[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2008 Edition]
[From the U.S. Government Printing Office]
[[Page i]]
7
Parts 1950 to 1999
Revised as of January 1, 2008
Agriculture
________________________
Containing a codification of documents of general
applicability and future effect
As of January 1, 2008
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........................ 365
Alphabetical List of Agencies Appearing in the CFR...... 383
List of CFR Sections Affected........................... 393
[[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
permanent rules published in the Federal Register by the Executive
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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LEGAL STATUS
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HOW TO USE THE CODE OF FEDERAL REGULATIONS
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OMB CONTROL NUMBERS
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Federal agencies to display an OMB control number with their information
collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
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the revision dates of the 50 CFR titles.
[[Page vii]]
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Office of the Federal Register.
January 1, 2008.
[[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, 2008.
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, Susannah C. Hurley and Moja N. Mwaniki were Chief
Editors. The Code of Federal Regulations publication program is under
the direction of Michael L. White, 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......................... 78
1956 Debt settlement............................. 157
1957 Asset sales................................. 182
1962 Personal property........................... 183
1965 Real property............................... 221
1980 General..................................... 221
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. This subpart is inapplicable to Farm
Service Agency, Farm Loan Programs.
[45 FR 43152, June 26, 1980, as amended at 72 FR 64122, Nov. 15, 2007]
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
[[Page 8]]
are satisfactory to the borrower and FmHA or its successor agency under
Public Law 103-354. However, because 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 Use of Rural Development loans and grants for other purposes.
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.
[[Page 12]]
1951.265 Application for subsequent loan, subordination, or consent to
additional indebtedness from a borrower who has been requested
to graduate.
1951.266 Special requirements for MFH borrowers.
1951.267-1951.299 [Reserved]
1951.300 OMB control number.
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-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.
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 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. This
subpart does not apply to Water and Waste Programs of the Rural
Utilities Service, Watershed loans, or Resource Conservation and
Development loans, which are serviced under part 1782 of this title. In
addition, this subpart is inapplicable to Farm Service Agency, Farm Loan
Programs.
[52 FR 26134, July 13, 1987, as amended at 69 FR 69105, Nov. 26, 2004;
72 FR 55017, Sept. 28, 2007; 72 FR 64122, Nov. 15, 2007]
Sec. 1951.2 Policy.
Borrowers are expected to pay their debts to the Farmers Home
Administration or its successor agency under
[[Page 13]]
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).
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.
[[Page 14]]
(c) Notifying borrowers of payments. County Supervisors will notify
borrowers of the dates and amounts of payments that have been agreed on
for all types of accounts. Form FmHA or its successor agency under
Public Law 103-354 451-3, ``Reminder of Payment to be Made,'' or similar
form approved by the State Director, will be used. The form will not
contain any language indicating that an account is delinquent. These
notices will be timed to reach borrowers immediately before the receipt
of the income from which the payments should be made or before the
installment due date on the note, as appropriate, and may include other
pertinent information such as a reference to agreements reached during
the year and sources of income from which the payment was planned. Such
notices need not be sent when frequent payments are scheduled and the
borrower customarily makes the payments when due.
(d) Subsequent servicing. (1) When a Farmer Program borrower fails
to make a payment as agreed, the County Supervisor will notify the
borrower in accordance with subpart S of part 1951 of this chapter.
(2) When a borrower other than a Farmer Program borrower fails to
make a payment as agreed, the County Supervisor will contact the
borrower to discuss the reasons why the payment was not made and to
develop specific plans, for making the payment. Form FmHA or its
successor agency under Public Law 103-354 451-32, ``Notice of Payment
Due,'' may be used to notify borrowers who make payments directly to the
Finance Office that their payment has not been received. Form FmHA or
its successor agency under Public Law 103-354 450-13, ``Request for
Assignment of Income From Trust Property,'' may be used when other
methods of loan collection fail and debt repayment is possible from
trust income. In the event the borrower refuses to make the payment when
income is available, or if it is determined that income will not be
available to make the payment within a reasonable length of time and
will not be available to make future payments, action will be taken to
protect the Government's interest in accordance with applicable
regulations. Followup actions of subsequent servicing will be noted on
appropriate Management System Cards.
(e) Maintaining records of accounts in County Offices. Records of
the accounts of FmHA or its successor agency under Public Law 103-354
borrowers will be maintained in the County Office on Forms FmHA or its
successor agency under Public Law 103-354 1905-1, FmHA or its successor
agency under Public Law 103-354 1905-5, FmHA or its successor agency
under Public Law 103-354 1905-10, ``Management System Card-
Association,'' as provided in FmHA or its successor agency under Public
Law 103-354 Instruction 1905-A (available in any FmHA or its successor
agency under Public Law 103-354 office).
(f) Inquiry for Multiple Family Housing (MFH) loans. Inquiry for all
RRH, RCH, LH, RHS and SO loans and grants will be made through field
terminals using procedures in the ``MFH Users Procedures'' manual or by
contacting the MFH Unit in the Finance Office.
(g) Inquiry for other than Multiple Family Housing (MFH) loans.
Inquiry for these loan programs will be made 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
[[Page 15]]
through the end of the most recent quarter. If a borrower requests a
loan summary statement with data through the most recent quarter, county
supervisors may request copies of these quarterly or annual statements
by sending Form FmHA or its successor agency under Public Law 103-354
1951-57, ``Request for Loan Summary Statement,'' to the Finance Office.
(3) When a loan summary statement is requested by the borrower, the
field office will copy the applicable annual or quarterly Forms FmHA or
its successor agency under Public Law 103-354 1951-9. A copy(ies) of
Form FmHA or its successor agency under Public Law 103-354 1951-9; a
copy of Form FmHA or its successor agency under Public Law 103-354 1951-
58, ``Basis for Loan Account Payment Application for Farmer Program
Loans;'' and a copy of the promissory note showing borrower installments
will constitute the loan summary statement provided to the borrower.
[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 11457, Apr. 9, 1987; 53
FR 35716, Sept. 14, 1988; 54 FR 10269, Mar. 13, 1989]
Sec. 1951.8 Types of payments.
(a) Regular payments. Regular payments are all payments other than
extra payments and refunds. Usually, regular payments are derived from
farm income, as defined Sec. 1962.4 of subpart A of part 1962 of this
chapter. Regular payments also include payments derived from sources
such as Agricultural Stabilization and Conservation Service payments
(other than those referred to in paragraph (b) of this section), off-
farm income, inheritances, life insurance, mineral royalties and income
from mineral leases (see Sec. 1965.17 (c) of subpart A of part 1965 of
this chapter), including income from leases or bonuses. Regular payments
in the case of a Section 502 RH loan to an applicant involved in a
mutual self-help project will include loan funds advanced for the
payment of any part of the first and second installments. All payments
to the lock box facility(s) by direct payment borrowers are considered
regular payments.
(b) Extra payments. Extra payments are payments derived from:
(1) Sale of chattels other than chattels which will be sold to
produce farm income or real estate security, including rental or lease
of real estate security of a depreciating or depleting nature.
(2) Refinancing of the real estate debt.
(3) Cash proceeds of real property insurance as provided in subpart
A of part 1806 of this chapter (FmHA or its successor agency under
Public Law 103-354 Instruction 426.1).
(4) A sale of real estate not mortgaged to the Government, pursuant
to a condition of loan approval.
(5) Agricultural Conservation Program payments as provided in
subpart A of part 1941 of this chapter.
(6) Transactions of a similar nature which reduce the value of
security other than chattels which will be sold to produce farm income.
(c) Refunds. Refunds are payments derived from the return of unused
loan or grant funds, except that the term ``refunds'' as used in Form
1940-17, ``Promissory Note,'' will be construed to mean the return of
funds advanced 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
[[Page 16]]
year's income will be distributed in accordance with the following
priorities:
(i) First, to an amount equal to any advances made by FmHA or its
successor agency under Public Law 103-354 for the crop year's living and
operating expenses. If no advances were made, distribute the payment
according to paragraph (a)(1)(ii) of this section. If the amount of the
payment was greater than the amount of any advances, the excess should
be distributed according to paragraph (a)(1)(ii) of this section.
(ii) Second, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the approximate amounts due on each for the
year. In determining the amounts due for the year, deduct an amount
equal to any advances for the year's living and operating expenses. If
the amount of the payment exceeds the amount of any advances plus the
amount due on each loan for the year, the excess should be distributed
according to paragraph (a)(1)(iii) of this section.
(iii) Third, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the delinquencies existing on each. If the
amount of the payment exceeds the amount of any advances plus the amount
due on each loan for the year plus any delinquencies, the excess should
be distributed according to paragraph (a)(1)(iv) of this section.
(iv) Fourth, as advance payments on FmHA or its successor agency
under Public Law 103-354 loans. In making such distribution consider the
principal balance outstanding on each loan, the security position of the
liens securing each loan, the borrower's request, and related
circumstances.
(2) When the County Supervisor determines it is reasonable to expect
that the income which will be available for payment on FmHA or its
successor agency under Public Law 103-354 debts will be sufficient to
pay the installments scheduled for the year under the first and second
priorities, collections may be distributed so as to avoid unnecessary
delinquencies, and regular payments derived from rental or lease of real
estate security after approval of foreclosure or voluntary conveyance
will be distributed to the real estate lien of the highest priority.
(3) Payments will be distributed differently than the priorities
provided in this section if accounts are out of balance or a different
distribution is needed to protect the government's interest.
(4) Any income received from the sale of softwood timber on marginal
land converted to the production of softwood timber must be applied on
the ST loan(s).
(b) Distribution of extra payments. Extra payments will be
distributed first to the FmHA or its successor agency under Public Law
103-354 loan having highest priority of lien on the security from which
the payment was derived. When the payment is in excess of the unpaid
balance of the FmHA or its successor agency under Public Law 103-354
lien having the highest priority, the balance of such payment will be
distributed to the FmHA or its successor agency under Public Law 103-354
loan having the next highest priority.
(c) Application of payments. After the decision is reached as to the
amount of each payment that is to be distributed to the different loan
types, application 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
[[Page 17]]
accordance with the terms of the note. This section only applies after
the County Supervisor determines the amount of proceeds that will be
released for other purposes in accordance with the annual plan (Form
FmHA or its successor agency under Public Law 103-354 431-2) and Form
FmHA or its successor agency under Public Law 103-354 1962-1.
(a) Rules for selection of accounts. The following rules will govern
the selection of accounts and installments to which payments will be
applied. As used in this section, ``recoverable costs'' are those which
the loan agreement documents say the borrower is primarily responsible
for paying and which the government can charge to the borrower's
account.
(1) Payments from farm income or from assignments of income will be
applied first to accounts with small balances, including recoverable
costs, to remove such accounts from the records. Any balance will be
applied on debts secured by the lien in the following order:
(i) To amounts due or falling due on loans made in connection with
the current year's operations, except:
(A) When funds loaned for the purchase of capital goods were used to
meet the current year's operating expenses, payments will be applied
first to the final unpaid installments to the extent of the loan funds
so used. These payments will be treated as extra payments.
(B) When installments on loans previously made fall due before the
installment on the loan for the current year's operations or when such
loans are delinquent and it is anticipated that sufficient income will
be received to meet the installment on the current year's operations
when due, collections may be applied first to installments on loans made
in previous years.
(ii) To accounts having the oldest delinquencies, or if no
delinquencies, to the oldest unpaid account, except that the amount
available for payment on OL and EM loan accounts will be prorated
between the two accounts on the basis of:
(A) The delinquent amount owed on each, or
(B) The total amount owed on each if there are no delinquencies.
(2) Non-farm income and payments derived from the sale of real
estate security, will be applied to the earliest account secured by the
earliest lien covering such security. The amount to be applied to
principal will be applied to the final unpaid installment(s).
(3) On partial refunds of loan advances, the amount to be applied to
the principal will be applied to the final unpaid installment on the
note which evidences such advance; however, a refund of an advance for
current farm and home expenses repayable within the year may be applied
to the principal on the first unpaid installment on such note as a
regular payment.
(4) Total refunds of loan advances will be applied to the notes
which evidence such advances.
(5) In applying payments from sources other than those in paragraphs
(a)(2), (3), and (4) of this section the borrower has the right to
select the loan account or accounts on which such payments will be
applied. In the absence of the borrower's selection, 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
[[Page 18]]
incorrectly will be referred to the Finance Office.
[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988;
54 FR 46844, Nov. 8, 1989; 57 FR 18680, Apr. 30, 1992]
Sec. 1951.11 Application of payments on real estate accounts.
(a) Regular payments. If a borrower owes more than one type of real
estate loan, or has received initial and subsequent real estate loans on
which separate accounts are maintained, payments on such accounts should
be applied so as to maintain the note accounts approximately in balance
at the end of the year with respect to installments due on the notes,
other charges, and delinquencies.
(b) Refunds and extra payments. (1) Refunds will be applied to the
note representing the loan from which the advance was made.
(2) Extra payments will be applied to the note secured by the
earliest mortgage on the property from which the extra payment was
obtained.
(3) Funds remaining from an RH grant or a combination loan and
grant, after completion of development, will be refunded. If the
borrower received a combination loan and grant, the remaining funds up
to the amount of the grant are considered to be grant funds.
(c) County Office actions. (1) The collecting official will complete
Form FmHA or its successor agency under Public Law 103-354 451-1,
``Acknowledgment of Cash Payment,'' in accordance with the FMI when cash
or money orders are received as a payment.
(2) The collection official will complete Form FmHA or its successor
agency under Public Law 103-354 451-2, ``Schedule of Remittances,'' in
accordance with the FMI.
(d) Finance Office handling. (1) Regular payment will be handled as
follows.
(i) Payments will be applied first to satisfy any administrative
costs such as a charge for an uncollectible check. (The amounts of any
such charges are available from any FmHA or its successor agency under
Public Law 103-354 office.)
(ii) Amounts paid on direct loan accounts will be credited to the
borrower's account as of the date of Form FmHA or its successor agency
under Public Law 103-354 451-2 or for direct payments the date payment
is received in the Finance Office, and will be applied first to a
portion of any interest which accrues during the deferral period, second
to interest accrued to the date received and third to principal, in
accordance with the terms of the note.
(iii) Amounts paid on insured loan accounts will be credited to the
borrower's account as of the date of Form FmHA or its successor agency
under Public Law 103-354 451-2 or for direct payments the date payment
is received in the Finance Office, and will be applied in the following
order:
(A) Advances from the insurance funds as shown on the latest Form
FmHA or its successor agency under Public Law 103-354 389-404,
``Analysis of Accounts Maturing.'' (If the collection is intended for
final payment of the loan, or to pay the insurance account in connection
with an assumption agreement, the collection will be applied first to
the interest accrued on the advance to the date of the payment.)
(B) Principal advanced from the insurance fund.
(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
[[Page 19]]
borrower except indirectly in connection with the amortization of a
direct loan.
(3) The Finance Office will remit final payments promptly to
lenders. Other collections (regular, extra, and refunds) applied to a
borrower's insured note will be accumulated until the annual installment
due date, and will be remitted along with any advances from the
insurance fund to the lender within 30 days after the installment due
date. All payments to a lender will be credited first to interest to the
date of the Treasury check and then to principal. Since the application
of a payment to a borrower's account with the Government and the
Government's account with a lender is of a different effective date, the
balance owed by a borrower to the government and by the Government to a
lender ordinarily will not be the same.
[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 46845, Nov. 8, 1989]
Sec. 1951.12 Changes in the application of loan payments.
(a) Authority to change payments. County Supervisors and Assistant
County Supervisors are hereby authorized to approve requests for changes
in the application of payments between loan accounts when payments have
been applied in error and such requests conform to the policies
expressed in this Subpart. However, no change will be made if the
payment applied in error resulted in the payment in full of any FmHA or
its successor agency under Public Law 103-354 loan and the canceled note
or notes have been returned to the borrower.
(b) Form FmHA or its successor agency under Public Law 103-354 1951-
7, ``Request for Change in Application.'' Requests for changes in
application of payments will be made on Form FmHA or its successor
agency under Public Law 103-354 1951-7. For requests which County
Supervisors or Assistant County Supervisors are authorized to approve,
the County Supervisor or Assistant County Supervisor will sign the
original of Form FmHA or its successor agency under Public Law 103-354
1951-7 and forward it to the Finance Office. The Finance Office will
send Form FmHA or its successor agency under Public Law 103-354 451-26
to the County Office when the change is made on Finance Office records.
(c) Changes by the Finance Office in application of remittances. (1)
When reapplication of collection is made by the Finance Office Form FmHA
or its successor agency under Public Law 103-354 451-8, ``Journal
Voucher for Loan Account Adjustments,'' will be prepared. Form FmHA or
its successor agency under Public Law 103-354 451-26 will be forwarded
to the County Office to show the reapplication.
(2) When necessary, the Finance Office will correct Form FmHA or its
successor agency under Public Law 103-354 451-2 as prepared by the
County Office.
[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 18883, May 3, 1989]
Sec. 1951.13 Overpayments and refunds.
(a) The Finance Office will mail any overpayment refund check to the
County Supervisor, who will verify that the refund is due before
delivering the check.
(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,
[[Page 20]]
show the code for the loan secured by the earliest promissory note (if
lien secures more than one note).
(b) The Finance Office will forward Form FmHA or its successor
agency under Public Law 103-354 451-26, to the County Office when the
recoverable cost charge is processed.
Sec. 1951.15 Return of paid-in-full or satisfied notes to borrower.
(a) Notes not held in County Office. When the original of the note
is not held in the County Office the County Supervisor will request the
Finance Office to acquire and forward the note to the County Office.
(b) Return of notes after collection. When a note (or loan-type
account) evidencing an OL, EM, EE, EO, special livestock (SL), SW loan
coded ``24'', or other production-type loan has been satisfied by
payment in full, the County Supervisor will examine the borrower's
records in the County Office and determine that the account has been
satisfied before delivering the note to the borrower (See Sec. 1962.27
of subpart A of part 1962 on the satisfaction of chattel security
instruments). The note(s) will be returned to the borrower immediately
except that:
(1) When the final payment is made in a form other than currency and
coin, Treasury check, cashier's check, certified check, Postal or bank
money order, bank draft, or a check issued by a responsible lending
institution or a responsible title insurance or title and trust company,
the note or notes will not be surrendered until 30 days after the date
of final payment, and
(2) When notes are needed in making marginal releases or
satisfactions or security instruments, the notes will be held until the
instruments are satisfied.
(c) Surrender of notes to effect collection. (1) County Supervisors
are authorized to surrender notes to borrowers when final payment of the
amount due is made in the form of currency and coin, Treasury check,
cashier's check, certified check, Postal or bank money order, bank
draft, or a check issued by a responsible lending institution or a
responsible title insurance or title trust company.
(2) The amount due on the note(s) to be surrendered will be
confirmed with the Finance Office. County Supervisors will request the
original note(s) from the Finance Office if it is not in the County
Office.
(d) Return of notes reduced to judgment. Notes which have been
reduced to judgment are a part of the court records and ordinarily
cannot be withdrawn and returned to the borrower even after satisfaction
of the judgment. Therefore, no effort will be made to obtain and return
such notes except on the written request of the judgment debtor or
debtor's attorney. Such requests will be referred to the Office of the
General Counsel (OGC).
(e) Debt settlement case. See subparts B or C of part 1956 of this
chapter for the handling of notes in debt settlement cases.
(f) Lost notes. (1) All promissory notes dated on or after 11-1-73
are held in the County Office. A few notes (with the exception of OL
notes) are still held by investors. If a note dated prior to 11-1-73
cannot be located in the County Office and it is needed for servicing
the 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.
[[Page 21]]
(``Recoverable costs'' is defined in Sec. 1951.10(a) of this Subpart.)
(2) Insured loan accounts. ``Loan insurance charge'' means a
separate insurance charge applying to FO and SW insured loans evidenced
by promissory note forms bearing a form date before January 8, 1959. For
all insured loans evidenced by note forms bearing a form date of January
8, 1959, or later, the insurance charge is called ``annual charge'' and
is included in the interest position of the annual installment in the
note. For a borrower with an insured loan, the term ``Installment on
note and other charge'' means the sum of the following:
(i) Annual installment for the year as provided in the promissory
note.
(ii) Amounts owed the Agricultural Credit Insurance Fund. These
amounts are covered by the general term ``Insurance Account'' and
consist of the following:
(A) Unpaid loan insurance charges from prior years.
(B) Loan insurance charge for the current year. The loan insurance
charge is computed on the basis of the amount of the unpaid principal
obligation as of the installment due date and is due and payable on or
before the next installment due date.
(C) Any unpaid balance on advances from the insurance fund,
including any recoverable cost charges paid for the borrower during the
year.
(D) Any accrued interest on advances from the insurance fund.
(iii) The amounts owned on the insurance account must be paid by
regular payments each year whether or not the note account is ahead of
schedule.
(b) Schedule status. For direct and insured loans, a borrower will
be on schedule when the sum of regular payments through the last
preceding due date of the note equals the sum of installments on the
note and other charges due through the same date. Such a borrower will
be ahead of schedule or behind schedule when the sum of such regular
payments is larger or smaller, respectively, than the sum of such
installments on the note and other charges.
(c) Real estate payments. A borrower may make regular payments ahead
of schedule at any time and use them later to forego payments or to
supplement the amount available during any year for payment on the
annual installment on the note and other charges. Refunds and extra
payments will not be used in this way.
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
[[Page 22]]
1924 of this chapter will have their interest rate on their loan
increased to the current rate for the OL, FO, or SW loan as applicable.
The rate may increase in increments of whole numbers to the current
regular interest rate for borrowers. In the borrower's case file, the
County Supervisor must document the unplanned purchases and the failure
to provide information in a timely manner. The County Supervisor must
write the borrower a letter which sets out the facts documented in the
case file and advises the borrower that the interest rate will be
increased unless the unplanned purchases cease or unless the borrower
provides information in a timely manner. Whenever it appears that the
borrower has a substantial increase in income and repayment ability or
ceases farming, either the interest rate may be increased to the current
rate for FO, OL or SW loans, as applicable, or the borrower will be
graduated from the program as provided in subpart F of this part.
(4) The County Office will be responsible for scheduling and
completing the reviews.
(5) Borrowers who have received a deferral under Subpart S of this
part will not have the interest rate increased on their limited resource
loans during the deferral period.
(c) Processing. (1) If, after the review, the interest rate is to
remain the same, no further action needs to be taken.
(2) When the interest rate is increased to the current rate, the
loan will be recorded as a regular loan and will no longer be considered
a limited resource loan. The borrower must be notified in writing at
least 30 days prior to the date of the change. Exhibit B of this subpart
may be used as a guide. The effective date of the change in interest
rate will be the effective date on Exhibit B. The borrower must be
informed of the following for each loan:
(i) The authorization for the change,
(ii) Reason for change (repayment ability, etc.),
(iii) The effective date and rate of the increase in interest,
(iv) Amount of the new installments and dates due,
(v) Right to appeal.
(3) It is not necessary to obtain a new promissory note for this
change in interest rate.
[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988;
56 FR 3395, Jan. 30, 1991; 58 FR 15074, Mar. 19, 1993]
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]
Sec. 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]
Sec. Exhibit B to Subpart A of Part 1951--Notice of Change in Interest
Rate
(insert date)
Notice of Change in Interest Rate
________________________________________________________________________
(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.
[[Page 23]]
[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]
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.
[[Page 24]]
(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 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 part 766. In addition, for
Farm Loan Programs direct loans, salary offset will not be instituted if
the Federal salary has been considered on the farm operating 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
[[Page 25]]
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 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.
[[Page 26]]
(6) Non-cash credit. The accounting action taken by the Finance
Office to credit and make a borrower's account whole for funds paid by
the borrower but missing due to an employee's or former employee's
actions.
(7) Salary Offset. The collection of a debt due to the U.S. by
deducting a portion of the disposable pay of a Federal employee without
the employee's consent.
(c) Feasibility of salary offset. The first step the Certifying
Official must take to use this offset procedure is to decide, on a case
by case basis, whether offset is feasible. If an offset is feasible, the
directions in the following paragraphs of this section will be used to
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 part 766. 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
[[Page 27]]
disposable pay until the debt and all accumulated interest are paid in
full;
(5) The amount, frequency, approximate beginning date, and duration
of the intended deductions;
(6) An explanation of the requirements concerning interest,
penalties and administrative costs, unless such payments are waived;
(7) The employee's right to inspect and request a copy of records
relating to the debt;
(8) The employee's right to voluntarily enter into a written
agreement for a repayment schedule with the agency different from that
proposed by 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
[[Page 28]]
for a hearing on FmHA or its successor agency under Public Law 103-354's
determination that a debt exists and/or is due, or on the percentage of
net pay to be deducted each pay period, the Certifying Official will
notify the debtor in accordance with paragraph (g)(3) of this section
and request the debtor's case file or the ``For Official Use Only''
file.
(4) If a debtor is willing to have more than 15 percent of the
disposable pay sent to FmHA or its successor agency under Public Law
103-354, a letter prepared and signed by the debtor clearly 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
[[Page 29]]
will stay the commencement of collection proceedings. Any payments
collected in error due to untimely or delayed filing beyond the
employee's control will be refunded unless there are applicable
contractual or statutory provisions to the contrary.
(5) The hearing will be based on written submissions and
documentation provided by the debtor and FmHA or its successor agency
under Public Law 103-354 unless:
(i) A statute authorizes or requires consideration of waiving the
debt, the debtor requests waiver of the debt, and the waiver
determination turns on an issue of credibility or truth.
(ii) The debtor requests reconsideration of the debt and the hearing
officer determines that the question of the indebtedness cannot be
resolved by a review of the documentary evidence; for example, when the
validity of the debt turns on an issue of credibility or truth.
(iii) The hearing officer determines that an oral hearing is
appropriate.
(6) Oral hearings may be conducted by conference call at the request
of the debtor or at the discretion of the hearing officer. The hearing
officer's determination that the offset hearing is on the written record
is final and is not subject to review.
(7) The hearing officer will issue a written decision not later than
60 days after the filing of the petition requesting the hearing, unless
the employee requests and the Certifying Official grants a delay in the
proceedings. The written decision will state the facts supporting the
nature and origin of the debt, the hearing officer's analysis, findings
and conclusions as to the amount and validity of the debt, and repayment
schedule. Both the employee and FmHA or its successor agency under
Public Law 103-354 will be provided with a copy of the hearing officer's
written decision on the debt.
(h) 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
[[Page 30]]
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 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.
[[Page 31]]
Processing FmHA or its successor agency under Public Law 103-354 Form
Letter 1951-5 in the Finance Office will cause a refund to be sent to
the debtor through the county office or other appropriate FmHA or its
successor agency under Public Law 103-354 office. The debtor is not
entitled to any payment of interest, on the refunded amount.
(3) If a debtor does not request a hearing within the required time
and it is later determined that the delay was due to circumstances
beyond the debtor's control, any amount collected before the hearing
decision is made will be refunded promptly by the Certifying 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
[[Page 32]]
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.
(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; 72 FR 64122, Nov. 15, 2007]
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-
[[Page 33]]
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:
(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 Rural Housing Service (RHS), and Rural Business-Cooperative Service
(RBS), herein referred to as ``Agency,'' for processing final payment on
all loans. This subpart does not apply to
[[Page 34]]
Direct Single Family Housing customers or to the Rural Rental Housing,
Rural Cooperative Housing, or Farm Labor Housing Program of the RHS.
This subpart does not apply to Water and Waste Programs of the Rural
Utilities Service, Watershed loans, and Resource Conservation and
Development loans, which are serviced under part 1782 of this title. In
addition, this subpart is inapplicable to Farm Service Agency, Farm Loan
Programs.
[72 FR 55018, Sept. 28, 2007, as amended at 72 FR 64123, Nov. 15, 2007]
Sec. 1951.152 Definition.
As used in this subpart:
Mortgage. Includes real estate mortgage, deed of trust or any other
form of security instrument or lien on real property.
Sec. 1951.153 Chattel security or note-only cases.
(a) If a loan secured by both real estate and chattels is paid in
full, the chattel security instrument will be satisfied or released in
accordance with subpart A of part 1962 of this chapter.
(b) When a loan is evidenced by only a note and the note is paid in
full, FmHA or its successor agency under Public Law 103-354 will deliver
the note to the borrower in the manner prescribed in Sec. 1951.155(c)
of this subpart.
Sec. 1951.154 Satisfaction and release of documents.
(a) Authorization. FmHA or its successor agency under Public Law
103-354 is authorized to execute the necessary releases and
satisfactions and return security instruments and related documents to
borrowers. Satisfaction and release of security documents takes place:
(1) Upon receipt of payment in full of all amounts owed to the
Government including any amounts owed to the loan insurance account,
subsidy recapture amounts, all loan advances and/or other charges to the
borrower's account;
(2) Upon verification that the amount of payment received is
sufficient to pay the full amount owed by the borrower; or
(3) When a compromise or adjustment offer has been accepted and
approved by the appropriate Government official in full settlement of
the account and all required funds have been paid.
(b) [Reserved]
(c) Lost note. If the original note is lost FmHA or its successor
agency under Public Law 103-354 will give the borrower an affidavit of
lost note so that the release or satisfaction may be processed.
Sec. 1951.155 County and/or District Office actions.
(a) Funds remaining in supervised bank accounts. When a borrower is
ready to pay an insured or direct loan in full, any funds remaining in a
supervised bank account will be withdrawn and remitted for application
to the borrower's account. If the entire principal of the loan is
refunded after the loan is closed, the borrower will be required to pay
interest from the date of the note to the date of receipt of the refund.
(b) Determining amount to be collected. FmHA or its successor agency
under Public Law 103-354 will compute and verify the amount to be
collected for payment of an account in full. Requests for payoff
balances on all accounts will be furnished in writing in a format
specified by FmHA or its successor agency under Public Law 103-354
(available in any FmHA or its successor agency under Public Law 103-354
office).
(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
[[Page 35]]
is repaid. To permit graduation or refinancing by the borrower, the
mortgage securing the recapture owed may be subordinated.
(1) If FmHA or its successor agency under Public Law 103-354
receives final payments in a form other than cash, U.S. Treasury check,
cashier's check, certified check, money order, bank draft, or check
issued by an institution determined by FmHA or its successor agency
under Public Law 103-354 to be financially responsible, the mortgage and
paid note will not be released until after a 30-day waiting period. If
other indebtedness to FmHA or its successor agency under Public Law 103-
354 is not secured by the mortgage, FmHA or its successor agency under
Public Law 103-354 will execute the satisfaction or release. When the
stamped note is delivered to the borrower, FmHA or its successor agency
under Public Law 103-354 will also deliver the real estate mortgage and
related title papers such as title opinions, title insurance binders,
certificates of title, and abstracts which are the property of the
borrower. Any water stock certificates or other securities that are the
property of the borrower will be returned to the borrower. Also, any
assignments of income will be terminated as provided in the assignment
forms.
(2) Delivery of documents at the time of final payment will be made
when payment is in the form of cash, U.S. Treasury check, cashier's
check, certified check, money order, bank draft, or check issued by an
institution determined by FmHA or its successor agency under Public Law
103-354 to be responsible. FmHA or its successor agency under Public Law
103-354 will not accept payment in the form of foreign currency, foreign
checks or sight drafts. FmHA or its successor agency under Public Law
103-354 will execute the satisfaction or release (unless other
indebtedness to FmHA or its successor agency under Public Law 103-354 is
covered by the mortgage) and mark the original note with a paid-in-full
legend based upon receipt of the full payment balance of the borrower's
account(s), computed as of the date final payment is received. In
unusual cases where an insured promissory note is held by a private
holder, FmHA or its successor agency under Public Law 103-354 can
release the mortgage and deliver the note when it is received.
(d)-(e) [Reserved]
(f) Cost of recording or filing of satisfaction. The satisfaction or
release will be delivered to the borrower for recording and the
recording costs will be paid by the borrower, except when State law
requires the mortgagee to record or file satisfactions or release and
pay the recording costs.
(g) Property insurance. When the borrower's loan has been paid-in-
full and the satisfaction or release of the mortgage has been executed,
FmHA or its successor agency under Public Law 103-354 may release the
mortgage interest in the insurance policy as provided in subpart A of
part 1806 of this chapter (FmHA or its successor agency under Public Law
103-354 Instruction 426.1).
(h) [Reserved]
(i) Outstanding Loan Balance(s). FmHA or its successor agency under
Public Law 103-354 will attempt to collect any account balance(s) that
may result from an error by FmHA or its successor agency under Public
Law 103-354 in handling final payments according to paragraph
1951.155(b) of this section. If collection cannot be made, the debt will
be settled according to subpart B of part 1956 of this chapter or
reclassified to collection-only. A deficiency judgment may be considered
if the balance is a significant amount ($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:
Community Facility loans and grants, Rural
[[Page 36]]
Business Enterprise/Television Demonstration grants; loans for Grazing
and other shift-in-land-use projects; Association Recreation loans;
Association Irrigation and Drainage loans; Direct Business loans;
Economic Opportunity Cooperative loans; Rural Renewal loans; Energy
Impacted Area Development Assistance Program grants; National Nonprofit
Corporation grants; System for Delivery of Certain Rural Development
Programs panel grants; in part 4284 of 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 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. This subpart does not
apply to Water and Waste Programs of the Rural Utilities Service,
Watershed loans, and Resource Conservation and Development Loans, which
are serviced under part 1782 of this title.
[72 FR 55018, Sept. 28, 2007]
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
[[Page 37]]
discrimination on the basis of race, color, national origin, handicap,
religion, age, or sex in programs or activities receiving Federal
financial assistance. Such provisions apply for as long as the property
continues to be used for the same or similar purposes for which the
Federal assistance was extended, for so long as the purchaser owns it,
whichever is later.
Sec. 1951.205 Redelegation of authority.
Servicing functions under this subpart which are specifically
assigned to the State Director may be redelegated in writing to an
appropriate sufficiently trained designee.
Sec. 1951.206 Forms.
Forms utilized for actions under this subpart are to be modified
appropriately where necessary to adapt the forms for use by corporate
recipients rather than individuals.
Sec. 1951.207 State supplements.
State supplements developed to carry out the provisions of this
subpart will be prepared in accordance with subpart B of part 2006 of
this chapter (available in any FmHA or its successor agency under Public
Law 103-354 office) and applicable State laws and regulations. State
supplements are to be used only when required by National Instructions
or necessary to clarify the impact of State laws or regulations, and not
to restate the provisions of National Instructions. Advice and guidance
will be obtained as needed from the Office of the General Counsel (OGC).
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]
[[Page 38]]
Sec. 1951.215 Grants.
No monitoring action by FmHA or its successor agency under Public
Law 103-354 is required after grant closeout. Grant closeout is when all
required work is completed, administrative actions relating to the
completion of work and expenditure of funds have been accomplished, and
FmHA or its successor agency under Public Law 103-354 accepts final
expenditure information. However, grantees remain responsible in
accordance with the terms of the grant for property acquired with grant
funds.
(a) Applicability of requirements. Servicing actions relating to
FmHA or its successor agency under Public Law 103-354 grants are
governed by the provisions of this subpart, the terms of the Grant
Agreement and, if applicable, the provisions of 7 CFR parts 3015, 3016,
and 3017.
(1) Servicing actions will be carried out in accordance with the
terms of the ``Association Water or Sewer System Grant Agreement,'' and
RUS Bulletin 1780-12, ``Water and Waste Grant Agreement'' (available
from any USDA/Rural Development office or the Rural Utilities Service,
United States Department of Agriculture, Washington, DC 20250-1500).
Grant agreements with a revision date on or after January 29, 1979,
require that the grantee request disposition instructions from the
Agency before disposing of property which is no longer needed for
original grant purposes.
(2) When facilities financed in part by FmHA or its successor agency
under Public Law 103-354 grants are transferred or sold, repayment of
all or a portion of the grant is not required if the facility will be
used for the same purposes and the new owner provides a written
agreement to abide by the terms of the grant agreement.
(3) 7 CFR 3015 first became effective on November 10, 1981; 7 CFR
parts 3016 on October 1, 1988; and 7 CFR 3017 on March 18, 1989. Grants
made on or after those dates are subject to the provisions of those
regulations except to the extent of the express provisions of the Grant
Agreement.
(b) Authorities. Subject to the requirements of Sec. 1951.215(a),
authority to approve servicing actions is as follows:
(1) For water and waste disposal grants, the State Director is
authorized to approve any servicing actions needed, except that prior
approval of the Administrator is required when property acquired with
grant funds is disposed of in accordance with 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).
[[Page 39]]
Sec. 1951.218 Use of Rural Development loans and grants for other purposes.
(a) If, after making a loan or a grant, the Administrator determines
that the circumstances under which the loan or grant was made have
sufficiently changed to make the project or activity for which the loan
or grant was made available no longer appropriate, the Administrator may
allow the loan borrower or grant recipient to use property (real and
personal) purchased or improved with the loan or grant funds, or
proceeds from the sale of property (real and personal) purchased with
such funds, for another project or activity that:
(1) Will be carried out in the same area as the original project or
activity;
(2) Meets the criteria for a loan or grant described in section
381E(d) of the Consolidated Farm and Rural Development Act, as amended;
and
(3) Satisfies such additional requirements as are established by the
Administrator.
(b) For the purpose of this section, Administrator means the
Administrator of the Rural Housing Service or Rural Business-Cooperative
Service that has the delegated authority to administer the loan or grant
program that covers the property or the proceeds from the sale of
property proposed to be used in another way.
(c) If the new use of the property is under the authority of another
Administrator, the other Administrator will be consulted on whether the
new use will meet the criteria of the other program. Since the new
project or activity must be carried out in the same area as the original
project or activity, a new rural area determination will not be
necessary.
(d) Borrowers and grantees that wish to take advantage of this
option may make their request through the appropriate Rural Development
State Office. Permission to use this option will be exercised on a case-
by-case-basis on applications submitted through the State Office to the
Administrator for consideration. If the proposal is approved, the
Administrator will issue a memorandum to the State Director outlining
the conditions necessary to complete the transaction.
[72 FR 55018, Sept. 28, 2007]
Sec. Sec. 1951.219 [Reserved]
Sec. 1951.220 General servicing actions.
(a) Payment in full. Payment in full of a loan is handled according
to subpart D of part 1951 of this chapter. When a loan is paid in full,
the servicing official will:
(1) Notify the company providing fidelity bond coverage in writing
that the government no longer has an interest in the bond if the
government is named co-obligee on the bond.
(2) Release FmHA or its successor agency under Public Law 103-354's
interest in insurance policies according to applicable provisions of
subpart A of part 1806 (FmHA or its successor agency under Public Law
103-354 Instruction 426.1).
(3) Release FmHA or its successor agency under Public Law 103-354's
interest in any other security as appropriate, consulting with OGC if
necessary.
(b) Loan summary statements. Upon request of a borrower, FmHA or its
successor agency under Public Law 103-354 will issue a loan summary
statement showing account activity for each loan made or insured under
the CONACT. Field offices will post a notice on the bulletin board
informing borrowers of the availability of loan summary statements. See
exhibit A of subpart A of this part for a sample of the required notice.
(1) The loan summary statement period is from January 1 through
December 31. The Finance Office forwards to field offices a copy of Form
FmHA or its successor agency under Public Law 103-354 1951-9, ``Annual
Statement of Loan Account,'' to be retained in borrower files as a
permanent record of account activity for the year.
(2) Quarterly Forms FmHA or its successor agency under Public Law
103-354 1951-9 are retained in the Finance Office on microfiche. These
statements reflect cumulative data from the beginning of the current
year through the end of the most recent quarter. Servicing offices may
request copies of these quarterly or annual statements
[[Page 40]]
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:
(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
[[Page 41]]
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.
(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:
[[Page 42]]
(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.
(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.
[[Page 43]]
(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 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.
[[Page 44]]
(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.
(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.
[[Page 45]]
(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.
(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
[[Page 46]]
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:
(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
[[Page 47]]
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.
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
[[Page 48]]
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, 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
[[Page 49]]
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.
(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
[[Page 50]]
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
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;
[[Page 51]]
(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 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
[[Page 52]]
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.
(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.
[[Page 53]]
(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), 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;
[[Page 54]]
(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 103-354 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
[[Page 55]]
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 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.
[[Page 56]]
(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.
(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
[[Page 57]]
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 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
[[Page 58]]
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]
Sec. 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 need 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, 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
[[Page 59]]
the Rural Housing Service (RHS), or Rural Business-Cooperative Service
(RBS), depending upon the loan program discussed herein. This subpart
does not apply to Farm Service Agency, Farm Loan Programs and to RHS
direct single family housing (SFH) customers. In addition, this subpart
does not apply to Water and Waste Programs of the Rural Utilities
Service, Watershed loans, Resource Conservation and Development loans,
which are serviced under part 1782 of this title.
[72 FR 55018, Sept. 28, 2007, as amended at 72 FR 64123, Nov. 15, 2007]
Sec. 1951.252 Definitions.
Commercial classified. The Agency's highest quality Farm Credit
Programs (FCP) accounts. The financial condition of the borrowers is
strong enough to enable them to absorb the normal adversities of
agricultural production and marketing. There is ample security for all
loans, there is sufficient cash flow to meet the expenses of the
agricultural enterprise and the financial needs of the family, and to
service debts. The account is of such quality that commercial lenders
would likely view the loans as a profitable investment.
Farm Credit Programs (FCP) loans. FSA Farm Ownership (FO), Operating
(OL), Soil and Water (SW), Recreation (RL), Emergency (EM), Economic
Emergency (EE), Economic Opportunity (EO), Special Livestock (SL),
Softwood Timber (ST) loans, and Rural Housing loans for farm service
buildings (RHF).
Graduation, FCP. The payment in full of all FCP loans or all FCP
loans of one type (i.e., all loans made for chattel purposes or all
loans made for real estate purposes) by refinancing with other credit
sources either with or without an Agency loan guarantee. A loan made for
both chattel and real estate purposes, for example an EM loan, will be
classified according to how the majority of the loan's funds were
expended. Borrowers must continue with their farming operations to be
considered as graduated.
Graduation, other programs. The payment in full of any direct loan
for Community and Business Programs, and all direct loans for housing
programs, before maturity by refinancing with other credit sources.
Graduated housing borrowers must continue to hold title to the property.
Graduation, for other than FCP, does not include credit which is
guaranteed by the United States.
Prospectus, FCP. Consists of a transmittal letter with a current
balance sheet and projected year's budget attached. The applicant's or
borrower's name and address need not be withheld from the lender. The
prospectus is used to determine lender interest in financing or
refinancing specific Agency direct loan applicants and borrowers. The
prospectus will provide information regarding the availability of an
Agency loan guarantee and interest assistance.
Reasonable rates and terms. Those commercial rates and terms which
borrowers are expected to meet when borrowing for similar purposes and
similar periods of time. The ``similar periods of time'' of available
commercial loans will be measured against, but need not be the same as,
the remaining or original term of the loan. In the case of Multi-Family
Housing (MFH) loans, ``reasonable rates and terms'' would be considered
to mean financing that would allow the units to be offered to eligible
tenants at rates consistent with other multi-family housing.
Servicing official. The district or county office official
responsible for the immediate servicing functions of the borrower.
Standard classified. These loan accounts are fully acceptable by
Agency standards. Loan risk and potential loan servicing costs are
higher than would be acceptable to other lenders, but all loans are
adequately secured. Repayment ability is adequate, and there is a high
probability that all loans will be repaid as scheduled and in full.
Sec. 1951.253 Objectives.
(a) [Reserved]
(b) Borrowers must graduate to other credit at reasonable rates and
terms when they are able to do so.
(c) If a borrower refuses to graduate, the account will be
liquidated under the following conditions:
[[Page 60]]
(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 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;
[[Page 61]]
(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 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.
Sec. Exhibit A to Subpart F of Part 1951 [Reserved]
Sec. 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:___________________________________________________________
[[Page 62]]
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-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. This
subpart does not apply to Water and Waste Programs of the Rural
Utilities Service, Watershed loans, and Resource Conservation and
Development Loans, which are serviced under part 1782 of this title.
[72 FR 55018, Sept. 28, 2007]
Sec. 1951.702 Definitions.
As used in this subpart, the following definitions apply:
Active borrower. A borrower who has an outstanding account in the
records
[[Page 63]]
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;
(3) Provides detailed reason(s) why the assistance was determined to
be unauthorized;
[[Page 64]]
(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 or refuses to execute
documents to effect necessary account adjustments according of the
provisions of Sec. 1951.711,
[[Page 65]]
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 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.
[[Page 66]]
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 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
[[Page 67]]
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]
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.
[[Page 68]]
(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.
(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.
[[Page 69]]
(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 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.
[[Page 70]]
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. 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.
(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-
[[Page 71]]
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 72]]
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 73]]
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 74]]
(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 75]]
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 76]]
(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 77]]
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 78]]
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.
----------------------------------------------------------------------------------------------------------------
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.
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.
[[Page 79]]
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]
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.
[[Page 80]]
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 of this subpart. It pertains to the 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 Programs, RBS. This subpart does not
apply to Farm Service Agency, Farm Loan Programs, 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. In addition, this
subpart does not apply to Water and Waste Programs of the Rural
Utilities Service, Watershed loans, and Resource Conservation and
Development loans, which are serviced under part 1782 of this title.
[72 FR 55019, Sept. 28, 2007, as amended at 72 FR 64123, Nov. 15, 2007]
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 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
[[Page 81]]
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.
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
[[Page 82]]
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]
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.
[[Page 83]]
(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, 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.
[[Page 84]]
(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 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
[[Page 85]]
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 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.)
[[Page 86]]
(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 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
[[Page 87]]
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 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
[[Page 88]]
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 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:
[[Page 89]]
(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 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
[[Page 90]]
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 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,
[[Page 91]]
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 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
[[Page 92]]
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 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
[[Page 93]]
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 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
[[Page 94]]
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 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).
[[Page 95]]
(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:
(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.
[[Page 96]]
(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.
(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
[[Page 97]]
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, 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
[[Page 98]]
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 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
[[Page 99]]
(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.
(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
[[Page 100]]
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.
(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
[[Page 101]]
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 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
[[Page 102]]
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]
Sec. Exhibits A-F to Subpart A of Part 1955 [Reserved]
Subpart B_Management of Property
Source: 53 FR 35765, Sept. 14, 1988, unless otherwise noted.
Sec. 1955.51 Purpose.
This subpart delegates authority and prescribes policies and
procedures for the Rural Housing Service (RHS), Rural Business-
Cooperative Service (RBS)and herein referred to as ``Agency.'' This
subpart does not apply to Farm Service Agency, Farm Loan Programs, or to
RHS single family housing loans or community program loans sold without
insurance to the private sector. These community program loans will be
serviced by the private sector, and future revisions to this subpart no
longer apply to such loans. This subpart does not apply to the Rural
Rental Housing, Rural Cooperative Housing, or Farm Labor Housing Program
of RHS. In addition, this subpart does not apply to Water and Waste
Programs of the Rural Utilities Service, Watershed loans, and Resource
Conservation and Development loans, which are serviced under part 1782
of this title. This subpart covers:
(a) Management of real property which has been taken into custody by
the respective Agency after abandonment by the borrower;
(b) Management of real and chattel property which is in Agency
inventory; and
(c) Management of real and chattel property which is security for a
guaranteed loan liquidated by an Agency (or which the Agency is in the
process of liquidating).
[61 FR 59778, Nov. 22, 1996, as amended at 69 FR 69106, Nov. 26, 2004;
72 FR 55019, Sept. 28, 2007; 72 FR 64123, Nov. 15, 2007]
Sec. 1955.52 Policy.
Inventory and custodial real property will be effectively managed to
preserve its value and protect the Government's financial interests.
Properties owned or controlled by FmHA or its successor agency under
Public Law 103-354 will be maintained so that they are not a detriment
to the surrounding area and they comply with State and local codes.
Generally, FmHA or its successor agency under Public Law 103-354 will
continue operation of Multiple Family Housing (MFH) projects which are
acquired or taken into custody. Servicing of repossessed or abandoned
chattel property is covered in subpart A of part 1962 of this chapter,
and management of inventory chattel property is covered in Sec. 1955.80
of this subpart.
Sec. 1955.53 Definitions.
As used in this subpart, the following definitions apply:
CONACT or CONACT property. Property acquired or sold pursuant to the
Consolidated Farm and Rural Development Act (CONACT). Within this
subpart, it shall also be construed to cover property which secured
loans made pursuant to the Agriculture Credit Act of 1978; the Emergency
Agricultural Credit Adjustment Act of 1978; the Emergency Agricultural
Credit Act of 1984; the Food Security Act of 1985; and other statutes
giving agricultural lending authority to FmHA or its successor agency
under Public Law 103-354.
Contracting Officer (CO). CO means a person with the authority to
enter into, administer, and/or terminate contracts and make related
determinations and findings. The term includes authorized
representatives of the CO
[[Page 103]]
acting within the limits of their authority as delegated by the CO.
Custodial property. Borrower-owned real property and improvements
which serve as security for an FmHA or its successor agency under Public
Law 103-354 loan, have been abandoned by the borrower, and of which FmHA
or its successor agency under Public Law 103-354 has taken possession.
Farmer program loans. This includes Farm Ownership (FO), Soil and
Water (SW), Recreation (RL), Economic Opportunity (EO), Operating (OL),
Emergency (EM), Economic Emergency (EE), Special Livestock (SL),
Softwood Timber (ST) loans, and Rural Housing loans for farm service
buildings (RHF).
Government. The United States of America, acting through the FmHA or
its successor agency under Public Law 103-354, U.S. Department of
Agriculture.
Indian reservation. All land located within the limits of any Indian
reservation under the jurisdiction of the United States notwithstanding
the issuance of any patent, and including rights-of-way running through
the reservation; trust or restricted land located within the boundaries
of a former reservation of a federally recognized Indian tribe in the
State of Oklahoma; or all Indian allotments the Indian titles to which
have not been extinguished if such allotments are subject to the
jurisdiction of a federally recognized Indian tribe.
Inventory property. Real and chattel property and related rights to
which the Government has acquired title.
Loans to individuals. Farmer Program loans, as defined above,
whether to individuals or entities; Land Conservation and Development
(LCD); and Single-Family Housing (SFH), including both Sections 502 and
504 loans.
Loans to organizations. Community Facility (CF), Water and Waste
Disposal (WWD), Association Recreation, Watershed (WS), Resource
Conservation and Development (RC&D), loans to associations for
Irrigation and Drainage and other Soil and Water Conservation measures,
loans to Indian Tribes and Tribal Corporations, Shift-in-Land-Use
(Grazing Associations) Business and Industrial (B&I) to both individuals
and groups, Rural Development Loan Fund (RDLF), Intermediary Relending
Program (IRP), Nonprofit National Corporation (NNC), Economic
Opportunity Cooperative (EOC), Rural Housing Site (RHS), Rural
Cooperative Housing (RCH), and Rural Rental Housing (RRH) and Labor
Housing (LH) to both individuals and groups. The housing-type loans
identified here are referred to in this subpart collectively as MFH
loans.
Nonprogram (NP) property. SFH and MFH property acquired pursuant to
the Housing Act of 1949, as amended, that cannot be used by a borrower
to effectively carry out the objectives of the respective loan program;
for example, a dwelling that cannot be feasibly repaired to meet the
requirements for existing housing as described in 7 CFR part 3550. It
may contain a structure which would meet program standards; however, is
so remotely located it would not serve as an adequate residential unit
or an older house which is excessively expensive to heat and/or maintain
for a very-low or low-income homeowner.
Nonrecoverable cost is a contractual or noncontractual program loan
cost expense not chargeable to a borrower, property account, or part of
the loan subsidy.
Office of the General Counsel (OGC). The OGC, U.S. Department of
Agriculture, refers to the Regional Attorney or Attorney-in-Charge in an
OGC field office unless otherwise indicated.
Program property. SFH and MFH inventory property that can be used to
effectively carry out the objectives of their respective loan programs
with financing through that program. Inventory property located in an
area where the designation has been changed from rural to nonrural will
be considered as if it were still in a rural area.
Recoverable cost is a contractual or noncontractual program loan
expense chargeable to a borrower, property account, or part of the loan
subsidy.
Servicing official. For loans to individuals as defined in this
section, the servicing official is the County Supervisor. For insured
B&I loans, the servicing official is the State Director. For Rural
Development Loan Fund and Intermediary Relending Program loans, the
[[Page 104]]
servicing official is the Director, Business and Industry Division. For
Nonprofit National Corporations loans, the servicing official is
Director, Community Facility Division. For all other types of loans, the
servicing official is the District Director.
Suitable property. For FSA inventory property, real property that
can be used for agricultural purposes, including those farm properties
that may be used as a start up or add-on parcel of farmland. It also
includes a residence or other off-farm site that could be used as a
basis for a farming operation. For agencies other than FSA, real
property that could be used to carry out the objectives of the Agency's
loan program with financing provided through that program.
Surplus property. For FSA inventory property, real property that
cannot be used for agricultural purposes including nonfarm properties.
For other agencies, property that cannot be used to carry out the
objectives of financing available through the applicable loan program.
[53 FR 35765, Sept. 14, 1988, as amended at 56 FR 29402, June 27, 1991;
57 FR 19525, 19528, May 7, 1992; 58 FR 58648, Nov. 3, 1993; 62 FR 44396,
Aug. 21, 1997; 63 FR 41716, Aug. 5, 1998; 67 FR 78329, Dec. 24, 2002]
Sec. 1955.54 Redelegation of authority.
Authorities will be redelegated to the extent possible, consistent
with program objectives and available resources.
(a) Any authority in this subpart which is specifically provided to
the Administrator or to an Assistant Administrator may only be delegated
to a State Director. The State Director cannot redelegate such
authority.
(b) Except as provided in paragraph (a) of this section, the State
Director may redelegate, in writing, any authority delegated to the
State Director in this subpart, unless specifically excluded, to a
Program Chief, Program Specialist, or Property Management Specialist on
the State Office staff.
(c) The District Director may redelegate, in writing, any authority
delegated to the District Director in this subpart to an Assistant
District Director or District Loan Specialist. Authority of District
Directors in this subpart applies to Area Loan Specialists in Alaska and
the Director for the Western Pacific Territories.
(d) The County Supervisor may redelegate, in writing, any authority
delegated to the County Supervisor in this subpart to an Assistant
County Supervisor, GS-7 or above, who is determined by the County
Supervisor to be qualified. Authority of County Supervisors in this
subpart applies to Area Loan Specialists in Alaska, Island Directors in
Hawaii, the Director for the Western Pacific Territories, and Area
Supervisors in the Western Pacific Territories and American Samoa.
Sec. 1955.55 Taking abandoned real or chattel property into custody and related actions.
(a) Determination of abandonment. (Multi-family housing type loans
will be handled in accordance with 7 CFR part 3560, subpart J.) When it
appears a borrower has abandoned security property, the servicing
official shall make a diligent attempt to locate the borrower to
determine what the borrower's intentions are concerning the property.
This includes making inquiries of neighbors, checking with the Postal
Service, utility companies, employer(s), if known, and schools, if the
borrower has children, to see if the borrower's whereabouts can be
determined and an address obtained. A State supplement may be issued if
necessary to further define ``abandonment'' based on State law. If the
borrower is not occupying or is not in possession of the property but
has it listed for sale with a real estate broker or has made other
arrangements for its care or sale, it will not be considered abandoned
so long as it is adequately secured and maintained. Except for borrowers
with Farmers Program loans, if the borrower has made no effort to sell
the property and can be located, an opportunity to voluntarily convey
the property to the Government will be offered the borrower in
accordance with Sec. 1955.10 of Subpart A of this part. In farmer
program cases, borrowers must receive Attachments 1 and 2 of Exhibit A
of Subpart S of Part 1951 of this chapter and any appeal must be
concluded before any adverse action can be taken. The County Supervisor
will send
[[Page 105]]
these forms to the borrower's last known address as soon as it is
determined that the borrower has abandoned security property.
(b) Taking security property into FmHA or its successor agency under
Public Law 103-354 custody. When security property is determined to be
abandoned, the running record in the borrower's file will be fully
documented with the facts substantiating the determination of
abandonment, and the servicing official shall proceed as follows without
delay:
(1) For loans to individuals (except those with Farmer Program
loans), if there are no prior liens, or if a prior lienholder will not
take the measures necessary to protect the property, the County
Supervisor shall take custody of the property, and a problem case report
will be prepared recommending foreclosure in accordance with Sec.
1955.15 of Subpart A of this part, unless the borrower can be located
and voluntary liquidation accomplished. Farmer Program loan borrowers
will be sent the forms listed in paragraph (a) of this section and the
provisions of Sec. 1965.26 of Subpart A of Part 1965 of this chapter
will be followed.
(2) For MFH loans, if there are no prior liens, the District
Director will immediately notify the State Director, who will request
guidance from OGC and may also request advice from the National Office.
The State Director, with the advice of OGC, will advise the borrower by
writing a letter, certified mail, return receipt requested, at the
address currently used by Finance Office, outlining proposed actions by
FmHA or its successor agency under Public Law 103-354 to secure,
maintain, and operate the project.
(i) If the unpaid loan balance plus recoverable costs do not exceed
the State Director's loan approval authority, the State Director will
authorize the District Director to take custody of the property, make
emergency repairs if necessary to protect the Government's interest, and
will advise how the property is to be managed in accordance with 7 CFR
part 3560.
(ii) If the unpaid loan balance plus recoverable costs exceeds the
State Director's loan approval authority, the State Director will refer
the case to the National Office for advice on emergency actions to be
taken. The docket will be forwarded to the National Office with detailed
recommendations for immediate review and authorization for further
action, if requested by the MFH staff.
(iii) Costs incurred in connection with procurement of such things
as management services will be handled in accordance with FmHA or its
successor agency under Public Law 103-354 Instruction 2024-A (available
in any FmHA or its successor agency under Public Law 103-354 office).
(iv) The District Director will prepare a problem case report to
initiate foreclosure in accordance with Sec. 1955.15 of Subpart A of
this part and submit the report to the State Director along with a
proposed plan for managing the project while liquidation is pending.
(3) For organization loans other than MFH, if there are no prior
liens, the District Director will immediately notify the State Director
that the property has been abandoned and recommend action which should
be taken to protect the Government's interest. After obtaining the
advice of OGC and the appropriate staff in the National Office, the
State Director may authorize the District Director to take custody of
the property and give instructions for immediate actions to be taken as
necessary. The District Director will prepare a Report on Servicing
Action (Exhibit A of Subpart E of Part 1951 of this chapter)
recommending that foreclosure be initiated in accordance with Sec.
1955.15 of Subpart A of this part and submit the report to the State
Director, along with a proposed plan for management and/or operation of
the project while liquidation is pending.
(c) Protecting custodial property. The FmHA or its successor agency
under Public Law 103-354 official who takes custody of abandoned
property shall take the actions necessary to secure, maintain, preserve,
lease, manage, or operate the property.
(1) Nonsecurity personal property on premises. If a property has
been abandoned by a borrower who left nonsecurity personal property on
the premises, the personal property will not be removed and disposed of
before the real
[[Page 106]]
property is acquired by the Government. If the premises are in a
condition which presents a fire, health or safety hazard, but also
contains items of value, only the trash and debris presenting the hazard
will be removed. The servicing official may request advice from the
State Director as necessary. The servicing official shall check for
liens on nonsecurity personal property left on abandoned premises. If
there is a known lienholder(s), the lienholder(s) will be notified by
certified mail, return receipt requested, that the borrower has
abandoned the property and that FmHA or its successor agency under
Public Law 103-354 has taken the real property into custody.
Actions by FmHA or its successor agency under Public Law 103-354
must not damage or jeopardize livestock, growing crops, stored
agricultural products, or any other personal property which is not FmHA
or its successor agency under Public Law 103-354 security.
(2) Repairs to custodial property. Repairs to custodial property
will be limited to those which are essential to prevent further
deterioration of the property. Expenditures in excess of an aggregate of
$1,000 per property must have prior approval of the state Director.
(d) Emergency advances where liquidation is pending. Although
security property may not be defined as abandoned in accordance with
paragraph (a) of this section, if the borrower is not occupying the
property and refuses or is unable to protect the security property, the
servicing official is authorized to make expenditures necessary to
protect the Government's interest. This would include, but is not
limited to, securing or winterizing the property or making emergency
repairs to prevent deterioration. Expenditures will be handled in
accordance with paragraph (e) of this section. Situations where this
authority may be used include, but are not limited to, where a borrower
has a sale pending or when a voluntary conveyance is in process.
(e) Income and costs. Income received from the property will be
applied to the borrower's account as an extra payment. Expenditures will
be charged to the borrower's account as a recoverable cost.
(f) Off-site procurements. Circumstances may require off-site
procurement action(s) to be taken by FmHA or its successor agency under
Public Law 103-354 to protect custodial, security or inventory property
from damage or destruction and/or protect the Government's investment in
the property. Such procurements may include, but are not limited to
construction or reconstruction of roads, sewers, drainage work or
utility lines. This type work may be accomplished either through FmHA or
its successor agency under Public Law 103-354 procurement or cooperative
agreement. However, if FmHA or its successor agency under Public Law
103-354 is obtaining a service or product for itself only, it must be a
procurement and any such actions will be in accordance with FmHA or its
successor agency under Public Law 103-354 Instruction 2024-A (available
in any FmHA or its successor agency under Public Law 103-354 office).
Funding will come from the appropriate insurance fund.
(1) Conditions for procurement. Such expenditures may be made only
when all of the following conditions are met:
(i) A determination is made that failure to procure work would
likely result in a property loss greater than the expenditure;
(ii) There are no other feasible means (including cooperative
agreements) to accomplish the same result;
(iii) The recovery of such advance(s) is not authorized by security
instruments in the case of security or custodial property (no such
limitation exists for inventory property);
(iv) Written documentation supporting subparagraphs (i), (ii) and
(iii) has been obtained from the authorized program official;
(v) Approval has been obtained from the appropriate Assistant
Administrator.
(2) Direct procurement action. Where direct procurement action is
contemplated, an opinion must be obtained from the Regional Attorney
that:
[[Page 107]]
(i) FmHA or its successor agency under Public Law 103-354 has the
authority to enter the off-site property to accomplish the contemplated
work, or
(ii) A specific legal entity has authority to grant an easement
(right-of-way) to FmHA or its successor agency under Public Law 103-354
for the contemplated work and such an easement, in a form approved by
the Regional Attorney, has been obtained.
(3) Cooperative agreements. Cooperative agreements between FmHA or
its successor agency under Public Law 103-354 and other entities may be
made to accomplish the requirement where the principal purpose is to
provide money, property, services or items of value to state or local
governments or other recipients to accomplish a public purpose. Exhibit
C of this subpart (available in any FmHA or its successor agency under
Public Law 103-354 office) is an example of a typical cooperative
agreement. A USDA handbook providing detailed guidance for all parties
is available from the USDA--Office of Operations and Finance. Although
cooperative agreements are not a contracting action, the authority,
responsibility and administration of these agreements will be handled
consistent with contracting actions.
(4) Consideration of maintenance agreements. Maintenance
requirements must be considered in evaluating the economic benefits of
off-site procurements. Where feasible, arrangements or agreements should
be made with state, local governments or other entities to ensure
continued maintenance by dedication or acceptance, letter agreements, or
other applicable statutes.
[53 FR 35765, Sept. 14, 1988, as amended at 54 FR 20521, May 12, 1989;
57 FR 36591, Aug. 14, 1992; 68 FR 61331, Oct. 28, 2003; 69 FR 69106,
Nov. 26, 2004]
Sec. 1955.56 Real property located in Coastal Barrier Resources System (CBRS).
(a) Approval official's scope of authority. Any action that is not
in conflict with the limitations in paragraphs (a)(1), (a)(2) or (a)(3)
of this section shall not be undertaken until the approval official has
consulted with the appropriate Regional Director of the U.S. Fish and
Wildlife Service. The Regional Director may or may not concur that the
proposed action does or does not violate the provisions of the Coastal
Barrier Resources Act (CBRA). Pursuant to the requirements of the CBRA,
and except as specified in paragraphs (b) and (c) of this section, no
maintenance or repair action may be taken for property located within a
CBRS where:
(1) The action goes beyond maintenance, replacement-in-kind,
reconstruction, or repair and would result in the expansion of any
roads, structures or facilities. Water and waste disposal facilities as
well as community facilities may be improved to the extent required to
meet health and safety requirements but may not be improved or expanded
to serve additional users, patients, or residents;
(2) The action is inconsistent with the purposes of the CBRA; or
(3) The property to be repaired or maintained was initially the
subject of a financial transaction that violated the CBRA.
(b) Administrator's review. Any proposed maintenance or repair
action that does not conform to the requirements of paragraph (a) of
this section must be forwarded to the Administrator for review and
approval. Approval will not be granted unless the Administrator
determines, through consultation with the Department of the Interior,
that the proposed action does not violate the provisions of the CBRA.
(c) Emergency provisions. In emergency situations to prevent
imminent loss of life, imminent substantial damage to the inventory
property or the disruption of utility service, the approval official may
take whatever minimum steps are necessary to prevent such loss or damage
without first consulting with the appropriate Regional Director of the
U.S. Fish and Wildlife Service. However, the Regional Director must be
immediately notified of any such emergency action.
Sec. 1955.57 Real property containing underground storage tanks.
Within 30 days of acquisition of real property into inventory, FmHA
or its successor agency under Public Law 103-354 must report certain
underground
[[Page 108]]
storage tanks to the State agency identified by the Environmental
Protection Agency (EPA) to receive such reports. Notification will be
accomplished by completing an appropriate EPA or alternate State form,
if approved by EPA. A State supplement will be issued providing the
appropriate forms required by EPA and instructions on processing same.
(a) Underground storage tanks which meet the following criteria must
be reported:
(1) It is a tank, or combination of tanks (including pipes which are
connected thereto) the volume of which is ten percent or more beneath
the surface of the ground, including the volume of the underground
pipes; and
(2) It is not exempt from the reporting requirements as outlined in
paragraph (b) of this section; and
(3) The tank contains petroleum or substances defined as hazardous
under section 101(14) of the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. 9601. The State Environmental
Coordinator should be consulted whenever there is a question regarding
the presence of a regulated substance; or
(4) The tank contained a regulated substance, was taken out of
operation by FmHA or its successor agency under Public Law 103-354 since
January 1, 1974, and remains in the ground. Extensive research of
records of inventory property sold before the effective date of this
section is not required.
(b) The following underground storage tanks are exempt from the EPA
reporting requirements:
(1) Farm or residential tanks of 1,100 gallons or less capacity used
for storing motor fuel for noncommercial purposes;
(2) Tanks used for storing heating oil for consumptive use on the
premises where stored;
(3) Septic tanks;
(4) Pipeline facilities (including gathering lines) regulated under;
(i) The Natural Gas Pipeline Safety Act of 1968; (ii) the Hazardous
Liquid Pipeline Safety Act of 1979; or (iii) for an intrastate pipeline
facility, regulated under State laws comparable to the provisions of law
referred to in (b)(4) (i) or (ii) of this section;
(5) Surface impoundments, pits, ponds, or lagoons;
(6) Storm water or wastewater collection systems;
(7) Flow-through process tanks;
(8) Liquid traps or associated gathering lines directly related to
oil or gas production and gathering operations; or
(9) Storage tanks situated in an underground area (such as a
basement, cellar, mineworking, drift, shaft, or tunnel) if the tank is
situated upon or above the surface of the floor.
(c) A copy of each report filed with the designated State agency
will be forwarded to and maintained in the State Office by program area.
(d) Prospective purchasers of FmHA or its successor agency under
Public Law 103-354 inventory property with a reportable underground
storage tank will be informed of the reporting requirement, and provided
a copy of the form filed by FmHA or its successor agency under Public
Law 103-354.
(e) In a State which has promulgated additional underground storage
tank reporting requirements, FmHA or its successor agency under Public
Law 103-354 will comply with such requirements and a State supplement
will be issued to provide necessary guidance.
(f) Regardless of whether an underground storage tank must be
reported under the requirements of this section, if FmHA or its
successor agency under Public Law 103-354 personnel detect or believe
there has been a release of petroleum or other regulated substance from
an underground storage tank on an inventory property, the incident will
be reported to the appropriate State Agency, the State Environmental
Coordinator and appropriate program chief. These parties will
collectively inform the servicing official of the appropriate response
action.
Sec. Sec. 1955.58-1955.59 [Reserved]
Sec. 1955.60 Inventory property subject to redemption by the borrower.
If inventory property is subject to redemption rights, the State
Director, with prior approval of OGC, will issue a State Supplement
giving guidance concerning the former borrower's rights, whether or not
the property may be
[[Page 109]]
leased or sold by the Government, payment of taxes, maintenance, and any
other items OGC deems necessary to comply with State laws. Routine care
and maintenance will be provided according to Sec. 1955.64 of this
subpart to preserve and protect the property. Repairs are limited to
those essential to prevent further deterioration of the property or to
remove a health or safety hazard to the community in accordance with
Sec. 1955.64(a) of this subpart unless State law permits full recovery
of cost of repairs in which case usual policy on repairs is applicable.
If the former borrower with redemption rights has possession of the
property or has a right to lease proceeds, FmHA or its successor agency
under Public Law 103-354 will not rent the property until the redemption
period has expired unless the State Director obtains prior authorization
from OGC. Further guidance on sale subject to redemption rights is set
forth in Sec. 1955.138 of Subpart C of this part.
[54 FR 20522, May 12, 1989]
Sec. 1955.61 Eviction of persons occupying inventory real property or dispossession of persons in possession of chattel property.
Advice and assistance will be obtained from OGC where eviction from
realty or dispossession of chattel property is necessary. Where OGC has
given written authorization, eviction may be effected through State
courts rather than Federal courts when the former borrower is involved,
or through local courts instead of Federal/State courts when the party
occupying/possessing the FmHA or its successor agency under Public Law
103-354 property is not the former borrower. In those cases, a State
Supplement will be issued to provide explicit instructions. For MFH,
eviction of tenants will be handled in accordance with 7 CFR part 3560,
subpart D and with the terms of the tenant's lease. If no written lease
exists, the State Director will obtain advice from OGC.
[54 FR 20522, May 12, 1989, as amended at 69 FR 69106, Nov. 26, 2004]
Sec. 1955.62 Removal and disposition of nonsecurity personal property from inventory real property.
If the former borrower has vacated the inventory property but left
items of value which do not customarily pass with title to the real
estate, such as furniture, personal effects, and chattels not covered by
an FmHA or its successor agency under Public Law 103-354 lien, the
personal property will be handled as outlined below unless otherwise
directed by a State supplement approved by OGC which is necessary to
comply with State law. For MFH, the removal and disposition of
nonsecurity personal property will be handled in accordance with the
tenant's lease or advice from OGC. When property is deemed to have no
value, it is recommended that it be photographed for documentation
before it is disposed of. The FmHA or its successor agency under Public
Law 103-354 official having custody of the property may request advice
from the State Office staff as necessary. Actions to effect removal of
items of value from inventory property shall be as follows:
(a) Notification to owner or lienholder. The servicing official will
check the public records to see if there is a lien on any of the
personal property.
(1) If there is a lien(s) of record, the servicing official will
notify the lienholder(s) by certified mail, return receipt requested,
that the personal property will be disposed of by FmHA or its successor
agency under Public Law 103-354 unless it is removed from the premises
within 7 days from the date of the letter.
(2) If there are no liens of record, or if a lienholder notified in
accordance with paragraph (a)(1) of this section fails to remove the
property within the time specified, the servicing official will notify
the former borrower at the last known address by certified mail, return
receipt requested, that the personal property remaining on the premises
will be disposed of by FmHA or its successor agency under Public Law
103-354 unless it is removed within 7 days from the date of the letter.
If no address can be determined, a copy of the letter should be posted
on the front door of the property and documentation entered in the
running record of
[[Page 110]]
the FmHA or its successor agency under Public Law 103-354 file.
(b) Disposal of unclaimed personal property. If the property is not
removed by the former borrower or a lienholder after notification as
outlined in paragraphs (a)(1) and (a)(2) of this section, the servicing
official shall list the items with clear description, estimated value,
and indication of which are covered by a lien, if any, and submit the
list to the State Director with a request for authorization to have the
items removed and disposed of. Based on advice from OGC, the State
Director will give authorization and provide instructions for removal
and disposal of the personal property. If approved by OGC, the property
may be disposed of as follows:
(1) If a reasonable amount can likely be realized by the agency from
sale of the personal property, it may be sold at public sale. Items
under lien will be sold first and the proceeds up to the amount of the
lien paid to the lienholders less a pro rata share of the sale expenses.
Proceeds from sale of items not under lien and proceeds in excess of the
amount due a lienholder will be remitted and applied in the following
order:
(i) To the inventory account up to the amount of expenses incurred
by the Government in connection with sale of the personal property (such
as advertising and auctioneer, if used).
(ii) To an unsatisfied balance on the FmHA or its successor agency
under Public Law 103-354 loan account, if any.
(iii) To the borrower, if whereabouts are known.
(2) If personal property is not sold, a mover or hauler may be
authorized to take the items for moving costs. Refer to FmHA or its
successor agency under Public Law 103-354 Instruction 2024-A (available
in any FmHA or its successor agency under Public Law 103-354 office) for
guidance.
(c) Payment of costs. Upon payment of all expenses incurred by the
Government in connection with the personal property, FmHA or its
successor agency under Public Law 103-354 will allow the former borrower
or a lienholder access to the property to reclaim the personal property
at any time prior to its disposal.
(d) Removal of abandoned motor vehicles from inventory property.
Since State laws vary concerning disposal of abandoned motor vehicles,
the State Director shall, with the advice of OGC, issue a State
supplement outlining the method to be followed which will comply with
applicable State laws.
[53 FR 35765, Sept. 14, 1988, as amended at 68 FR 61332, Oct. 28, 2003]
Sec. 1955.63 Suitability determination.
As soon as real property is acquired, a determination must be made
as to whether or not the property can be used for program purposes. The
suitability determination will be recorded in the running record of the
case file.
(a) Determination. The Agency will classify property that secured
loans or was acquired under the CONACT as ``suitable property'' or
``surplus property'' in accordance with the definitions found in Sec.
1955.53.
(b) Grouping and subdividing farm properties. To the maximum extent
practicable, the Agency will maximize the opportunity for beginning
farmers and ranchers to purchase inventory properties. Farm properties
may be subdivided or grouped according to Sec. 1955.140, as feasible,
to carry out the objectives of the applicable loan program. Properties
may also be subdivided to facilitate the granting or selling of a
conservation easement or the fee title transfer of portions of a
property for conservation purposes. The environmental effects of such
actions will be considered pursuant to subpart G of part 1940 of this
chapter.
(c) Housing property. Property which secured housing loans will be
classified as ``program'' or ``nonprogram (NP).'' After a determination
of whether the property is suited for retention in the respective
program, the repair policy outlined in Sec. 1955.64(a) of this subpart
will be followed. In determining whether a property is suited for
retention in the program, items such as size, design, possible health
and/or safety hazards and obsolescence due to functional, economic, or
locational conditions must carefully be considered. Generally, program
property will meet, or can be realistically repaired to meet,
[[Page 111]]
the standards for existing housing outlined in Subpart A of Part 1944 of
this chapter provided the property is typical of modest homes in the
area. The cost of repairs will generally not be considered in
determining suitability. Since houses, sites and locations vary widely
throughout the country, discretion and sound judgment must be used in
determining suitability. The majority of houses RHS acquires will be
suited for retention and classified as program property. In some
instances, property will not be suited for retention in the program and
will be classified as ``nonprogram (NP)'' property. Situations of this
type include, but are not limited to:
(1) A dwelling which has been enlarged or improved to the point
where it is clearly above modest.
(2) When a determination is made that the property should not have
been financed originally.
(3) A dwelling brought into the program as an existing dwelling
which met program standards at the time it was originally financed by
the Agency but which does not conform to current policies. This includes
older and/or larger houses of a type which have proven to create
excessive energy and/or maintenance costs to very-low and low-income
borrowers.
(4) A dwelling which is obsolete due to location, design,
construction or age.
(5) A dwelling which requires major redesign/renovation to be
brought to program standards.
(d) [Reserved]
[53 FR 35765, Sept. 14, 1988, as amended at 54 FR 20522, May 12, 1989;
58 FR 58648, Nov. 3, 1993; 60 FR 34455, July 3, 1995; 60 FR 55147, Oct.
27, 1995; 62 FR 44396, Aug. 21, 1997; 68 FR 7700, Feb. 18, 2003]
Sec. 1955.64 [Reserved]
Sec. 1955.65 Management of inventory and/or custodial real property.
(a) Authority--(1) County Supervisor. The County Supervisor, with
the assistance of the District Director and State Office program staff
as necessary, will select the management method(s) used for property
which secures (or secured) loans to individuals as defined in this
subpart.
(2) State Director. The State Director will select the management
method to be used for property which secures (or secured) loans to
organizations as defined in this subpart. The State Director shall also
provide guidance and assistance to County Supervisors and District
Directors as necessary to insure that property under their jurisdiction
is effectively managed.
(b) Management methods. Management methods and requirements will
vary depending on such things as the number of properties involved,
their density of location, and market conditions. Management tools which
may be used effectively range from contracts to secure individual
property, have the grass cut, or winterize a dwelling; a simple
management contract to provide maintenance and other services on a group
of properties (including but not limited to specification writing,
inspection of repairs, and yard and directional signs and their
installation), or manage an MFH project; blanket-purchase arrangement
contracts to obtain services for more than one property; to a broad-
scope management contract with a real estate broker or management agent
which may include inspection and specification-writing services, making
simple repairs, obtaining lessees, collecting rents, coordination with
listing brokers in marketing the properties and effecting eviction of
tenants when necessary. A contractor may handle evictions only where
State laws permit the contractor to do so in his/her own name; a
contractor may not pursue eviction in the name of the Government (FmHA
or its successor agency under Public Law 103-354). Custodial property
may be managed in the same manner as inventory property except that it
may be leased only if it is habitable without repairs in excess of those
authorized in Sec. 1955.55(c) of this subpart. Farm or organization
property, such as rental housing and community facilities, may be
operated under a management contract if the State Director has
determined it is approporiate to have the property in operation. In any
case, the primary consideration in selecting the method of management to
be used is to protect the Government's interest. If property
[[Page 112]]
to be operated or leased under a management contract is located in an
area identified by the Federal Insurance Administration as a special
flood or mudslide hazard area, lessees or tenants must be notified to
that effect in accordance with Sec. 1955.66(e) of this subpart. A
management contract which covers property in such a hazard area may
provide for the contractor to issue the required notices.
(c) Obtaining services for management and/or operation of
properties. Services for management, repair, and/or operation of
properties will be obtained by contract in accordance with FmHA or its
successor agency under Public Law 103-354 Instruction 2024-A (available
in any FmHA or its successor agency under Public Law 103-354 office).
(1) Management contracts. Management contracts are flexible
instruments which may be tailored to meet the specific needs of almost
any situation involving custodial or inventory property. This type of
contract may be used to manage and maintain SFH properties, farms, and
any other type of facility for which FmHA or its successor agency under
Public Law 103-354 is responsible. Organization-type properties will be
secured, maintained, repaired, and operated if authorized, in accordance
with a management plan prepared by the District Director and approved by
the State Director if the amount of total debt does not exceed the State
Director's loan approval authority, or by the Administrator. For MFH
projects, tenant occupancy and selection will be in accordance with the
occupancy standards set forth in 7 CFR part 3560, subpart D. Tenants
will be required to sign a written lease if one does not exist when the
property is acquired or taken into custody. If a contract involves
management of an MFH project with 5 or more units, or 5 or more single-
family dwellings located in the same subdivision, the contractor must
furnish Form HUD 935.2, ``Affirmative Fair Housing Marketing Plan,''
subject to FmHA or its successor agency under Public Law 103-354's
approval. Contracts for management of farm inventory property will be
offered on a competitive bid basis, giving preference to persons who
live in, and own and operate qualified small businesses in the area
where the property is located in accordance with the provisions in FmHA
or its successor agency under Public Law 103-354 Instruction 2024-Q
(available in any FmHA or its successor agency under Public Law 103-354
office).
(2) Authority to enter into management contracts. (i) The County
Supervisor may enter into a management contract for basic services
involving farms or not more than 25 single-family dwellings; however,
the aggregate amount paid under a contract may not exceed the
contracting authority limitation for County Supervisors outlined in FmHA
or its successor agency under Public Law 103-354 Instruction 2024-A
(available in any FmHA or its successor agency under Public Law 103-354
office).
(ii) A District Director may enter into a management contract for
basic maintenance and management services for an MFH project within the
contracting authority outlined in FmHA or its successor agency under
Public Law 103-354 Instruction 2024-A (available in any FmHA or its
successor agency under Public Law 103-354 office). The aggregate amount
of any contract may not exceed that contracting authority.
(iii) A CO in the State Office may enter into a management contract
for basic services involving more than 25 single-family dwellings, a
more complex management contract for SFH property, or an appropriate
contract for management or operation of farm or organization-type
property. The aggregate amount paid under a contract may not exceed the
contracting authority limitation for State Office staff outlined in FmHA
or its successor agency under Public Law 103-354 Instruction 2024-A
(available in any FmHA or its successor agency under Public Law 103-354
office).
(iv) If a proposed management contract will exceed the contracting
authority for State Office staff within a short time, a request for
contract action will be forwarded to the Administrator, to the attention
of the appropriate program division.
(3) Specification of services. All management contracts will provide
for termination by either the contractor or
[[Page 113]]
the Government upon 30 days written notice. Contracts providing for
management of multiple properties will also provide for properties to be
added or removed from the contractor's assignment whenever necessary,
such as when a property is acquired or taken into custody during the
period of a contract or when a property is sold from inventory. If a
contractor prepares repair specifications, that contractor will be
excluded from the solicitation for making the repairs to avoid a
conflict of interest.
If a management contract calls for specification writing services, a
clause must be inserted in the contract prohibiting the preparer or his/
her associates from doing the repair work.
(4) Costs. Costs incurred with the management of property will be
paid according to FmHA or its successor agency under Public Law 103-354
Instruction 2024-A (available in any FmHA or its successor agency under
Public Law 103-354 office). For management of custodial property, costs
will be charged to the borrower's account as recoverable; and for
management of inventory property as nonrecoverable. Except for
management fees, costs of managing MFH inventory property when tenants
are still in residence will be paid to the extent possible with rental
income. Management fees will be paid to the manager in accordance with
FmHA or its successor agency under Public Law 103-354 Instruction 2024-A
(available in any FmHA or its successor agency under Public Law 103-354
Office).
(d) Additional management services. Additional types of management
services and supplies for which the State Director may authorize
acquisition include: Appraisal services (except for MFH), security
services, newspaper copy preparation services, market data and
comparable list acquisition, and tax data acquisition. If the State
Director believes there is a need to acquire other services not listed
in this paragraph or authorized elsewhere in this subpart, the State
Director should make a written request to the Assistant Administrator
(appropriate program) for consideration and/or authorization.
[53 FR 35765, Sept. 14, 1988, as amended at 57 FR 36591, Aug. 14, 1992;
69 FR 69106, Nov. 26, 2004; 70 FR 20704, Apr. 21, 2005]
Sec. 1955.66 Lease of real property.
When inventory real property, except for FSA and MFH properties,
cannot be sold promptly, or when custodial property is subject to
lengthy liquidation proceedings, leasing may be used as a management
tool when it is clearly in the best interest of the Government. Leasing
will not be used as a means of deferring other actions which should be
taken, such as liquidation of loans in abandonment cases or repair and
sale of inventory property. Leases will provide for cancellation by the
lessee or the Agency on 30-day written notice unless Special
Stipulations in an individual lease for good reason provide otherwise.
If extensive repairs are needed to render a custodial property suitable
for occupancy, this will preclude its being leased since repairs must be
limited to those essential to prevent further deterioration of the
security in accordance with Sec. 1955.55(c) of this subpart. The
requirements of subpart G of part 1940 of this chapter will be met for
all leases.
(a) Authority to approve lease of property--(1) Custodial property.
Custodial property may be leased pending foreclosure with the servicing
official approving the lease on behalf of the Agency.
(2) Inventory property. Inventory property may be leased under the
following conditions. Except for farm property proposed for a lease
under the Homestead Protection Program, any property that is listed or
eligible for listing on the National Register of Historic Places may be
leased only after the servicing official and the State Historic
Preservation Officer determine that the lease will adequately ensure the
property's condition and historic character.
(i) SFH. SFH inventory will generally not be leased; however, if
unusual circumstances indicate leasing may be prudent, the county
official is authorized to approve the lease.
[[Page 114]]
(ii) MFH. MFH projects will generally not be leased, although
individual living units may be leased under a management agreement.
After the property is placed under a management contract, the contractor
will be responsible for leasing the individual units in accordance with
7 CFR part 3560. In cases where an acceptable management contract cannot
be obtained, the District Director may execute individual leases.
(iii) Farm property. (A) Any property which secures an insured loan
made under the CONACT and which contains a dwelling (whether located on
or off the farm) that is possessed and occupied as a principal residence
by a prior owner who was personally liable for a Farm Credit Programs
loan must first be considered for Homestead Protection in accordance
with subpart S of part 1951 of this chapter.
(B) Other than for Homestead Protection and except as provided in
paragraph (c), the county official may only approve the lease of farm
property to a beginning farmer or rancher who was selected through the
random selection process to purchase the property but is not able to
complete the purchase due to the lack of Agency funding.
(C) When the servicing official determines it is impossible to sell
farm property after advertising the property for sale and negotiating
with interested parties in accordance with Sec. 1955.107 of subpart C
of this part, farm property may be leased, upon the approval of the
Administrator, on a case-by-case basis. This authority cannot be
delegated. Any lease under this paragraph shall be for 1 year only, and
not subject to renewal or extension. If the servicing official
determines that the prospective lessee may be interested in purchasing
the property, the lease may contain an option to purchase.
(D) When a lease with an option to purchase is signed, the lessee
should be advised that FSA cannot make a commitment to finance the
purchase of the property.
(E) Chattel property will not normally be leased unless it is
attached to the real estate as a fixture or would normally pass with the
land.
(F) The property may not be used for any purpose that will
contribute to excessive erosion of highly erodible land or to conversion
of wetlands to produce an agricultural commodity. See Exhibit M of
subpart G of part 1940 of this chapter. All prospective lessees of
inventory property will be notified in writing of the presence of highly
erodible land, converted wetlands and wetland and other important
resources such as threatened or endangered species. This notification
will include a copy of the completed and signed Form SCS-CPA-26,
``Highly Erodible Land and Wetland Conservation Determination,'' which
identifies whether the property contains wetland or converted wetlands
or highly erodible land. The notification will also state that the lease
will contain a restriction on the use of such property and that the
Agency's compliance requirements for wetlands, converted wetlands, and
highly erodible lands are contained in Exhibit M of subpart G of part
1940 of this chapter. Additionally, a copy of the completed and signed
Form SCS-CPA-26 will be attached to the lease and the lease will contain
a special stipulation as provided on the FMI to Form RD 1955-20, ``Lease
of Real Property,'' prohibiting the use of the property as specified
above.
(iv) Organization property other than MFH. Only the State Director,
with the advice of appropriate National Office staff, may approve the
lease of organization property other than MFH, such as community
facilities, recreation projects, and businesses. A lease of utilities
may require approval by State regulatory agencies.
(b) Selection of lessees for other than farm property. When the
property to be leased is residential, a special effort will be made to
reach prospective lessees who might not otherwise apply because of
existing community patterns. A lessee will be selected considering the
potential as a program applicant for purchase of the property (if
property is suited for program purposes) and ability to preserve the
property. The leasing official may require verification of income or a
credit report (to be paid for by the prospective lessee) as he or she
deems necessary to assure payment ability and creditworthiness of the
prospective lessee.
[[Page 115]]
(c) Selection of lessees for FSA property. FSA inventory property
may only be leased to an eligible beginning farmer or rancher who was
selected to purchase the property through the random selection process
in accordance with Sec. 1955.107(a)(2)(ii) of subpart C of this part.
The applicant must have been able to demonstrate a feasible farm plan
and Agency funds must have been unavailable at the time of the sale. Any
applicant determined not to be a beginning farmer or rancher may request
that the State Executive Director conduct an expedited review in
accordance with Sec. 1955.107(a)(2)(ii) of subpart C of this part.
(d) Property securing Farm Credit Programs loans located within an
Indian Reservation. (1) State Executive Directors will contact the
Bureau of Indian Affairs Agency supervisor to determine the boundaries
of Indian Reservations and Indian allotments.
(2) Not later than 90 days after acquiring a property, FSA will
afford the Indian tribe having jurisdiction over the Indian reservation
within which the inventory property is located an opportunity to
purchase the property. The purchase shall be in accordance with the
priority rights as follows:
(i) To a member of the Indian tribe that has jurisdiction over the
reservation within which the real property is located;
(ii) To an Indian corporate entity;
(iii) To the Indian tribe.
(3) The Indian tribe having jurisdiction over the Indian reservation
may revise the order of priority and may restrict the eligibility for
purchase to:
(i) Persons who are members of such Indian tribe;
(ii) Indian corporate entities that are authorized by such Indian
tribe to purchase lands within the boundaries of the reservation; or
(iii) The Indian tribe itself.
(4) If any individual, Indian corporate entity, or Indian tribe
covered in paragraphs (d)(1) and (d)(2) of this section wishes to
purchase the property, the county official must determine the
prospective purchaser has the financial resources and management skills
and experience that is sufficient to assure a reasonable prospect that
the terms of the purchase agreement can be fulfilled.
(5) If the real property is not purchased by any individual, Indian
corporate entity or Indian tribe pursuant to paragraphs (d)(1) and
(d)(2) of this section and all appeals have concluded, the State
Executive Director shall transfer the property to the Secretary of the
Interior if they are agreeable. If present on the property being
transferred, important resources will be protected as outlined in
Sec. Sec. 1955.137 and 1955.139 of subpart C of this part.
(6) Properties within a reservation formerly owned by entities and
non-tribal members will be treated as regular inventory that is not
located on an Indian Reservation and disposed of pursuant to this part.
(e) Lease amount. Inventory property will be leased for an amount
equal to that for which similar properties in the area are being leased
or rented (market rent). Inventory property will not be leased for a
token amount.
(1) Farm property. To arrive at a market rent amount, the county
official will make a survey of lease amounts of farms in the immediate
area with similar soils, capabilities, and income potential. The income-
producing capability of the property during the term of the lease must
also be considered. This rental data will be maintained in an
operational file as well as in the running records of case files for
leased inventory properties. While cash rent is preferred, the lease of
a farm on a crop-share basis may be approved if this is the customary
method in the area. The lessee will market the crops, provide FSA with
documented evidence of crop income, and pay the pro rata share of the
income to FSA.
(2) SFH property. The lease amount will be the market rent unless
the lessee is a potential program applicant, in which case the lease
amount may be set at an amount approximating the monthly payment if a
loan were made (reflecting payment assistance, if any) calculated on the
basis of the price of the house and income of the lessee, plus \1/12\ of
the estimated real estate taxes, property insurance, and maintenance
which would be payable by a homeowner.
[[Page 116]]
(3) Property other than farm or SFH. Any inventory property other
than a farm or single-family dwelling will generally be leased for
market rent for that type property in the area. However, such property
may be leased for less than market rent with prior approval of the
Administrator.
(f) Property containing wetlands or located in a floodplain or
mudslide hazard area. Inventory property located in areas identified by
the Federal Insurance Administration as special flood or mudslide hazard
areas will not be leased or operated under a management contract without
prior written notice of the hazard to the prospective lessee or tenant.
If property is leased by FSA, the servicing official will provide the
notice, and if property is leased under a management contract, the
contractor must provide the notice in compliance with a provision to
that effect included in the contract. The notice must be in writing,
signed by the servicing official or the contractor, and delivered to the
prospective lessee or tenant at least one day before the lease is
signed. A copy of the notice will be attached to the original and each
copy of the lease. Property containing floodplains and wetlands will be
leased subject to the same use restrictions as contained in Sec.
1955.137(a)(1) of subpart C of this part.
(g) Highly erodible land. If farm inventory property contains
``highly erodible land,'' as determined by the NRCS, the lease must
include conservation practices specified by the NRCS and approved by FSA
as a condition for leasing.
(h) Lease of FSA property with option to purchase. A beginning
farmer or rancher lessee will be given an option to purchase farm
property. Terms of the option will be set forth as part of the lease as
a special stipulation.
(1) The lease payments will not be applied toward the purchase
price.
(2) The purchase price (option price) will be the advertised sales
price as determined by an appraisal prepared in accordance with Sec.
761.7 of this title.
(3) For inventory properties leased to a beginning farmer or rancher
applicant, the term of the lease shall be the earlier of:
(i) A period not to exceed 18 months from the date that the
applicant was selected to purchase the inventory farm, or
(ii) The date that direct, guaranteed, credit sale or other Agency
funds become available for the beginning farmer or rancher to close the
sale.
(4) Indian tribes or tribal corporations which utilize the Indian
Land Acquisition program will be allowed to purchase the property for
its market value less the contributory value of the buildings, in
accordance with subpart N of part 1823 of this chapter.
(i) Costs. The costs of repairs to leased property will be paid by
the Government. However, the Government will not pay costs of utilities
or any other costs of operation of the property by the lessee. Repairs
will be obtained pursuant to subpart B of part 1924 of this chapter.
Expenditures on custodial property as limited in Sec. 1955.55 (c) (2)
of this subpart will be charged to the borrower's account as recoverable
costs.
(j) Security deposit. A security deposit in at least the amount of
one month's rent will be required from all lessees of SFH properties.
The security deposit for farm property should be determined by
considering only the improvements or facilities which might be subject
to misuse or abuse during the term of the lease. For all other types of
property, the leasing official may determine whether or not a security
deposit will be required and the amount of the deposit.
(k) Lease form. Form RD 1955-20 approved by OGC will be used by the
agency to lease property.
(l) Lease income. Lease proceeds will be applied as follows:
(1) Custodial property. The proceeds from a lease of custodial
property will be applied to the borrower's account as an extra payment
unless foreclosure proceedings require that such payments be held in
suspense.
(2) Inventory property. The proceeds from a lease of inventory
property will be applied to the lease account.
[62 FR 44397, Aug. 21, 1997, as amended at 64 FR 62568, Nov. 17, 1999;
68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov. 26, 2004]
[[Page 117]]
Sec. Sec. 1955.67-1955.71 [Reserved]
Sec. 1955.72 Utilization of inventory housing by Federal Emergency Management
Agency (FEMA) or under a Memorandum of Understanding between the Agency and the
Department of Health and Human Services (HHS) for transitional
housing for the homeless.
(a) FEMA. By a Memorandum of Understanding between the Agency and
FEMA, inventory housing property not under lease or sales agreement may
be made available to shelter victims in an area designated as a major
disaster area by the President. See Exhibit A of this subpart (available
in any FmHA or its successor agency under Public Law 103-354 office).
Authority is hereby delegated to the State Director to implement this
Memorandum of Understanding; and the State Director may redelegate this
authority to County Supervisors or District Directors.
(b) HHS. By a Memorandum of Understanding between the Agency and
HHS, inventory housing property not under lease or sales agreement may
be made available by lease to public bodies and nonprofit organizations
to provide transitional housing for the homeless. See Exhibit D of this
subpart (available in any FmHA or its successor agency under Public Law
103-354 office). Authority is hereby delegated to the State Director to
implement this Memorandum of Understanding; and the State Director may
redelegate this authority to County Supervisors or District Directors.
Copies of all executed leases and/or questions regarding this program
should be referred by State Offices to the Single Family Housing
Servicing and Property Management (SFH/SPM) Division in the National
Office.
[54 FR 20523, May 12, 1989, as amended at 60 FR 34455, July 3, 1995]
Sec. Sec. 1955.73-1955.80 [Reserved]
Sec. 1955.81 Exception authority.
The Administrator may, in individual cases, make an exception to any
requirement or provision of this subpart, or address any omission of
this subpart which is not inconsistent with the authorizing statute or
other applicable law, if the Administrator determines that the
Government's interest would be adversely affected or the immediate
health and/or safety of tenants or the community are endangered if there
is no adverse effect on the Government's interest. The Administrator
will exercise this authority upon request of the State Director with the
recommendation of the appropriate program Assistant Administrator or
upon a request initiated by the appropriate program Assistant
Administrator. Requests for exceptions must be made in writing and
supported with documentation to explain the adverse effect, propose
alternative courses of action, and show how the adverse effect will be
eliminated or minimized if the exception is granted.
[53 FR 35765, Sept. 14, 1988, as amended at 58 FR 58649, Nov. 3, 1993]
Sec. 1955.82 State supplements.
State supplements will be prepared with the assistance of OGC as
necessary to comply with State laws or only as specifically authorized
in this regulation to provide guidance to FmHA or its successor agency
under Public Law 103-354 officials. State supplements applicable to MFH
must have prior approval of the National Office; others may receive post
approval. Requests for approval for those affecting MFH must include
complete justification, citations of State law, and an opinion from OGC.
Sec. Sec. 1955.83-1955.99 [Reserved]
Sec. 1955.100 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0110.
Sec. Exhibit A to Subpart B of Part 1955--Memorandum of Understanding
Between the Federal Emergency Management Agency and the Farmers Home
Administration or Its Successor Agency under Public Law 103-354
Editorial Note: Exhibit A is not published in the Code of Federal
Regulations. It is available in any FmHA or its successor agency under
Public Law 103-354 County Office.
[[Page 118]]
Sec. Exhibit B to Subpart B of Part 1955--Notification of Tribe of
Availability of Farm Property for Purchase
(To Be Used By Farm Service Agency To Notify Tribe)
From: County official
To: (Name of Tribe and address)
Subject: Availability of Farm Property for Purchase
[To be Used within 90 days of acquisition]
Recently the Farm Service Agency (FSA) acquired title to --------
acres of farm real property located within the boundaries of your
Reservation. The previous owner of this property was --------. The
property is available for purchase by persons who are members of your
tribe, an Indian Corporate entity, or the tribe itself. Our regulations
provide for those three distinct priority categories which may be
eligible; however, you may revise the order of the priority categories
and may restrict the eligibility to one or any combination of
categories. Following is a more detailed description of these
categories:
1. Persons who are members of your Tribe. Individuals so selected
must be able to meet the eligibility criteria for the purchase of
Government inventory property and be able to carry on a family farming
operation. Those persons not eligible for FSA's regular programs may
also purchase this property as a Non-Program loan on ineligible rates
and terms.
2. Indian corporate entities. You may restrict eligible Indian
corporate entities to those authorized by your Tribe to purchase lands
within the boundaries of your Reservation. These entities also must meet
the basic eligibility criteria established for the type of assistance
granted.
3. The Tribe itself is also considered eligible to exercise their
right to purchase the property. If available, Indian Land Acquisition
funds may be used or the property financed as a Non-Program loan on
ineligible rates and terms.
We are requesting that you notify the local FSA county office of
your selection or intentions within 45 days of receipt of this letter,
regarding the purchase of this real estate. If you have questions
regarding eligibility for any of the groups mentioned above, please
contact our office. If the Tribe wishes to purchase the property, but is
unable to do so at this time, contact with the FSA county office should
be made.
Sincerely,
County official
[62 FR 44399, Aug. 21, 1997]
Sec. Exhibit C to Subpart B of Part 1955--Cooperative Agreement
(Example)
Editorial Note: Exhibit C is not published in the Code of Federal
Regulations. It is available in any FmHA or its successor agency under
Public Law 103-354 County Office.
Sec. Exhibit D to Subpart B of Part 1955--Fact Sheet--The Federal
Interagency Task Force on Food and Shelter for the Homeless
Editorial Note: Exhibit D is not published in the Code of Federal
Regulations. It is available in any FmHA or its successor agency under
Public Law 103-354 County Office.
Subpart C_Disposal of Inventory Property
Introduction
Sec. 1955.101 Purpose.
This subpart delegates program authority and prescribes policies and
procedures for the sale of inventory property including real estate,
related real estate rights, and chattels. It also covers the granting of
easements and rights-of-way on inventory property. Credit sales of
inventory property to ineligible (non-program (NP)) purchasers will be
handled in accordance with Subpart J of Part 1951 of this chapter,
except Community and Business Programs (C&BP) and Multi-Family Housing
(MFH) which will be handled in accordance with this Subpart. In
addition, credit sales of Single Family Housing (SFH) properties
converted to MFH will be handled in accordance with this Subpart. This
subpart does not apply to Farm Service Agency, Farm Loan Programs,
Single Family Housing (SFH) inventory property, or to the Rural Rental
Housing, Rural Cooperative Housing, and Farm Labor Housing Programs. In
addition, this subpart does not apply to Water and Waste Programs of the
Rural Utilities Service, Watershed loans, and Resource Conservation and
Development loans, which are serviced under part 1782 of this title.
[72 FR 55019, Sept. 28, 2007, as amended at 72 FR 64123, Nov. 15, 2007]
[[Page 119]]
Sec. 1955.102 Policy.
The terms ``nonprogram (NP)'' and ``ineligible'' may be used
interchangeably throughout this subpart, but are identical in their
meaning. Sales efforts will be initiated as soon as property is acquired
in order to effect sale at the earliest practicable time. When a
property is of a nature that will enable a qualified applicant for one
of Farmers Home Administration or its successor agency under Public Law
103-354s (FmHA or its successor agency under Public Law 103-354's) loan
programs to meet the objectives of that loan program, preference will be
given to the program applicants. Sales are authorized for program
purposes which differ from the purposes of the loan the property
formerly secured, and property which secured more than one type loan may
be sold under the program most appropriate for the specific property and
community needs as long as the price is not diminished. Examples are:
(RH) property; detached Labor Housing or Rural Rental Housing units may
be sold as SFH units; or SFH units may be sold as a Rural Rental Housing
project. All such properties and applicants must meet the requirements
for the loan program under which the sale is proposed.
[53 FR 35776, Sept. 14, 1988, as amended at 58 FR 52652, Oct. 12, 1993;
62 FR 44399, Aug. 21, 1997]
Sec. 1955.103 Definitions.
As used in this subpart, the following apply:
Approval official. The FmHA or its successor agency under Public Law
103-354 official having loan and grant approval authority auhorized
under Subpart A of Part 1901 of this chapter.
Auction sale. A public sale in which property is sold to the highest
bidder in open verbal competition.
Beginning farmer or rancher. A beginning farmer or rancher is an
individual or entity who:
(1) Is an eligible applicant for FO loan assistance in accordance
with Sec. 1943.12 of subpart A of part 1943 of this chapter or Sec.
1980.180 of subpart B of part 1980 of this chapter.
(2) Has not operated a farm or ranch, or who has operated a farm or
ranch for not more than 10 years. This requirement applies to all
members of an entity.
(3) Will materially and substantially participate in the operation
of the farm or ranch.
(i) In the case of a loan made to an individual, individually or
with the immediate family, material and substantial participation
requires that the individual provide substantial day-to-day labor and
management of the farm or ranch, consistent with the practices in the
county or State where the farm is located.
(ii) In the case of a loan made to an entity, all members must
materially and substantially participate in the operation of the farm or
ranch. Material and substantial participation requires that the
individual provides some amount of the management, or labor and
management necessary for day-to-day activities, such that if the
individual did not provide these inputs, operation of the farm or ranch
would be seriously impaired.
(4) Agrees to participate in any loan assessment, borrower training,
and financial management programs required by FmHA or its successor
agency under Public Law 103-354 regulations.
(5) Does not own real farm or ranch property or who, directly or
through interests in family farm entities, owns real farm or ranch
property, the aggregate acreage of which does not exceed 30 percent of
the average farm or ranch acreage of the farms or ranches in the county
where the property is located. If the farm is located in more than one
county, the average farm acreage of the county where the applicant's
residence is located will be used in the calculation. If the applicant's
residence is not located on the farm or if the applicant is an entity,
the average farm acreage of the county where the major portion of the
farm is located will be used. The average county farm or ranch acreage
will be determined from the most recent Census of Agriculture developed
by the U.S. Department of Commerce, Bureau of the Census. State
Directors will publish State supplements containing the average farm or
ranch acreage by county.
[[Page 120]]
(6) Demonstrates that the available resources of the applicant and
spouse (if any) are not sufficient to enable the applicant to enter or
continue farming or ranching on a viable scale.
(7) In the case of an entity:
(i) All the members are related by blood or marriage.
(ii) All the stockholders in a corporation are qualified beginning
farmers or ranchers.
Borrower. An individual or entity which has outstanding obligations
to the FmHA or its successor agency under Public Law 103-354 under any
Farmer Programs loan(s), without regard to whether the loan has been
accelerated. A borrower includes all parties liable for the FmHA or its
successor agency under Public Law 103-354 debt, including collection-
only borrowers, except for debtors whose total loans and accounts have
been voluntarily or involuntarily foreclosed or liquidated, or who have
been discharged of all FmHA or its successor agency under Public Law
103-354 debt.
Capitalization value. The value determined in accordance with
subpart E of part 1922 of this chapter.
Closing agent. An attorney or title insurance company which is
approved as a loan closing agent in accordance with subpart B of part
1927 of this chapter.
CONACT or CONACT property, Property acquired or sold pursuant to the
Consolidated Farm and Rural Development Act (CONACT). Within this
subpart, it shall also be construed to cover property which secured
loans made pursuant to the Emergency Agricultural Credit Act of 1984;
the Food Security Act of 1985; and other statutes giving agricultural
lending authority to FmHA or its successor agency under Public Law 103-
354.
Credit sale. A sale in which financing is provided to an applicant
for the purchase of inventory property.
Decent, safe and sanitary (DSS) housing. Standards required for the
sale of Government acquired SFH, MFH and LH structures acquired pursuant
to the Housing Act of 1949, as amended. ``DSS'' housing unit(s) are
structures which meet the requirements of FmHA or its successor agency
under Public Law 103-354 as described in Subpart A of Part 1924 of this
chapter for existing construction or if not meeting the requirements:
(1) Are structurally sound and habitable,
(2) Have a potable water supply,
(3) Have functionally adequate, safe and operable heating, plumbing,
electrical and sewage disposal systems,
(4) Meet the Thermal Performance Standards as outlined in exhibit D
of subpart A of part 1924 of this chapter, and
(5) Are safe; that is, a hazard does not exist that would endanger
the safety of dwelling occupants.
Eligible terms. Credit terms, for other than SFH or MFH property
sales, prescribed in FmHA or its successor agency under Public Law 103-
354 program regulations for its various loan programs; available only to
persons/entities meeting eligibility requirements set forth for the
respective loan program. For SFH and MFH properties, see the definition
of ``Program terms.''
Farmer program loans. This includes Farm Ownership (FO), Soil and
Water (SW), Recreation (RL), Economic Opportunity (EO), Operating (OL),
Emergency (EM), Economic Emergency (EE), Special Livestock (SL),
Softwood Timber (ST) and Rural Housing loans for farm service buildings
(RHF).
Homestead protection (FP only). The program which permits former
Farmer Program borrowers to lease their former principal residence with
an option to buy. See subpart S of part 1951 of this chapter.
Indian Reservation. All land located within the limits of any Indian
reservation under the jurisdiction of the United States notwithstanding
the issuance of any patent and including rights-of-way running through
the reservation; trust or restricted land located within the boundaries
of a former reservation of a federally recognized Indian Tribe in the
State of Oklahoma; or all Indian allotments the Indian titles to which
have not been extinguished if such allotments are subject to the
jurisdiction of a federally recognized Indian Tribe.
Ineligible terms. Credit terms, for other than SFH or MFH property
sales, offered for the convenience of the Government to facilitate
sales; more stringent than terms offered under FmHA
[[Page 121]]
or its successor agency under Public Law 103-354's loan programs.
Applicable when the purchaser does not meet program eligibility
requirements or when the property is classified as surplus. Loans made
on ineligible terms are classified as Nonprogram (NP) loans and are
serviced accordingly. For SFH and MFH properties, see the definition of
``Nonprogram (NP) terms.''
Inventory property. Property for which title is vested in the
Government and which secured an FmHA or its successor agency under
Public Law 103-354 loan or which was acquired from another Agency for
program purposes.
Market value. The most probable price which property should bring,
as of a specific date, in a competitive and open market, assuming the
buyer and seller are prudent and knowledgeable, and the price is not
affected by undue stimulus such as forced sale or loan interest subsidy.
Negotiated sale. A sale in which there is a bargaining of price and/
or terms.
Nonprogram (NP) property. SFH and MFH property acquired pursuant to
the Housing Act of 1949, as amended, that cannot be used by a borrower
to effectively carry out the objectives of the respective loan program;
for example, a dwelling that cannot be feasibly repaired to meet the
FmHA or its successor agency under Public Law 103-354 requirements for
existing housing as described in subpart A of part 1944 of this chapter.
It may contain a structure which would meet program standards, however
is so remotely located it would not serve as an adequate residential
unit or be an older house which is excessively expensive to heat and/or
maintain for a very-low or low-income homeowner.
Nonprogram (NP) terms. Credit terms for SFH or MFH property sales,
offered for the convenience of the Government to facilitate sales; more
stringent than terms offered under FmHA or its successor agency under
Public Law 103-354's loan programs. Applicable when the purchaser does
not meet program eligibility requirements or when the property is
classified as nonprogram (NP). Loans made on NP terms are classified as
NP loans and are serviced accordingly. For property other than SFH and
MFH, see the definition of ``Ineligible terms.''
Organization property. Property for which the following loans were
made is considered organization property. Community Facility (CF); Water
and Waste Disposal (WWD); Association Recreation; Watershed (WS);
Resource Conservation and Development (RC&D); loans to associations for
Shift-In-Land Use (Grazing Association); loans to associations for
Irrigation and Drainage and other soil and water conservation measures;
loans to Indian Tribes and Tribal corporations; Rural Rental Housing
(RRH) to both groups and individuals; Rural Cooperative Housing (RCH);
Rural Housing Site (RHS); Labor Housing (LH) to both groups and
individuals; Business and Industry (B&I) to both individuals and groups
or corporations; Rural Development Loan Fund (RDLF); Intermediary
Relending Program (IRP); Nonprofit National Corporations (NNC); and
Economic Opportunity Cooperative (EOC). Housing-type (RHS, RCH, RRH and
LH) organization property is referred to collectively in this subpart as
Multiple Family Housing (MFH) property.
Owner. An individual or an entity which owned the farm but who may
or may not have been operating the farm at the time the farm was taken
into inventory.
Participating broker. A duly licensed real estate broker who has
executed a listing agreement with FmHA or its successor agency under
Public Law 103-354.
Program property. SFH and MFH inventory property that can be used to
effectively carry out the objectives of their respective loan programs
with financing through that program. Inventory property located in an
area where the designation has been changed from rural to nonrural will
be considered as if it were still in a rural area.
Program terms. Credit terms for SFH or MFH property sales,
prescribed in FmHA or its successor agency under Public Law 103-354
program regulations for its various loan programs; available only to
persons/entities meeting eligibility requirements set forth for the
respective loan program. For property sales other than SFH and MFH, see
the definition of ``Eligible terms.''
[[Page 122]]
Regular FmHA or its successor agency under Public Law 103-354 sale.
Sale made by other than sealed bid, auction, or negotiation by FmHA or
its successor agency under Public Law 103-354 employees or real estate
brokers.
Regular sale. Sale by FmHA or its successor agency under Public Law
103-354 employees or real estate brokers other than by sealed bid,
auction or negotiation.
Safe. No hazard exists on property which would likely endanger the
health or safety of occupants or users.
Sealed bid sale. A public sale in which property is offered to the
highest bidder by prior written bid submitted in a sealed envelope.
Servicing official. For loans to individuals, as defined in Sec.
1955.53 of subpart B of part 1955 of this chapter, the servicing
official is the County Supervisor. For all other loans, excluding
insured B&I, the servicing official is the District Director. For
insured B&I loans, the servicing official is the State Director.
Socially disadvantaged applicant (SDA). An applicant who is a member
of a socially disadvantaged group whose members have been subjected to
racial, ethnic, or gender prejudice because of their identity as a
member of a group, without regard to their individual qualities. For
entity SDA applicants, the majority interest in the entity must be held
by socially disadvantaged individuals. The Agency has identified
socially disadvantaged groups as Women, Blacks, American Indians,
Alaskan Natives, Hispanics, Asians, and Pacific Islanders.
Suitable property. For FSA inventory property, real property that
can be used for agricultural purposes, including those farm properties
that may be used as a start-up or add-on parcel of farmland. It would
also include a residence or other off-farm site that could be used as a
basis for a farming operation. For Agencies other than FSA, real
property that could be used to carry out the objectives of the Agency's
loan programs with financing provided through that program.
Surplus property. For FSA inventory property, real property that
cannot be used for agricultural purposes including nonfarm properties.
For other agencies, property that cannot be used to carry out the
objectives of financing available through the applicable loan program.
[50 FR 23904, June 7, 1985]
Editorial Note: For Federal Register citations affecting Sec.
1955.103, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and on GPO Access.
Sec. 1955.104 Authorities and responsibilities.
(a) Redelegation of authority. FmHA or its successor agency under
Public Law 103-354 officials will redelegate authorities to the maximum
extent possible, consistent with program objectives and available
resources.
(1) Any authority in this subpart which is specifically provided to
the Administrator or to an Assistant Administrator may only be delegated
to a State Director. The State Director cannot redelegate such
authority.
(2) Except as provided in paragraph (a)(1) of this section, the
State Director may redelegate, in writing, any authority delegated to
the State Director in this subpart, unless specifically excluded, to a
Program Chief, Program Specialist, or Property Management Specialist on
the State Office staff.
(3) The District Director may redelegate, in writing, any authority
delegated to the District Director in this subpart to an Assistant
District Director or District Loan Specialist. Authority of District
Directors in this subpart applies to Area Loan Specialists in Alaska and
the Director for the Western Pacific Territories.
(4) The County Supervisor may redelegate, in writing, any authority
delegated to the County Supervisor in this subpart to an Assistant
County Supervisor, GS-7 or above, who is determined by the County
Supervisor to be qualified. Authority of County Supervisors in this
subpart applies to Area Loan Specialists in Alaska, Island Directors in
Hawaii, the Director for the Western Pacific Territories, and Area
Supervisors in the Western Pacific Territories and American Samoa.
(b) Responsibility. (1) National Office program directors are
responsible for reviewing and providing guidance to
[[Page 123]]
State, District and County Offices in disposing of inventory property.
(2) The State Director is responsible for establishing an effective
program and insuring compliance with FmHA or its successor agency under
Public Law 103-354 regulations.
(3) District Directors are responsible for disposal actions for
programs under their supervision and for monitoring County Office
compliance with FmHA or its successor agency under Public Law 103-354
regulations and State Supplements.
(4) County Supervisors are responsible for timely disposal of
inventory property for programs under their supervision.
[53 FR 27830, July 25, 1988, as amended at 66 FR 7568, Jan. 24, 2001]
Consolidated Farm and Rural Development Act (CONACT) Real Property
Sec. 1955.105 Real property affected (CONACT).
(a) Loan types. Sections 1955.106-1955.109 of this subpart prescribe
procedures for the sale of inventory real property which secured any of
the following type of loans (referred to as CONACT property in this
subpart): Farm Ownership (FO); Recreation (RL); Soil and Water (SW);
Operating (OL); Emergency (EM); Economic Opportunity (EO); Economic
Emergency (EE); Softwood Timber (ST); Community Facility (CF); Water and
Waste Disposal (WWD); Reserve Conservation and Development (RC&D);
Watershed (WS); Association Recreation; EOC: Rural Renewal; Water
Facility; Business and Industry (B&I); Rural Development Loan Fund
(RDLF); Intermediary Relending Program (IRP); Nonprofit National
Corporation (NNC); Irrigation and Drainage; Shift-in-Land Use (Grazing
Association); and loans to Indian Tribes and Tribal Corporations.
Homestead Protection, as set forth in Subpart S of Part 1951 of this
chapter, is only applicable to Farmer Program loans as defined in Sec.
1955.103 of this subpart.
(b) Controlled substance conviction. In accordance with the Food
Security Act of 1985 (Pub. L. 99-198), after December 23, 1985, if an
individual or any member, stockholder, partner, or joint operator of an
entity is convicted under Federal or State law of planting, cultivating,
growing, producing, harvesting, or storing a controlled substance (see
21 CFR Part 1308, which is Exhibit C to Subpart A of Part 1941 of this
chapter and is available in any FmHA or its successor agency under
Public Law 103-354 office, for the definition of ``controlled
substance'') prior to a credit sale approval in any crop year, the
individual or entity shall be ineligible for a credit sale for the crop
year in which the individual or member, stockholder, partner, or joint
operator of the entity was convicted and the four succeeding crop years.
Applicants will attest on Form FmHA or its successor agency under Public
Law 103-354 410-1, ``Application for FmHA or its successor agency under
Public Law 103-354 Services,'' that as individuals or that its members,
if an entity, have not been convicted of such crime after December 23,
1985.
(c) Effects of farm property sales on farm values. State Directors
will analyze farm real estate market conditions within the geographic
areas of their jurisdiction and determine whether or not the sale of the
FmHA or its successor agency under Public Law 103-354 farm inventory
properties will have a detrimental effect on the value of farms within
these areas. Such analysis will be carried out in January of each year
and as often throughout the year as necessary to reflect changing farm
real estate conditions. If the analyses of farm real estate conditions
indicate that such sales would put downward pressure on farm real estate
values in any area, all farm properties within the area affected will be
withheld from the market and managed in accordance with the provisions
of Subpart B of this Part until such time that a subsequent analysis
indicates otherwise. The State Director will notify, in writing, the
County Supervisor(s) servicing those areas that are restricted from
selling farm inventory property. State Directors in consultation with
other lenders, real estate agents, auctioneers, and others in the
community will analyze all available information such as:
[[Page 124]]
(1) The number of farms and acres that FmHA or its successor agency
under Public Law 103-354 expects to acquire in inventory.
(2) The number of farms and acres other lenders expect to acquire in
inventory.
(3) The number of farms and acres that FmHA or its successor agency
under Public Law 103-354 currently has in inventory.
(4) The number of farms and acres other lenders currently have in
inventory.
(5) The number of farms not included in paragraphs (c)(3) and (c)(4)
of this section which are currently listed for sale.
(6) Published real estate values and trend reports such as those
available from the Economic Research Service or professional appraisal
organizations.
(d) Highly erodible land. If farm inventory property contains
``highly erodible land,'' as determined by the SCS, the lease must
include conservation practices specified by the SCS and approved by FmHA
or its successor agency under Public Law 103-354 as a condition for
leasing. Refer to Sec. 1955.137(d) of this subpart for implementation
requirements.
[53 FR 35777, Sept. 14, 1988, as amended at 57 FR 19528, May 7, 1992; 58
FR 58649, Nov. 3, 1993; 62 FR 44399, Aug. 21, 1997]
Sec. 1955.106 Disposition of farm property.
(a) Rights of previous owner and notification. Before property which
secured a Farm Credit Programs loan is taken into inventory, the FSA
county official will advise the borrower-owner of Homestead Protection
rights (see subpart S of part 1951 of this chapter.)
(b) Racial, ethnic, and gender consideration. The County Supervisor
will make a special effort to insure that prospective purchasers, who
traditionally would not be expected to apply for farm ownership loan
assistance because of existing racial, ethnic, or gender prejudice, are
informed of the availability of the Socially Disadvantaged Program.
Emphasis will be placed on providing assistance to such socially
disadvantaged applicants in accordance with the applicable sections of
subpart A of part 1943 of this chapter.
(c) Nonprogram (NP) borrowers. Nonprogram (NP) borrowers are not
eligible for Homestead Protection provisions as set forth in subpart S
of part 1951 of this chapter. When it is determined that all conditions
of Sec. 1951.558(b) of subpart L of part 1951 of this chapter have been
met, loans for unauthorized assistance will be treated as authorized
loans and will be eligible for homestead protection.
[53 FR 35777, Sept. 14, 1988, as amended at 58 FR 58649, Nov. 3, 1993;
62 FR 44399, Aug. 21, 1997]
Sec. 1955.107 Sale of FSA property (CONACT).
FSA inventory property will be advertised for sale in accordance
with the provisions of this subpart. If a request is received from a
Federal or State agency for transfer of a property for conservation
purposes, the advertisement should be conditional on that possibility.
Real property will be managed in accordance with the provisions of
subpart B of this part until sold.
(a) Suitable Property. Not later than 15 days from the date of
acquisition, the Agency will advertise suitable property for sale. For
properties currently under a lease, except leases to beginning farmers
and ranchers under Sec. 1955.66(a)(2)(iii) of subpart B of this part,
the property will be advertised for sale not later than 60 days after
the lease expires or is terminated. There will be a preference for
beginning farmers or ranchers. The advertisement will contain a
provision to lease the property to a beginning farmer or rancher for up
to 18 months should FSA credit assistance not be available at the time
of sale. The first advertisement will not be required to contain the
sales price but it should inform potential beginning farmer or rancher
applicants that applications will be accepted pending completion of the
advertisement process. When possible, the sale of suitable FSA property
should be handled by county officials. Farm property will be advertised
for sale by publishing, as a minimum, two weekly advertisements in at
least two newspapers that are widely circulated in the area in which the
farm is located. Consideration will be given to advertising inventory
properties in major farm
[[Page 125]]
publications. Either Form RD 1955-40 or Form RD 1955-41, ``Notice of
Sale,'' will be posted in a prominent place in the county. Maximum
publicity should be given to the sale under guidance provided by Sec.
1955.146 of this subpart and care should be taken to spell out
eligibility criteria. Tribal Councils or other recognized Indian
governing bodies having jurisdiction over Indian reservations (see Sec.
1955.103 of this subpart) shall be responsible for notifying those
parties in Sec. 1955.66(d)(2) of subpart B of this part.
(1) Price. Property will be advertised for sale for its appraised
market value based on the condition of the property at the time it is
made available for sale. The market value will be determined by an
appraisal made in accordance with Sec. 761.7 of this title. Property
contaminated with hazardous waste will be appraised ``as improved''
which will be used as the sale price for advertisement to beginning
farmers or ranchers.
(2) Selection of purchaser. After homestead protection rights have
expired, suitable farmland must be sold in the priority outlined in this
paragraph. When farm inventory property is larger than family size, the
property will be subdivided into suitable family size farms pursuant to
Sec. 1955.140 of this subpart.
(i) Sale to beginning farmers/ranchers. Not later than 135 days from
the date of acquisition, FSA will sell suitable farm property, with a
priority given to applicants who are classified as beginning farmers or
ranchers, as defined in Sec. 1955.103, as of the time of sale.
(ii) Random selection. The county official will first determine
whether applicants meet the eligibility requirements of a beginning
farmer or rancher. For applicants who are not determined to be beginning
farmers or ranchers, they may request that the State Executive Director
provide an expedited review and determination of whether the applicant
is a beginning farmer or rancher for the purpose of acquiring inventory
property. This review shall take place not later than 30 days after
denial of the application. The State Executive Director's review
decision shall be final and is not administratively appealable. When
there is more than one beginning farmer or rancher applicant, the Agency
will select by lot by placing the names in a receptacle and drawing
names sequentially. Drawn offers will be numbered and those drawn after
the first drawn name will be held in suspense pending sale to the
successful applicant. The random selection drawing will be open to the
public, and applicants will be advised of the time and place.
(iii) Notification of applicants not selected to purchase suitable
farmland. When the Agency selects an applicant to purchase suitable
farmland, in accordance with this paragraph, all applicants not selected
will be notified in writing that they were not selected. The outcome of
the random selection by lot is not appealable if such selection is
conducted in accordance with this subpart.
(3) Credit sale procedure. Subject to the availability of funds,
credit sale to program applicants will be processed as follows:
(i) The interest rate charged by the Agency will be the lower of the
interest rates in effect at the time of loan approval or closing.
(ii) The loan limits for the requested type of assistance are
applicable to a credit sale to an eligible applicant.
(iii) Title clearance and loan closing for a credit sale and any
subsequent loan to be closed simultaneously must be the same as for an
initial loan except that:
(A) Form RD 1955-49, ``Quitclaim Deed,'' or other form of
nonwarranty deed approved by the Office of the General Counsel (OGC)
will be used.
(B) The buyer will pay attorney's fees and title insurance costs,
recording fees, and other customary fees unless they are included in a
subsequent loan. A subsequent loan may not be made for the primary
purpose of paying closing costs and fees.
(iv) Property sold on credit sale may not be used for any purpose
that will contribute to excessive erosion of highly erodible land or to
the conversion of wetlands to produce an agricultural commodity, see
Exhibit M of subpart G of part 1940 of this chapter. All prospective
buyers will be notified in writing as a part of the property
advertisement
[[Page 126]]
of the presence of highly erodible land and wetlands on inventory
property.
(b) Surplus property and suitable property not sold to a beginning
farmer or rancher. Except where a lessee is exercising the option to
purchase under the Homestead Protection provision of subpart S of part
1951 of this chapter, surplus property will be offered for public sale
by sealed bid or auction within 15 days from the date of acquisition in
accordance with Sec. 1955.147 or Sec. 1955.148. Suitable farm property
which has been advertised for sale to a beginning farmer or rancher in
accordance with paragraph (a) of this section, but has not sold within
135 days from the date of acquisition will be offered for public sale by
sealed bid or auction to the highest bidder as provided in paragraph
(b)(1) of this section. All prospective buyers will be notified in
writing as part of the property advertisement of the presence of any
highly erodible land, converted wetlands, floodplains, wetlands, or
other special characteristics of the property that may limit its use or
cause an easement to be placed on the property.
(1) Advertising surplus property. FSA will advertise surplus
property for sale by sealed bid or auction within 15 days from the date
of acquisition or, for those suitable properties not sold to beginning
farmers or ranchers in accordance with this section, within 135 days of
the date of acquisition.
(2) Sale by sealed bid or auction. Surplus real estate must be
offered for public sale by sealed bid or auction and must be sold no
later than 165 days from the date of acquisition to the highest bidder.
Preference will be given to a cash offer which is at least *percent of
the highest offer requiring credit. (*Refer to Exhibit B of RD
Instruction 440.1 (available in any Agency office) for the current
percentage.) Equally acceptable sealed bid offers will be decided by
lot.
(3) Negotiated sale. If no acceptable bid is received through the
sealed bid or auction process, the State Executive Director will sell
surplus property at the maximum price obtainable without further public
notice by negotiation with interested parties, including all previous
bidders. The rates and terms offered for a credit sale through
negotiation will be within the limitations established in paragraph (b)
(4) of this section. A sale made through negotiation will require a bid
deposit of not less than 10 percent of the negotiated price in the form
of a cashier's check, certified check, postal or bank money order, or
bank draft payable to FSA. Preference will be given to a cash offer
which is at least * percent of the highest offer requiring credit.
[*Refer to Exhibit B of RD Instruction 440.1 (available in any Agency
office) for the current percentage.] Equally acceptable offers will be
decided by lot.
(4) Rates and terms. Subject to the availability of funds, rates and
terms for Homestead Protection will be in accordance with subpart S of
part 1951 of this chapter. Sales of suitable property offered to program
eligible applicants will be on rates and terms provided in subpart A of
part 1943 of this chapter. Surplus property and suitable property which
has not been sold to program eligible applicants will be offered for
cash or on ineligible terms in accordance with subpart J of part 1951 of
this chapter. The State Executive Director will determine the loan terms
for surplus property within these limitations. A credit sale made on
ineligible terms will be closed at the interest rate in effect at the
time the credit sale was approved. After extensive sales efforts where
no acceptable offer has been received, the State Executive Director may
request the Administrator to permit offering surplus property for sale
on more favorable rates and terms; however, the terms may not be more
favorable than those legally permissible for eligible borrowers. Surplus
property will be offered for sale for cash or terms that will provide
the best net return for the Government. The term of financing extended
may not be longer than the period for which the property will serve as
adequate security. All credit sales on ineligible terms will be
identified as NP loans.
[62 FR 44399, Aug. 21, 1997, as amended at 64 FR 62569, Nov. 17, 1999;
68 FR 7700, Feb. 18, 2003]
Sec. 1955.108 Sale of (CONACT) property other than FSA property.
Program officials will immediately contact the National Office
whenever
[[Page 127]]
they acquire real property to obtain further instructions on the time
frames and procedures for advertising and disposing of such property.
[62 FR 44401, Aug. 21, 1997]
Sec. 1955.109 Processing and closing (CONACT).
(a) Determining repayment ability and creditworthiness. If a credit
sale is involved, the applicant must furnish necessary financial
information to assist in determining repayment ability and
creditworthiness. Form FmHA or its successor agency under Public Law
103-354 431-2, ``Farm and Home Plan,'' should be used for all eligible
FSA applicants unless the applicant has furnished all required
information in another acceptable format. Information regarding
eligibility, planned development and total operations will be provided
the same as for the respective type of FSA loan. Purchasers requesting
credit on ineligible terms, except for C&BP, will be handled in
accordance with subpart J of part 1951 of this chapter. For C&BP,
information will be provided which is similar to an application
including financial information required for the respective loan program
to establish financial stability, creditworthiness and repayment
ability.
(b) [Reserved]
(c) Form of payment. Payments at closing will be in the form of
cash, cashier's check, certified check, postal or bank money order, or
bank draft made payable to the Agency.
(d)-(e) [Reserved]
(f) Earnest money. Earnest money, if any, will be used to pay
purchaser's closing costs with any balance of the costs being paid by
the purchaser. Any excess earnest money will be credited to the purchase
price or recognized as a part of the purchaser's downpayment.
(g) Closing and reporting sales. Title clearance, loan closing and
property insurance requirements for a credit sale will be the same as
for a program loan, except the property will be conveyed by Form FmHA or
its successor agency under Public Law 103-354 1955-49, in accordance
with Sec. 1955.141(a) of this subpart.
(h) Classification. Credit sales on ineligible terms for C&BP will
be classified as NP loans and serviced accordingly.
(i) [Reserved]
(j) Form FmHA or its successor agency under Public Law 103-354 1910-
11, ``Applicant Certification, Federal Collection Policies for Consumer
or Commercial Debts.'' The County Supervisor or District Director must
review Form FmHA or its successor agency under Public Law 103-354 1910-
11 ``Applicant Certification, Federal Collection Policies for Consumer
or Commercial Debts,'' with the applicant, and the form must be signed
by the applicant.
[53 FR 35780, Sept. 14, 1988, as amended at 54 FR 29333, July 12, 1989;
58 FR 52652, Oct. 12, 1993; 60 FR 34455, July 3, 1995; 62 FR 44401, Aug.
21, 1997; 68 FR 61332, Oct. 28, 2003]
Rural Housing (RH) Real Property
Sec. 1955.110 [Reserved]
Sec. 1955.111 Sale of real estate for RH purposes (housing).
Sections 1955.112 through 1955.120 of this subpart pertain to the
sale of acquired property pursuant to the Housing Act of 1949, as
amended, (RH property). Single family units (generally which secured
loans made under section 502 or 504 of the Housing Act of 1949, as
amended) are referred to as SFH property. All other property is referred
to as MFH property. Notwithstanding the provisions of Sec. Sec.
1955.112 through 1955.118 of this subpart, Sec. 1955.119 is the
governing section for the sale of SFH inventory property to a public
body or nonprofit organization to use for transitional housing for the
homeless.
[55 FR 3942, Feb. 6, 1990]
Sec. 1955.112 Method of sale (housing).
(a) Sales by FmHA or its successor agency under Public Law 103-354.
Sales customarily will be made by FmHA or its successor agency under
Public Law 103-354 personnel in accordance with Sec. Sec. 1955.114 and
1955.115 of this subpart (as appropriate) when staffing and workload
permit and inventory levels do not exceed those outlined in paragraph
(b) of this section. Adequate and timely advertising in accordance with
Sec. 1955.146 of this subpart is of utmost importance when this method
is used.
[[Page 128]]
No earnest money will be collected in connection with sales by FmHA or
its successor agency under Public Law 103-354. For MFH, this method will
always be used unless another method is authorized by the Assistant
Administrator, Housing.
(b) Real estate brokers. The County Office will utilize the services
of real estate brokers for regular sales when there are five or more
properties in inventory at any one time during the calendar year. When
real estate brokers are used, first consideration will be given to
utilizing such services under an exclusive broker contract as provided
for in Sec. 1955.130 of this subpart. Only when it is determined that
an exclusive broker contract is not practicable, will the services of
real estate brokers under an open listing agreement be utilized. The use
of real estate brokers in offices having less than five properties in
inventory at any one time during the calendar year is optional provided
staffing and workload permit diligent and timely sales by FmHA or its
successor agency under Public Law 103-354. When broker services for SFH
are utilized, the FmHA or its successor agency under Public Law 103-354
office will not conduct direct sales, but will refer inquiries to the
broker or list of participating brokers. However, if FmHA or its
successor agency under Public Law 103-354 has been approached by a
potential buyer desiring to purchase a specific property and a sales
contract has been accepted, the property will not be listed for sale
with real estate brokers. Earnest money held by real estate brokers will
be used to pay the purchaser's closing costs with any balance of the
costs to be paid by the purchaser. Any required earnest money deposit is
exclusive of any required credit report fee. Brokers may only be used
for MFH with authorization of the Assistant Administrator, Housing.
(c) Sealed bid or auction. The use of sealed bids or auctions is an
effective method by which to sell inventory property. If the State
Director determines that NP SFH property has been given adequate market
exposure and that diligent sales efforts have not produced buyers, or
under unusual circumstances as outlined in Sec. 1955.115(a)(1) of this
subpart, he/she will authorize sale by sealed bid or auction unless
additional sales methods appear more prudent. Program SFH property will
be sold by regular sale only, unless the Assistant Administrator,
Housing, authorizes sale by sealed bid or auction. The State Director
will request such authorization when all reasonable marketing efforts
fail to produce buyers and the conditions of Sec. 1955.114(a)(6) of
this subpart have been met. The case file, including documentation of
all marketing efforts, will be forwarded to the Assistant Administrator,
Housing, ATTN: Single Family Housing Servicing and Property Management
(SFH/SPM) Division, to request authority to sell program property by
sealed bid or auction. The decision to utilize a sealed bid or auction
must be carefully weighed when the property is located in a subdivision,
since the resultant sale may have an adverse effect on surrounding
property values. Detailed guidance for conducting sealed bid sales is
provided in Sec. 1955.147 of this subpart and for conducting auction
sales in Sec. Sec. 1955.131 and 1955.148 of this subpart.
[53 FR 27831, July 25, 1988]
Sec. 1955.113 Price (housing).
Real property will be offered or listed for its present market
value, as adjusted by any administrative price reductions provided for
in this section. Market value will be based upon the condition of the
property at the time it is made available for sale. However, when a
section 515 RRH credit sale is being made to a nonprofit organization or
public body to utilize former single family dwellings as a rental or
cooperative project for very-low-income residents, the price will be the
lesser of the Government's investment or market value, less
administrative price reductions, if any. Market value for multi-family
housing projects will be determined through an appraisal conducted in
accordance with subpart B to part 1922 of this chapter. Multi-family
housing appraisals conducted shall reflect the impact of any
restrictive-use provisions attached to the project as part of the credit
sale.
[[Page 129]]
(a) SFH price reduction. SFH property will be appraised at any time
additional market data indicates this action is warranted. If SFH
inventory has not sold after being actively marketed, the price will be
administratively reduced. An administrative price reduction will be made
without changing the SFH appraisal. For ease in computing dates for
administrative price reductions, each month is assumed to have thirty
days. The following schedule of administrative price reductions will be
followed:
(1) Program property. If program property has not sold after being
actively marketed at the current appraised value for 45 days during
which time program applicants have exclusive rights to purchase the
property, plus an additional 30 days to any offeror, the price will be
administratively reduced by 10 percent of the appraised value. During
the first 45 days after the price reduction, the property will be
actively marketed with program applicants having exclusive rights to
purchase the property, and at the expiration of this 45-day period, the
property may be sold to any offeror. If at the end of this 75-day period
the property remains unsold, a second price reduction of 10 percent of
the appraised value will be made. During the first 45 days after the
second price reduction, the property will be actively marketed with
program applicants having exclusive rights to purchase the property, and
at the expiration of this 45-day period, the property may be sold to any
offeror. If the property does not sell within 75 days of the second
price reduction, further guidance is provided in Sec. 1955.114(a)(6)
and Exhibit D (available in any FmHA or its successor agency under
Public Law 103-354 office) of this subpart.
(2) Nonprogram (NP) property. If NP property has not been sold after
being actively marketed for 45 days, the price will be administratively
reduced by 10 percent of the appraised value. If the property remains
unsold after an additional 45-day period of active marketing, one
further price reduction of 10 percent of the appraised value will be
made. If the property does not sell within 45 days of the second price
reduction, further guidance is provided in Sec. 1955.115(a)(1) and
Exhibit D (available in any FmHA or its successor agency under Public
Law 103-354 office) of this subpart.
(b) MFH price reduction. For multiple-family property, the sale
price will only be reduced to the extent that the market value has
decreased as shown in a current market appraisal. The District Director
will not reduce the price without the prior written approval of the
State Director. The State Director must request National Office
authorization on reductions in price for multiple-family property if the
inventory value at the time of acquisition exceeded the State Director's
loan approval authority.
[53 FR 27831, July 25, 1988; 54 FR 6875, Feb. 15, 1989, as amended at 58
FR 38927, July 21, 1993]
Sec. 1955.114 Sales steps for program property (housing).
Program property will be sold by regular sale unless the Assistant
Administrator, Housing, authorizes another method. If the State Director
determines that program property has been given adequate market exposure
and that diligent sales efforts including the use of real estate brokers
has not produced purchasers, the State Director may request the
Assistant Administrator, Housing, to authorize sale by sealed bid or
public auction as specified in Sec. 1955.112(c) of this subpart.
(a) Single family housing (SFH). Sale prices will be established in
accordance with Sec. 1955.113 of this subpart. The County Supervisor
will either offer the property or list it with real estate brokers for
regular sale under the provisions of Sec. 1955.112 of this subpart. See
Exhibit D of this subpart (available in any FmHA or its successor agency
under Public Law 103-354 office) which outlines chronologically the
sales steps for program property.
(1) The following provisions apply to all offers to purchase SFH
inventory property:
(i) Program property will be available for purchase only by program
applicants for the first 45 days from the date of the initial offering
or listing, and for the first 45 days following the date of any
reduction in price. During these 45-day period(s), offers from others
may be received and held until the
[[Page 130]]
first business day following the 45-day period (the 46th day) when any
such offer(s) will be considered as received on the 46th day along with
offers received on that same (46th) day. After the expiration of each
45-day exclusive period for program applicants, program property may be
purchased by offerors requesting credit on program terms, nonprogram
(NP) terms or for cash in the order of priority set forth in paragraph
(a)(3) of this section.
(ii) In regular sales, an acceptable offer must be for at least the
sale price. No offer for less than the sale price will be considered,
accepted or held. Offers will be considered as acceptable or
unacceptable independent of any accompanying credit request (on program
or NP terms).
(iii) All offers will be date-stamped when received. Selection of
equally acceptable offers, considering offers in the category order
outlined in paragraph (a)(3) of this section, received on the same
business day will be made by lot by placing the names in a receptacle
and drawing names sequentially. Drawn offers will be numbered and those
drawn after the first drawn offer will be held as back-up offers pending
sale to the successful offeror, unless the offeror has specifically
noted on the offer that it may not be held as a back-up offer.
(iv) An offer may be submitted any time after the effective date the
property is available for sale or any price reduction; however, it is
not considered until five business days after the effective date. An
offer received during the five business day period is considered on the
6th day, at the same time as any offer received on the 6th day.
(v) If an offer subject to FmHA or its successor agency under Public
Law 103-354 financing is accepted, and the offeror's credit request is
later denied, the next offer (if any) will be accepted regardless of
whether the rejected applicant appeals the adverse decision (NP
applicants do not receive appeal rights). In cases involving program
property, if no back-up offers are on hand, the property will be
reoffered/relisted for sale utilizing the balance of any outstanding
retention period. Property will not be held off the market pending the
outcome of an appeal.
(2) Effective date and method of offering. When ready for sale, each
property will be offered for sale by use of Form FmHA or its successor
agency under Public Law 103-354 1955-43 unless FmHA or its successor
agency under Public Law 103-354 has on hand a signed offer from a
program applicant to purchase a specific program property or an offer
from any offeror to purchase a specific NP property. The date the form
is posted or mailed to real estate brokers is the effective date the
offer for sale has begun.
Listings will provide for sales on program and NP terms, as
appropriate.
(3) Priority of offers. For program properties, acceptable offers
received after the 45-day retention period specified in paragraph
(a)(1)(i) of this section have priority in the order given in paragraphs
(a)(3) (i), (ii), (iii) and (iv) of this section. For NP properties,
acceptable offers have priority in the order given in paragraphs (a)(3)
(ii), (iii) and (iv) of this section. Program applicants may purchase NP
property, however, credit may only be extended on NP terms.
(i) Offers with requests for credit on program terms. An offer from
an applicant requesting credit on program terms in excess of the sale
price will be considered as equally acceptable with other acceptable
offers from program applicants and will be sold for the sale price.
(ii) Cash offers, in descending order from highest to lowest,
provided the cash offer is higher than any other offer which falls into
the parameters of paragraph (a)(3)(iii) of this section multiplied by
the current cash preference percentage listed in exhibit B of FmHA or
its successor agency under Public Law 103-354 Instruction 440.1
(available in any FmHA or its successor agency under Public Law 103-354
office).
(iii) Offers with requests for credit on NP terms in descending
order from highest to lowest, for more than the sale price. An offer
with a request for credit in excess of the market value of the property
will not be accepted. If an offer of this type is received, the offeror
will be given the opportunity to reduce the credit request to the market
[[Page 131]]
value (or lower) with no change to be made in the offered price.
(iv) Offers with requests for credit on NP terms for the sale price.
(4) Back-up offers and notification to offerors. Back-up offers will
be taken in accordance with paragraph (a)(1)(iii) of this section.
County offices utilizing the services of real estate brokers will advise
the brokers of changes in the status of the property. County offices not
utilizing real estate brokers will advise offerors of changes in the
status of the property utilizing exhibit E of this subpart (available in
any FmHA or its successor agency under Public Law 103-354 office) or
similar format. Use of exhibit E is optional in offices utilizing real
estate brokers.
(5) Finalizing sales. Credit sales on program terms will be made in
accordance with Sec. 1955.117 of this subpart and 7 CFR part 3550. Cash
sales will be handled in accordance with Sec. 1955.118 of this subpart
and credit sales on NP terms will be made in accordance with subpart J
of part 1951 of this chapter.
(6) Unsold property. If program property remains unsold after eight
months of active marketing, the case file, with documentation of all
marketing efforts, will be forwarded to the State Office for review with
a recommendation of future sales efforts. The State Director will
determine whether a request should be made to the Assistant
Administrator, Housing, to sell the property by sealed bid or auction,
or whether additional guidance such as, but not limited to advertising,
reappraisal, offering a special effort sales bonus, or 20-year
amortization factor (with balloon after 10 years) on NP financing may
facilitate a sale.
(b) Multiple family housing. The sale price will be established in
accordance with Sec. 1955.113 of this subpart. Notification of known
interested prospective offerors and advertising should be handled as set
forth in Sec. 1955.146 of this subpart. The sale information will
include a sale price, any restrictive-use provisions the project will be
subject to and made part of the title, a date/time/location when offers
will be drawn, and require all offerors to submit an application package
comparable to that required by the respective loan program, which will
be reviewed by the State Director or designee. The sale/time/location
will be established by the District Director and will allow adequate
time for advertising and review of applications to determine eligibility
in accordance with MFH program requirements. Offerors whose applications
are rejected by FmHA or its successor agency under Public Law 103-354
will be notified in writing by the approval official, and for program
applicants, given appeal rights in accordance with subpart B of part
1900 of this chapter. If an application is rejected, the sale will
continue regardless of whether the rejected applicant appeals the
adverse decision. Property will not be held pending the outcome of an
appeal. An offeror may withdraw an offer prior to the sale date, but not
on the sale date. All offers from applicants determined eligible for the
type loan being offered will be considered. The District Director, or
delegate, and one other FmHA or its successor agency under Public Law
103-354 employee will conduct the drawing at which time the public may
be present. Offers will be placed in a receptacle and drawn
sequentially. Drawn offers will be numbered and those drawn after the
first drawn will be held as back-up offers, unless the offeror has
indicated that the offer may not be held as back-up. Award will be made
to the first offer drawn provided the offer is acceptable as to the
terms and conditions set forth in the sale notice. The successful
offeror will be notified immediately in writing by the approval
official, return receipt requested, that the successful offeror's offer
has been accepted even if the successful offeror was present at the
sale. The remaining offerors will each be notified by letter, return
receipt requested, that their offer was not successful, but will be held
as a back-up offer. The selection of the offeror was by lot and is
therefore not appealable. If an unsuccessful offeror was not present at
the sale and requests the name of the successful offeror, the name may
be released. If the MFH property has been listed with real estate
brokers after receiving authorization from the Assistant Administrator,
Housing, Form FmHA or its successor agency under Public Law 103-354
1955-
[[Page 132]]
40, or another appropriate form designated for MFH property, will be
used and the property sold to the first eligible program applicant. Any
other method of sale must receive prior written authorization from the
Assistant Administrator, Housing. Cash sales of program property will
remain subject to restrictive-use provisions determined needed and
included in the advertisement. The deed will contain the applicable
restrictive-use provisions. Tenants and prospective tenants will receive
the applicable protections for the specific restrictive-use provision
contained in 7 CFR part 3560, subpart N.
(c) Single family inventory converted to MFH. Written offers by
nonprofit organizations, public bodies or for-profit entities, which
have good records of providing low income housing under section 515,
will be considered by FmHA or its successor agency under Public Law 103-
354 for the purchase of multiple SFH units for conversion to MFH.
Section 514 credit sale mortgages may contain repayment terms up to 33
years and section 515 credit sale mortgage terms may be up to 50 years.
(1) The price provisions of Sec. 1955.113 and the processing
provisions for MFH in Sec. 1955.117 of this subpart apply to such a
conversion.
(2) The provisions of Sec. 1955.130 of this subpart pertaining to
real estate brokers apply, as applicable, and a commission will be due
in the normal manner on units which were listed with the broker(s).
(3) Prior approval of the National Office is required before
issuance of Form AD-622, ``Notice of Preapplication Review Action.'' A
preapplication with documentation as required by the Agency, along with
the State Director's recommendation, will be forwarded to the National
Office, Attention: Assistant Administrator, Housing, for a determination
and further guidance.
(4) A credit sale for this purpose will be made according to the
provisions of 7 CFR part 3560, as modified by Sec. 1955.117 of this
subpart, except the units need not be contiguous, but they must be
located in close enough proximity so that management costs are not
increased nor management capabilities diminished because of distance.
(5) An additional loan may be made simultaneously with the credit
sale, or later, only when the property involved meets the requirements
of 7 CFR part 3560, subpart K.
(d) CONACT residential property suitable for the SFH program. When a
single family house acquired under the CONACT is determined to be suited
for the SFH program, it may be offered for sale as a SHF unit as though
it had been acquired under the SFH program. It may, however, be sold in
this manner to a program RH applicant on program terms only--not for
cash or on NP terms. When a house is offered for sale under this
paragraph, the listing notices and any advertising (whether being sold
by FmHA or its successor agency under Public Law 103-354 or through real
estate brokers) must state this restriction.
[53 FR 27832, July 25, 1988, as amended at 55 FR 3942, Feb. 6, 1990; 56
FR 2257, Jan. 22, 1991; 58 FR 38927, July 21, 1993; 58 FR 38949, July
21, 1993; 58 FR 52652, Oct. 12, 1993; 67 FR 78329, Dec. 24, 2002; 69 FR
69106, Nov. 26, 2004]
Sec. 1955.115 Sales steps for nonprogram (NP) property (housing).
The appropriate FmHA or its successor agency under Public Law 103-
354 office will take the following steps after repairs, if economically
feasible, are completed. The appraisal will be updated to reflect
changes in market conditions, repairs and improvements, if any. Form
FmHA or its successor agency under Public Law 103-354 1955-43 for SFH
and 1955-40 for MFH will be completed to offer the property for sale.
The advertising requirements and deed restrictions in Sec. 1955.116 of
this subpart apply if the property does not meet FmHA or its successor
agency under Public Law 103-354 DSS standards.
(a) Single Family Housing. Sales steps will be the same as for
program properties as provided in Sec. 1955.114(a) of this subpart,
except that sales must be for cash in accordance with Sec. 1955.118 or
credit on NP terms as provided in subpart J of part 1951 of this
chapter. See exhibit D of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office) which
[[Page 133]]
outlines chronologically the sales steps for NP properties.
(1) Sale by sealed bid or auction. If a NP property has not sold
within 150 days after being offered for sale, the inventory case file
with documentation of marketing efforts will be submitted to the State
Director. The State Director will authorize sale by sealed bid or
auction in accordance with Sec. 1955.112(c) of this subpart unless
additional sales methods appear more prudent. Use of the sealed bid or
auction method may be considered as an initial sales effort under
special or unusual circumstances such as, but not limited to, structures
which have been substantially destroyed by fire or other causes.
(2) Sale as chattel. If efforts to sell NP property by sealed bid or
auction prove unsuccessful, the structure(s) may be sold as chattel (for
chattel or salvage value, as appropriate) when authorized by the State
Director. When the structure is to be sold as chattel (exclusive of
land) further guidance is provided in Sec. Sec. 1955.121, 1955.122 and
1955.141(b) of this subpart. If no offer is received, the structure(s)
may be demolished and removed from the site and then the site offered
for sale. If this method is utilized, FmHA or its successor agency under
Public Law 103-354 will attempt to have the structure removed in
exchange for the salvageable materials by contract, otherwise, will
solicit for contracts to have the structure removed in accordance with
FmHA or its successor agency under Public Law 103-354 Instruction 2024-A
(available in any FmHA or its successor agency under Public Law 103-354
office).
(3) Sale of vacant land. When FmHA or its successor agency under
Public Law 103-354 has vacant land in inventory which was security for
an SFH loan, the land will be sold in accordance with this subparagraph.
When the lot meets the requirements of 7 CFR part 3550, and a program
applicant desires to purchase the lot and construct a dwelling, a credit
sale will not be made. Instead, one section 502 loan will be made which
will include funds for the purchase of the lot and construction of a
dwelling. Otherwise, the lot will be sold for cash or on NP terms with a
loan not to exceed ten years in term and amortization.
(b) Multiple family housing. Sales steps will be the same as for
program MFH property as provided in Sec. 1955.114(b) of this subpart
except that sales must be for cash or on NP terms as set forth in Sec.
1955.118 of this subpart. Additionally, if cash offers are received,
they will be given first preference by drawing from the cash offers
only. If the State Director determines an auction sale should be used to
sell NP MFH property, authority to use that method of sale must be
requested from the Assistant Administrator, Housing. Inventory files,
including information on the acquisition, marketing efforts made,
management of the property, other pertinent information, a memorandum
covering the facts of the case, and recommendations of the State
Director must be submitted for review. If the housing is sold out of the
FmHA or its successor agency under Public Law 103-354 program as NP
property, the closing of the sale may not take place until tenants have
received all notifications and benefits afforded to tenants in prepaying
projects in accordance with 7 CFR part 3560, subpart N.
[53 FR 27833, July 25, 1988, as amended at 58 FR 38928, July 21, 1993;
58 FR 52652, Oct. 12, 1993; 67 FR 78329, Dec. 24, 2002; 69 FR 69106,
Nov. 26, 2004]
Sec. 1955.116 Requirements for sale of property not meeting decent, safe and sanitary (DSS) standards (housing).
For real property (exclusive of improvements) which is unsafe, refer
to Sec. 1955.137(e) of this subpart for further guidance. For all other
housing inventory property which does not meet decent, safe and sanitary
(DSS) standards, the provisions of this section apply.
(a) Notices and advertising. If the inventory property has a single
family dwelling or MFH unit thereon which does not meet DSS standards as
defined in Sec. 1955.103 of this subpart, but which could meet such
standards through the repair or renovation activities of the future
owner, any ``Notice of Real Property For Sale,'' ``Notice of Sale,'' or
other advertisement used in conjunction with advertising the property
for sale must include the
[[Page 134]]
following language which is contained in Form FmHA or its successor
agency under Public Law 103-354 1955-44, ``Notice of Residential
Occupancy Restriction'':
This property contains a dwelling unit or units which FmHA or its
successor agency under Public Law 103-354 has deemed to be inadequate
for residential occupancy. The Quitclaim Deed by which this property
will be conveyed will contain a covenant restricting the residential
unit(s) on the property from being used for residential occupancy until
the dwelling unit(s) is repaired, renovated or razed. This restriction
is imposed pursuant to section 510(e) of the Housing Act of 1949, as
amended, 42 U.S.C. 1480. The property must be repaired and/or renovated
as follows:*.
* For advertisements, the sentence preceding the asterisk may be
deleted and replaced with the following, or similar sentence: ``Contact
FmHA or its successor agency under Public Law 103-354 (or any real
estate broker/name of exclusive broker) for a list of items which must
be repaired/renovated.'' For notices other than advertising, insert
those items which are necessary to make the dwelling unit(s) meet DSS
standards. Examples are:
--Replace flooring and floor joists in kitchen and bathroom.
--Drill new well to provide for an adequate and potable water
supply.
--Hook-up to community water and sewage system now being installed.
--Provide a functionally adequate, safe and operable * system. *
Insert heating, plumbing, electrical and/or sewage disposal, etc., as
appropriate.
--Install *. * Insert new roof, foundation, sump pump, bathroom
fixtures, etc., as appropriate.
--Install R-* insulation in basement walls or ceiling, R-*
insulation in attic, and storm windows/doors throughout. * Insert
appropriate R-Values to meet Thermal Performance Standards.
(b) Sale agreements. If a housing structure in inventory does not
meet DSS standards, Form FmHA or its successor agency under Public Law
103-354 1955-44 must be attached to Forms FmHA or its successor agency
under Public Law 103-354 1955-45 or FmHA or its successor agency under
Public Law 103-354 1955-46, as appropriate, to provide notification of
the deed restriction and required repairs/renovations before the
dwelling can be used for residential purposes.
(c) Quitclaim Deed. The following, the original of Form FmHA or its
successor agency under Public Law 103-354 1955-44, or similar
restrictive clause adapted for use in an individual State pursuant to a
State Supplement approved by OGC must be added to the Quitclaim Deed for
properties which do not meet DSS standards at the time of sale but which
could through the repair/renovation activities of the future owner:
Pursuant to section 510(e) of the Housing Act of 1949, as amended,
42 U.S.C. 1480(e), the purchaser (``Grantee'' herein) of the above-
described real property (the ``subject property'' herein) covenants and
agrees with the United States acting by and through Farmers Home
Administration or its successor agency under Public Law 103-354 (the
``Grantor'' herein) that the dwelling unit(s) located on the subject
property as of the date of this Quitclaim Deed will not be occupied or
used for residential purposes until the item(s) listed at the end of
this paragraph have been accomplished. This covenant shall be binding on
Grantee and Grantee's heirs, assigns and successors and will be
construed as both a covenant running with the subject property and as
equitable servitude. This covenant will be enforceable by the United
States in any court of competent jurisdiction. When the existing
dwelling unit(s) on the subject property complies with the
aforementioned standards of the Farmers Home Administration or its
successor agency under Public Law 103-354 or the unit(s) has been
completely razed, upon application to the Farmers Home Administration or
its successor agency under Public Law 103-354 in accordance with its
regulations, the subject property may be released from the effect of
this covenant and the covenant will thereafter be of no further force or
effect. The property must be repaired and/or renovated as follows: *.''
* Insert the same items referenced in the listing notice(s) and sale
agreement which are necessary to make the dwelling unit(s) meet DSS
standards.
(d) Release of restrictive covenant. Upon request of the property
owner for a release of the restrictive covenant, FmHA or its successor
agency under Public Law 103-354 will inspect the property to ensure that
the repairs/renovations outlined in the restrictive covenant have been
properly completed or the structure(s) razed. A State Supplement
outlining the procedure for releasing the restrictive covenant will be
issued with the advice of OGC.
[53 FR 27834, July 25, 1988]
[[Page 135]]
Sec. 1955.117 Processing credit sales on program terms (housing).
The following provisions apply to all credit sales on program terms:
(a) Offers. Form FmHA or its successor agency under Public Law 103-
354 1955-45 will be used to document the offer and acceptance for
regular FmHA or its successor agency under Public Law 103-354 sales. The
contract is accepted prior to processing Form FmHA or its successor
agency under Public Law 103-354 410-4, ``Application for Rural Housing
Assistance (Non-Farm Tract),'' for SFH property with the provision that
acceptance is subject to program approval. MFH property sales require an
application package comparable to that submitted for the respective loan
program application.
(b) Processing. The FmHA or its successor agency under Public Law
103-354 regulations pertaining to the type of credit being extended will
be followed in making credit sales on program terms except as modified
by the provisions of this section. All MFH credit sales may be made for
up to 100 percent of the current market value of the security, less any
prior lien. However, if a profit or limited profit applicant desires to
earn a return, the applicant will be required to contribute at least 3
percent of the purchase price as a cash downpayment. All credit sales of
RRH, RCH, and LH properties will be subject to prepayment and
restrictive-use provisions specified by the respective program
requirements.
(c) Approval. Forms FmHA or its successor agency under Public Law
103-354 1940-1 or RD 3560-51, as appropriate, will be used to approve a
credit sale even though no obligation of funds is required.
(d) Downpayment. When a downpayment is made, it will be collected at
closing.
(e) Interest rate. Upon request of the applicant, the interest rate
charged by FmHA or its successor agency under Public Law 103-354 will be
the lower of the interest rate in effect at the time of loan approval or
closing. If the applicant does not indicate a choice, the loan will be
closed at the rate in effect at the time of loan approval.
(f) Closing costs. MFH purchasers will pay closing costs from their
own funds. Where necessary, SFH purchasers who qualify may be made a
subsequent loan to pay closing costs in an amount not to exceed 1
percent of the sale price of the dwelling. Any closing costs which are
legally or customarily paid by the seller will be paid by FmHA or its
successor agency under Public Law 103-354 and charged to the inventory
account as a nonrecoverable cost items.
(g) Closing sale. Title clearance, loan closing and property
insurance requirements for a credit sale, and any loan closed
simultaneously with the credit sale, are the same as for a program loan
of the same type except:
(1) The property will be conveyed in accordance with Sec.
1955.141(a) of this subpart.
(2) Earnest money, if any, will be used to pay purchaser's closing
costs with any balance of closing costs being paid from the purchaser's
personal funds except as provided in paragraph (f) of this section. For
SFH credit sales and MFH credit sales to nonprofit organizations or
public bodies, any excess deposit will be refunded to the purchaser. For
MFH credit sales to profit or limited profit buyers, any excess earnest
money deposit will be credited to the purchase price and recognized as a
part of the purchaser's initial investment.
(3) The County Supervisor or District Director will provide the
closing agent with the necessary information for closing the sale. The
assistance of OGC will be requested to provide closing instructions in
exceptional or complex cases and for all MFH sales.
(h) Reporting. After the sale is closed, it will be reported
according to Sec. 1955.142 of this subpart.
[53 FR 27834, July 25, 1988; 54 FR 6875, Feb. 15, 1989, as amended at 58
FR 38928, July 21, 1993; 68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov.
26, 2004]
Sec. 1955.118 Processing cash sales or MFH credit sales on NP terms.
(a) Cash sales. Cash sales will be closed by the servicing official
collecting the purchase price (less any earnest money deposit or bid
deposit) and delivering the deed to the purchaser.
[[Page 136]]
(b) Credit sales. The following provisions apply to MFH credit sales
on NP terms:
(1) Offers. Form FmHA or its successor agency under Public Law 103-
354 1955-45 or FmHA or its successor agency under Public Law 103-354
1955-46, as appropriate, will be used to document the offer and
acceptance. Contract acceptance is made prior to processing a request
for credit on NP terms.
(2) Processing. Purchasers requesting credit on NP terms will be
required to submit documentation to establish financial stability,
repayment ability, and creditworthiness. Standard forms used to process
program applications may be utilized or comparable documentation may be
accepted from the purchaser with the servicing official having the
discretion to determine what information is required to support loan
approval for the type property involved. Individual credit reports will
be ordered for each individual applicant and each principal within an
applicant entity in accordance with subpart B of part 1910 of this
chapter. Commercial credit reports will be ordered for profit
corporations and partnerships, and organizations with a substantial
interest in the applicant entity in accordance with subpart C of part
1910 of this chapter.
(3) Approval. Form RD 3560-51 will be used to approve a credit sale
even though no obligation of funds is involved. Special instructions on
the FMI pertaining to NP credit sales will be followed.
(4) Downpayment. A downpayment of not less than 10 percent of the
purchase price is required at closing.
(5) Interest rate. The Section 515 RRH interest rate plus \1/2\
percent will be charged on all types of housing credit sales, except
SFH. Refer to exhibit B of FmHA or its successor agency under Public Law
103-354 Instruction 440.1 (available in any FmHA or its successor agency
under Public Law 103-354 office) for interest rates. Loans made on NP
terms will be closed at the interest rate which was in effect at the
time the loan was approved.
(6) Term of note. The note amount will be amortized over a period
not to exceed 10 years. If the State Director determines more favorable
terms are necessary to facilitate the sale, the note amount may be
amortized using a 30-year factor with payment in full (balloon payment)
due not later than 10 years from the date of closing. In no case will
the term be longer than the period for which the property will serve as
adequate security.
(7) Modification of security instruments. If applicable to the type
property being sold, modification of security instruments may be made.
On the promissory note and/or security instrument (mortgage or deed of
trust) any covenants relating to graduation to other credit,
restrictive-use provisions on MFH projects, personal occupancy,
inability to secure other financing, and restrictions on leasing may be
deleted. Deletions are made by lining through only the specific
inapplicable language with both the NP borrower and FmHA or its
successor agency under Public Law 103-354 initialing the changes.
(8) Closing sale. Title clearance, loan closing and property
insurance requirements for a credit sale are the same as for a program
loan except:
(i) The property will be conveyed in accordance with Sec.
1955.141(a) of this subpart.
(ii) The purchaser will pay his/her own closing costs. Earnest
money, if any, will be used to pay purchaser's closing costs with any
balance of closing costs being paid by the purchaser. Any closing costs
which are legally or customarily paid by the seller will be paid by FmHA
or its successor agency under Public Law 103-354 from the downpayment.
(iii) The County Supervisor or District Director will provide the
closing agent with the necessary information for closing the sale. The
assistance of OGC will be requested to provide closing instructions for
all MFH sales.
(iv) When more than one property is bought by the same buyer and the
transactions are closed at the same time, a separate promissory note
will be prepared for each property, but one mortgage will cover all the
properties.
(9) Reporting. After the sale is closed, it will be reported
according to Sec. 1955.142 of this subpart.
(10) Classification. MFH credit sales on NP terms will be classified
as NP loans and serviced accordingly.
[[Page 137]]
(11) Form FmHA or its successor agency under Public Law 103-354
1910-11, ``Applicant Certification, Federal Collection Policies for
Consumer or Commercial Debts.'' The County Supervisor or District
Director must review Form FmHA or its successor agency under Public Law
103-354 1910-11, ``Applicant Certification, Federal Collection Policies
for Consumer or Commercial Debts,'' with the applicant, and the form
must be signed by the applicant.
[53 FR 27835, July 25, 1988, as amended at 54 FR 29333, July 12, 1989;
55 FR 3942, Feb. 6, 1990; 58 FR 38928, July 21, 1993; 58 FR 52653, Oct.
12, 1993; 68 FR 61332, Oct. 28, 2003; 69 FR 69106, Nov. 26, 2004]
Sec. 1955.119 Sale of SFH inventory property to a public body or nonprofit organization.
Notwithstanding the provisions of Sec. 1955.111 through Sec.
1955.118 of this subpart, this section contains provisions for the sale
of SFH inventory property to a public body or nonprofit organization to
use for transitional housing for the homeless. A public body or
nonprofit organization is a nonprogram applicant. All other SFH credit
sales on nonprogram terms will be handled in accordance with subpart J
of part 1951 of this chapter.
(a) Method of sale. The method of sale is according to Sec.
1955.112 of this subpart. Upon request from a public body or nonprofit
organization, FmHA or its successor agency under Public Law 103-354 will
provide a list of all SFH inventory property, regardless of whether it
is listed for sale with real estate brokers. The list will indicate
whether the property is program or nonprogram. Upon written notice of
the organization's intent to buy a specific property, if it is not under
a sale contract, FmHA or its successor agency under Public Law 103-354
will withdraw the property from the market for a period not to exceed 30
days to provide the organization sufficient time to execute Form FmHA or
its successor agency under Public Law 103-354 1955-45.
(b) Price. The price of the property will be established according
to Sec. 1955.113 of this subpart; however, a 10 percent discount of the
listed price is authorized on nonprogram property. No discount is
authorized on program property.
(c) Decent, safe and sanitary (DSS) standards. If an organization
wants to buy a property which does not meet DSS standards, FmHA or its
successor agency under Public Law 103-354 will repair it to meet those
standards, including thermal performance standards, unless FmHA or its
successor agency under Public Law 103-354 determines it is not feasible
to do so according to Sec. 1955.64(a)(1)(ii) of subpart B of part 1955
of this chapter. The price will be adjusted to reflect any resulting
change in value. Cosmetic repairs, if needed, such as painting, floor
covering, landscaping, etc., are the responsibility of the organization.
Form FmHA or its successor agency under Public Law 103-354 1955-44,
itemizing the required repairs and FmHA or its successor agency under
Public Law 103-354's agreement to complete them before closing will be
made a part of Form FmHA or its successor agency under Public Law 103-
354 1955-45, the sales contract, before it is signed. Required repairs
must be completed before closing so DSS restrictions will not be
required in the deed.
(d) Approval and closing. Processing cash sales or MFH credit sales
on nonprogram terms is according to Sec. 1955.118 of this subpart,
except as follows:
(1) Earnest money deposit. No earnest money deposit is required.
(2) Downpayment. No downpayment is required.
(3) Term of note. The term of the note may not exceed 30 years.
[55 FR 3942, Feb. 6, 1990, as amended at 58 FR 52653, Oct. 12, 1993]
Sec. 1955.120 Payment of points (housing).
To effect regular sale of inventory SFH property to a purchaser who
is financing the purchase of the property with a non-FmHA or its
successor agency under Public Law 103-354 loan, the County Supervisor
may authorize the payment by FmHA or its successor agency under Public
Law 103-354 of not more than three points. The payment must be a
customary requirement of the lender for the seller within the
[[Page 138]]
community where the property is located. Terms of payment will be
incorporated in Form FmHA or its successor agency under Public Law 103-
354 1955-45 and will be fixed as of the date the form is signed by the
appropriate FmHA or its successor agency under Public Law 103-354
official. Points will not be paid to reduce the purchaser's interest
rate. The payment will be deducted from the funds to be received by FmHA
or its successor agency under Public Law 103-354 at closing.
[53 FR 27836, July 25, 1988. Redesignated at 55 FR 3942, Feb. 6, 1990,
as amended at 58 FR 52653, Oct. 12, 1993; 68 FR 61332, Oct. 28, 2003]
Chattel Property
Sec. 1955.121 Sale of acquired chattels (chattel).
Sections 1955.122 through 1955.124 of this subpart prescribe
procedures for the sale of all acquired chattel property except real
property rights. The State Director is authorized to sell acquired
chattels by auction, sealed bid, regular sale or, for perishable items
and crops, by negotiated sale. The State Director may redelegate
authority to any qualified FmHA or its successor agency under Public Law
103-354 employee.
Sec. 1955.122 Method of sale (chattel).
Acquired chattels will be sold as expeditiously as possible using
the method(s) considered most appropriate. If the chattel is not sold
within 180 days after acquisition, assistance will be requested as
outlined in Sec. 1955.143 of this subpart.
(a) Sale to beginning farmers or ranchers. Beginning farmers or
ranchers obtaining special OL loan assistance under Sec. 1941.15 of
subpart A of part 1941 of this chapter will receive priority in the
purchase of farm equipment held in government inventory during the
commitment period. The County Supervisor will notify such applicants/
borrowers of any farm equipment held in government inventory within the
service area of the FmHA or its successor agency under Public Law 103-
354 County Office. These applicants/borrowers will be given 10 working
days to respond that they are interested in purchasing any or all items
of equipment at the appraised fair market value established by FmHA or
its successor agency under Public Law 103-354. FmHA or its successor
agency under Public Law 103-354 Form Letter 1955-C-1 will be used to
notify applicants/borrowers of the availability of farm equipment in
FmHA or its successor agency under Public Law 103-354 inventory. The
equipment must be essential to the success of the operation described in
the loan application in order for the applicant to have an opportunity
to purchase such equipment. The County Supervisor will determine what
equipment is essential.
(b) Regular sale. Chattels will be sold by FmHA or its successor
agency under Public Law 103-354 employees at market value to program
applicants. Form FmHA or its successor agency under Public Law 103-354
440-21, ``Appraisal of Chattel Property,'' will be used when appraising
chattels for regular sale.
(c) Auctions. Section 1955.148 of this subpart provides detailed
guidance on auctions applicable to the sale of chattels, as supplemented
by this section.
(1) Established public auction. An established public auction is an
auction that is widely advertised and held on a regularly scheduled
basis at the same facility. This method of sale is particularly suited
for the sale of commodities, farm machinery and livestock. No additional
public notice of sale is required other than that commonly used by the
facility. This is the preferred method of disposal.
(2) Other auctions. Other auctions, whether conducted by FmHA or its
successor agency under Public Law 103-354 employees or fee auctioneers,
are suitable for on-premises sales, for sale of dissimilar chattels, and
for the sale of chattels in conjunction with the auction of real
property. A minimum of 5 days public notice will be given prior to the
date of auction.
(d) Sealed bid sales. Section 1955.147 of this subpart provides
detailed guidance on sealed bid sales applicable to the sale of
chattels. When it is believed that financing will have to be provided
through a credit sale, this method has advantages over auction sales. It
requires, however, additional steps in the event any established minimum
price is not obtained. Preference will be
[[Page 139]]
given to a cash offer which is at least ----* percent of the highest
offer requiring credit.
[* Refer to exhibit B of FmHA or its successor agency under Public
Law 103-354 Instruction 440.1 (available in any FmHA or its successor
agency under Public Law 103-354 office) for the current percentage.]
(e) Negotiated sale. Perishable acquired items and crops (except
timber) and chattels for which no acceptable bid was received from
auction or sealed bid methods may be sold by direct negotiation for the
best price obtainable. No public notice is required to negotiate with
interested parties including prior bidders. Justification for the use of
this method of sale will be documented.
(f) Notification. In many States the original owner of the chattel
property must personally be notified of the sale date and method of sale
within a certain time prior to the sale. The State Director then will
issue a State supplement clearly stating what notices are to be sent, if
any. County Supervisor will review State supplements to determine what
notices must be sent to the previous owner of the chattel property prior
to FmHA or its successor agency under Public Law 103-354 taking action
to sell the property.
No public notice is required to negotiate with interested parties
including prior bidders. Justification for the use of this method of
sale will be documented. A copy of the sale instrument (Form FmHA or its
successor agency under Public Law 103-354 1955-47, ``Bill of Sale `A'--
Sale of Government Property'') will be kept in the County or District
Office inventory file. Sale proceeds will be remitted according to FmHA
or its successor agency under Public Law 103-354 Instruction 1951-B
(available in any FmHA or its successor agency under Public Law 103-354
office). A State Supplement, when needed, will be prepared with the
assistance of OGC to provide additional guidance on negotiated sales and
to insure compliance with State laws.
[50 FR 23904, June 7, 1985, as amended at 53 FR 35780, Sept. 14, 1988;
58 FR 48290, Sept. 15, 1993; 58 FR 58650, Nov. 3, 1993; 62 FR 44401,
Aug. 21, 1997; 68 FR 61332, Oct. 28, 2003]
Sec. 1955.123 Sale procedures (chattel).
(a) Sales. Although cash sales are preferred in the sale of
chattels, credit sales may be used advantageously in the sale of
chattels to eligible purchasers and to facilitate sales of high-priced
chattels. Chattel sales will be made to eligible purchasers in
accordance with the provisions of this chapter. Preference will be given
to a cash offer which is at least * percent of the highest offer
requiring credit. (*Refer to exhibit B of FmHA or its successor agency
under Public Law 103-354 Instruction 440.1 (available in any FmHA or its
successor agency under Public Law 103-354 office) for the current
percentage.) Credit sales made to ineligible purchasers will require not
less than a 10 percent downpayment with the remaining balance amortized
over a period not to exceed 5 years. The interest rate for ineligible
purchasers will be the current ineligible interest rate for Farmer
Programs property set forth in exhibit B of FmHA or its successor agency
under Public Law 103-354 Instruction 440.1 (available in any FmHA or its
successor agency under Public Law 103-354 office). Form FmHA or its
successor agency under Public Law 103-354 431-2, in conjunction with
Form FmHA or its successor agency under Public Law 103-354 440-32,
``Request for Statement of Debts and Collateral,'' may be used to show
financial capability. For Farmer Programs, County Supervisors, District
Directors, and State Directors are authorized to approve or disapprove
chattel sales on eligible terms in accordance with the respective loan
approval authorities in exhibit C of FmHA or its successor agency under
Public Law 103-354 Instruction 1901-A (available in any FmHA or its
successor agency under Public Law 103-354 office). Applicants who have
been determined ineligible, and eligible applicants who have their
application disapproved, will be notified of the opportunity to appeal
in accordance with subpart B of part 1900 of this chapter. County
Supervisors, District Directors, and State Directors are authorized to
approve or disapprove chattel sales on ineligible terms in accordance
with the respective type of
[[Page 140]]
program approval authorities in exhibit E of FmHA or its successor
agency under Public Law 103-354 Instruction 1901-A (available in any
FmHA or its successor agency under Public Law 103-354 office.)
(b) Receipt of payment. Payment will be by cashier's check,
certified check, postal or bank money order or personal check (not in
excess of $500) made payable to the agency. Cash may be accepted if it
is not possible for one of these forms of payment to be used. Third
party checks are not acceptable. If full payment is not received at the
time of sale, the offer will be documented by Form RD 1955-45 or Form RD
1955-46 where the chattel is sold jointly with real estate by regular
sale.
(c) Transfer of title. Title will be transferred to a purchaser in
accordance with Sec. 1955.141(b) of this subpart.
(d) Reporting sale. Sales will be reported in accordance with Sec.
1955.142 of this subpart.
(e) Reporting and disposal of inventory property not sold. Refer to
Sec. Sec. 1955.143 and 1955.144 of this subpart for additional guidance
in disposing of problem property.
[50 FR 23904, June 7, 1985, as amended at 58 FR 52653, Oct. 12, 1993; 58
FR 58650, Nov. 3, 1993; 68 FR 61332, Oct. 28, 2003]
Sec. 1955.124 Sale with inventory real estate (chattel).
Inventory chattel property may be sold with inventory real estate if
a higher aggregate price can be obtained. Proceeds from a joint sale
will be applied to the respective inventory accounts based on the value
of the property sold. Form FmHA or its successor agency under Public Law
103-354 440-21 will be used to determine the value of the chattel
property. The offer for the sale of the chattels will be documented by
incorporating the terms and conditions of the sale of Form FmHA or its
successor agency under Public Law 103-354 1955-45 or Form FmHA or its
successor agency under Public Law 103-354 1955-46, and may be accepted
by the appropriate approval official based upon the combined final sale
price.
Sec. Sec. 1955.125-1955.126 [Reserved]
Use of Contractors To Dispose of Inventory Property
Sec. 1955.127 Selection and use of contractors to dispose of inventory property.
Sections 1955.128 through 1955.131 prescribe procedures for
contracting for services to facilitate disposal of inventory property.
FmHA or its successor agency under Public Law 103-354 Instruction 2024-A
(available in any FmHA or its successor agency under Public Law 103-354
office) is applicable for procurement of nonpersonal services.
[53 FR 27836, July 25, 1988]
Sec. 1955.128 Appraisers.
(a) Real property. The State Director may authorize the County
Supervisor or District Director to procure fee appraisals of inventory
property, except MFH properties, to expedite the sale of inventory real
or chattel property. (Fee appraisals of MFH properties will only be
authorized by the Assistant Administrator, Housing, when unusual
circumstances preclude the use of a qualified FmHA or its successor
agency under Public Law 103-354 MFH appraiser.) The decision will be
based on the availability of comparables, the capability and
availability of personnel, and the number and type of properties (such
as large farms and business property) requiring valuation. For Farmer
Programs real estate properties, all contract (fee) appraisers should
include the sales comparison, income (when applicable), and the cost
approach to value. All FmHA or its successor agency under Public Law
103-354 real estate contract appraisers must be certified as State-
Certified General Appraisers.
(b) Chattel property. For Farmer Programs chattel appraisals, the
contractor/appraiser completing the report must meet at least one of the
following qualifications:
(1) Certification by a National or State appraisal society.
(2) If the contractor is not a certified appraiser and a certified
appraiser is not available, the contractor may qualify or may use other
qualified appraisers, if the contractor can establish that
[[Page 141]]
he/she or that the appraiser meets the criteria for a certification in a
National or State appraisal society.
(3) The appraiser has recent, relevant, documented appraisal
experience or training, or other factors clearly establish the
appraiser's qualifications.
[58 FR 58650, Nov. 3, 1993]
Sec. 1955.129 Business brokers.
The services of business brokers or business opportunity brokers may
be authorized by the appropriate Assistant Administrator in lieu of or
in addition to real estate brokers for the sale of businesses as a
whole, including goodwill and chattel, when:
(a) The primary use of the structure included in the sale is other
than residential;
(b) The business broker is duly licensed by the respective state;
and
(c) The primary function of the business is other than farming or
ranching.
Sec. 1955.130 Real estate brokers.
Contracting authority for the use of real estate brokers is
prescribed in Exhibit D of FmHA or its successor agency under Public Law
103-354 Instruction 2024-A (available in any FmHA or its successor
agency under Public Law 103-354 office). Brokers who are managing
custodial or inventory property may also participate in sales activities
under the same conditions offered other brokers. Brokers must be
properly licensed in the State in which they do business.
(a) Type of listings. The State Director may authorize use of
exclusive listings during any calendar year. Since the Agency receives
many more marketing services for its commission dollar and saves time
listing the property with only one broker, it is strongly recommended
that all County Offices be authorized the use of exclusive brokers.
(1) Exclusive broker contract. An exclusive broker contract provides
for the selection of one broker by competitive negotiation who will be
the only authorized broker for the FmHA or its successor agency under
Public Law 103-354 office awarding the contract within a defined area
and for specific property or type of property. Criteria will be
specified in the solicitation together with a numerical weighting system
to be used (usually 1-100). Responses will be calculated on the basis of
the criteria such as personal qualifications, membership in Multiple
Listing Service (MLS), previous experience with FmHA or its successor
agency under Public Law 103-354 sales, advertising plans, proposed
innovative promotion methods, and financial capability. The
responsibilities of the broker under an exclusive broker contract exceed
those of the open listing agreement and therefore, an exclusive broker
contract is the preferred method of listing properties.
(2) Open listing. Open listing agreements provide for any licensed
real estate broker to provide sales services for any property listed
under the terms and conditions of Form FmHA or its successor agency
under Public Law 103-354 1955-42, ``Open Real Property Master Listing
Agreement.'' If this method is used, a newspaper advertisement will be
published at least once yearly, or a notice sent to all real estate
brokers in the counties served by the FmHA or its successor agency under
Public Law 103-354 office, informing brokers that sales services are
being requested. The advertising will be substantially similar to the
example given in Exhibit B of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office). An open listing
agreement may be executed at any time during the year, but must be
effective prior to the broker showing the property. When this method is
used, the FmHA or its successor agency under Public Law 103-354 office
is responsible for ensuring that adequate advertising is performed to
effectively market the property.
(b) Listing notices. Forms FmHA or its successor agency under Public
Law 103-354 1955-40 or FmHA or its successor agency under Public Law
103-354 1955-43, as appropriate, will be used to provide brokers with
notice of initial listing, withdrawal, price change, terms change,
relisting, sale cancellation, restrictions on sale, etc.
(c) Priority of offers. All offers received during the same business
day will be considered as having been received at the same time. The
successful
[[Page 142]]
offer from among equally acceptable offers within each category will be
determined by lot by FmHA or its successor agency under Public Law 103-
354. Priority rules for specific categories of property are:
(1) Program SFH. See Sec. 1955.114(a) of this subpart.
(2) Program MFH. Offers will be considered from program applicants
only.
(3) NP SFH. See Sec. 1955.115(a) of this subpart.
(4) NP MFH. See Sec. 1955.115(b) of this subpart.
(5) Suitable and surplus FSA CONACT. See Sec. 1955.107 of this
subpart.
(6) Suitable and Surplus Non-FSA CONACT. See Sec. 1955.108 of this
subpart.
(d) Price. No offer for less than the listed price will be accepted
during the period of regular sale.
(e) Earnest money. The broker will collect earnest money in the
amount specified in paragraph (e)(1) of this section when a sale
contract is executed. The earnest money will be retained by the broker
until contract closing, withdrawal, cancellation, or rejection by FmHA
or its successor agency under Public Law 103-354. When a contract is
cancelled because FmHA or its successor agency under Public Law 103-354
rejects the offeror's application for credit, the earnest money will be
returned to the offeror. When a contract closes, the broker will make
the earnest money available to be used toward closing costs, or in the
case of a cash sale it may be returned to the purchaser. For MFH sales
to profit or limited profit buyers, any excess earnest money deposit
will be credited to the purchaser's initial investment.
(1) Amount. The amount of earnest money collected will be:
(i) For single family properties or MFH projects of 2 to 5 units,
$50.
(ii) For all property other than that covered in paragraph (e)(1)(i)
of this section, the greater of the estimated closing costs shown on the
notice of listing (Form FmHA or its successor agency under Public Law
103-354 1955-40) or \1/2\ of 1 percent of the purchase price.
(2) Offeror default. When a contract is cancelled due to offeror
default, the earnest money will be delivered to and retained by the
agency as full liquidated damages.
(f) Commission--(1) Amount--(i) Exclusive broker contract. FmHA or
its successor agency under Public Law 103-354 may not set the commission
rate in an exclusive broker solicitation/contract. The rate of
commission will be one of the evaluation criteria in the solicitation.
However, any broker who submits an offer with a commission rate lower
than the typical rate for such services in the area must provide
documentation that they have successfully sold properties at the lower
rate with no compromise in services. The solicitation/contract will
explicitly detail this policy.
(ii) Open listing agreement. A uniform fee or commission schedule,
by property type, will be established by the servicing official within a
given sales area. The commission rate to be paid will be the typical
rate for such services in the sales area and will not exceed or be lower
than commissions paid for similar types of services provided by the
broker to other sellers of similar property.
(2) Special effort sales bonuses. The servicing official may request
authorization from the State Director to pay fixed amount bonuses for
special effort property, such as a property with a value so low that the
commission alone does not warrant broker interest or property that has
been held in inventory for an extended period of time where it is
believed that an added bonus will create additional efforts by the
broker to sell the property. The State Director may authorize use of
short-term (not to exceed three months) special effort sales bonuses on
a group, county, district or state-wide basis, if it appears necessary
to facilitate the sale of nonprogram property.
(3) Payment of commission. Payment of a broker's commission is
contingent on the closing of the sale and will not be paid until the
sale has closed and title has passed to the purchaser. No commission
will be paid where the sale is to the broker, broker's salesperson(s),
to persons living in his/her or salesperson(s) immediate household or to
legal entities in which the broker or salesperson(s) have an interest if
the sale is contingent upon receiving
[[Page 143]]
FmHA or its successor agency under Public Law 103-354 credit. If credit
is not being extended in these instances (a cash sale), a commission
will be paid. Under an exclusive broker contract, if a cooperating
broker purchases the property and is receiving FmHA or its successor
agency under Public Law 103-354 credit, one-half the respective
commission will be paid to the exclusive broker. Commissions will be
paid at closing if sufficient cash to cover the commission is paid by
the purchaser. Otherwise, the commission will be paid by the appropriate
FmHA or its successor agency under Public Law 103-354 official by
completing Form AD-838 and processing Form FmHA or its successor agency
under Public Law 103-354 838-B for payment in accordance with the
respective FMI's, and charged to the inventory account as a
nonrecoverable cost.
(g) Nondiscrimination. Brokers who execute listing agreements with
FmHA or its successor agency under Public Law 103-354 shall certify to
nondiscrimination practices as provided in Form FmHA or its successor
agency under Public Law 103-354 1955-42. In addition, all brokers
participating in the sale of property shall sign the nondiscrimination
certification on Form FmHA or its successor agency under Public Law 103-
354 1955-45.
[53 FR 27836, July 25, 1988, as amended at 55 FR 3943, Feb. 6, 1990; 62
FR 44401, Aug. 21, 1997; 68 FR 61332, Oct. 28, 2003]
Sec. 1955.131 Auctioneers.
The services of licensed auctioneers, if required, may be used to
conduct auction sales as described in Sec. 1955.148 of this subpart and
procured by competitive negotiation under the contracting authority of
Exhibit C to FmHA or its successor agency under Public Law 103-354
Instruction 2024-A (available in any FmHA or its successor agency under
Public Law 103-354 office).
(a) Selection criteria. The auctioneer should be selected by
evaluating criteria such as proposed sales dates, location, advertising,
broker cooperation, innovations, mechanics of sale, sample advertising,
personal qualifications, financial capability, private sector financing
and license/bonding.
(b) Commission. FmHA or its successor agency under Public Law 103-
354 may not set the commission rate in an auctioneer solicitation/
contract. The rate of commission will be one of the evaluation criteria
in the solicitation. However, any offeror that submits an offer with a
commission rate lower than the typical rate for such services in the
area must include documentation that they have successfully sold
properties at the lower rate with no compromise in services. The
solicitation/contract will explicitly detail this policy. Commissions
will be paid at closing if sufficient cash to cover the commission is
paid by the purchaser. Otherwise, the commission will be paid by the
appropriate FmHA or its successor agency under Public Law 103-354
official completing Form AD-838 and processing Form FmHA or its
successor agency under Public Law 103-354 838-B for payment in
accordance with the respective FMI's, and charged to the inventory
account as a nonrecoverable cost.
(c) Auctioneer restriction. The auctioneer, his/her sales agents,
cooperating brokers or persons living in his, her or their immediate
household are restricted from bidding or from subsequent purchase of any
property sold or offered at the auctioneer's sale for a period of one
year from the auction date.
[50 FR 23904, June 7, 1985, as amended at 53 FR 27837, July 25, 1988]
General
Sec. 1955.132 Pilot projects.
FmHA or its successor agency under Public Law 103-354 may conduct
pilot projects to test policies and procedures for the management and
disposition of inventory property which deviate from the provisions of
this subpart, but are not inconsistent with the provisions of the
authorizing statute or other applicable Acts. A pilot project may be
conducted by FmHA or its successor agency under Public Law 103-354
employees or by contract with individuals, organizations or other
entities. Prior to initiation of a pilot project, FmHA or its successor
agency under Public Law 103-354 will publish notice in the Federal
[[Page 144]]
Register of its nature, scope, and duration.
[55 FR 3943, Feb. 6, 1990]
Sec. 1955.133 Nondiscrimination.
(a) Title VI provisions. If the inventory real property to be sold
secured a loan that was subject to Title VI of the Civil Rights Act of
1964, and the property will be used for its original or similar purpose,
or if FmHA or its successor agency under Public Law 103-354 extends
credit and the property then becomes subject to Title VI, the buyer will
sign Form FmHA or its successor agency under Public Law 103-354 400-4.
``Assurance Agreement.'' The instrument of conveyance will contain the
following statement:
The property described herein was obtained or improved through
Federal financial assistance. This property is subject to the provisions
of Title VI of the Civil Rights Act of 1964 and the regulations issued
pursuant thereto for so long as the property continues to be used for
the same or similar purposes for which the Federal financial assistance
was extended.
(b) Affirmative Fair Housing Marketing Plan. Exclusive listing
brokers or auctioneers selling SFH properties having 5 or more
properties in the same subdivision listed or offered for sale at the
same time will prepare and submit to FmHA or its successor agency under
Public Law 103-354 an acceptable Form HUD 935.2, ``Affirmative Fair
Housing Marketing Plan,'' for each such subdivision in accordance with
Sec. 1901.203(c) of Subpart E of Part 1901 of this chapter.
(c) Equal Housing Opportunity logo. All FmHA or its successor agency
under Public Law 103-354 and contractor sale advertisements will contain
the Equal Housing Opportunity logo.
Sec. 1955.134 Loss, damage, or existing defects in inventory real property.
(a) Property under contract. If a bid or offer has been accepted by
the FmHA or its successor agency under Public Law 103-354 and through no
fault of either party, the property is lost or damaged as a result of
fire, vandalism, or an act of God between the time of acceptance of the
bid or offer and the time the title of the property is conveyed by FmHA
or its successor agency under Public Law 103-354, FmHA or its successor
agency under Public Law 103-354 will reappraise the property. The
reappraised value of the property will serve as the amount FmHA or its
successor agency under Public Law 103-354 will accept from the
purchaser. However, if the actual loss based on the reduction in market
value of the property as determined by FmHA or its successor agency
under Public Law 103-354 is less than $500, payment of the full purchase
price is required. In the event the two parties cannot agree upon an
adjusted price, either party, by mailing notice in writing to the other,
may terminate the contract of sale, and the bid deposit or earnest
money, if any, will be returned to the offeror.
(b) Existing defects. FmHA or its successor agency under Public Law
103-354 does not provide any warranty on property sold from inventory.
Subsequent loans may be made, in accordance with applicable loan making
regulations for the respective loan program, to correct defects.
[50 FR 23904, June 7, 1985, as amended at 53 FR 27837, July 25, 1988]