred before the date of the assumption.
(B) The assumed loan shall be for the lesser of the outstanding
principal and interest of the loan or the fair market value of the
property as determined by an appraisal.
(C) The assumed loan shall be treated as though it is a regular
Indian Land Acquisition Loan made in accordance with subpart N of part
1823 of this chapter.
(3) If a Native American borrower-owner does not voluntarily convey
the real property to FSA, not less than 30 days before a foreclosure
sale of the property, FSA will provide written notice to the Indian
tribe that has jurisdiction over the reservation in which the real
property is located of the following:
(i) The sale;
(ii) The fair market value of the property; and
(iii) The ability of the Native American borrower-owner to require
the assignment of the loan and security instruments either to the
Secretary of the Interior or the tribe (and the consequences of either
action) as provided in Sec. 1955.9(c)(2).
(4) FSA will accept the offer of voluntary conveyance of the
property unless a hazardous substance, as defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, is
located on the property which will require FSA to take remedial action
to protect human health or the environment if the property is taken into
inventory. In this case, a voluntary conveyance will be accepted only if
FSA determines that it is in the best interests of the Government to
acquire title to the property.
(d) When determining whether to accept a voluntary conveyance of a
Native American borrower-owner's real property, the county official must
consider:
(1) The cost of cleaning or mitigating the effects if a hazardous
substance is found on the property. A deduction equal to the amount of
the cost of a hazardous waste clean-up will be made to the fair market
value of the property to determine if it is in the best interest of the
Government to accept title to the property. FSA will accept the property
if clear title can be obtained and if the value of the property after
removal of hazardous substances exceeds the cost of hazardous waste
clean-up.
(2) If the property is located within the boundaries of a federally
recognized Indian reservation, and is owned by a member of the tribe
with jurisdiction over the reservation, FSA will credit the Native
American borrower-owner's account based on the fair market value of the
property or the FSA debt against the property, whichever is greater.
[62 FR 44395, Aug. 21, 1997]
Sec. 1955.10 Voluntary conveyance of real property by the borrower to the Government.
Voluntary conveyance is a method of liquidation by which title to
security is transferred to the Government. FmHA or its successor agency
under Public Law 103-354 will not make a demand on a borrower to
voluntarily convey. If there is equity in the property. FmHA or its
successor agency under Public Law 103-354 should advise the borrower, in
writing, that there is equity in the property before accepting an offer
to voluntarily convey. If FmHA or its successor agency under Public Law
103-354 receives an offer of voluntary conveyance, acceptance should
only be considered when the Government will likely
[[Page 149]]
receive a recovery on its investment. In cases where there are
outstanding liens, a full assessment should be made of the debts against
the property compared to the current market value. FmHA or its successor
agency under Public Law 103-354 should refuse the voluntary conveyance,
if the FmHA or its successor agency under Public Law 103-354 lien has
neither present nor prospective value or recovery of the value would be
unlikely or uneconomical. Instead, for loans to individuals, FmHA or its
successor agency under Public Law 103-354 should release its lien as
valueless in accordance with Sec. 1965.25(d) of subpart A of part 1965
of this chapter or Sec. 1965.118(c) of subpart C of this chapter, as
appropriate. For non-FP borrowers, a voluntary conveyance should only be
considered after all available servicing actions outlined in the
respective servicing regulations have been used or considered and it is
determined that the borrower will not be successful. For FP borrowers,
if the borrower has not received exhibit A with attachments 1 and 2 of
subpart S of part 1951 of this chapter, a voluntary conveyance should be
accepted only after the borrower has been sent exhibit A with
attachments 1 and 2 of subpart S of 1951 of this chapter; all available
servicing actions outlined in the respective program servicing
regulations have been used or considered; and it will be in the
Government's best financial interest to accept the FP voluntary
conveyance. Exhibit G of this subpart will be used to determine whether
or not to accept an FP voluntary conveyance. In determining if the
acceptance of the FP voluntary conveyance is in the best financial
interest of the Government, the County Supervisor will determine if the
borrower has exhausted all possibilities of restructuring the loan to
where a feasible plan of operation may be developed, the borrower has
acted in good faith in trying to service the debt and FmHA or its
successor agency under Public Law 103-354 may recover its investment in
return for the acceptance of the voluntary conveyance. In addition,
prior to acceptance of a voluntary conveyance of farm real property that
collateralizes an FP loan, the County Supervisor will remind the
borrower-owner of possible deed restrictions and easement that may be
placed on the property in the event the property contains wetlands,
floodplains, historical sites and/or other federally protected
environmental resources as set forth in exhibit M of subpart G of part
1940 of this chapter and Sec. 1955.137 of subpart C of part 1955 of
this chapter. When it is determined that all conditions of Sec.
1951.558(b) of subpart L of part 1951 of this chapter have been met,
loans for unauthorized assistance will be treated as authorized loans
and exhibit A with attachments 1 and 2 of subpart S of part 1951 of this
chapter will be sent prior to accepting a voluntary conveyance. Those
borrowers who are indebted for nonprogram (NP) loans who wish to
voluntarily convey property will not be sent exhibit A with attachments
1 and 2 of subpart S of part 1951 of this chapter. For Farmer Program
borrowers who have received exhibit A with attachments 1 and 2 of
subpart S of part 1951 of this chapter, a voluntary conveyance should
only be accepted when it is determined to be in the Government's best
financial interest. Rejection of an offer of voluntary conveyance made
before or after acceleration from an FP borrower is appealable. For
borrowers having both FP and non-FP loans secured by a farm tract, a
voluntary conveyance should be handled as outlined above for non-FP
loans secured by farm tracts, except that the applicable servicing
option for the FP and non-FP loans should be considered separately. This
separation of servicing options may permit a borrower to retain the
nonfarm tract. For newly constructed SFH properties with major
construction defects, see subpart F of part 1924 of this chapter.
(a) Authority--(1) Loans to individuals--(i) SFH loans. The County
Supervisor is authorized to accept voluntary conveyances regardless of
amount of indebtedness.
(ii) [Reserved]
(2) Loans to organizations. (i) The State Director is authorized to
approve voluntary conveyance of property securing Farmer Programs and
EOC loans regardless of amount of indebtedness.
(ii) The State Director is authorized to approve voluntary
conveyance of
[[Page 150]]
property securing MFH loans if the total indebtedness against the
property, including prior and junior liens, does not exceed his/her
approval authority for the type loan involved. Loan approval authorities
are outlined in exhibits A through E of FmHA or its successor agency
under Public Law 103-354 Instruction 1901-A (available in any FmHA or
its successor agency under Public Law 103-354 office).
(iii) Offers to convey property securing loans other than those
outlined in paragraphs (a)(2)(i) and (ii) of this section will be
submitted to the Administrator for approval prior to acceptance of the
conveyance offer. Submissions will include the case file; OGC's opinion
on settling any other liens involved; a statement of essential facts;
and recommendations of the State Director and Program Chief. Submissions
are to be addressed to the Administrator, ATTN: (appropriate program
division.)
(b) Forms and documents. All forms and documents in connection with
voluntary conveyance will be prepared and distributed in accordance with
the respective FMI or applicable OGC instructions. For loans to
individuals when the County Supervisor has approval authority, the facts
will be documented in the running record of the borrower's case file.
For all other loans, the servicing official will submit the voluntary
conveyance offer, the case file and a narrative report to the
appropriate approval official.
(c) Liens against the property other than FmHA or its successor
agency under Public Law 103-354 liens--(1) Prior liens. (i) The approval
official will determine whether or not prior liens will be paid.
Normally, the Government will pay prior liens in full prior to
acquisition if:
(A) A substantial recovery on the Government's investment plus the
amount of the prior lien(s) can be obtained; and
(B) The holder of the prior lien(s) objects to the Government
accepting voluntary conveyance subject to the prior lien(s), if consent
of the prior lienholder(s) is required.
(ii) If property is acquired subject to prior lien(s), payment of
installments on the lien(s) may be made while title to the property is
held by the Government in accordance with Sec. 1955.67 of subpart B of
part 1955 of this chapter.
(2) Junior liens. The borrower must satisfy junior liens on the
property (except FmHA or its successor agency under Public Law 103-354
liens) and pay real estate taxes or assessments which are or will become
a lien on the property. However, if the borrower is unable or unwilling
to do so, settlement of the liens may be made by FmHA or its successor
agency under Public Law 103-354 if settlement would be in the best
interest of the Government, considering all factors such as length of
time required to foreclose, vandalism or other deterioration of the
property which might occur, and effect on management of a MFH project
and its tenants. An FmHA or its successor agency under Public Law 103-
354 official will contact junior lienholders, negotiate the most
favorable settlement possible, and determine whether it is in the
Government's best interest to settle the junior liens and accept the
voluntary coveyance.
(i) For loans to individuals, the approval official is authorized to
settle junior liens in the smallest amount possible, but not to exceed
an aggregate amount of $1,000 in each SFH case or $5,000 for other type
loans. For junior liens in greater amounts when the approval official is
the County Supervisor or District Director, prior authorization must be
obtained from the State Director.
(ii) For loans to organizations, the State Director will determine
whether or not junior liens will be settled and voluntary conveyance
accepted.
(3) Payment of liens. A lien to be settled in accordance with
paragraph (c)(1)(i) or (c)(2) of this section will be paid as outlined
in Sec. 1955.5(d) of this subpart and charged to the borrower's account
as a recoverable cost.
(d) Offer of voluntary conveyance. An offer of voluntary conveyance
will consist of the following:
(1) Form FmHA or its successor agency under Public Law 103-354 1955-
1, ``Offer to Convey Security.''
(2) Warranty deed, or other deed approved by OGC to comply with
State Laws. The deed will not be recorded until it is determined the
voluntary
[[Page 151]]
conveyance will be accepted. At the time of the offer, the borrowers
will be informed that the conveyance will not be accepted until the
property has been appraised and a lien search has been obtained. If the
voluntary conveyance is not accepted, the deed and Form FmHA or its
successor agency under Public Law 103-354 1955-1, properly executed,
will be returned to the borrower along with a memorandum stating the
reason(s) for nonacceptance.
(3) A current financial statement containing information similar to
that required to complete Forms FmHA or its successor agency under
Public Law 103-354 410-1, ``Application for FmHA or its successor agency
under Public Law 103-354 Services'' or FmHA or its successor agency
under Public Law 103-354 442-3, ``Balance Sheet,'' and information on
present income and potential earning ability. Exception for SFH loans:
FmHA or its successor agency under Public Law 103-354 requires a budget
and/or financial statement and, if necessary to discover suspected
undisclosed assets, a search of public records, only when the value of
the security property may be less than the debt.
(4) For organization borrowers, a duly-adopted Resolution by the
governing body authorizing the conveyance and certified by the attesting
official with the corporate seal affixed. The Resolution will indicate
which officials are authorized to execute the offer to convey and the
deed on behalf of the borrower. If shareholder approval is necessary,
the Resolution will specifically recite that shareholder approval has
been obtained.
(5) If water rights, mineral rights, development rights, or other
use rights are not fully covered in the deed, the advice of OGC will be
obtained and appropriate documents to transfer rights to the Government
will be obtained before the voluntary conveyance is accepted. The
documents will be recorded, if necessary, in connection with closing the
conveyance.
(6) If property is under lease, an assignment of the lease to the
Government will be obtained with the effective date being the date the
voluntary conveyance is closed. If an oral lease is in force, it will be
reduced to writing and assigned to the Government.
(7) The borrower may be required to provide a title insurance policy
or a final title opinion from a designated attorney when the State
Director determines it is necessary to protect the Government's
interest. Such title insurance policy or final title opinion will show
title vested to the Government subject only to exceptions and liens
approved by the County Supervisor.
(8) Farmer program loan borrowers who voluntarily convey after
receiving the appropriate loan servicing notice(s) contained in the
attachments of exhibit A of subpart S of part 1951 of this chapter, must
properly complete and return the acknowledgement form sent with the
notice.
(9) For MFH loans, assignment of Housing Assistance Payments (HAP)
Contracts will be obtained. Rental Assistance will be retained until the
State Director is advised by OGC that the Agency has title to the
property. After a voluntary conveyance, the Agency may transfer Rental
Assistance in accordance with 7 CFR part 3560, subpart F.
(e) Appraisal of property. After an offer of voluntary conveyance,
but before acceptance by FmHA or its successor agency under Public Law
103-354, an appraisal of the property will be made to establish the
current market value of the property. If a qualified FmHA or its
successor agency under Public Law 103-354 appraiser is not available to
appraise property securing a loan other than MFH, the State Director may
obtain an appraisal from a qualified appraiser outside FmHA or its
successor agency under Public Law 103-354 in accordance with FmHA or its
successor agency under Public Law 103-354 Instruction 2024-A (available
in any FmHA or its successor agency under Public Law 103-354 office).
For property securing MFH, prior authorization must be obtained by the
Assistant Administrator, Housing, to secure an appraisal from a source
outside FmHA or its successor agency under Public Law 103-354. For
property securing FP loan(s), the contract appraiser must complete the
appraisal in accordance
[[Page 152]]
with Sec. 761.7 of this title for FP property, or subpart C of part
1922 for Single Family Housing property. Also, the appraiser must meet
at least one of the following qualifications:
(1) Certification by a National or State Appraisal Society.
(2) If a certified appraiser is not available, the appraiser may be
one who meets the criteria for certification in a National or State
Appraisal Society.
(3) The appraiser has recent, relevant documented appraisal
experience or training, or other factors clearly establishing the
appraiser's qualifications.
(f) Processing offer to convey security and acceptance by FmHA or
its successor agency under Public Law 103-354. If a borrower has both
SFH and other type loans, the portion of this paragraph dealing with the
loan(s) other than SFH will be followed.
(1) SFH loans. FmHA or its successor agency under Public Law 103-354
does not solicit or encourage conveyance of SFH security property to the
Government and will consider a borrower's offer to convey by deed in
lieu of foreclosure only after the debt is accelerated and when it is in
the Government's interest. Upon receipt of an offer to convey, the
servicing official will remind the borrower of provisions for voluntary
liquidation under 7 CFR part 3550,and the consequences of a conveyance
by deed in lieu of foreclosure as follows: All costs related to the
conveyance which FmHA or its successor agency under Public Law 103-354
pays will be added to the debt; a credit equal to the market value of
the property, as determined by FmHA or its successor agency under Public
Law 103-354, less prior liens, will be applied to the debt; and if the
credit does not satisfy the debt, the borrower will not automatically be
released of liability. The unsatisfied debt, after acceleration under
Sec. 1955.10(h)(5) of this subpart, may be settled according to subpart
B of part 1956 of this chapter; however, a deficiency judgment will not
be pursued when the borrower was granted a moratorium if the borrower
faithfully tried to meet loan obligations. The conveyance is processed
as follows:
(i) Before accepting the offer, the County Supervisor will transmit
the deed to a closing agent requesting a title search covering the
period of time since the latest title opinion in the case file. The same
agent who closed the loan should be used, if possible; otherwise one
will be selected from the approved list of closing agents, taking care
that cases are distributed fairly among approved agents. The closing
agent may be instructed that the County Supervisor considers the
voluntary conveyance offer conditionally approved, and the closing agent
may record the deed after the title search if there are no liens against
the property other than:
(A) The FmHA or its successor agency under Public Law 103-354
lien(s);
(B) Prior liens when FmHA or its successor agency under Public Law
103-354 has advised the closing agent that title will be taken subject
to the prior lien(s) or has told the closing agent that the prior
lien(s) will be handled in accordance with Sec. 1955.10(c)(1) of this
subpart; and/or
(C) Real estate taxes and/or assessments which must be paid when
title to the property is transferred.
(ii) If junior liens are discovered, the closing agent will be
requested to provide FmHA or its successor agency under Public Law 103-
354 with the lienholder's name, amount of lien, date recorded, and the
recording information (recording office, book and page), return the
unrecorded deed to FmHA or its successor agency under Public Law 103-
354, and await further instructions from FmHA or its successor agency
under Public Law 103-354. In such cases, the County Supervisor will
proceed in accordance with Sec. 1955.10(c)(2) of this subpart. If
agreement has been reached with the lienholder(s) for settling the
junior lien(s) in order to accept the conveyance, the deed will be
returned to the closing agent for a title update and recording.
(iii) The closing agent will be requested to provide a certification
of title to FmHA or its successor agency under Public Law 103-354 after
recordation of the deed. A certification of title in a statement that
fee title is vested in the Government subject only to the FmHA or its
successor agency under Public Law 103-354 lien(s) and prior liens
previously approved by FmHA or
[[Page 153]]
its successor agency under Public Law 103-354. After receipt of the
certification of title, the County Supervisor will notify the borrower
that the conveyance has been accepted in accordance with Sec.
1955.10(g) of this subpart.
(2) Consolidated Farm and Rural Development Act (CONACT) loans to
individuals. If the Agency indebtedness plus any prior liens exceeds the
market value of the property, the indebtedness cannot be satisfied but a
credit can be given equal to the market value less prior liens. Debt
settlement will be considered in accordance with subpart B of part 1956
of this chapter.
(i) Crediting accounts. The Agency will credit an account by an
amount equal to the market value less prior liens, unless the borrower
is Native American. Native American borrower-owners will be credited
with the fair market value or the Agency debt against the property,
whichever is greater, provided:
(A) The borrower-owner is a member of a tribe or the tribe, and
(B) The property is located within the confines of a federally
recognized Indian reservation.
(ii) Agency approval. The same procedure outlined in paragraphs
(f)(1)(i) through (f)(1)(iii) of this section will be followed for
approving the voluntary conveyance. The conveyance will be accepted in
full satisfaction of the indebtedness unless the market value of the
property to be conveyed is less than the total of Government
indebtedness and prior liens, and the borrower has agreed to accept a
credit in the amount of the market value of the security property less
prior liens, if any.
(3) Loans to organizations. When an offer of voluntary conveyance is
received from an organization borrower, and the market value of the
property being conveyed (less prior liens, if any) is less than the
Government debt, full consideration must be given to the borrower's
present situation and future prospects for paying all or a part of the
debt.
(g) Closing of conveyance. (1) The conveyance to the Government will
be considered closed when the recorded deed has been returned to FmHA or
its successor agency under Public Law 103-354, a certification of title
is received from the closing agent that title is vested in the
Government with no outstanding encumbrances other than the FmHA or its
successor agency under Public Law 103-354 lien(s) or previously approved
prior liens, and the borrower is notified of the acceptance of the
conveyance. For loans to organizations, OGC will be requested to review
the case to verify that it was closed properly. The property will be
assigned an ID number and entered into the Acquired Property Tracking
System through the Automated Discrepancy Processing System (ADPS)
terminal in the County Office.
(2) When costs incident to the completion of the transaction are to
be paid by the Government, the servicing official will prepare and
process the necessary documents as outlined in Sec. 1955.5(d) of this
subpart and the costs will be charged to the borrower's account as
recoverable costs. This includes taxes and assessments, water charges
which protect the right to receive water, other liens, closing agent's
fee, and any other costs related to the conveyance.
(h) Actions to be taken after closing conveyance. (1) When the FmHA
or its successor agency under Public Law 103-354 account is satisfied,
the note(s) will be stamped ``Satisfied by Surrender of Security and
Borrower Released from Liability,'' and the statement must be signed by
the servicing official.
(2) When the FmHA or its successor agency under Public Law 103-354
account is not satisfied and the borrower is not released from
liability, the note(s) will be retained by FmHA or its successor agency
under Public Law 103-354.
(3) The servicing official will release the lien(s) of record,
indicating that the debt was satisfied by surrender of security or that
the lien is released but the debt not satisfied, whichever is
applicable. If the lien is to be released but the debt not satisfied,
OGC will provide the type of instrument required to comply with
applicable State laws.
(4) After release of the lien(s), the servicing official will return
the following to the borrower:
(i) If borrower is released from liability, the satisfied note(s)
and a copy of
[[Page 154]]
Form FmHA or its successor agency under Public Law 103-354 1955-1
showing acceptance by the Government; or
(ii) If borrower is not released from liability, a copy of Form FmHA
or its successor agency under Public Law 103-354 1955-1 showing
acceptance by the Government.
(5) When the FmHA or its successor agency under Public Law 103-354
account is not satisfied and the borrower not released from liability,
the account balance, after deducting the ``as is'' market value and
prior liens, if any, will be accelerated utilizing exhibit F of this
subpart (available in any FmHA or its successor agency under Public Law
103-354 office).
(6) For MFH loans, the State Director will cancel any interest
credit and suspend any rental assistance. These actions will be
accomplished by notifying the Finance Office unit which handles MFH
accounts. In the interm the tenants will continue rental payments in
accordance with their lease. Tenants will be informed of the pending
liquidation action and the possible consequences of the action. If the
project is to be removed from the Rural Development program, a minimum
of 180 days' notice to the tenants is required. Letters of Priority
Entitlement must be made available to any tenants that will be
displaced.
(7) Actions outlined in Sec. 1955.18 of this subpart will be taken,
as applicable.
[50 FR 23904, June 7, 1985, as amended at 50 FR 45782, Nov. 1, 1985; 69
FR 69105, Nov. 26, 2004]
Sec. 1955.11 Conveyance of property to FmHA or its successor agency under
Public Law 103-354 by trustee in bankruptcy.
(a) Authority. With the advice of OGC (and prior approval of the
National Office for MFH, Community Programs, and insured B&I loans), the
State Director within his/her authority is authorized to accept a
conveyance of property to the Government by the Trustee in Bankruptcy,
provided:
(1) The Bankruptcy Court has approved the conveyance;
(2) The conveyance will permit a substantial recovery on the FmHA or
its successor agency under Public Law 103-354 debt; and
(3) FmHA or its successor agency under Public Law 103-354 will
acquire title free of all liens and encumbrances except FmHA or its
successor agency under Public Law 103-354iens.
(b) Fees and deed. (1) FmHA or its successor agency under Public Law
103-354 may pay any necessary and proper fees approved by the bankruptcy
court in connection with the conveyance. Before paying a fee to a
trustee for a Trustee's Deed in excess of $300 for any loan type(s)
other than Farmer Programs or $1,000 for Farmer Program loans, prior
approval of the Administrator must be obtained. The State Director will
process the necessary documents as outlined in Sec. 1955.5(d) of this
subpart for payment of fees as recoverable costs.
(2) Conveyance may be by Trustee's Deed instead of a warranty deed.
If upon advice of OGC it is determined a deed from any other person or
entity (including the borrower) is necessary to obtain clear title, a
deed from such person or entity will be obtained.
(c) Acceptance. The conveyance will be accepted for an amount of
credit to the borrower's FmHA or its successor agency under Public Law
103-354 account(s) as set forth in Sec. 1955.18(e)(4) of this subpart.
(d) Reporting. Acquisition of property under this section will be
reported in accordance with Sec. 1955.18(a) of this subpart.
[50 FR 23904, June 7, 1985, as amended at 53 FR 27827, July 25, 1988]
Sec. 1955.12 Acquisition of property which served as security for a loan
guarantee by FmHA or its successor agency under Public Law 103-354 or at sale
by another lienholder, bankruptcy trustee, or taxing authority.
When the servicing regulations for the type of loan(s) involved
permit FmHA or its successor agency under Public Law 103-354 to acquire
property by one of these methods, the acquisition will be reported in
accordance with Sec. 1955.18(a) of this subpart.
Sec. 1955.13 Acquisition of property by exercise of Government redemption rights.
When the Government did not protect its interest in security
property in
[[Page 155]]
a foreclosure by another lienholder, and if the Government has
redemption rights, the State Director will determine whether to redeem
the property. This determination will be based on all pertinent factors
including the value of the property after the sale, and costs which may
be incurred in acquiring and reselling the property. For Farmer Program
loans, the County Supervisor will document the determination on exhibit
G of this subpart. The decision must be made far enough in advance of
expiration of the redemption period to permit exercise of the
Government's rights. If the property is to be redeemed, complete
information documenting the basis for not acquiring the property at the
sale and factors which justify redemption of the property will be
included in the case file. The assistance of OGC will be obtained in
effecting the redemption. If the State Director decides not to redeem
the property, the Government's right of redemption under Federal law (28
U.S.C. 2410) may be waived without consideration. If a State law right
of redemption exists and may be sold, it will not be disposed of for
less than its value.
[53 FR 35762, Sept. 14, 1988]
Sec. 1955.14 [Reserved]
Sec. 1955.15 Foreclosure by the Government of loans secured by real estate.
Foreclosure will be initiated when all reasonable efforts have
failed to have the borrower voluntarily liquidate the loan through sale
of the property, voluntary conveyance, or by entering into an
accelerated repayment agreement when applicable servicing regulations
permit; when either a net recovery can be made or when failure to
foreclose would adversely affect FmHA or its successor agency under
Public Law 103-354 programs in the area. Also, in Farmer Program cases
(except graduation cases under subpart F of part 1951 of this chapter),
the borrower must have received exhibit A with attachments 1 and 2 of
subpart S of part 1951 of this chapter, and any appeal must have been
concluded. For real property located within the confines of a federally
recognized Indian reservation and owned by a Native American borrower,
proper notice of voluntary conveyance must be given as outlined in Sec.
1955.9 (c)(1) of this subpart.
(a) Authority--(1) Loans to individuals. The District Director is
authorized to approve or disapprove foreclosure and accelerate the
account.
(2) Loans to organizations. (i) The State Director or District
Director is authorized to approve or disapprove foreclosure of MFH loans
when the amount of the FmHA or its successor agency under Public Law
103-354 secured debt does not exceed their respective loan approval
authority. The State Director is authorized to approve or disapprove
foreclosure of I&D, Shift-In-Land-Use (Grazing Association), loans to
Indian Tribes and Tribal Corporations, and EOC loans, regardless of the
amount of debt.
(ii) For all other organization loans, foreclosure will not be
initiated without prior approval of the Administrator. The State
Director will obtain OGC's opinion on the steps necessary to foreclose
the loan, and forward the appropriate problem case report, a statement
of essential facts, his/her recommendation, a copy of the OGC opinion,
and the borrower's case file to the Administrator, Attn: Assistant
Administrator (appropriate loan division) with a request for
authorization to initiate foreclosure.
(b) Problem case report. When foreclosure is recommended, the
servicing official will prepare Form FmHA or its successor agency under
Public Law 103-354 1955-2 for Farmer Program or SFH loans, exhibit A to
this subpart for MFH loans, or exhibit A of FmHA or its successor agency
under Public Law 103-354 Instruction 1951-E (available in any FmHA or
its successor agency under Public Law 103-354 office) for other
organization loans. If chattel security is also involved, Forms FmHA or
its successor agency under Public Law 103-354 455-1, ``Request for Legal
Action''; 455-2, ``Evidence of Conversion''; and 455-22, ``Information
for Litigation''; as applicable to the case, will be prepared in
accordance with the respective FMIs and made a part of the problem case
submission. A statement must be included by the servicing official in
the narrative that all servicing
[[Page 156]]
actions required by FmHA or its successor agency under Public Law 103-
354 loan servicing regulations have been taken and all required notices
given to the borrower.
(1) Appraisal. The market value of the property may be estimated in
completing the problem case report unless there are one or more prior
liens other than current-year real estate taxes. Where such prior liens
are involved, an appraisal report reflecting market value in existing
condition will be included in the case file as a basis for determining
the Government's prospects for financial recovery through foreclosure.
(2) Recommendation for deficiency judgment. If the debt will not be
satisfied by the foreclosure, the borrower's financial situation will be
assessed to determine if there is a possibility of further recovery on
the account through a deficiency judgment. A summary of these
determinations will be fully documented and appropriate recommendations
made concerning deficiency judgment in the applicable problem case
report.
(3) Historic preservation. If it is likely that FmHA or its
successor agency under Public Law 103-354 will acquire title to the
property as a result of the foreclosure, and the structure(s) on the
property will be in excess of 50 years old at the time of acquisition or
meet any of the other criteria contained in Sec. 1955.137(c) of subpart
C of part 1955 of this chapter, steps should be initiated to meet the
requirements of the National Historic Preservation Act as outlined in
Sec. 1955.137(c). Formal steps should not be initiated until the
conclusion of all appeals. However, any such documentation required may
be completed when the problem case report is prepared. This action
should eliminate delays in selling the property after acquisition.
(c) Submission of problem case. The servicing official will submit
the completed problem case docket to the official authorized to approve
the foreclosure (approval official). Before approval of foreclosure and
acceleration of the account, the approval official is responsible for
review of the problem case report to see that all items are complete and
that all required servicing actions have been taken and all required
notices given the borrower. The narrative portion of the report should
provide complete information on the borrower's financial condition,
deficiency judgment in case the debt is not satisfied by the
foreclosure, and other pertinent background items. The approval official
will approve or disapprove the foreclosure, or make a recommendation and
refer the case to the National Office, if not within his/her approval
authority. If foreclosure is not approved, the case will be returned to
the originating office with instructions for further servicing. Problem
case submission is as follows:
(1) For loans to individuals. The County Supervisors will submit the
case to the District Director.
(2) For loans to organizations. The District Director will submit
the case to the State Director along with a proposed liquidation and
management plan covering the time the foreclosure is in process. The
State Director will obtain the advice of OGC if required in connection
with the type of loan being liquidated.
(d) Approval of foreclosure. When foreclosure is approved, it will
be handled as follows:
(1) Prior lien(s). If there is a prior lien, all foreclosure
alternatives should be explored including whether FmHA or its successor
agency under Public Law 103-354 will give the prior lienholder the
opportunity to foreclose; join in the action if the prior lienholder
wishes to foreclose; or foreclose the FmHA or its successor agency under
Public Law 103-354 loan(s), either settling the prior lien or
foreclosing subject to it. The provisions of Sec. 1965.11(c) of subpart
A of part 1965 of this chapter must be followed for loans serviced under
subpart A of part 1965. The assistance of OGC should be obtained in
weighing the alternatives, with the objective being to pursue the course
which will result in the greatest net recovery by the Government. After
it is decided which option will be most advantageous to the Government,
the approval official, either directly or through a designee, will
contact the prior lienholder to outline FmHA or its successor agency
under Public Law 103-354's position. If State laws affect this
[[Page 157]]
action, a State Supplement will be issued with the advice of OGC to
establish the procedure to be followed. For real property located within
the confines of a federally recognized Indian reservation owned by a
Native American borrower-owner, an analysis of whether FmHA or its
successor agency under Public Law 103-354 should acquire title must
include facts which demonstrate the fair market value after considering
the cost of clean-up of hazardous substances on the property.
(2) Acceleration of account. Subject to paragraphs (d)(2)(i),
(d)(2)(ii), and (d)(2)(iii) of this section, the account will be
accelerated using a notice substantially similar to exhibits B, C, D, or
E of this subpart, or for multi-family housing, FmHA or its successor
agency under Public Law 103-354 Guide Letters 1955-A-1 or 1955-A-2
(available in any FmHA or its successor agency under Public Law 103-354
Office), as appropriate, to be signed by the official who approved the
foreclosure. The accounts of borrowers with pending Chapter 12 and 13
cases which have not been discharged will be accelerated in accordance
with instructions from OGC. Upon OGC approval, accounts of these
borrowers may be accelerated using a notice substantially similar to
exhibit D of this subpart. Loans secured by chattels must be accelerated
at the same time as loans secured by real estate in accordance with
Sec. 1965.26 (c) of subpart A of part 1965 of this chapter. The notice
will be sent by certified mail, return receipt requested, to each
obligor individually, addressed to the last known address. If different
from the property address and/or the address the Finance Office uses, a
copy of the notice will also be mailed to the property address and the
address currently used by the Finance Office. (In chattel liquidation
cases which have been referred for civil action under subpart A of part
1962 of this chapter, the Finance Office will be sent a copy of exhibits
D, E, or E-1 (available in any FmHA or its successor agency under Public
Law 103-354 office) as applicable. County Office and Finance Office loan
records will be adjusted to mature the entire debt in such cases). If a
signed receipt for at least one of these acceleration notices sent by
certified mail is received, no further notice is required. If no receipt
is received, a copy of the acceleration notice will be sent by regular
mail to each address to which the certified notices were sent. This type
mailing will be documented in the file. A State Supplement may be issued
if OGC advises different or additional language or format is required to
comply with State laws or if notice and mailing instructions are
different from that outlined in this paragraph. A conformed copy of the
acceleration notice will be forwarded to the servicing official. Farmer
Program appeals will be concluded before acceleration. For MFH loans, a
copy of the acceleration letter will also be forwarded to the National
Office, ATTN: MFH Servicing and Property Management Division, for
monitoring purposes. Accounts may be accelerated as follows:
(i) Where monetary default is involved, the account may be
accelerated immediately after approval of foreclosure.
(ii) Where monetary default is not involved, the account will not be
accelerated until the concurrence of OGC is obtained.
(iii) If borrower obtained the loan while a civilian, entered
military service after the loan was closed, the FmHA or its successor
agency under Public Law 103-354 has not obtained a waiver of rights
under the Soldiers and Sailors Relief Act, the account will not be
accelerated until OGC has reviewed the case and given instructions.
(iv) If the decision is made to liquidate the farm loan(s) of a
borrower who also has a SFH loan(s), and the dwelling was used as
security for the farm loan(s) it will not be necessary to meet the
requirements of 7 CFR part 3550 prior to accelerating the account.
Except that, if the borrower is in default on his/her farm loan(s), the
SFH account must have been considered for interest credit and/or
moratorium at the time servicing options are being considered for the FP
loan(s) prior to acceleration. If it is later determined the FP loan(s)
are to receive additional servicing in lieu of liquidation, the RH loan
will be reinstated simultaneously with the FP servicing actions and may
be reamortized in accordance with 7
[[Page 158]]
CFR part 3550. Accounts of a borrower who has both Farmer Program and
SFH loan(s) may be accelerated as follows:
(A) When the borrower's dwelling is financed with an SFH loan(s) is
secured by and located on the same farm real estate as the Farmer
Program loan(s) (dwelling located on the farm), the SFH loan(s) will be
serviced in accordance with Sec. 1965.26(c)(1) of subpart A of part
1965 of this chapter.
(B) When the borrower's dwelling is financed with an SFH loan(s) and
is located on a nonfarm tract which also serves as additional security
for the Farmer Program loan(s), the loans(s) will be serviced in
accordance with Sec. 1965.26 (c)(2) of subpart A of part 1965 of this
chapter.
(C) When the borrower's dwelling is financed with an SFH loan(s) and
is on a non-farm tract which does not serve as additional security for
the Farmer Program loan(s), it will NOT be accelerated simultaneously
with sending out attachments 5 and 6, or 5-A and 6-A, or attachment 9
and 10, or 9-A and 10-A, of exhibit A of subpart S of part 1951 of this
chapter, as applicable, unless it is subject to liquidation based on
provisions of 7 CFR part 3550, taking into consideration the prospects
for success that may evolve when the borrower's livelihood is from a
source other than the farming operation. If the SFH loan is in default
and subject to liquidation based on provisions of 7 CFR part 3550, the
SFH loan(s) must be accelerated at the same time the borrower is sent
attachment 5 and 6, or 5-A and 6-A, or attachments 9 and 10, or 9-A and
10-A, to exhibit A of subpart S of part 1951 of this chapter, as
applicable. For those borrowers who are in non-monetary default on their
Farmer Programs loans and fail to return attachment 4 of exhibit A of
subpart S of part 1951 of this chapter, the Farmer Programs loans and
SFH loans will be accelerated at the same time. If the borrower appeals,
one appeal hearing and one review will be held for both adverse actions.
(D) If a borrower's FP loan(s) were accelerated prior to May 7,
1987, and the SFH loan(s) is not accelerated, the SFH loan will be
accelerated at the same time the borrower is sent attachments 5 and 6,
or 5-A and 6-A, or attachments 7 and 8 to exhibit A of subpart S of 1951
of this chapter, as applicable, unless the requirements of Sec. 1965.26
of subpart A of part 1965 of this chapter are met or the liquidation of
the SFH loan is based on provisions of 7 CFR part 3550. If the borrower
is sent attachments 5 and 6, or 5-A and 6-A to exhibit A of subpart S of
1951 of this chapter, as applicable, and requests an appeal, one hearing
and one review will be held for both the adverse action on the FP loan
restructuring request and SFH acceleration notices. If the borrower is
sent attachments 7 and 8 to exhibit A of subpart S of 1951 of this
chapter, there are no further appeals on the FP loans; but, the borrower
is entitled to a hearing and a review on the SFH acceleration notice.
(v) For MFH loans, the acceleration notice will advise the borrower
of all applicable prepayment requirements, in accordance with 7 CFR part
3560, subpart N. The requirements include the application of
restrictive-use provisions to loans made on or after December 21, 1979,
prepaid in response to acceleration notices and all tenant and agency
notifications. The acceleration notice will also remind borrowers that
rent levels cannot be raised during the acceleration without FmHA or its
successor agency under Public Law 103-354 approval, even after subsidies
are canceled or suspended. Tenants are to be notified of the status of
the project and of possible consequences of these actions. If the
borrower wishes to prepay the project in response to the acceleration
and FmHA or its successor agency under Public Law 103-354 makes a
determination that the housing is no longer needed, a minimum of 180
days' notice to tenants is required before the project can be removed
from the FmHA or its successor agency under Public Law 103-354 program.
Letters of Priority Entitlement must be made available.
(3) Offers by borrowers after acceleration of account--(i) Farmers
Programs (FP) accelerations. This category also includes non-FP loans to
the same borrower which have been accelerated as part of the same
action. After the account is accelerated, the borrower will
[[Page 159]]
have 30 days from the date of the acceleration notice to make payment in
full to stop the acceleration, unless State or tribal law requires that
the foreclosure be withdrawn if the account is brought current and a
State supplement is issued to specify the requirement.
(A) Payment in full [see exhibit D of this subpart (available in any
FmHA or its successor agency under Public Law 103-354 office)] may
consist of the following means of fully satisfying the debt.
(1) Cash.
(2) Transfer and assumption.
(3) Sale of property.
(4) Voluntary conveyance.
(B) Payments which do not pay the account in full can be accepted
subject to the following requirements:
(1) Payments will be accepted if there is no remaining security for
the debt (real estate and chattel).
(2) If the borrower is in the process of selling security or
nonsecurity, payments may be accepted unless State law would require the
acceleration to be reversed. In States where payments cannot be accepted
unless the acceleration is reversed, the payments will not be accepted.
A State supplement will be issued to address State law on accepting
payments after acceleration.
(3) If payments are mistakenly credited to the borrower's account,
no waiver or prejudice to any rights which the United States may have
for breach of any promissory note or convenant in the real estate
instruments will result. Disposition of such payments will be made after
consulting OGC.
(4) The servicing official will notify the approval official of any
other offer. This includes a request by the borrower for an extension of
time to accomplish voluntary liquidation or a proposal to cure the
default(s). In all other cases, the approval official will decide
whether an offer from a borrower will be accepted and servicing of the
loan reinstated or whether foreclosure will be delayed to give the
borrower additional time to voluntarily liquidate as authorized in
servicing regulations for the type loan(s) involved. If an offer is
received after the case has been referred to OGC, the approval official
will consult OGC before accepting or rejecting the offer. The denial of
an offer to stop foreclosure is not appealable. In all cases, the
approval official will notify the servicing official of the decision
made.
(ii) All other accelerations. After the account is accelerated, loan
servicing ceases. For example, for SFH loans, the renewal or granting of
interest credit or a moratorium is not authorized. The servicing
official will accept no payment for less than the unpaid loan balance,
unless State law requires that foreclosure be withdrawn if the account
is brought current and a State supplement is issued to specify this
requirement. If payments are mistakenly accepted and credited to the
borrower's account, no waiver or prejudice to any rights which the
United States may have for breach of any promissory note or covenants in
the real estate instruments will result. Disposition of such payments
will be made after consultation with OGC. The servicing official will
notify the approval official of any offer received from the borrower.
This includes a request by the borrower for an extension of time to
accomplish voluntary liquidation or a written proposal to cure the
default(s). The receipt of a payment with no proposal to cure the
defaults is not considered a viable offer, and such payments will be
returned to the borrower. The approval official will decide whether an
offer from a borrower will be accepted and servicing of the loan
reinstated or whether foreclosure will be delayed to give the borrower
additional time to voluntarily liquidate as authorized in servicing
regulations for the type loan involved. If an offer is received after
the case has been referred to OGC, the approval official will consult
OGC before accepting or rejecting the offer. The denial of an offer to
stop foreclosure is not appealable. In all cases, the approval official
will notify the servicing official of the decision made. For MFH loans,
the National Office will be notified when foreclosure is withdrawn. When
an account is reinstated under this section, the servicing official will
grant or reinstate assistance for which the borrower qualifies, such as
interest credit on an SFH loan. When granting interest credit in such a
case:
[[Page 160]]
(A) If an interest credit agreement expired after the account was
accelerated, the effective date will be the date the previous agreement
expired.
(B) If an interest credit agreement was not in effect when the
account was accelerated, the effective date will be the date foreclosure
action was withdrawn.
(C) For MFH loans with rental assistance, after acceleration and
after any appeal or review has been concluded, rental assistance will be
suspended if foreclosure is to continue. If the account is reinstated,
the rental assistance will be reinstated retroactively to the date of
suspension. In the interim, the tenants will continue rental payments in
accordance with their leases, and all rental rates and lease renewals
and provisions will be continued as if acceleration had not taken place.
(4) Statement of account. If a statement of account is required for
foreclosure proceedings, Form FmHA or its successor agency under Public
Law 103-354 451-10, ``Request for Statement of Account,'' will be
processed in accordance with the FMI. When an official statement of
account is not required, account balances and recapture information may
be obtained from the field office terminal.
(5) Appeals. All appeals will be handled pursuant to subpart B of
part 1900 of this chapter. Foreclosure actions will be held in abeyance
while an appeal is pending. No case will be referred to OGC for
processing of foreclosure until a borrower's appeal and appeal review
have been concluded, or until the time has elapsed during which an
appeal or a request for review may be made. In Farmer Programs cases,
(except graduation cases under subpart F of part 1951 of this chapter),
the borrower must have received the appropriate notices and
consideration for primary loan servicing per subpart S of part 1951 of
this chapter. Any Farmer Programs cases may be accelerated after all
primary loan servicing options have been considered and all related
appeals concluded, but will not be submitted to OGC for foreclosure
action until all appeals related to any preservation rights have been
concluded.
(6) Petition in bankruptcy filed by borrower after acceleration of
account.(i) When bankruptcy is filed after an account has been
accelerated, any foreclosure action initiated by FmHA or its successor
agency under Public Law 103-354 must be suspended until:
(A) The bankruptcy case is dismissed or closed (a discharge of
debtor does not close the case);
(B) An Order lifting the automatic stay is obtained from the
Bankruptcy Court; or
(C) The property is no longer property of the bankruptcy estate and
the borrower has received a discharge.
(ii) The State Director will request the assistance of OGC in
obtaining the Order(s) described in paragraph (c)(6)(i)(B) of this
section.
(e) Referral of case. If the borrower fails to satisfy the account
during the period of time specified in the acceleration notice, and no
appeal is pending, the foreclosure process will continue:
(1) If the District Director is the approval official, he/she will
forward the case file with all pertinent documents and information
concerning the foreclosure action and appeal, if any, to the State
Director for completion of the foreclosure.
(2) If the State Director is the approval official, or in cases
referred by the District Director under paragraph (e)(1) of this
section, the State Director will forward to OGC the case file and all
documents needed by OGC to process the foreclosure. A State Supplement
will be issued, with the advice and assistanced of OGC, to reflect the
make-up of the foreclosure docket. Since foreclosure processing varies
widely from State to State, each State Supplement will be explicit in
outlining step-by-step procedures. At the time indicated by OGC in the
foreclosure instructions, Form FmHA or its successor agency under Public
Law 103-354 1951-6, ``Borrower Account Description Flag,'' will be
processed in accordance with the FMI. After referral to OGC, further
actions will be in accordance with OGC's instructions for completion of
the foreclosure. If prior approval of the Administrator is obtained,
nonjudicial foreclosure for monetary default may be handled as outlined
in a State Supplement approved by OGC without referral to OGC before
foreclosure.
[[Page 161]]
(f) Completion of foreclosure--(1) Foreclosure advertisement for
organization loans subject to title VI of the Civil Rights Act of
1964.(i) The advertisement for foreclosure sale of property subject to
title VI of the Civil Rights Act of 1964 will contain a statement
substantially similar to the following: ``The property described herein
was purchased or improved with Federal financial assistance and is
subject to the nondiscrimination provisions of title VI of the Civil
Rights Act of 1964, section 504 of the Rehabilitation Act of 1973 and
other similarly worded Federal statutes and regulations issued pursuant
thereto that prohibit discrimination on the basis of race, color,
national origin, handicap, religion, age or sex in programs or
activities receiving Federal financial assistance, for as long as the
property continues to be used for the same or similar purposes for which
the Federal assistance was extended or for so long as the purchaser owns
it, whichever is later.'' At least 30 days before the foreclosure sale,
the County Supervisor will notify, in writing, the Indian tribe which
has jurisdiction over the reservation, and in which the real property is
owned by a Native American member of said tribe that a foreclosure sale
will be conducted to resolve this account, and will provide:
(A) Projected sale date and location;
(B) Fair market value of property;
(C) Amount FmHA or its successor agency under Public Law 103-354
will bid on the property; and
(D) Amount of FmHA or its successor agency under Public Law 103-354
debt against the property.
(ii) The purchaser will be required to sign Form FmHA or its
successor agency under Public Law 103-354 400-4, ``Assurance
Agreement,'' if the property will be used for its original or similar
purposes.
(2) Restrictive-use provisions for MFH loans. For MFH loans, the
advertisement will state the restrictive-use provisions which will be
included in any deed used to transfer title.
(3) Expenses. Expenses which are incurred in connection with
foreclosure, including legal fees, will be paid at the time recommended
by OGC by processing the necessary documents as outlined in Sec. 1955.5
(d) of this subpart. Costs will be charged as outlined in FmHA or its
successor agency under Public Law 103-354 Instruction 2024-A (available
in any FmHA or its successor agency under Public Law 103-354 office).
(4) Notice of judgment. In states with judicial foreclosure, as soon
as the foreclosure judgment is obtained, Form FmHA or its successor
agency under Public Law 103-354 1962-20, ``Notice of Judgment,'' will be
processed in accordance with the FMI. This will establish a judgment
account to accrue interest at the rate stated in the judgment order so
that an accurate account balance can be obtained for calculating the
Government's foreclosure bid.
(5) Gross investment. The gross investment is the sum of the
following:
(i) The unpaid balance of one of the following, as applicable:
(A) In States with nonjudicial foreclosure, the borrower's FmHA or
its successor agency under Public Law 103-354 account balance reflecting
secured loan(s) and advances; and where State law permits, unsecured
debts; or
(B) In States with judicial foreclosure, the judgment account
established as a result of the foreclosure judgment in favor of FmHA or
its successor agency under Public Law 103-354.
(ii) All recoverable costs charged (or to be charged) to the
borrower's account in connection with the foreclosure action and other
costs which OGC advises must be paid from proceeds of the sale before
paying the FmHA or its successor agency under Public Law 103-354 secured
debt, including but not limited to payment of real estate taxes and
assessments, prior liens, legal fees including U.S. Attorney's and U.S.
Marshal's, and management fees; and
(iii) If a SFH loan subject to recapture of interest credit is
involved, the total amount of subsidy granted and principal reduction
attributed to subsidy.
(6) Amount of Government's bid. Except for FP loans and as modified
by paragraph (f)(7)(ii) of this section, the Government's bid will be
the amount of FmHA or its successor agency under Public Law 103-354's
gross investment or the market value of the security,
[[Page 162]]
whichever is less. For real property located within the confines of a
federally recognized Indian reservation and which is owned by an FmHA or
its successor agency under Public Law 103-354 borrower who is a member
of the tribe with jurisdiction over the reservation, the Government's
bid will be the greater of the fair market value or the FmHA or its
successor agency under Public Law 103-354 debt against the property,
unless FmHA or its successor agency under Public Law 103-354 determines
that, because of the presence of hazardous substances on the property,
it is not in the best interest of the Government to bid such amount, in
which case there may be a deduction from the bid for the costs for
hazardous material assessment and/or mitigation. For FP loans, except as
modified by paragraph (f)(7)(ii) of this section, the Government's bid
will be the amount of FmHA or its successor agency under Public Law 103-
354's gross investment or the amount determined by use of exhibit G-1 of
this subpart, whichever is less. When the foreclosure sale is imminent,
the State Director must request the servicing official to submit a
current appraisal (in existing condition) as a basis for determining the
Government's bid. Except for MFH properties, if an FmHA or its successor
agency under Public Law 103-354 appraiser is not available, the State
Director may authorize an appraisal to be obtained by contract from a
source outside FmHA or its successor agency under Public Law 103-354 in
accordance with FmHA or its successor agency under Public Law 103-354
Instruction 2024-A (available in any FmHA or its successor agency under
Public Law 103-354 office). For MFH properties, prior approval of the
Assistant Administrator, Housing, is necessary to procure an outside
appraisal.
(7) Bidding. The State Director will designate an individual to bid
on behalf of the Government unless judicial proceedings or State
nonjudicial foreclosure law provides for someone other than an FmHA or
its successor agency under Public Law 103-354 employee to enter the
Government's bid. When the State Director determines attendance of an
FmHA or its successor agency under Public Law 103-354 employee at the
sale might pose physical danger, a written bid may be submitted to the
Marshal, Sheriff, or other party in charge of holding the sale. The
Government's bid will be entered when no other party makes a bid or when
the last bid will result in the property being sold for less than the
bid authorized in paragraph (f)(6) of this section.
(i) When FmHA or its successor agency under Public Law 103-354 is
the senior lienholder, only one bid will be entered, and that will be
for the amount authorized by the State Director.
(ii) When FmHA or its successor agency under Public Law 103-354 is
not the senior lienholder and OGC advises that the borrower has no
redemption rights or if a deficiency judgment will be obtained, the
State Director may authorize the person who will bid for the Government
to make incremental bids in competition with other bidders. If
incremental bidding is desired, the State Director's instructions to the
bidder will state the initial bid, bidding increments, and the maximum
bid.
(g) Reports on sale and finalizing foreclosure. Immediately after a
foreclosure sale at which the State Director has designated a person to
bid on behalf of the Government, the servicing official will furnish the
State Director a report on the sale. The State Director will forward a
copy of this report to OGC and, for MFH loans, to the National Office.
Based on OGC's instructions, a State supplement will provide a detailed
outline of actions necessary to complete the foreclosure.
[50 FR 23904, June 7, 1985]
Editorial Note: For Federal Register citations affecting Sec.
1955.15, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and on GPO Access.
Sec. Sec. 1955.16-1955.17 [Reserved]
Sec. 1955.18 Actions required after acquisition of property.
The approval official may employ the services of local designated
attorneys, of a case by case basis, to process all legal procedures
necessary to clear the title of foreclosure properties. Such attorneys
shall be compensated at not more than their usual and customary charges
for such work. Contracting for
[[Page 163]]
such attorneys shall be accomplished pursuant to the Federal acquisition
regulations and related procurement regulations and guidance.
(a)-(d) [Reserved]
(e) Credit to the borrower's account or foreclosure judgment
account--(1) For SFH accounts. When FmHA or its successor agency under
Public Law 103-354 acquired the property, the account will be satisfied
unless:
(i) In a voluntary conveyance case where the debt exceeds the market
value of the property and the borrower is not released from liability,
in which case the account credit will be the market value (less
outstanding liens if any); or
(ii) In a foreclosure where the bid is less than the account balance
and a deficiency judgment will be sought for the difference, in which
case the account credit will be the amount of FmHA or its successor
agency under Public Law 103-354's bid.
(2) For all types of accounts other than SFH. When FmHA or its
successor agency under Public Law 103-354 acquired the property, the
account credit will be as follows:
(i) In a voluntary conveyance case:
(A) Where the market value of the property equals or exceeds the
debt or where the borrower is released from liability for any
difference, the account will be satisfied.
(B) Where the debt exceeds the market value of the property and the
borrower is not released from liability, the account credit will be the
market value (less outstanding liens, if any).
(ii) In a foreclosure, the account credit will be the amount of FmHA
or its successor agency under Public Law 103-354's bid except when
incremental bidding as provided for in Sec. 1955.15(f)(7)(ii) of this
subpart was used, in which case the account credit will be the maximum
bid that was authorized by the State Director.
(3) For all types of accounts when FmHA or its successor agency
under Public Law 103-354 did not acquire the property. The sale proceeds
will be handled in accordance with applicable State laws with the advice
and assistance of OGC, including remittance of funds, application of the
borrower's account credit, and disbursement of any funds in excess of
the amount due FmHA or its successor agency under Public Law 103-354.
(4) In cases where FmHA or its successor agency under Public Law
103-354 acquired security property by means other than voluntary
conveyance or foreclosure. In these cases, such as conveyance by a
bankruptcy trustee or by Court Order, the account credit will be as
follows:
(i) If the market value of the acquired property equals or exceeds
the debt, the account will be satisfied.
(ii) If the debt exceeds the market value of the acquired property,
the account credit will be the market value.
(f)-(l) [Reserved]
[50 FR 23904, June 7, 1985, as amended at 52 FR 41957, Nov. 2, 1987; 53
FR 27827, July 25, 1988; 53 FR 35764 Sept. 14, 1988; 55 FR 35295, Aug.
29, 1990; 56 FR 10147, Mar. 11, 1991; 56 FR 29402, June 27, 1991; 58 FR
38927, July 21, 1993; 58 FR 68725, Dec. 29, 1993; 60 FR 34455, July 3,
1995]
Sec. 1955.19 [Reserved]
Sec. 1955.20 Acquisition of chattel property.
Every effort will be made to avoid acquiring chattel property by
having the borrower or FmHA or its successor agency under Public Law
103-354 liquidate the property according to Subpart A of Part 1962 of
this chapter and apply the proceeds to the borrower's account(s).
Methods of acquisition authorized are:
(a) Purchase at the following types of sale: (1) Execution sale
conducted by the U.S. Marshal, sheriff or other party acting under Court
order to satisfy judgment liens.
(2) FmHA or its successor agency under Public Law 103-354
foreclosure sale conducted by the U.S. Marshal or sheriff in States
where a State Supplement provides for sales to be conducted by them.
(3) Sale by trustee in bankruptcy.
(4) Public sale by prior lienholder.
(5) Public sale conducted under the terms of Form FmHA or its
successor agency under Public Law 103-354 455-4, ``Agreement for
Voluntary Liquidation of Chattel Security,'' the power of sale in
security agreements or crop and chattel mortgage, or similar instrument,
if authorized by State Supplement.
[[Page 164]]
(b) Voluntary conveyance. Voluntary conveyance of chattels will be
accepted only when the borrower can convey ownership free of other liens
and the borrower can be released from liability under the conditions set
forth in Sec. 1955.10(f)(2) of this subpart. Payment of other
lienholders' debts by FmHA or its successor agency under Public Law 103-
354 in order to accept voluntary conveyance of chattels is not
authorized. Before a voluntary conveyance from a Farmer Program loan
borrower can be accepted, the borrower must be sent Exhibit A with
Attachments 1 and 2 of Subpart S of Part 1951 of this chapter.
(1) Offer. The borrower's offer of voluntary conveyance will be made
on Form FmHA or its successor agency under Public Law 103-354 1955-1. If
it is determined the conveyance offer can be accepted, the borrower will
execute a bill of sale itemizing each item of chattel property being
conveyed and will provide titles to vehicles or other equipment, where
applicable.
(2) Acceptance of offer release from liability. Before accepting an
offer to convey chattels to FmHA or its successor agency under Public
Law 103-354, the concurrence of the State Director must be obtained.
When chattel security is voluntarily conveyed to the Government and the
borrower and cosigner(s), if any, are to be released from liability, the
servicing official will stamp the note(s) ``Satisfied by Surrender of
Security and Borrower Released from Liability.'' When the Agency debt
less the market value and prior liens is $1 million or more (including
principal, interest and other charges), release of liability must be
approved by the Administrator or designee; otherwise, the State Director
must approve the release of liability. All cases requiring a release of
liability will be submitted in accordance with Exhibit A of Subpart B of
Part 1956 of this chapter (available in any FmHA or its successor agency
under Public Law 103-354 office). Form FmHA or its successor agency
under Public Law 103-354 1955-1 will be executed by the servicing
official showing acceptance by the Government, and the satisfied note(s)
and a copy of Form FmHA or its successor agency under Public Law 103-354
1955-1 will be furnished to the borrower.
(3) Release of lien(s). When an offer has been accepted as outlined
in paragraph (b)(2) of this section, the servicing official will release
any liens of record which secured the satisfied indebtedness.
(4) Rejection of offer. If it is determined an offer of voluntary
conveyance will not be accepted, the servicing official will indicate on
Form FmHA or its successor agency under Public Law 103-354 1955-1 that
the offer is rejected, execute the form, and furnish a copy to the
borrower.
(c) Attending sales. The servicing official will:
(1) Attend all sales described in paragraph (a)(5) of this section
unless an exception is authorized by the State Director because of
physical danger to the FmHA or its successor agency under Public Law
103-354 employee or adverse publicity would be likely.
(2) Attend public sales by prior lienholders when the market value
of the chattel property is significantly more than the amount of the
prior lien(s).
(3) Obtain the advice of the State Director on attending sales
described in paragraphs (a) (1), (2), and (3) of this section.
(d) Appraising chattel property. Prior to the sale, the servicing
official will appraise chattel property using Form FmHA or its successor
agency under Public Law 103-354 440-21, ``Appraisal of Chattel
Property.'' If a qualified appraiser is not available to appraise
chattel property, the State Director may obtain an appraisal from a
qualified source outside FmHA or its successor agency under Public Law
103-354 by contract in accordance with FmHA or its successor agency
under Public Law 103-354 Instruction 2024-A (available in any FmHA or
its successor agency under Public Law 103-354 office).
(e) Abandonment of security interest. The State Director may
authorize abandonment of the Government's security interest when chattel
property, considering costs of moving or rehabilitation, has no market
value and obtaining title would not be in the best interest of the
Government.
[[Page 165]]
(f) Bidding at sale. (1) The servicing official is authorized to bid
at sales described in paragraph (a) of this section. Ordinarily, only
one bid will be made on items of chattel security unless the State
Director authorizes incremental bidding. Bids will be made only when no
other party bids or when it appears bidding will stop and the property
will be sold for less than the amount of the Government's authorized
bid. When the State Director determines attendance of an FmHA or its
successor agency under Public Law 103-354 employee might pose physical
danger, a written bid may be submitted to the party holding the sale.
The bid(s) will be the lesser of:
(i) The market value of the item(s) less the estimated costs
involved in the acquisition, care, and sale of the item(s) of security;
or
(ii) The unpaid balance of the borrower's secured FmHA or its
successor agency under Public Law 103-354 debt plus prior liens, if any.
(2) Bids will not be made in the following situations unless
authorized by the State Director:
(i) When chattel property under prior lien has a market value which
is not significantly more than the amount owed the prior lienholder. If
FmHA or its successor agency under Public Law 103-354 holds a junior
lien on several items of chattel property, advice should be obtained
from the State Director on bidding.
(ii) After sufficient chattel property has been bid in by FmHA or
its successor agency under Public Law 103-354 to satisfy the FmHA or its
successor agency under Public Law 103-354 debt; prior liens, and cost of
the sale.
(iii) When the sale is being conducted by a lienholder junior to
FmHA or its successor agency under Public Law 103-354.
(iv) At a private sale.
(v) When the sale is being conducted under the terms of Form FmHA or
its successor agency under Public Law 103-354 455-3, ``Agreement for
Sale by Borrower (Chattels and/or Real Estate)''.
(g) Payment of costs. Costs to be paid by FmHA or its successor
agency under Public Law 103-354 in connection with acquisition of
chattel property will be paid as outlined in Sec. 1955.5(d) of this
subpart as recoverable costs.
Note: Payment of other lienholders' debts in connection with
voluntary conveyance of chattels is not authorized.
(h) Reporting acquisition of chattel property. Acquisition of
chattel property will be reported by use of Form FmHA or its successor
agency under Public Law 103-354 1955-3 prepared and distributed in
accordance with the FMI.
[50 FR 23904, June 7, 1985, as amended at 50 FR 45783, Nov. 1, 1985; 51
FR 45433, Dec. 18, 1986; 53 FR 27828 July 25, 1988; 53 FR 35764, Sept.
14, 1988; 60 FR 28320, May 31, 1995]
Sec. 1955.21 Exception authority.
The Administrator may, in individual cases, make an exception to any
requirement or provision of this subpart or address any omission of this
subpart which is not inconsistent with the authorizing statute or other
applicable law if the Administrator determines that the Government's
interest would be adversely affected or the immediate health and/or
safety of tenants or the community are endangered if there is no adverse
effect on the Government's interest. The Administrator will exercise
this authority upon the request of the State Director with
recommendation of the appropriate program Assistant Administrator; or
upon request initiated by the appropriate program Assistant
Administrator. Requests for exceptions must be made in writing and
supported with documentation to explain the adverse effect, propose
alternative courses of action, and show how the adverse effect will be
eliminated or minimized if the exception is granted.
Sec. 1955.22 State supplements.
State Supplements will be prepared with the assistance of OGC as
necessary to comply with State laws or only as specifically authorized
in this regulation to provide guidance to FmHA or its successor agency
under Public Law 103-354 officials. State supplements will be submitted
to the National Office for post approval in accordance with FmHA or its
successor agency under Public Law 103-354 Instruction 2006-B (available
in any
[[Page 166]]
FmHA or its successor agency under Public Law 103-354 office).
Sec. Sec. 1955.23-1955.49 [Reserved]
Sec. 1955.50 OMB control number.
The collection of information requirements contained in this
regulation have been approved by the Office of Management and Budget
(OMB) and have been assigned OMB control number 0575-0109. Public
reporting burden for this collection of information is estimated to vary
from 5 minutes to 5 hours per response, with an average of .56 hours per
response including time for reviewing instructions, searching existing
data sources, gathering and maintaining the data needed, and completing
and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of
information, including suggestions for reducing this burden, to
Department of Agriculture, Clearance Officer, OIRM, room 404-W,
Washington, DC 20250; and to the Office of Management and Budget,
Paperwork Reduction Project (OMB 0575-0109), Washington, DC
20503.
[57 FR 1372, Jan. 14, 1992]
Exhibits A-F to Subpart A of Part 1955 [Reserved]
Subpart B_Management of Property
Source: 53 FR 35765, Sept. 14, 1988, unless otherwise noted.