[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 1997 Edition]
[From the U.S. Government Publishing Office]
7
Agriculture
[[Page i]]
PARTS 1950 TO 1999
Revised as of January 1, 1997
CONTAINING
A CODIFICATION OF DOCUMENTS
OF GENERAL APPLICABILITY
AND FUTURE EFFECT
AS OF JANUARY 1, 1997
With Ancillaries
Published by
the Office of the Federal Register
National Archives and Records
Administration
as a Special Edition of
the Federal Register
[[Page ii]]
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1997
For sale by U.S. Government Printing Office
Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328
[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 7:
Subtitle B--Regulations of the Department of
Agriculture--Continued:
Chapter XVIII--Rural Housing Service, Rural Business-
Cooperative Service, Rural Utilities Service, and Farm
Service Agency, Department of Agriculture (Continued). 5
Finding Aids:
Table of CFR Titles and Chapters.......................... 869
Alphabetical List of Agencies Appearing in the CFR........ 885
List of CFR Sections Affected............................. 895
[[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.
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[[Page v]]
EXPLANATION
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parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
The appropriate revision date is printed on the cover of each
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OMB CONTROL NUMBERS
The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires
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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Office of the Federal Register.
January 1, 1997.
[[Page vii]]
THIS TITLE
Title 7--Agriculture is composed of fifteen volumes. The parts in
these volumes are arranged in the following order: parts 0-26, 27-52,
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1499, 1500-1899, 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, 1997.
The Food and Consumer Service current regulations in the volume
containing parts 210-299, include the Child Nutrition Programs and the
Food Stamp Program. The regulations of the Federal Crop Insurance
Corporation are found in the volume containing parts 400-699.
All marketing agreements and orders for fruits, vegetables and nuts
appear in the one volume containing parts 900-999. All marketing
agreements and orders for milk appear in the volume containing parts
1000-1199. Part 900--General Regulations is carried as a note in the
volume containing parts 1000-1199, as a convenience to the user.
Redesignation tables appear in the Finding Aids section of the
volumes containing parts 210-299 and parts 1500-1899.
For this volume, Ruth Reedy Green was Chief Editor. The Code of
Federal Regulations publication program is under the direction of
Frances D. McDonald, assisted by Alomha S. Morris.
[[Page viii]]
[[Page 1]]
TITLE 7--AGRICULTURE
(This book contains parts 1950 to 1999)
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SUBTITLE B--Regulations of the Department of Agriculture--(Continued)
Part
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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SUBCHAPTER H--PROGRAM REGULATIONS--CONTINUED
Part Page
1950 General..................................... 7
1951 Servicing and collections................... 10
1955 Property management......................... 253
1956 Debt settlement............................. 346
1957 Asset sales................................. 372
1962 Personal property........................... 373
1965 Real property............................... 418
1980 General..................................... 527
Editorial Note: Chapter XVIII--Rural Housing Service, Rural Business-
Cooperative Service, Rural Utilities Service, and Farm Service Agency,
Department of Agriculture, is continued in the volume containing 7 CFR
part 2000 to end.
Editorial Note: Nomenclature changes to chapter XVIII appear at 59 FR
66443, Dec. 27, 1994, 61 FR 1109, Jan. 16, 1996 and 61 FR 2899, Jan. 30,
1996.
[[Page 7]]
SUBCHAPTER H--PROGRAM REGULATIONS--Continued
PART 1950--GENERAL--Table of Contents
Subparts A-B--[Reserved]
Subpart C--Servicing Accounts of Borrowers Entering the Armed Forces
Sec.
1950.101 Purpose.
1950.102 General.
1950.103 Borrower owing FmHA or its successor agency under Public Law
103-354 loans which are secured by chattels.
1950.104 Borrower owing FmHA or its successor agency under Public Law
103-354 loans which are secured by real estate.
1950.105 Interest rate.
Subparts A-B--[Reserved]
Subpart C--Servicing Accounts of Borrowers Entering the Armed Forces
Authority: 5 U.S.C. 301; 7 U.S.C. 1989; and 42 U.S.C. 1480.
Sec. 1950.101 Purpose.
Borrowers with accounts serviced by the Farmers Home Administration
or its successor agency under Public Law 103-354 (FmHA or its successor
agency under Public Law 103-354) who have entered or who are entering
military service will require special treatment. This subpart prescribes
the authorities, policies, and routines for servicing such cases in
addition to those contained in other FmHA or its successor agency under
Public Law 103-354 regulations.
[45 FR 43152, June 26, 1980]
Sec. 1950.102 General.
(a) FmHA or its successor agency under Public Law 103-354 will do
everything possible to assist borrowers entering the armed forces to
adjust their affairs in contemplation of military service. It is not the
policy FmHA or its successor agency under Public Law 103-354 to renew,
postpone, or modify annual installments due under a promissory note
because of the borrower's entry into the armed services. However, under
the Soldiers' and Sailors' Civil Relief Act of 1940, the property of a
borrower in the armed forces cannot validly be seized or sold by
foreclosure or otherwise during the borrower's tenure of service, or for
three months thereafter, except (1) pursuant to an agreement entered
into by the borrower after having been accepted for service, or (2) by
order of the Court. Any person causing an invalid sale to be made is
guilty of a misdemeanor. Regardless of the foregoing, the long-time
interest of the borrower can best be served by prompt and satisfactory
arrangements for the use and protection, or disposition, of the security
property in accordance with the policies expressed herein. Upon request,
OGC will inform the State Director with respect to relief which may be
secured by a borrower under the Soldiers' and Sailors' Civil Relief Act
of 1940.
(b) In connection with Multiple Housing loans to individuals,
references to County Supervisor and County Office in this subpart will
be read as District Director and District Office.
[50 FR 45763, Nov. 1, 1985]
Sec. 1950.103 Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by chattels.
(a) Policy. (1) Borrowers who owe loans other than Farm Ownership
(FO), Operating (OL), Soil and Water (SW), Recreation (RL), Emergency
(EM), Economic Emergency (EE), Economic Opportunity (EO), Special
Livestock (SL), Softwood Timber (ST) loans, and/or Rural Housing loans
for farm service buildings (RHF). When information is received that a
borrower is entering the armed forces, the County Supervisor will be
responsible for contacting the borrower immediately for the purpose of
reaching an understanding concerning the actions to take in connection
with the FmHA or its successor agency under Public Law 103-354 loan
indebtedness. The borrower will be permitted to retain the chattel
security if arrangements can be worked out which are satisfactory to the
borrower and FmHA or its successor agency under Public Law 103-354.
However, because
[[Page 8]]
of the nature of chattel security, the borrower will be informed of the
usual depreciation of such property and will be encouraged to sell the
property and apply the proceeds to the loan(s). In most cases, the
interests of both the borrower and the Government can best be served by
arranging for a voluntary sale of the security. A borrower retaining
security will be expected to make payments on the loan(s) equal to the
scheduled payments.
(2) Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, and/or RHF
loans. If the borrower is delinquent in accordance with subpart S of
part 1951 of this chapter, or otherwise in default, the County
Supervisor will send exhibit A and the appropriate attachments, as
outlined in subpart S of part 1951 of this chapter. If the borrower is
not delinquent, the County Supervisor will explain the options set out
in paragraph (b) of this section.
(b) Methods of handling. In carrying out the above policy, the cases
of borrowers entering the armed forces will be handled in accordance
with one of the following methods:
(1) Voluntary sale of security. This will be accomplished in
accordance with Sec. 1962.41 of subpart A of part 1962 of this chapter.
Any necessary forms will be signed:
(i) Before being accepted for service in the armed forces, if the
sale is to be completed before the borrower is accepted for service, or
(ii) After being accepted for service, if the sale cannot be
completed before the borrower is so accepted. For this purpose, an
individual will be considered as accepted for service after being
ordered to report for induction, or, if in the enlisted reserve, after
being ordered to report for service in the armed forces.
(2) Assumption of indebtedness. This will be accomplished in
accordance with Sec. 1962.34 of subpart A of part 1962 of this chapter.
(3) Arrangements with third persons. When the borrower arranges with
a relative or other reliable person to maintain the security in a
satisfactory manner and to make scheduled payments, the State Director
is authorized to approve the arrangement. In such a case, the borrower
will be required to execute a power of attorney, prepared or approved by
OGC, authorizing an attorney-in-fact to act for the borrower during the
latter's absence.
(4) Possible legal actions. If the borrower fails or refuses to
cooperate in the servicing of the loan indebtedness secured by chattels
in accordance with one of the methods set forth in this section, the
borrower's case folder will be forwarded to the State Director for
referral to OGC for legal advice as to the steps to be taken in
protecting the Government's interest.
(c) Statements of accounts and transfers. Borrowers entering the
armed forces will be requested to designate mailing addresses for the
delivery of statements of account. Any changes in these addresses will
be processed on Form FmHA or its successor agency under Public Law 103-
354 450-10, ``Advice of Borrower's Change of Address or Name,'' with
appropriate explanations. Under this procedure, a statement of account
may be mailed to a location other than where the account is maintained
and serviced. This is a deviation from the established procedure. These
cases will not be transferred unless the security, when retained by the
borrower in accordance with paragraph (b)(3) of this section, is moved
into another County Office territory. Then the transfer will be
processed through the use of Form FmHA or its successor agency under
Public Law 103-354 450-5, ``Application to Move Security Property and
Verification of Address,'' and Form FmHA or its successor agency under
Public Law 103-354 450-10 with appropriate explanations. In cases when
assumption agreements have been executed, statements of account will be
mailed to the assuming borrower. Cases involving assumption agreements
will be transferred when the assuming borrower moves from one County
Office territory to another.
[45 FR 43152, June 26, 1980, as amended at 50 FR 45763, Nov. 1, 1985; 52
FR 26133, July 13, 1987; 55 FR 40646, Oct. 4, 1990]
[[Page 9]]
Sec. 1950.104 Borrower owing FmHA or its successor agency under Public Law 103-354 loans which are secured by real estate.
County Supervisors, to the greatest extent possible, should keep
themselves informed of the plans of borrowers with FmHA or its successor
agency under Public Law 103-354 loans secured by real estate who may
enter the armed forces. They should encourage any borrower who is
definitely entering the armed forces to consult with them before the
borrower's military service begins concerning the most advantageous
arrangements that can be made regarding the security. County Supervisors
will assist these borrowers in working out mutually satisfactory
arrangements. Borrowers who owe FO, SW, RL, OL, EE, EM, SL, EO, ST, and/
or RHF loans and who are delinquent or otherwise in default must be sent
exhibit A and the appropriate attachments, as outlined in subpart S of
part 1951 of this chapter. The County Supervisor will follow the
directions in subpart A of part 1965 of this chapter for liquidating
real estate security. FO, SW, RL, OL, EE, EM, SL, EO, ST and/or RHF
borrowers who are not delinquent will have their accounts handled as set
out in the following paragraphs.
(a) Power of attorney. Borrowers entering the armed forces who
retain ownership of the security should be encouraged to execute a power
of attorney authorizing the person of their choice to take any actions
necessary to insure proper use and maintenance of the security, payment
of insurance and taxes, and repayment of the loan. No FmHA or its
successor agency under Public Law 103-354 employee will act as attorney-
in-fact for a borrower. The State Director will consult with OGC
concerning any limitations upon the use of a power of attorney under
local law and the circumstances under which the power of attorney should
be exercised. In general, either spouse may act as attorney-in-fact for
the other spouse, but, in a few States, a spouse cannot exercise the
power of attorney in connection with a sale or encumbrance of the
homestead. In a majority of States, a power of attorney is revoked by
the death of a person granting the power, but, in some States, the power
of attorney executed by a person in the armed services remains valid
until actual notice is received of the death of the person granting the
power. A power of attorney should not be used in conveying title to the
farm except in those States where the power is good until actual notice
of death. The State Director will request OGC to prepare a satisfactory
form of power of attorney which may be duplicated in the State Office
and furnished to County Supervisors with a State supplement concerning
its use.
(b) Borrower retains ownership of the security. When a borrower
retains ownership of the security, FmHA or its successor agency under
Public Law 103-354 will assist in making arrangements for the use of the
security which will protect the interests of both the Government and the
borrower.
(1) Leasing. It will be more satisfactory if the security is leased
under a written lease in accordance with equitable leasing policies and
applicable FmHA or its successor agency under Public Law 103-354
procedures. The borrower should make arrangements for the rental income
to be used for regular payments on the loan in order to avoid the
accumulation of unpaid interest. The borrower also should make
arrangements for the payment of taxes and insurance and maintenance of
the security to avoid having these charges paid by the Government and
then charged to the account. It would be desirable to provide that the
lease will continue for the duration of the borrower's military service
unless either party gives written notice of earlier cancellation of the
lease.
(2) Operation by family. When a borrower wishes to have the farm
occupied and operated by family members or relatives without a written
lease, the County Supervisor should advise the borrower as to whether or
not the proposed arrangements will be in the best interests of the
borrower and the Government. When the farm is to be operated by
relatives, the hazards and disadvantages to the borrower and the
Government which are inherent in unwritten contracts will be discussed,
and every effort will be made to induce the
[[Page 10]]
borrower to enter into formal contractual arrangements whenever possible
to do so.
(c) Borrower does not retain ownership of the security. The security
may be transferred to another approved applicant or sold in accordance
with applicable procedure.
(d) Borrower abandons the security or fails to make satisfactory
arrangements. This paragraph does not apply to borrowers with FO, SW,
RL, OL, EE, EM, SL, EO, ST and/or RHF loans. Those borrowers should be
sent exhibit A and the appropriate attachments as outlined in subpart S
of part 1951 of this chapter. When a borrower abandons the security or
fails to make satisfactory arrangements for maintenance of the security
and payment of taxes, insurance, and installments on the loan, the
County Supervisor will send a complete report on the case to the State
Director. The report will include all the information that can be
obtained regarding the borrower's plans for the security and any
evidence to indicate that abandonment has, in fact, taken place. In
these instances, it must be recognized that the borrower may have
entered into verbal arrangements for the care of the security without
properly advising the County Supervisor. Whether such cases may be
construed to be in violation of the provisions of the mortgage, so as to
support foreclosure by order of the Court under the provisions of the
Soldiers' and Sailors' Civil Relief Act of 1940, will need to be
determined on an individual case basis by the State Director and OGC.
Clear-cut abandonment cases or instances in which the borrower fails to
take action to transfer or sell the property, while evidencing no
interest in it or desire to retain it, will be processed in accordance
with applicable procedures.
(e) Statement of account. Borrowers entering the armed forces who
retain ownership of the security will be requested to designate mailing
addresses for the delivery of statements of account. Any changes in
addresses will be processed on Form FmHA or its successor agency under
Public Law 103-354 450-10 with appropriate explanations.
[45 FR 43152, June 26, 1980, as amended at 50 FR 45764, Nov. 1, 1985; 52
FR 26134, July 13, 1987; 55 FR 40646, Oct. 4, 1990]
Sec. 1950.105 Interest rate.
(a) The Soldiers and Sailors Relief Act requires that the effective
interest rate charged a borrower who enters active military duty after a
loan is closed will not exceed 6 percent. This applies only to full-time
active military duty and does not include military reserve status or
National Guard participation.
(b) As soon as the County Supervisor verifies that a borrower is on
active duty, the County Supervisor will send the borrower a letter which
states that the interest rate on the borrower's FmHA or its successor
agency under Public Law 103-354 loans will not exceed 6 percent. At the
same time, the County Supervisor will send the Finance Office a
memorandum which states that the borrower is on active duty and that
interest of not more than 6 percent should accrue on the borrower's
loans, effective as of the date of the memorandum or as of the date of
the last payment, whichever is later, until further notice. If a
borrower's interest rate on any loan is less than 6 percent, the loan
will continue to accrue interest at the lower rate. The assistance under
this section may not be retroactively applied.
(c) As soon as the County Supervisor verifies that a borrower is no
longer on active duty, the County Supervisor will send the Finance
Office a memorandum advising them to terminate the 6 percent interest
rate. The rate will revert to the note rate (or the payment assistance
rate), effective with the next scheduled payment. The 6 percent interest
rate will not be cancelled retroactively.
(d) Additional directions for handling Single Family Housing Loans
are contained in subpart G of part 1951 of this chapter.
[52 FR 26134, July 13, 1987, as amended at 60 FR 55122, Oct. 27, 1995]
PART 1951--SERVICING AND COLLECTIONS--Table of Contents
Subpart A--Account Servicing Policies
Sec.
1951.1 Purpose.
1951.2 Policy.
1951.3 Authorities and responsibilities.
1951.4--1951.5 [Reserved]
[[Page 11]]
1951.6 Handling payments.
1951.7 Accounts of borrowers.
1951.8 Types of payments.
1951.9 Distribution of payments when a borrower owes more than one type
of FmHA or its successor agency under Public Law 103-354 loan.
1951.10 Application of payments on production type loan accounts.
1951.11 Application of payments on real estate accounts.
1951.12 Changes in the application of loan payments.
1951.13 Overpayments and refunds.
1951.14 Recoverable and nonrecoverable cost charges.
1951.15 Return of paid-in-full or satisfied notes to borrower.
1951.16 Other servicing actions on real estate type loan accounts.
1951.17--1951.24 [Reserved]
1951.25 Review of limited resource FO, OL, and SW loans.
1951.26--1951.49 [Reserved]
1951.50 OMB control number.
Exhibits to Subpart A
Exhibit A--Notice to FmHA or its successor agency under Public Law 103-
354 Borrowers
Exhibit B--Notice of Change in Interest Rate
Subpart B--Collections
1951.51 General.
1951.52--1951.53 [Reserved]
1951.54 Authority.
1951.55 Receiving and processing collections.
Subpart C--Offsets of Federal Payments to USDA Agency Borrowers
1951.101 General.
1951.102 Standards and procedures for administrative offset requests
received by FmHA or its successor agency under Public Law 103-
354.
1951.103 Procedures for FmHA or its successor agency under Public Law
103-354-initiated administrative offset.
1951.104 Procedures for FmHA or its successor agency under Public Law
103-354-initiated offset.
1951.105 Procedures for taking funds by administrative offset.
1951.106--1951.110 [Reserved]
1951.111 Salary offset.
1951.112--1951.120 [Reserved]
1951.121 Internal Revenue Service (IRS) offset.
1951.122 Finance Office screening.
1951.123 Field office screening.
1951.124 Notice to borrowers.
1951.125 Processing borrowers' requests not to exercise IRS offset.
1951.126 Final referral to IRS.
1951.127 Processing of amounts offset.
1951.128 Receipt of Finance Office/IRS offset reports and listings.
1951.129 Borrowers eligible for offset (prior to 60-day notice).
1951.130 Borrowers sent due process notices for IRS/Credit Bureau
referrals.
1951.131 Form FmHA or its successor agency under Public Law 103-354
389-833, Borrower Accounts Submitted to IRS for Offset Report,
RC 865.
1951.132 Form FmHA or its successor agency under Public Law 103-354
389-760, Annual Unprocessable Report IRS Offset, RC 822-C.
1951.133 Form FmHA or its successor agency under Public Law 103-354
389-761, Annual No Match Report IRS Offset, RC 822-D.
1951.134 Form FmHA or its successor agency under Public Law 103-354
389-764, Weekly Offset Report (Cash Collections) IRS Offset,
RC 222-C.
1951.135 Form FmHA or its successor agency under Public Law 103-354
389-763, Weekly Claims Report IRS Offset, RC 222-D.
1951.136--1951.149 [Reserved]
1951.150 OMB control number.
Subpart D--Final Payment on Loans
1951.151 Purpose.
1951.152 Definition.
1951.153 Chattel security or note-only cases.
1951.154 Satisfaction and release of documents.
1951.155 County and/or District Office actions.
1951.156--1951.200 [Reserved]
Subpart E--Servicing of Community and Insured Business Programs Loans
and Grants
1951.201 Purpose.
1951.202 Objectives.
1951.203 Definitions.
1951.204 Nondiscrimination.
1951.205 Redelegation of authority.
1951.206 Forms.
1951.207 State supplements.
1951.208--1951.209 [Reserved]
1951.210 Environmental requirements.
1951.211 Refinancing requirements.
1951.212 Unauthorized financial assistance.
1951.213 Debt settlement.
1951.214 Care, management, and disposal of acquired property.
1951.215 Grants.
1951.216 Nonprogram (NP) loans.
1951.217 Public bodies.
1951.218--1951.219 [Reserved]
1951.220 General servicing actions.
1951.221 Collections, payments, and refunds.
1951.222 Subordination of security.
1951.223 Reamortization.
1951.224 Third party agreements.
[[Page 12]]
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--1951.249 [Reserved]
1951.250 OMB control number.
Exhibits to Subpart E
Exhibit A--Report on Servicing Action
Exhibit B--Agreement for New Member (With or Without Withdrawing Member)
Exhibit C--Agreement for Withdrawal of Member (Without New Member)
Exhibit D--Items to be Included in Transfer and Assumption Dockets (if
applicable)
Exhibit E--Interest Rate Requirements and Effective Dates
Exhibit F--Instruction to FmHA or its successor agency under Public Law
103-354 Personnel to Implement Public Law 100-233
Exhibit G--Letter to Borrower Notifying of Choice of Interest Rate
Exhibit H--Rescheduling Agreement--Public Bodies
Subpart F--Analyzing Credit Needs and Graduation of Borrowers
1951.251 Purpose.
1951.252 Definitions.
1951.253 Objectives.
1951.254 [Reserved]
1951.255 Nondiscrimination.
1951.256-1951.261 [Reserved]
1951.262 Farm Credit Programs-graduation of borrowers.
1951.263 Graduation on non-Farm Credit programs borrowers.
1951.264 Action when borrower fails to cooperate, respond or graduate.
1951.265 Application for subsequent loan, subordination, or consent to
additional indebtedness from a borrower who has been requested
to graduate.
1951.266 Special requirements for MFH borrowers.
1951.267-1951.299 [Reserved]
1951.300 OMB control number.
Exhibits to Subpart F
Exhibit A--[Reserved]
Exhibit B--Suggested Outline for Seeking Information From Lenders on
Credit Criteria for Graduation of Single Family Housing Loans
Subparts G--I [Reserved]
Subpart J--Management and Collection of Nonprogram (NP) Loans
1951.451 General.
1951.452 Policy.
1951.453 [Reserved]
1951.454 Review of adverse decisions.
1951.455 NP loan making for Single Family Housing (SFH) and farm
property (real and chattel).
1951.456 [Reserved]
1951.457 Payments.
1951.458 Servicing real estate taxes.
1951.459 Preservation of security.
1951.460 Release of security property or sale or lease of related
property rights.
1951.461 Release of valueless FmHA or its successor agency under Public
Law 103-354 lien without monetary consideration.
1951.462 Deceased borrower.
1951.463 Transfer of security and assumption of indebtedness.
1951.464--1951.467 [Reserved]
1951.468 Liquidation.
1951.469 Actions after liquidation of property.
1951.470--1951.478 [Reserved]
1951.479 Pilot projects.
1951.480 [Reserved]
1951.481 FmHA or its successor agency under Public Law 103-354
Instructions.
1951.482--1951.500 [Reserved]
Subpart K--Predetermined Amortization Schedule System (PASS) Account
Servicing
1951.501 General.
1951.502 [Reserved]
1951.503 Authorities and responsibilities.
1951.504 Definitions and statements of policy.
1951.505 [Reserved]
1951.506 Processing payments.
1951.507 Maintaining borrower accounts.
1951.508 [Reserved]
1951.509 Occupancy surcharges.
1951.510 Payment application.
1951.511 [Reserved]
1951.512 Changes in the application of loan payments.
1951.513 Overpayments and refunds to borrowers.
1951.514 Recoverable and nonrecoverable cost charges.
1951.515 Promissory notes for borrowers who convert to PASS.
1951.516 [Reserved]
1951.517 Conversion from DIAS to PASS.
[[Page 13]]
1951.518 Determining current loan balances for transfer.
1951.519--1951.547 [Reserved]
1951.548 Exception authority.
1951.549 [Reserved]
1951.550 OMB control number.
Exhibits to Subpart K
Exhibit A--[Reserved]
Exhibit B--Occupancy Surcharge Payments
Subpart L--Servicing Cases Where Unauthorized Loan or Other Financial
Assistance Was Received--Farmer Programs
1951.551 Purpose.
1951.552 Definitions.
1951.553 Policy.
1951.554--1951.555 [Reserved]
1951.556 Initial determination that unauthorized assistance was
received.
1951.557 Notification to borrower.
1951.558 Decision on servicing actions.
1951.559--1951.560 [Reserved]
1951.561 Servicing options in lieu of liquidation or legal action.
1951.562--1951.567 [Reserved]
1951.568 Account adjustments and reporting requirements.
1951.569 Exception authority.
1951.570--1951.599 [Reserved]
1951.600 OMB control number.
Subpart M [Reserved]
Subpart N--Servicing Cases Where Unauthorized Loan or Other Financial
Assistance Was Received--Multiple Family Housing
1951.651 Purpose.
1951.652 Definitions.
1951.653 Policy.
1951.654 Categories of unauthorized assistance.
1951.655 [Reserved]
1951.656 Initial determination that unauthorized assistance was
received.
1951.657 Notification to recipient.
1951.658 Decision on servicing actions.
1951.659--1951.660 [Reserved]
1951.661 Servicing options in lieu of liquidation or legal action to
collect.
1951.662--1951.667 [Reserved]
1951.668 Servicing unauthorized assistance accounts.
1951.669 Exception authority.
1951.670--1951.699 [Reserved]
1951.700 OMB control number.
Subpart O--Servicing Cases Where Unauthorized Loan(s) or Other Financial
Assistance Was Received--Community and Insured Business Programs
1951.701 Purpose.
1951.702 Definitions.
1951.703 Policy.
1951.704--1951.705 [Reserved]
1951.706 Initial determination that unauthorized assistance was
received.
1951.707 Notification to recipient.
1951.708 Decision on servicing actions.
1951.709--1951.710 [Reserved]
1951.711 Servicing options in lieu of liquidation or legal action to
collect.
1951.712--1951.714 [Reserved]
1951.715 Account adjustments and reporting requirements.
1951.716 Exception authority.
1951.717--1951.749 [Reserved]
1951.750 OMB Control number.
Subparts P-Q--[Reserved]
Subpart R--Rural Development Loan Servicing
1951.851 Introduction.
1951.852 Definitions and abbreviations.
1951.853 Loan purposes for undisbursed RDLF loan funds from HHS.
1951.854 Ineligible assistance purposes.
1951.855--1951.858 [Reserved]
1951.859 Terms of loans.
1951.860 Interest on loans.
1951.861--1951.865 [Reserved]
1951.866 Security.
1951.867 Conflict of interest.
1951.868--1951.870 [Reserved]
1951.871 Post award requirements.
1951.872 Other regulatory requirements.
1951.873--1951.876 [Reserved]
1951.877 Loan agreements.
1951.878--1951.880 [Reserved]
1951.881 Loan servicing.
1951.882 Field visits.
1951.883 Reporting requirements.
1951.884 Non-Federal funds.
1951.885 Loan classifications.
1951.886--1951.888 [Reserved]
1951.889 Transfer and assumption.
1951.890 Office of Inspector General and Office of General Counsel
referrals.
1951.891 Liquidation; default.
1951.892--1951.893 [Reserved]
1951.894 Debt settlement.
1951.895 [Reserved]
1951.896 Appeals.
1951.897 Exception authority.
1951.898--1951.899 [Reserved]
1951.900 OMB control number.
Subpart S--Farmer Program Account Servicing Policies
1951.901 Purpose.
[[Page 14]]
1951.902 General.
1951.903 Authorities and responsibilities.
1951.904--1951.905 [Reserved]
1951.906 Definitions.
1951.907 Notice of Loan Service Programs.
1951.908 Servicing financially distressed current borrowers.
1951.909 Processing Primary Loan Service Programs Requests.
1951.910 Consideration of borrower's other assets for NEW APPLICATIONS.
1951.911 Preservations Loan Service Programs.
1951.912 Mediation.
1951.913 Servicing Net Recovery Buyout Recapture Agreements.
1951.914 Servicing of accounts restructured under Primary Loan Service
Programs.
1951.915 [Reserved]
1951.916 Exception authority.
1951.917 FmHA or its successor agency under Public Law 103-354 Debt
Restructuring Support Teams (DRST).
1951.918 FmHA or its successor agency under Public Law 103-354 Debt
Restructuring Assessment Teams (DRAT).
1951.919--1951.949 [Reserved]
1951.950 OMB control number.
Exhibits to Subpart S
Exhibit A--Notice of the Availability of Loan Service Programs and Debt
Settlement Programs for Delinquent Farm Borrowers
Exhibit B--Notification of Offer to Restructure Debt for Financially
Distressed Borrowers Current on Their Loan Payments
Exhibit C--Net Recovery Buyout Recapture Agreement
Exhibit C-1--Net Recovery Buyout Recapture Agreement
Exhibit D--Shared Appreciation Agreement
Exhibit E--Notification of Request of Mediation or Meeting of Creditors
and/or Other Options
Exhibit F--Notification of Offer to Restructure Debt
Exhibit G--Deferral, Reamortization, and Reclassification of Distressed
Farmer Program (FP) Loans for Softwood Timber Production (ST)
Loans
Exhibit H--Primary Loan Service and Conservation Easement Programs
Exhibit I--Guidelines for Determining Adjustments for Net Recovery Value
of Collateral
Exhibit J--The Debt and Loan Restructuring System (DALR$)
Exhibit J-1--The Debt and Loan Restructuring System (DALR$)
Exhibit K--Notification of Consideration for Preservation Loan Service
Programs
Exhibit L--Homestead Protection Program Agreement
Exhibit M--Homestead Protection Program Letter
Exhibit N--Leaseback/Buyback Agreement
Exhibit O--Notice of Availability of Leaseback/Buyback
Exhibit P--Notice of Availability of Leaseback/Buyback
Exhibit Q--Waiver of Leaseback/Buyback Rights
Subpart T--Disaster Set-Aside Program
1951.951 Purpose.
1951.952 General.
1951.953 Notification and request for DSA.
1951.954 Eligibility and loan limitation requirements.
1951.955--1951.956 [Reserved]
1951.957 Eligibility determination and processing.
1951.958 Cancellation and reversal of DSA.
1951.959 Exception authority.
1951.960--1951.999 [Reserved]
1951.1000 OMB control number.
Authority: 5 U.S.C. 301; 42 U.S.C. 1480.
Editorial Note: Some of the exhibits referenced in this part 1951
are not published in the Code of Federal Regulations. Exhibits are
available in any FmHA or its successor agency under Public Law 103-354
office.
Subpart A--Account Servicing Policies
Source: 50 FR 45764, Nov. 1. 1985, unless otherwise noted.
Sec. 1951.1 Purpose.
This subpart sets forth the policies and procedures to use in
servicing Farmer Program loans (FP) which include Softwood Timber (ST),
Operating Loan (OL), Farm Ownership (FO), Soil and Water (SW),
Recreation Loan (RL), Emergency Loan (EM), Economic Emergency Loan (EE),
Special Livestock Loan (SL), Economic Opportunity Loan (EO), and Rural
Housing Loan for farm service buildings (RHF) accounts. This subpart
also applies to Rural Rental Housing Loan (RRH), Rural Cooperative
Housing Loan (RCH), Labor Housing Loan (LH), Rural Housing Site Loan
(RHS), and Site Option Loan (SO) accounts not covered under the
Predetermined Amortization Schedule System (PASS). Loans on PASS will be
administered under subpart K of part 1951 of this chapter. Cases
involving unauthorized
[[Page 15]]
assistance will be serviced under Subparts L and N of this part. Cases
involving graduation of borrowers to other sources of credit will be
serviced under Subpart F of this part.
[52 FR 26134, July 13, 1987]
Sec. 1951.2 Policy.
Borrowers are expected to pay their debts to the Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) in accordance with their
agreements and ability to pay. They will be encouraged to pay ahead of
schedule, consistent with sound financial management. When borrowers
have acted in good faith and have exercised due diligence in an effort
to pay their indebtedness but cannot pay on schedule because of
circumstances beyond their control, servicing actions will be consistent
with the best interests of the borrower and the Government. It is the
policy of this agency to service borrower loan account without regard to
race, color, religion, sex, marital status, national origin, age,
physical or mental handicap (borrower must possess the capacity to enter
into a legal contract for services).
Sec. 1951.3 Authorities and responsibilities.
County Supervisors and District Directors are responsible for
servicing all FmHA or its successor agency under Public Law 103-354
accounts serviced by the County and District Offices as prescribed by
this subpart under the general guidance and supervision of District
Directors and State Office personnel. Full use will be made of the
County Office Management System in account servicing. For the purposes
of this Subpart, all references to ``County Supervisor'' shall be
construed to mean ``District Director'' for all loans serviced by the
District Office.
Secs. 1951.4--1951.5 [Reserved]
Sec. 1951.6 Handling payments.
(a) Payments on Rural Housing (RH) loans. Payments on RH loans will
be handled in accordance with subparts B and G of this part.
(b) Payments for other than RH, FO and SW loans. These payments will
be handled in accordance with part 1951, subpart B.
(c) Payments for FO and SW loans. (1) Payments made through the
County Office without direct payment coupons for FO and SW loans will be
handled in accordance with part 1951, subpart B.
(2) Payments for FO and SW individual loans made through the County
Office with Form FmHA or its successor agency under Public Law 103-354
370-46A, Expanded Direct Payment Coupon, will be handled as follows:
(i) County Supervisors may put FO and SW individual borrowers on the
Expanded Direct Payment Coupon system if the borrower only needs limited
credit counseling or only makes one annual installment payment per year
on the loan.
(ii) For new loans, the County Supervisor will indicate by checking
the appropriate block on Form FmHA or its successor agency under Public
Law 103-354 1940-1, ``Request For Obligation of Funds,'' that for
selected borrowers Expanded Direct Payment Coupons are to be mailed to
the County Office.
(iii) An existing loan borrower may be put on or taken off this
Expanded Direct Payment Coupon system by filling out Form FmHA or its
successor agency under Public Law 103-354 1951-34, ``Direct Payment Plan
Change,'' in accordance with the Forms Manual Insert (FMI) and entering
it via the field office terminal system.
(iv) Payments must be made by check or money order payable to the
Farmer Home Administration. If a field office is on concentration
banking, the checks and/or money orders are deposited in the
concentrator bank. The coupons are forwarded directly to the Finance
Office in accordance with concentration banking procedures. If a field
office is not on concentration banking, the coupons and checks and/or
money orders are placed in one envelope and mailed to the Finance Office
with any other items being mailed that day.
(v) The Finance Office, upon receipt of the payment coupon and check
or money order, will credit the borrower's account with payment as of
the date
[[Page 16]]
the payment is received in the field office.
(vi) When the Finance Office received payment coupon number 10, a
new supply of coupons will be mailed to the County Office. All 12
payment coupons should be used before using the new supply.
(3) Direct payment for FO and SW loans mailed directly to the
Finance Office by the borrower are handled as follows:
(i) The County Supervisor will select the FO and SW borrowers who,
in the Supervisor's opinion, are capable of making direct payments to
the Financing Office. The County Supervisor will not select borrowers
who (A) will need frequent credit counseling, (B) because of the lack of
education or other reasons, are not capable of assuming responsibility
for making payments directly to the Finance Office, or (C) have payments
directly assigned to FmHA or its successor agency under Public Law 103-
354, such as milk assignments. The fact that a borrower does not
maintain a checking account will not, however, prevent selection for
direct payments.
(ii) For new loans the County Supervisor will indicate on Form FmHA
or its successor agency under Public Law 103-354 1940-1 the selected
borrowers by checking the appropriate box. The payment coupon packet
will be forwarded to the County Office at the time the loan is
obligated. It will be delivered to the borrower at loan closing, at
which time the use of the payment coupons will be explained to the
borrower.
(iii) For Assumption Agreements, the packet will be mailed to the
borrower at the time the Assumption Agreement is processed in the
Finance Office.
(iv) The payment coupons and pre-addressed envelopes, together with
instructions on how to use the coupons and a record keeping card, will
be asembled into an envelope in which the borrower may retain the
records. The Form FmHA or its successor agency under Public Law 103-354
370-46, ``Direct Payment Coupon,'' will be numbered 1-12, even though
the borrower may have less or more than 12 payments scheduled during the
year.
(v) The Finance Office, upon receipt of Form FmHA or its successor
agency under Public Law 103-354 370-46 and a check or money order, will
credit the borrower's account with payment as of the date the payment is
received by the Finance Office.
(vi) When the Finance Office receives Form FmHA or its successor
agency under Public Law 103-354 370-46 for payment number 10, a new
supply of Forms FmHA or its successor agency under Public Law 103-354
370-46 will be prepared and mailed to the borrower. All 12 copies of
Form FmHA or its successor agency under Public Law 103-354 370-46 should
be used before using the new supply.
(vii) If a borrower is on direct payment and receives a subsequent
FO or SW loan, the Finance Office will send a set of Form FmHA or its
successor agency under Public Law 103-354 370-46 with ``FO'' or ``SW''
in the loan number block. This indicates the borrower has more than one
loan of the particular type. The borrower will be instructed by the
County Office to send a Form FmHA or its successor agency under Public
Law 103-354 370-46 showing the amount and a check or money order for the
total payment.
(d) County Office handling of direct payment accounts. Form FmHA or
its successor agency under Public Law 103-354 1905-1, ``Management
System Card--Individual,'' and Form FmHA or its successor agency under
Public Law 103-354 1905-1, ``Management System Card--Individual (Rural
Housing only),'' will be used in the County Office Management System
Box. These forms and the transaction records will be maintained as
prescribed in FmHA or its successor agency under Public Law 103-354
Instruction 1905-A (available in any FmHA or its successor agency under
Public Law 103-354 office). In addition, an orange signal will be placed
to the left of Position A on Form FmHA or its successor agency under
Public Law 103-354 1905-1 to denote that the borrower is on the direct
payment system. If a borrower fails to make payments as agreed, or
becomes delinquent in taxes or insurance so that it is necessary for
FmHA or its successor agency under Public Law 103-354 to pay taxes or
insurance by voucher, the County Supervisor may request
[[Page 17]]
the Finance Office to remove the borrower from the direct payment
method. If this decision is made, the County Supervisor will contact the
borrower and collect the remaining supply of Forms FmHA or its successor
agency under Public Law 103-354 370-46 which will be destroyed. The
borrower will be informed that payments after that date should be made
to the County Office. If at a later date the borrower is making payments
on schedule, the County Supervisor may request the Finance Office to put
the borrower back on the direct payment method and provided a new set of
Forms FmHA or its successor agency under Public Law 103-354 370-46.
These changes are made by filling out Form FmHA or its successor agency
under Public Law 103-354 1951-34 in accordance with the FMI and entering
it via the field office terminal system.
(e) Account servicing actions retained by the County Office. For
those borrowers who make direct payments to the Finance Office, the
County Supervisor will continue to handle the following servicing
actions:
(1) Any regular payments a borrower is to make prior to receiving
the packet of payment coupons will be made through the County Office in
the usual manner.
(2) All payments other than regular payments will be made through
the County Office in the usual manner.
(3) The County Supervisor will counsel with borrowers concerning
questions they have about their account. If assistance is needed, the
County Supervisor will contact the State or Finance Office as
appropriate.
(4) If an uncollectible item is received, the Finance Office will
reverse the amount from the borrower's account. The uncollectible item
with a transmittal memorandum will be sent to the County Office. The
County Office will return the uncollectible check to the borrower after
it is fully redeemed. The borrower will make payment by sending a new
check and a new payment coupon to the Finance Office. There will also be
a noninterest accruing administrative cost charged to the borrower's
account for uncollectible items due to insufficient funds. (The amounts
of any such administrative charges are available from any FmHA or its
successor agency under Public Law 103-354 office.) Therefore, the
borrower's payment for the uncollectible item should be for the regular
payment amount plus the administrative cost.
(f) Borrowers receiving other type loans. If a borrower is on direct
payment and subsequently receives another type loan, the original loan
may remain on the direct payment system.
(g) Borrowers with RRH, RCH, or LH, loans on a Predetermined
Amortization Schedule System (PASS). Loans or PASS will be administered
under Subpart K of this part.
(h) Borrowers with RRH, RCH, LH, RHS and SO loans administered under
this subpart. RRH, RCH, LH, RHS and SO loans on a daily interest accrual
system (DIAS) for applying payments administered under this subpart are
subject to the direct billing and payment requirements in Sec. 1951.506
of Subpart K of this part. All payments are due on the first day of the
months following the date shown on the promissory note, except loans
with principal and interest bonds issued before May 1, 1985. All
payments are considered delinquent for reporting purposes on the 15th
day of the month following the payment due date if the unpaid portion of
the payment exceeds $15.00.
[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 29175, Aug. 6, 1987; 54
FR 46844, Nov. 8, 1989]
Sec. 1951.7 Accounts of borrowers.
(a) Accounts of active borrowers. The foundation for proper and
timely debt payment is sound farm and home planning or budgeting,
including plans for debt payment, supplemented by effective followup
management assistance. Account servicing, therefore, must begin with
initial planning and must be an integral part of analysis and subsequent
planning, as well as follow-up management assistance.
(b) Accounts of collection-only borrowers. (1) Collection-only
borrowers are expected to pay debts to FmHA or its successor agency
under Public Law 103-354 in accordance with their ability to
[[Page 18]]
pay. Efforts to collect such debts, including use of collection letters
and account servicing visits, must be coordinated with other program
activities. If these borrowers are unable to pay in full, appropriate
debt settlement policies should be promptly applied.
(2) Envelopes addressed to collection-only borrowers will bear the
legend ``DO NOT FORWARD.'' When an envelope is returned indicating the
borrower has moved, appropriate steps will be taken to determine the
borrower's correct address.
(3) Regular County Office employees are generally expected to
service the collection-only caseload when it is of moderate size. State
Directors may assign additional employees to County Offices having large
collection-only caseloads when necessary to service such cases to a
prompt conclusion. State Directors may inform the National Office of the
need for employing special collection personnel in urban areas having
large collection-only caseloads when employees are not available to
assign to such areas.
(4) The following actions will be taken in servicing accounts owed
by collection-only borrowers:
(i) District Directors will review, yearly, all collection-only
cases in each County Office with the County Supervisor as early in each
fiscal year as possible. They will jointly agree on the actions to take
and will complete Form FmHA or its successor agency under Public Law
103-354 451-27, ``Review of Collection-Only Accounts.''
(ii) District Directors will establish with County Supervisors a
systematic plan for collecting the accounts or initiating appropriate
debt settlement actions during the year.
(iii) County Supervisors will include in their monthly calendars
plans for servicing these accounts.
(iv) On visits to County Offices, District Directors will review the
progress being made by County Supervisors to insure that goals will be
reached.
(v) For collection-only accounts in District Offices, the State
Director will review the accounts as required in paragraphs (b)(4)(i)
through (b)(4)(iv) of this section and the District Director will
service the account.
(c) Notifying borrowers of payments. County Supervisors will notify
borrowers of the dates and amounts of payments that have been agreed on
for all types of accounts. Form FmHA or its successor agency under
Public Law 103-354 451-3, ``Reminder of Payment to be Made,'' or similar
form approved by the State Director, will be used. The form will not
contain any language indicating that an account is delinquent. These
notices will be timed to reach borrowers immediately before the receipt
of the income from which the payments should be made or before the
installment due date on the note, as appropriate, and may include other
pertinent information such as a reference to agreements reached during
the year and sources of income from which the payment was planned. Such
notices need not be sent when frequent 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
[[Page 19]]
regulations. Followup actions of subsequent servicing will be noted on
appropriate Management System Cards.
(e) Maintaining records of accounts in County Offices. Records of
the accounts of FmHA or its successor agency under Public Law 103-354
borrowers will be maintained in the County Office on Forms FmHA or its
successor agency under Public Law 103-354 1905-1, FmHA or its successor
agency under Public Law 103-354 1905-5, FmHA or its successor agency
under Public Law 103-354 1905-10, ``Management System Card-
Association,'' as provided in FmHA or its successor agency under Public
Law 103-354 Instruction 1905-A (available in any FmHA or its successor
agency under Public Law 103-354 office).
(f) Inquiry for Multiple Family Housing (MFH) loans. Inquiry for all
RRH, RCH, LH, RHS and SO loans and grants will be made through field
terminals using procedures in the ``MFH Users Procedures'' manual or by
contacting the MFH Unit in the Finance Office.
(g) Inquiry for other than Multiple Family Housing (MFH) loans.
Inquiry for these loan programs will be made through field terminals
using procedures in the ``Automated Discrepancy Processing System
(ADPS)'' manuals.
(h) Loan Summary Statements. Upon request of a borrower, FmHA or its
successor agency under Public Law 103-354 issues a loan summary
statement that shows the account activity for each loan made or insured
under the Consolidated Farm and Rural Development Act. The field office
will post on the bulletin board a notice informing the borrower of the
availability of the loan summary statement. See Exhibit A for a sample
of the required notice.
(1) The loan summary statement period is from January 1 through
December 31. The Finance Office forwards a copy of Form FmHA or its
successor agency under Public Law 103-354 1951-9, ``Annual Statement of
Loan Account,'' to field offices to be retained in borrower files as a
permanent record of borrower activity for the year.
(2) Quarterly Forms FmHA or its successor agency under Public Law
103-354 1951-9 are retained in the Finance Office on microfiche. These
quarterly statements reflect cumulative data from the beginning of the
current year through the end of the most recent quarter. If a borrower
requests a loan summary statement with data through the most recent
quarter, county supervisors may request copies of these quarterly or
annual statements by sending Form FmHA or its successor agency under
Public Law 103-354 1951-57, ``Request for Loan Summary Statement,'' to
the Finance Office.
(3) When a loan summary statement is requested by the borrower, the
field office will copy the applicable annual or quarterly Forms FmHA or
its successor agency under Public Law 103-354 1951-9. A copy(ies) of
Form FmHA or its successor agency under Public Law 103-354 1951-9; a
copy of Form FmHA or its successor agency under Public Law 103-354 1951-
58, ``Basis for Loan Account Payment Application for Farmer Program
Loans;'' and a copy of the 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:
[[Page 20]]
(1) Sale of chattels other than chattels which will be sold to
produce farm income or real estate security, including rental or lease
of real estate security of a depreciating or depleting nature.
(2) Refinancing of the real estate debt.
(3) Cash proceeds of real property insurance as provided in subpart
A of part 1806 of this chapter (FmHA or its successor agency under
Public Law 103-354 Instruction 426.1).
(4) A sale of real estate not mortgaged to the Government, pursuant
to a condition of loan approval.
(5) Agricultural Conservation Program payments as provided in
subpart A of part 1941 of this chapter.
(6) Transactions of a similar nature which reduce the value of
security other than chattels which will be sold to produce farm income.
(c) Refunds. Refunds are payments derived from the return of unused
loan or grant funds, except that the term ``refunds'' as used in Form
1940-17, ``Promissory Note,'' will be construed to mean the return of
funds advanced for capital goods, when a loan is made for operating
purposes.
[50 FR 45764, Nov. 1. 1985, as amended at 51 FR 4137, Feb. 3, 1986; 53
FR 35717, Sept. 14, 1988; 58 FR 52646, Oct. 12, 1993]
Sec. 1951.9 Distribution of payments when a borrower owes more than one type of FmHA or its successor agency under Public Law 103-354 loan.
``Distribution'' means dividing a payment into parts according to
the rules set out in this section. This section only applies after the
County Supervisor determines the amount of proceeds that will be
released for other purposes in accordance with the annual plan (Form
FmHA or its successor agency under Public Law 103-354 431-2, ``Farm and
Home Plan'') and Form FmHA or its successor agency under Public Law 103-
354 1962-1, ``Agreement for the Use of Proceeds/Release of Chattel
Security.''
(a) Distribution of regular payments. (1) When a borrower owes more
than one type of FmHA or its successor agency under Public Law 103-354
loan, regular payments received from each crop year's income will be
distributed in accordance with the following priorities:
(i) First, to an amount equal to any advances made by FmHA or its
successor agency under Public Law 103-354 for the crop year's living and
operating expenses. If no advances were made, distribute the payment
according to paragraph (a)(1)(ii) of this section. If the amount of the
payment was greater than the amount of any advances, the excess should
be distributed according to paragraph (a)(1)(ii) of this section.
(ii) Second, to FmHA or its successor agency under Public Law 103-
354 loans in proportion to the approximate amounts due on each for the
year. In determining the amounts due for the year, deduct an amount
equal to any advances for the year's living and operating expenses. If
the amount of the payment exceeds the amount of any advances plus the
amount due on each 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.
[[Page 21]]
(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 Secs. 1951.10 or
1951.11 of this subpart as appropriate.
[50 FR 45764, Nov. 1, 1985, as amended at 52 FR 26134, July 13, 1987; 53
FR 35717, Sept. 14, 1988]
Sec. 1951.10 Application of payments on production type loan accounts.
Employees receiving payments on OL, EO, SW codes ``24,'' EM for
subtitle B purposes, EE operating-type, and other production-type loan
accounts will select, in accordance with the provisions of this section,
the account(s) to which such payment will be applied. All payments on OL
and EM loans approved on or before December 31, 1971, will be credited
first to any administrative costs, then to noncapitalized interest, then
to the amount of accrued deferred interest, and then to principal. All
payments on all other loans including OL and EM loans approved after
December 31, 1971, will be credited first to any administrative costs,
then to noncapitalized interest, then to the amount of accrued deferred
interest, then to interest accrued to the date of the payment and then
to principal, in accordance with the terms of the note. This section
only applies after the County Supervisor determines the amount of
proceeds that will be released for other purposes in accordance with the
annual plan (Form FmHA or its successor agency under Public Law 103-354
431-2) and Form FmHA or its successor agency under Public Law 103-354
1962-1.
(a) Rules for selection of accounts. The following rules will govern
the selection of accounts and installments to which payments will be
applied. As used in this section, ``recoverable costs'' are those which
the loan agreement documents say the borrower is primarily responsible
for paying and which the government can charge to the borrower's
account.
(1) Payments from farm income or from assignments of income will be
applied first to accounts with small balances, including recoverable
costs, to remove such accounts from the records. Any balance will be
applied on debts secured by the lien in the following order:
(i) To amounts due or falling due on loans made in connection with
the current year's operations, except:
(A) When funds loaned for the purchase of capital goods were used to
meet the current year's operating expenses, payments will be applied
first to the final unpaid installments to the extent of the loan funds
so used. These payments will be treated as extra payments.
(B) When installments on loans previously made fall due before the
installment on the loan for the current year's operations or when such
loans are delinquent and it is anticipated that sufficient income will
be received to meet the installment on the current year's operations
when due, collections may be applied first to installments on loans made
in previous years.
(ii) To accounts having the oldest delinquencies, or if no
delinquencies, to the oldest unpaid account, except that the amount
available for payment on OL and EM loan accounts will be prorated
between the two accounts on the basis of:
(A) The delinquent amount owed on each, or
[[Page 22]]
(B) The total amount owed on each if there are no delinquencies.
(2) Non-farm income and payments derived from the sale of real
estate security, will be applied to the earliest account secured by the
earliest lien covering such security. The amount to be applied to
principal will be applied to the final unpaid installment(s).
(3) On partial refunds of loan advances, the amount to be applied to
the principal will be applied to the final unpaid installment on the
note which evidences such advance; however, a refund of an advance for
current farm and home expenses repayable within the year may be applied
to the principal on the first unpaid installment on such note as a
regular payment.
(4) Total refunds of loan advances will be applied to the notes
which evidence such advances.
(5) In applying payments from sources other than those in paragraphs
(a)(2), (3), and (4) of this section the borrower has the right to
select the loan account or accounts on which such payments will be
applied. In the absence of the borrower's selection, such payments
generally will be applied in the following order:
(i) To accounts with small balances, including recoverable costs.
(ii) To accounts with the oldest unsecured note(s).
(iii) To accounts with the oldest delinquencies.
(iv) To accounts with the oldest secured note or notes.
(6) Employees receiving collections are authorized to make
exceptions to paragraphs (a)(1), (2), and (6) of this section when it is
necessary to apply a part of a payment to delinquent accounts to prevent
the Federal Statute of Limitations from being asserted as a defense in
suits on FmHA or its successor agency under Public Law 103-354 claims.
(b) Payments in full. Errors of a significant amount in computation
or collection will be called to the attention of the collection official
by the Finance Office. The borrower's note will not be returned until
the balance on the loan account is paid in full. Claims by or on behalf
of the borrowers that the amounts owed have been computed incorrectly
will be referred to the Finance Office.
[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988;
54 FR 46844, Nov. 8, 1989; 57 FR 18680, Apr. 30, 1992]
Sec. 1951.11 Application of payments on real estate accounts.
(a) Regular payments. If a borrower owes more than one type of real
estate loan, or has received initial and subsequent real estate loans on
which separate accounts are maintained, payments on such accounts should
be applied so as to maintain the note accounts approximately in balance
at the end of the year with respect to installments due on the notes,
other charges, and delinquencies.
(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
[[Page 23]]
Public Law 103-354 451-2 or for direct payments the date payment is
received in the Finance Office, and will be applied first to a portion
of any interest which accrues during the deferral period, second to
interest accrued to the date received and third to principal, in
accordance with the terms of the note.
(iii) Amounts paid on insured loan accounts will be credited to the
borrower's account as of the date of Form FmHA or its successor agency
under Public Law 103-354 451-2 or for direct payments the date payment
is received in the Finance Office, and will be applied in the following
order:
(A) Advances from the insurance funds as shown on the latest Form
FmHA or its successor agency under Public Law 103-354 389-404,
``Analysis of Accounts Maturing.'' (If the collection is intended for
final payment of the loan, or to pay the insurance account in connection
with an assumption agreement, the collection will be applied first to
the interest accrued on the advance to the date of the payment.)
(B) Principal advanced from the insurance fund.
(C) Unamortized costs.
(D) Amount due for amortized costs for taxes and insurance.
(E) Unpaid loan insurance charges, including the current year's
charge, when applicable.
(F) First to a portion of any interest which accrues during the
deferral period, second to accrued interest to the date of the payment
on the note account and then to the principal balance of the note
account in accordance with the terms of the note.
(2) Extra payments and refunds will be credited to the borrower's
note account as of the date of Form FmHA or its successor agency under
Public Law 103-354 451-2 and will be applied first to a portion of any
interest which accures during the deferral period, second to interest
accrued to the date of the receipt and third to principal in accordance
with the terms of the note. The amount to be applied to principal will
be applied to the final unpaid installment(s). Extra payments and
refunds will not affect the schedule status of a borrower except
indirectly in connection with the amortization of a direct loan.
(3) The Finance Office will remit final payments promptly to
lenders. Other collections (regular, extra, and refunds) applied to a
borrower's insured note will be accumulated until the annual installment
due date, and will be remitted along with any advances from the
insurance fund to the lender within 30 days after the installment due
date. All payments to a lender will be credited first to interest to the
date of the Treasury check and then to principal. Since the application
of a payment to a borrower's account with the Government and the
Government's account with a lender is of a different effective date, the
balance owed by a borrower 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.
[[Page 24]]
(c) Changes by the Finance Office in application of remittances. (1)
When reapplication of collection is made by the Finance Office Form FmHA
or its successor agency under Public Law 103-354 451-8, ``Journal
Voucher for Loan Account Adjustments,'' will be prepared. Form FmHA or
its successor agency under Public Law 103-354 451-26 will be forwarded
to the County Office to show the reapplication.
(2) When necessary, the Finance Office will correct Form FmHA or its
successor agency under Public Law 103-354 451-2 as prepared by the
County Office.
[50 FR 45764, Nov. 1, 1985, as amended at 54 FR 18883, May 3, 1989]
Sec. 1951.13 Overpayments and refunds.
(a) The Finance Office will mail any overpayment refund check to the
County Supervisor, who will verify that the refund is due before
delivering the check.
(b) Borrower requests for overpayment refunds must be in writing.
Borrowers will be discouraged from requesting refunds when the County
Office records show that a refund is not due, however, the County
Supervisor will forward any request to the Finance Office. Finance
Office computations will control in determining the amount of any
refund.
(c) Underpayments or overpayments of less than $10 will not be
collected or refunded (except as provided in paragraph (b) of this
section) since the expense of processing the action would be more than
the amount involved.
Sec. 1951.14 Recoverable and nonrecoverable cost charges.
(a) The County Supervisor will:
(1) Prepare vouchers for recoverable and nonrecoverable cost charges
according to the applicable instruction for the type of advance being
made. (``Recoverable costs'' is defined in Sec. 1951.10(a) of this
subpart).
(2) If a recoverable cost, show on the voucher the fund code to
which the advance is to be charged.
(3) If the cost item relates to security for more than one type of
account, show the code for the loan secured by the earliest promissory
note (if lien secures more than one note).
(b) The Finance Office will forward Form FmHA or its successor
agency under Public Law 103-354 451-26, to the County Office when the
recoverable cost charge is processed.
Sec. 1951.15 Return of paid-in-full or satisfied notes to borrower.
(a) Notes not held in County Office. When the original of the note
is not held in the County Office the County Supervisor will request the
Finance Office to acquire and forward the note to the County Office.
(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
[[Page 25]]
the Finance Office if it is not in the County Office.
(d) Return of notes reduced to judgment. Notes which have been
reduced to judgment are a part of the court records and ordinarily
cannot be withdrawn and returned to the borrower even after satisfaction
of the judgment. Therefore, no effort will be made to obtain and return
such notes except on the written request of the judgment debtor or
debtor's attorney. Such requests will be referred to the Office of the
General Counsel (OGC).
(e) Debt settlement case. See subparts B or C of part 1956 of this
chapter for the handling of notes in debt settlement cases.
(f) Lost notes. (1) All promissory notes dated on or after 11-1-73
are held in the County Office. A few notes (with the exception of OL
notes) are still held by investors. If a note dated prior to 11-1-73
cannot be located in the County Office and it is needed for servicing
the case, the County Supervisor will write a memorandum to the Finance
Office explaining why the note is needed. The request should give the
name and case number of the borrower, date and original amount of the
loan, type of loan and loan code.
(2) If a promissory note is lost in the County Office and it is
needed for servicing a case, the State Director may authorize the County
Supervisor to execute an appropriate affidavit regarding the lost note.
The form of such an affidavit will be provided by OGC.
[50 FR 45764, Nov. 1, 1985, as amended at 51 FR 45432, Dec. 18, 1986; 53
FR 13100, Apr. 21, 1988; 56 FR 10147, Mar. 11, 1991]
Sec. 1951.16 Other servicing actions on real estate type loan accounts.
(a) Installment on note and other charges--(1) Direct loan accounts.
For a borrower with a direct loan, the term ``installation on note and
other charges,'' as used in this Subpart, will be the sum of the
following:
(i) Annual installment for the year as provided in the promissory
note(s).
(ii) Any recoverable cost charges paid for the borrower during the
year. (``Recoverable costs'' is defined in Sec. 1951.10(a) of this
Subpart.)
(2) Insured loan accounts. ``Loan insurance charge'' means a
separate insurance charge applying to FO and SW insured loans evidenced
by promissory note forms bearing a form date before January 8, 1959. For
all insured loans evidenced by note forms bearing a form date of January
8, 1959, or later, the insurance charge is called ``annual charge'' and
is included in the interest position of the annual installment in the
note. For a borrower with an insured loan, the term ``Installment on
note and other charge'' means the sum of the following:
(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.
[[Page 26]]
Refunds and extra payments will not be used in this way.
Secs. 1951.17--1951.24 [Reserved]
Sec. 1951.25 Review of limited resource FO, OL, and SW loans.
(a) Frequency of reviews. OL, FO, and SW loans will be reviewed each
year at the time the analysis is conducted in accordance with subpart B
of part 1924 of this chapter and any time a servicing action such as
consolidation, rescheduling, reamortization or deferral is taken. The
interest rate may not be changed more often than quarterly.
(b) Method of review. (1) Each loan will be considered on its own
merit.
(2) The County Supervisor should consider:
(i) The borrower's income and repayment record during the preceding
years;
(ii) The projections shown on the most recent Farm and Home Plan or
other similar plan or operation acceptable to FmHA or its successor
agency under Public Law 103-354, in light of the previous year's
projected figures and actual figures; (See subpart B of part 1924 of
this chapter)
(iii) Whether improved production practices have been or need to be
implemented;
(iv) The borrower's progress as a farmer; and
(v) All other factors which the County Supervisor believes should be
considered.
(3) The Farm and Home Plan projections for the coming year must show
that the ``balance available to pay debts'' exceeds the amount needed to
pay debts by at least 10 percent before an increase in interest rate is
put into effect. Borrowers that continually purchase unplanned items
without the County Supervisor's approval will have the interest rate on
their loans increased to the current rate for that loan type. Borrowers
that fail to provide the County Supervisor with the information needed
to conduct the analysis required in subpart B of part 1924 of this
chapter will have their interest rate on their loan increased to the
current rate for the OL, FO, or SW loan as applicable. The rate may
increase in increments of whole numbers to the current regular interest
rate for borrowers. In the borrower's case file, the County Supervisor
must document the unplanned purchases and the failure to provide
information in a timely manner. The County Supervisor must write the
borrower a letter which sets out the facts documented in the case file
and advises the borrower that the interest rate will be increased unless
the unplanned purchases cease or unless the borrower provides
information in a timely manner. Whenever it appears that the borrower
has a substantial increase in income and repayment ability or ceases
farming, either the interest rate may be increased to the current rate
for FO, OL or SW loans, as applicable, or the borrower will be graduated
from the program as provided in subpart F of this part.
(4) The County Office will be responsible for scheduling and
completing the reviews.
(5) Borrowers who have received a deferral under Subpart S of this
part will not have the interest rate increased on their limited resource
loans during the deferral period.
(c) Processing. (1) If, after the review, the interest rate is to
remain the same, no further action needs to be taken.
(2) When the interest rate is increased to the current rate, the
loan will be recorded as a regular loan and will no longer be considered
a limited resource loan. The borrower must be notified in writing at
least 30 days prior to the date of the change. Exhibit B of this subpart
may be used as a guide. The effective date of the change in interest
rate will be the effective date on Exhibit B. The borrower must be
informed of the following for each loan:
(i) The authorization for the change,
(ii) Reason for change (repayment ability, etc.),
(iii) The effective date and rate of the increase in interest,
(iv) Amount of the new installments and dates due,
(v) Right to appeal.
(3) It is not necessary to obtain a new promissory note for this
change in interest rate.
[50 FR 45764, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988;
56 FR 3395, Jan. 30, 1991; 58 FR 15074, Mar. 19, 1993]
[[Page 27]]
Secs. 1951.26--1951.49 [Reserved]
Sec. 1951.50 OMB control number.
The collection of information requirements in Subpart A of part 1951
have been approved by the Office of Management and Budget and assigned
OMB control number 0575-0075.
[52 FR 26137, July 13, 1987]
Exhibits to Subpart A
Exhibit A--Notice to FmHA or its successor agency under Public Law 103-
354 Borrowers
FmHA or its successor agency under Public Law 103-354 borrowers with
farmer program and community program loan types made under the
Consolidated Farm and Rural Development Act may request a loan summary
statement which shows the calendar year account activity for each loan.
Interested borrowers may request these statements through their local
FmHA or its successor agency under Public Law 103-354 office.
[54 FR 10270, Mar. 13, 1989]
Exhibit B--Notice of Change in Interest Rate
(insert date)
Notice of Change in Interest Rate
_______________________________________________________________________
(insert borrower's address)
Re: {time} {time}
Fund code
{time} {time}
Loan number
{time} {time}
Kind code
Dear (insert borrower's name and case number): Your promissory note
dated ______, for the original amount of ______ dollars ($______)
provides for a change in interest rate for a limited resource loan in
accordance with the Farmers Home Administration or its successor agency
under Public Law 103-354 regulations.
Effective (insert date) the interest rate on this loan will be ____
percent ( %) on the unpaid principal balance. Your installment due
January 1, 19 , will be ______ dollars ($______). This change in
interest rate is for the reason indicated below.
{time} Increase in repayment ability as per Farm and Home Plan dated
______.
{time} (insert reason if other than above for increase in interest
rate).
You may appeal this action by writing to (hearing officer),
(address), within 30 calendar days of the date of this letter, giving
the reason why you believe this matter should be decided differently.
This time may be extended if you cannot notify the hearing officer
within 30 days for reasons beyond your control.
[56 FR 3396, Jan. 30, 1991]
Subpart B--Collections
Source: 53 FR 26591, July 14, 1988, unless otherwise noted.
Sec. 1951.51 General.
This subpart prescribes the policies and procedures of the Farmers
Home Administration or its successor agency under Public Law 103-354
(FmHA or its successor agency under Public Law 103-354) for collection
of loan payments and depositing payments through the Concentration
Banking System (CBS). Under CBA, FmHA or its successor agency under
Public Law 103-354 field offices select a local financial institution to
maintain a Treasury Limited Account (TLA) for depositing FmHA or its
successor agency under Public Law 103-354 loan collections. Deposits to
these accounts are withdrawn daily by the concentrator bank for transfer
to the Treasury. Under these procedures, the local FmHA or its successor
agency under Public Law 103-354 office will deposit the daily office
collections in a participating local financial institution and report
the amount deposited to a data service facility that is under contract
to the concentrator bank. The data service facility will inform the
concentrator bank of the amount available in each local financial
institution and the concentrator bank will use this information to
transfer the funds to the concentrator bank and then to the Treasury.
Secs. 1951.52--1951.53 [Reserved]
Sec. 1951.54 Authority.
The provisions of this subpart are applicable to FmHA or its
successor agency under Public Law 103-354 employees who are authorized
to receive collections. Employees listed in Exhibit B of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office) are hereby authorized to receive, receipt for, exchange for
money orders or bank
[[Page 28]]
drafts, and transmit collections or deposit collections in a TLA.
Sec. 1951.55 Receiving and processing collections.
FmHA or its successor agency under Public Law 103-354 offices
receive borrower payments either through the mail or in person in the
form of checks, money orders, and cash. Payments are recorded on the
appropriate accounting forms which are Form FmHA or its successor agency
under Public Law 103-354 451-2, Form FmHA or its successor agency under
Public Law 103-354 1944-9, Form FmHA or its successor agency under
Public Law 103-354 1951-55, or a payment coupon. Forms FmHA or its
successor agency under Public Law 103-354 451-2 and FmHA or its
successor agency under Public Law 103-354 1944-9 are used to transmit
accounting information to the Finance Office. Form FmHA or its successor
agency under Public Law 103-354 1951-55 is used to assemble payment
information which the District Offices use to transmit MFH account
information through field office terminals. In addition, the FmHA or its
successor agency under Public Law 103-354 office records payments on a
management system card, a servicing card, or a payment tracking form, as
appropriate.
[56 FR 28038, June 19, 1991]
Subpart C--Offsets of Federal Payments to USDA Agency Borrowers
Sec. 1951.101 General.
The Federal Claims Collection Act of 1966 as amended by the Debt
Collection Act of 1982, the Deficit Reduction Act of 1984, and the Debt
Collection Amendments Act of 1996 provides for the use of
administrative, salary and Internal Revenue Service (IRS) offsets by
government agencies including the Farm Service Agency (FSA), Rural
Housing Service (RHS), Rural Utility Service (RUS) for its water and
waste programs, and Rural Business-Cooperative Service (RBS), herein
referred to as ``USDA Agency,'' to collect delinquent debts. Any money
that is or may become payable from the United States to a USDA Agency
borrower or other individual or entity indebted to a USDA Agency may be
subject to offset for collection of a debt. 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 borrowers 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 customers of the RHS.
[61 FR 59778, Nov. 22, 1996]
Sec. 1951.102 Standards and procedures for administrative offset requests received by FmHA or its successor agency under Public Law 103-354.
(a) Requests made by other Federal agencies to FmHA or its successor
agency under Public Law 103-354 to offset moneys to be paid to FmHA or
its successor agency under Public Law 103-354's debtors, including
borrowers, contractors and grantees, must contain a written statement of
the debt (including, where applicable, a separate statement of principal
owed and overdue interest owed as of a given date, and the amount of
interest currently running) owed by the debtor to the requesting agency,
the due date of the debt, a description of the basis for the debt, and a
certification that all of the applicable requirements of 31 U.S.C. 3716
and 4 CFR Part 102 have been met. Requests for offset will be sent to
the appropriate FmHA or its successor agency under Public Law 103-354
State Director.
(b) Upon receipt of a request satisfying the requirements of
paragraph (a) of this section, FmHA or its successor agency under Public
Law 103-354 will effect an administrative offset from moneys payable to
the debtor, giving written notice to the debtor, unless the offset might
result in substantial interference with, or defeat the purpose of FmHA
or its successor agency under Public Law 103-354's programs. For
example, where the payment sought to be
[[Page 29]]
offset is a loan, offset will not be made since the debtor would not be
able to use the loan funds for the intended purpose. Similarly, where
the payment sought to be offset is an advance payment under a contract
to purchase goods, FmHA or its successor agency under Public Law 103-354
will not make the requested offset because the debtor would in all
likelihood refuse to furnish the goods. However, where the payment is
being made to compensate for past performance, the offset will be
effected. For example, where the payment sought to be offset is for
goods already furnished, the offset could be made without conflict with
the purpose of the payment.
(c) If FmHA or its successor agency under Public Law 103-354
determines not to effect an offset, a written statement, including the
reasons for the refusal, will be sent to the requesting agency and a
copy of that statement will be sent to the debtor.
[55 FR 11005, Mar. 26, 1990]
Sec. 1951.103 Procedures for FmHA or its successor agency under Public Law 103-354-initiated administrative offset.
(a) This section explains the procedures to be followed to use
administrative offset to collect amounts owed by a debtor to FmHA or its
successor agency under Public Law 103-354 from payments to be made to
the debtor by another Federal agency or from retirement payments to be
made to a Federal or military retiree.
(b) Before another Federal agency can be asked to offset any amount,
the debtor must have been given at least 30 days notice on FmHA or its
successor agency under Public Law 103-354 Form Letter 1951-C-1, must
have been afforded the rights set out in this section and, if the debtor
is an FmHA or its successor agency under Public Law 103-354 borrower,
the borrower's account must have been accelerated. A delinquent amount
does not have to be reduced to judgment or be undisputed before offset
can be used, and the payment does not have to be covered by an FmHA or
its successor agency under Public Law 103-354 security instrument.
(c) Offset will not be used if, according to State law, the receipt
of payments by use of administrative offset after acceleration has the
effect of reinstating the debtor's account. A State supplement will be
issued with the advice of the Office of General Counsel (OGC),
explaining whether offset can be used in each State. Sums received
through the use of administrative offset are not considered ``payments''
as that term is used in 7 CFR 1955.15(d)(3).
(d) Administrative offset will be used only where it is feasible.
Administrative offset is not feasible where, for example, the cost to
the Government of collecting by offset will exceed the amount
collectible.
(e) Administrative offset will be used only where it is in the best
interests of the Government. It will not be used where it would
substantially interfere with, or defeat, the purpose of the paying
Agency's program. Examples of this situation are listed in
Sec. 1951.102(b) of this subpart. As another example, FmHA or its
successor agency under Public Law 103-354 will not offset the initial
payment for planting expenses under the Conservation Reserve Program
(CRP) since an offset would possibly result in the land not being
planted for conservation purposes; conversely, it will offset subsequent
CRP payments which represent rental income to the debtor. In general,
income supplementation and enhancement program payments by the
Agricultural Stabilization and Conservation Service (ASCS) will be
subject to offset. The National Office will provide guidance to FmHA or
its successor agency under Public Law 103-354 County Supervisors as
needed on the kinds of payments under other major Federal programs that
will not be subject to offset.
(f) The use of administrative offset is limited when debtors have
filed for bankruptcy. Before administrative offset in sought for a
debtor who is subject to a pending bankruptcy, guidance with respect to
each particular case will be sought from the OGC. The Agency will not
request administrative offset for debts which have been discharged in
bankruptcy.
(g) FmHA or its successor agency under Public Law 103-354 will not
use offset to collect a debt more than 6
[[Page 30]]
years after the Government's right to collect the debt first accrued,
unless facts material to FmHA or its successor agency under Public Law
103-354's right to collect were not known and could not reasonably have
been known by the FmHA or its successor agency under Public Law 103-354
official(s) charged with the responsibility of servicing the debtor's
account. Offset may then be pursued. In no event, however, may
administrative offset under this subpart be used against a claim which
has been accrued for more than 10 years. Prior to collecting a claim by
administrative offset after the 6 year period for bringing a civil
action on the claim has expired, the loan servicing official will obtain
the concurrence of the OGC to pursue the offset.
(h) FmHA or its successor agency under Public Law 103-354 will not
use administrative offset with respect to debts owed by any State or
local government; nor with respect to payments made under the Social
Security Act, the Internal Revenue Code of 1954 (IRS debts may be offset
under the IRS offset procedure in Secs. 1951.121-1951.127 of this
subpart), or the tariff laws of the United States.
[55 FR 11005, Mar. 26, 1990, as amended at 55 FR 25820, June 25, 1990]
Sec. 1951.104 Procedures for FmHA or its successor agency under Public Law 103-354-initiated offset.
(a) The use of administrative offset will be initiated by giving
notice to the debtor of the intention to use administrative offset. Such
notice shall advise the debtors of their rights to:
(1) Inspect and copy their records subject to the copying costs and
hours set forth in FmHA or its successor agency under Public Law 103-354
Instruction 2018-E (available in any FmHA or its successor agency under
Public Law 103-354 office);
(2) Avoid offset by paying the debt in full within 30 days;
(3) Present any reasons why administrative offset should not be
used, including that the amount claimed to be owed is in error, that the
use of administrative offset would create an extreme hardship, or that
it would be unfair to the debtor for some other reason;
(4) Have a meeting with the decision-making official; and
(5) Obtain administrative appeal of the decision to use
administrative offset.
(b) The debtor will be given 15 calendar days after receipt of the
Notice to ask to inspect and/or copy his or her records, and 30 calendar
days after receipt of the notice in which to:
(1) Make a written submission pursuant to paragraph (a)(3) of this
section, or
(2) Request a meeting at which the borrower can make such a
submission and/or orally raise any matters relevant to the proposed use
of administrative offset to collect the amount owed, or
(3) Request immediate administrative appeal of the decision to use
administrative offset.
(c) When a debtor cannot, for a good reason, meet the time limits
set out in this section, FmHA or its successor agency under Public Law
103-354 can, in its discretion, extend the time.
(d) FmHA or its successor agency under Public Law 103-354 Form
Letter 1951-C-1 will be used to give the notice required by this
section. Notice will be sent to the debtor, by certified mail, return
receipt requested, at the debtor's last known address. A duplicate copy
will be mailed to the debtor, on the same day, by ordinary mail. The
date of signing of the certified mail receipt will be used to compute
the periods for response or, if the certified mail receipt in not signed
and returned, the timeframe will commence with the tenth day after the
date on which the duplicate was sent.
(e) If the debtor responds by asking for a meeting, it will be
scheduled as set forth in subpart B of part 1900 of this chapter, and
the debtor will be promptly advised in writing of the date, time, and
place. If the response also asks to inspect and/or copy records, the
response will give the debtor an opportunity, within 10 working days
after receipt of the request, to inspect and/or copy those records. The
letter will explain where the records are and when the debtor can
inspect and/or copy them. The meeting will be scheduled not less than 10
working days after the date on which the debtor
[[Page 31]]
is allowed to inspect and/or copy his or her records. At the meeting the
debtor will be given an opportunity to present any evidence or arguments
as to why administrative offset should not be used.
(f) If the debtor asks to inspect and/or copy records, but does not
ask for a meeting, the debtor should, at the time of record inspection
and/or copying, again be offered a meeting so that he or she will have
an opportunity to discuss the contents of those records, or any other
relevant matter, before FmHA or its successor agency under Public Law
103-354 actually begins to use administrative offset. This offer may be
made orally and will be documented in the debtor's case file.
(g) Extreme hardship or unfairness to the debtor in using
administrative offset are matters that are within the discretion of the
FmHA or its successor agency under Public Law 103-354 County Supervisor
or other decision-making official. The reasons for decisions on claims
of extreme hardship or unfairness will be documented in the debtor's
case file. Substantial medical expenses, or the lack of funds (other
than those to be offset) for essential family living expenses,
especially when the debtor's family includes dependent minor children,
are examples of situations in which a decision not to use administrative
offset may be justified. Extreme hardship exemptions are intended to be
limited to providing food, shelter and medical care for the borrower's
immediate family. In its discretion, FmHA or its successor agency under
Public Law 103-354 may, as a condition to declining to use
administrative offset because of extreme hardship or unfairness, require
the debtor to enter into a written agreement concerning payment of the
indebtedness and can require adequate security for such agreement.
(h) FmHA or its successor agency under Public Law 103-354 will
respond promptly to all written or oral requests or presentations made
by debtors under this section. Decisions to be made after a meeting with
a debtor will be made promptly, and will be promptly communicated in
writing to the debtor. If a request not to use offset is denied, either
in response to a written submission or to matters raised at a meeting,
the letter communicating that decision will also advise the debtor of
his or her rights to administrative appeal. Other Federal agencies will
not be requested to offset amounts before FmHA or its successor agency
under Public Law 103-354 has mailed or hand delivered a letter to the
debtor communicating its decision in response to any matters raised at a
meeting or in response to a submission in writing.
(i) Decisions to use administrative offset are appealable under
subpart B of part 1900 of this chapter. If the debtor is an FmHA or its
successor agency under Public Law 103-354 borrower who has not had
another opportunity to appeal FmHA or its successor agency under Public
Law 103-354's determinations on the indebtedness itself, the appeal will
include consideration of any issues concerning the debt that the debtor
wishes to raise.
(j) Any borrower who had funds offset prior to December 1987, or who
on the effective date of this subsection is still subject to an
outstanding notice of offset (i.e., FmHA or its successor agency under
Public Law 103-354 Form Letter 1951-3 has been sent and not retracted as
of the effective date of this regulation) will be notified that he or
she will be permitted to request an administrative hearing in accordance
with the provisions of this regulation. The borrower may request a
hearing if the borrower believes the previous offset actions by FmHA or
its successor agency under Public Law 103-354 is contrary to this
Administrative offset regulation.
[55 FR 11006, Mar. 26, 1990, as amended at 55 FR 25820, June 25, 1990]
Sec. 1951.105 Procedures for taking funds by administrative offset.
(a) Requesting administrative offsets. Administrative offset
requests to other Federal agencies will be initiated by completing FmHA
or its successor agency under Public Law 103-354 Form Letter 1951-C-3
and sending it to any Federal agency likely to have money scheduled for
payment to the debtor. The debtor and the FmHA or its successor agency
under Public Law 103-354 State Director, will be sent a copy of this
form letter when it is sent to the other Federal agency.
[[Page 32]]
(b) Application of payments, refunds and overpayments for
administrative offsets. (1) Only amounts that are delinquent can be
collected by offset. Therefore, if an FmHA or its successor agency under
Public Law 103-354 Form Letter 1951-C-3 is submitted to another Federal
agency which owes a debtor an amount in excess of the FmHA or its
successor agency under Public Law 103-354 delinquency, the excess will
be remitted to the debtor by the other Federal agency.
(2) Administrative offset payments will be processed in accordance
with subpart B of this part, including depositing the payments in the
Concentration Banking System or sending the payments to a wholesale
lockbox bank. The offset payments will be applied to the debtor accounts
as regular payments. Under no circumstances will funds collected under
administrative offset be held in an escrow account.
(3) Refunds of amounts offset, plus interest, will be made within 45
days, pursuant to the provisions of 7 CFR 1951.13(b), if FmHA or its
successor agency under Public Law 103-354 determines that an amount
should not have been offset or that the debtor has won an administrative
appeal. The ninety-day Treasury bill rate, as published in exhibit B to
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), in effect on the date the amounts were offset by the creditor
agency, will be used to calculate interest payable to the debtor.
(4) The County Supervisor will record all borrowers referred for
and/or collected through administrative offset on Form FmHA or its
successor agency under Public Law 103-354 1951-16, ``Detail Report of
Administrative Offset.'' The unpaid interest and unpaid principal
amounts referred for offset should be reported only one time when first
referred and obtained from FmHA or its successor agency under Public Law
103-354 Form Letter 1951-C-3. Form FmHA or its successor agency under
Public Law 103-354 1951-16 will be filed in operational file B. At the
close of each quarter, the County Supervisor will consolidate the
information reported on Form FmHA or its successor agency under Public
Law 103-354 1951-16 into Form FmHA or its successor agency under Public
Law 103-354 1951-17, ``Consolidated Report of Administrative Offset.''
The consolidated county report will be forwarded to the State
Administrative Officer within 5 days after the end of each quarter
(e.g., October 5, January 5, April 5, and July 5). If there is no
activity for the quarter, a negative report is required. Using Form FmHA
or its successor agency under Public Law 103-354 1951-17, the State
Administrative Officer will consolidate the reports received from the
County Offices. The consolidated state report will be forwarded to the
Finance Office, mail code FC-360A, within 10 calendar days after the end
of each quarter (e.g., October 10, January 10, April 10, and July 10).
If there is no activity for the quarter, a negative report is required.
(c) Cancellation of administrative offset. FmHA or its successor
agency under Public Law 103-354 will promptly cancel administrative
offset requests by written notification to every other Federal agency
from which administrative offset was requested if, because of debtor
payments or any other reason, FmHA or its successor agency under Public
Law 103-354 is no longer entitled to administrative offset from payments
to be made to a debtor.
[55 FR 11007, Mar. 26, 1990, as amended at 55 FR 25820, June 25, 1990]
Secs. 1951.106--1951.110 [Reserved]
Sec. 1951.111 Salary offset.
Salary offset may be used to collect debts arising from delinquent
FmHA or its successor agency under Public Law 103-354 loans and other
debts which arise through such activities as theft, embezzlement, fraud,
salary overpayments, underwithholding of amounts payable for life and
health insurance, and any amount owed by former employees from loss of
federal funds through negligence and other matters. Salary offset may
also be used by other Federal agencies to collect delinquencies or debts
owed to them by employees of FmHA or its successor agency under Public
Law 103-354, excluding
[[Page 33]]
County Committee members. Administrative offset, rather than salary
offset, will be used to collect money from retirement benefits. Salary
offset will not be initiated until after other servicing options
available to the borrower have been utilized. In addition, for farmer
program loans, salary offset will not be instituted if the federal
salary has been considered on the farm and home plan, and it was
determined the funds were to be used for another purpose other than
payment of the FmHA or its successor agency under Public Law 103-354
loan. When salary offset is used, payment for the debt will be deducted
from the employee's pay and sent directly to the creditor agency. Not
more than 15 percent of the employee's disposable pay can be offset per
pay period, unless the employee agrees to a larger amount. The debt does
not have to be reduced to judgment or be undisputed, and the payment
does not have to be covered by a security instrument. This section
describes the procedures which must be followed before FmHA or its
successor agency under Public Law 103-354 can ask a Federal agency to
offset any amount. Decisions made under the following section are not
appealable under subpart B of part 1900 of this chapter.
(a) Authorities. The following authorities are granted to FmHA or
its successor agency under Public Law 103-354 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 FmHA or its successor agency under Public
Law 103-354's 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 FmHA or its successor agency under Public Law
103-354 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; the
Assistant Administrator, Finance Office; and the Deputy Administrator
for Management, National Office.
(2) Debt or debts. A term that refers to one or both of the
following:
(i) Delinquent debts. A past due amount owed to the United States
from sources which include, but are not limited to, insured or
guaranteed loans, fees, leases, rents, royalties, services, sales of
real or personal property, overpayments, penalties, damages, interest,
fines and forfeitures (except those arising under the Uniform Code of
Military Justice).
(ii) Other debts. An amount owed to the United States by an employee
for pecuniary losses where the employee has been determined to be liable
due to the employee's negligent, willful, unauthorized or illegal acts,
including but not limited to:
(A) Theft, misuse, or loss of Government funds;
(B) False claims for services and travel;
(C) Illegal, unauthorized obligations and expenditures of Government
appropriations;
(D) Using or authorizing the use of Government owned or leased
equipment, facilities supplies, and services for other than official or
approved purposes;
(E) Lost, stolen, damaged, or destroyed Government property;
(F) Erroneous entries on accounting record or reports; and,
(G) Deliberate failure to provide physical security and control
procedures for accountable officers, if such failure is determined to be
the proximate cause for a loss of Government funds.
(3) Defalcation account. An account established in the Finance
Office for
[[Page 34]]
other debts owed the Federal government in the amount missing due to the
action of an employee or former employee.
(4) Disposable pay. Pay due an employee that remains after required
deductions for Federal, State and local income taxes; Social Security
taxes, including Medicare taxes; Federal retirement programs; premiums
for life and health insurance benefits, and such other deductions
required by law to be withheld.
(5) Hearing Officer. An Administrative Law Judge of the USDA or
another individual not under the supervision or control of the USDA,
designated by the Certifying Official to review the determination of the
alleged debt.
(6) Non-cash credit. The accounting action taken by the Finance
Office to credit and make a borrower's account whole for funds paid by
the borrower but missing due to an employee's or former employee's
actions.
(7) Salary Offset. The collection of a debt due to the U.S. by
deducting a portion of the disposable pay of a Federal employee without
the employee's consent.
(c) Feasibility of salary offset. The first step the Certifying
Official must take to use this offset procedure is to decide, on a case
by case basis, whether offset is feasible. If an offset is feasible, the
directions in the following paragraphs of this section will be used to
collect by salary offset. If the official making this determination
decides that salary offset is not feasible, the reasons supporting this
decision will be documented in the borrower's running case record in the
case of delinquent debts, or the ``For Official Use Only'' file in cases
of other debts. Ordinarily, and where possible, debts should be
collected in one lump-sum; but payments may be made in installments.
Installment deductions can be made over a period not greater than the
anticipated period of employment. However, the amount deducted for a pay
period will not exceed 15 percent of the disposable pay from which the
deduction is made. If possible, the installment payment will be
sufficient in size and frequency to liquidate the debt in approximately
3 years. Based on the Comptroller General's decisions, other debts by
employees cannot be forgiven. If the employee retires or resigns, or if
employment ends before collection of the debt is completed, final salary
payment, lump-sum leave, etc. may be offset to the extent necessary to
liquidate the debt. Salary offset is feasible if:
(1) The cost to the Government of collecting salary offset does not
exceed the amount of the debt. County Committee members are exempt from
salary offset because the amount collected by salary offset would be so
small as to be impractical.
(2) There are not any legal restrictions to the debt, such as the
debtor being under the jurisdiction of a bankruptcy court, or the
statute of limitations having expired. The Debt Collection Act of 1982
permits offset of claims that have not been outstanding for more than 10
years.
(d) Notice to debtor. (1) After the Certifying Official determines
that collection by salary offset is feasible, FmHA or its successor
agency under Public Law 103-354 Guide Letter 1951-C-4 should be sent
within 15 calendar days after that determination. This Guide Letter will
notify the debtor of intended salary offset at least 30 days before the
salary offset begins. FmHA or its successor agency under Public Law 103-
354 Guide Letter 1951-C-4 will be personally delivered to the debtor or
sent certified mail, Return Receipt Requested, with a copy sent by
regular mail on the same day. If the certified mail receipt is returned,
the date the debtor received the letter will be established and the time
limits set out in FmHA or its successor agency under Public Law 103-354
Guide Letter 1951-C-4 will run from that date. If delivery by certified
mail is not accomplished, FmHA or its successor agency under Public Law
103-354 will assume that the debtor received the letter by regular mail
on the day the certified mail was refused or was unable to be delivered.
(2) The Debt Collection Act of 1982 requires that the hearing
officer issue a written decision not later than 60 days after the filing
of the petition requesting the hearing; thus, the evidence upon which
the decision to notify the debtor is based, to the extent possible,
should be sufficient for FmHA or its
[[Page 35]]
successor agency under Public Law 103-354 to proceed at a hearing,
should the debtor request a hearing under paragraph (f) of this section.
(e) Notice requirement before salary offset. Salary offset will not
be made unless the employee receives 30 calendar days written notice.
This Notice of Intent (FmHA or its successor agency under Public Law
103-354 Guide Letter 1951-C-4) will be addressed to the debtor or the
debtor's representative. The Notice of Intent must be modified if it is
addressed to the debtor's representative. In either case, the Notice of
Intent will state:
(1) It has been determined that the debt is owed, the amount of the
debt, and the facts giving rise to the debt;
(2) The cost to the Government of collecting salary offset does not
exceed the amount of the debt;
(3) There are not any legal restrictions that would bar collecting
the debt;
(4) The debt will be collected by means of deduction of not more
than 15 percent from the employee's current disposable pay until the
debt and all accumulated interest are paid in full;
(5) The amount, frequency, approximate beginning date, and duration
of the intended deductions;
(6) An explanation of the requirements concerning interest,
penalties and administrative costs, unless such payments are waived;
(7) The employee's right to inspect and request a copy of records
relating to the debt;
(8) The employee's right to voluntarily enter into a written
agreement 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
[[Page 36]]
accepted by the Certifying Official, if it would be in the best interest
of the government. FmHA or its successor agency under Public Law 103-354
Form Letter 1951-8 will be used if a repayment offer for an FmHA or its
successor agency under Public Law 103-354 loan or grant is accepted.
Upon receipt of an offer to repay, the Certifying Official will delay
institution of a hearing until a decision is made on the repayment
offer. Within 60 days after the initial offer to repay was made, the
Certifying Official must decide whether to accept or reject the offer.
This decision will be documented in the running case record or the ``For
Official Use Only'' file, as appropriate, and the debtor will be sent a
letter which sets out the decision to accept or reject the offer to
repay. The decision to accept or reject a repayment offer should be
based upon a realistic budget or farm and home plan and according to the
servicing regulations for the type of loan(s) involved.
(3) If a debtor responds to FmHA or its successor agency under
Public Law 103-354 Guide Letter 1951-C-4 by asking for a hearing on FmHA
or its successor agency under Public Law 103-354's determination that a
debt exists and/or is due, or on the percentage of net pay to be
deducted each pay period, the Certifying Official will notify the debtor
in accordance with paragraph (g)(3) of this section and request the
debtor's case file or the ``For Official Use Only'' file.
(4) If a debtor is willing to have more than 15 percent of the
disposable pay sent to FmHA or its successor agency under Public Law
103-354, a letter prepared and signed by the debtor clearly 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
[[Page 37]]
dated upon receipt by the Certifying Official.
(3) Certifying Officials are responsible for determining if the
employee's petition for a hearing has been submitted in a timely
fashion. Petitions received from employees after the 30-day time
limitation expires will be accepted only if the employee can show the
delay was because of circumstances beyond his/her control or because of
failure to receive notice of the time limitation. Certifying Officials
are required to provide written notification to the employee of the
acceptance or non-acceptance of the employee's petition for hearing.
(4) For those petitions accepted, FmHA or its successor agency under
Public Law 103-354 will arrange for a hearing officer and notify the
employee of the time and place of the hearing. The hearing location
should be convenient to all parties involved. The employee will also be
notified that the acceptance of the petition for hearing will stay the
commencement of collection proceedings. Any payments collected in error
due to untimely or delayed filing beyond the employee's control will be
refunded unless there are applicable contractual or statutory provisions
to the contrary.
(5) The hearing will be based on written submissions and
documentation provided by the debtor and FmHA or its successor agency
under Public Law 103-354 unless:
(i) A statute authorizes or requires consideration of waiving the
debt, the debtor requests waiver of the debt, and the waiver
determination turns on an issue of credibility or truth.
(ii) The debtor requests reconsideration of the debt and the hearing
officer determines that the question of the indebtedness cannot be
resolved by a review of the documentary evidence; for example, when the
validity of the debt turns on an issue of credibility or truth.
(iii) The hearing officer determines that an oral hearing is
appropriate.
(6) Oral hearings may be conducted by conference call at the request
of the debtor or at the discretion of the hearing officer. The hearing
officer's determination that the offset hearing is on the written record
is final and is not subject to review.
(7) The hearing officer will issue a written decision not later than
60 days after the filing of the petition requesting the hearing, unless
the employee requests and the Certifying Official grants a delay in the
proceedings. The written decision will state the facts supporting the
nature and origin of the debt, the hearing officer's analysis, findings
and conclusions as to the amount and validity of the debt, and repayment
schedule. Both the employee and FmHA or its successor agency under
Public Law 103-354 will be provided with a copy of the hearing officer's
written decision on the debt.
(h) 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.
[[Page 38]]
(4) If the debtor has agreed to have more or less than 15 percent of
the disposable pay sent to FmHA or its successor agency under Public Law
103-354, a copy of the debtor's letter (FmHA or its successor agency
under Public Law 103-354 Form Letter 1951-8) authorizing this must be
attached to Form AD-343.
(5) Field offices will be notified of payments received from salary
offset by receipt of a transaction record from the Finance Office.
(i) Deduction percentage. (1) Generally, installment deductions will
be made over a period not greater than the anticipated period of
employment. If possible, the installment payment will be sufficient in
size and frequency to liquidate the debt in approximately 3 years. The
size and frequency of installment deductions will bear a reasonable
relation to the size of the debt and the employee's ability to pay.
Certifying Officials are responsible for determining the size and
frequency of the deductions. However, the amount deducted for any period
will not exceed 15 percent of the disposable pay from which the
deduction is made, unless the employee has agreed in writing to the
deduction of a greater amount. Installment payments of less than $25 per
pay period or $50 a month will be accepted only in the most unusual
circumstances.
(2) Deductions will be made only from basic pay, incentive pay,
retainer pay, or, in the case of an employee not entitled to basic pay,
other authorized pay. If there is more than one salary offset, the
maximum deduction for all salary offsets against an employee's
disposable pay is 15 percent unless the 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
[[Page 39]]
made at the same time. Should requests be made separately, be sure to
identify appropriately.
(4) The Certifying Official shall furnish a copy of the memorandum
and supporting documentation for paragraphs (k) (1) and (2) of this
section to the Deputy Administrator for Management for distribution to
the Financial and Management Analysis Staff (FMAS) and Employee
Relations Branch, Personnel Division.
(l) Application of payments, refunds and overpayments. (1) If a
debtor is delinquent or indebted on more than one FmHA or its successor
agency under Public Law 103-354 loan or debt, amounts collected by
offset will be applied as specified on Form AD-343, based on the
advantage to agency or debtor. The check date will be used as the date
of credit in applying payments to the borrower's accounts.
(2) If a court or agency orders FmHA or its successor agency under
Public Law 103-354 to refund the amount obtained by salary offset, a
refund will be requested promptly by the Certifying Official in
accordance with the order by sending FmHA or its successor agency under
Public Law 103-354 Form Letter 1951-5 to the Finance Office. Processing
FmHA or its successor agency under Public Law 103-354 Form Letter 1951-5
in the Finance Office will cause a refund to be sent to the debtor
through the county office or other appropriate FmHA or its successor
agency under Public Law 103-354 office. The debtor is not entitled to
any payment of interest, on the refunded amount.
(3) If a debtor does not request a hearing within the required time
and it is later determined that the delay was 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
[[Page 40]]
applicable regulations and instruction for submitting the funds to the
Finance Office. (See FmHA or its successor agency under Public Law 103-
354 Form Letter 1951-6).
(2) When an employee of FmHA or its successor agency under Public
Law 103-354 owes a debt to another Federal agency, salary offset may be
used only when the Federal agency certifies that the person owes the
debt and that the Federal agency has complied with its regulations. The
request must include the creditor agency's certification as to the
indebtedness, including the amount, and that the employee has been given
the due process entitlements guaranteed by the Debt Collection Act of
1982. When a request for offset is received, FmHA or its successor
agency under Public Law 103-354 will notify the employee and NFC and
arrange for offset. (See FmHA or its successor agency under Public Law
103-354 Form Letter 1951-7).
(q) Deductions by the National Finance Center (NFC). The NFC will
automatically deduct the full amount of the delinquency or indebtedness
if less than 15 percent of disposable pay or 15 percent of disposable
pay if the delinquency or indebtedness exceeds 15 percent, unless the
creditor agency advises otherwise. Deductions will begin the second pay
period after the 30-day notification period has expired unless FmHA or
its successor agency under Public Law 103-354 issues the notice. If FmHA
or its successor agency under Public Law 103-354 issues the notice, the
NFC will begin deductions on the first pay period after receipt of the
Form AD-343.
(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]
Secs. 1951.112--1951.120 [Reserved]
Sec. 1951.121 Internal Revenue Service (IRS) offset.
The IRS can reduce a taxpayer's overpayment of tax by the amount of
any legally enforceable debt owed to a Federal agency. This subpart
establishes procedures to implement IRS offsets. Borrowers referred to
IRS for offset will continue to be serviced as required by Sec. 1951.312
of subpart G of part 1951 of this chapter.
[54 FR 966, Jan. 11, 1989]
Sec. 1951.122 Finance Office screening.
The FmHA or its successor agency under Public Law 103-354 Finance
Office will screen the accounts of all borrowers potentially eligible
for IRS Offset. FmHA or its successor agency under Public Law 103-354
field offices will further screen these accounts based on the following
ineligibility criteria. The Finance Office will determine the
appropriate date for this screening based on IRS deadlines.
(a) General. All past due single family housing (SFH) and farmer
program
[[Page 41]]
(FP) accounts are eligible for IRS Offset unless they meet one or more
of the following criteria:
(1) Account has been referred to OGC for foreclosure and, based on
the legal opinion required by Sec. 1951.103(c), a collection by offset
would jeopardize the litigation under State law. Existence of a
foreclosure action pending flag is not a determining factor.
(2) Account has been discharged in bankruptcy or is under the
jurisdiction of a bankruptcy court and the debt has not been reaffirmed.
Existence of a bankruptcy action pending flag is not a determining
factor.
(3) Account has a suspend code.
(4) Account has been assigned to a collection agency.
(5) Account is past due by less than $25, or if the borrower has
multiple loans, the net amount past due is less than $25.
(6) Borrower is a Federal employee and collection is feasible under
salary offset.
(7) Borrower was indebted to FmHA or its successor agency under
Public Law 103-354 prior to entering full time active duty military
service and the account is being serviced in accordance with FmHA or its
successor agency under Public Law 103-354 Instruction 1950-C.
(8) Account is current under a subject to approved adjustment (SAA).
(b) Single Family Housing Borrowers. In addition to the criteria set
forth in Sec. 1951.122(a), the following criteria are for delinquent SFH
borrowers:
(1) Borrower has one loan and it is less than 3 monthly payments
delinquent (or, if annual borrower, the equivalent of less than 3
monthly payments for annual payments past due) or more than 9 years
delinquent.
(2) Borrower has multiple loans, and the net amount past due is less
than 3 monthly payments on the delinquent loans (or the equivalent of 3
monthly payments for annual payment borrowers).
(3) Account is under a moratorium.
(4) Account has an Additional Payment Agreement (APA) in effect and
payments under the APA are less than 3 months past due.
(c) Farmer Program Borrowers. In addition to the criteria set forth
in Sec. 1951.122(a), the following criteria are for delinquent FP
borrowers:
(1) Borrower is a partnership or corporation and/or is identified in
the accounting system by an employer Identification Number (EIN rather
than a Social Security Number (SSN).
(2) Account is less than 90 days past due.
(d) Servicing Condition Requirements for Farmer Program Borrowers.
The FP accounts remaining after screening from Sec. 1951.122 (a) and (c)
are eligible for IRS offset only if either of the following servicing
conditions takes place, whichever comes first:
(1) Borrower has received any combination of Attachments 3 through
10 of Exhibit A of subpart S of this part; and the borrower did not
request an appeal of the decision; any appeal has been concluded; or
(2) Borrower's account(s) has been accelerated.
[55 FR 38035, Sept. 17, 1990, as amended at 55 FR 52037, Dec. 19, 1990]
Sec. 1951.123 Field office screening.
Accounts determined by computer screening in the Finance Office to
be potentially eligible will be referred to the IRS and to the
appropriate FmHA or its successor agency under Public Law 103-354 County
Office for review. If the County Office is aware that any account should
be removed for any of the reasons set forth in Sec. 1951.122, the County
Office will remove the account in accordance with the instructions
accompanying the list, ``Borrowers Eligible for Offset (prior to 60-day
notice).'' Borrowers who are removed by the County Office will not
receive an offset letter, and no further action is necessary concerning
borrowers removed. The Finance Office will remove those accounts
identified as ineligible by County Offices and provide this information
to IRS in accordance with IRS deadlines and procedures.
[54 FR 967, Jan. 11, 1989, as amended at 55 FR 38036, Sept. 17, 1990]
Sec. 1951.124 Notice to borrowers.
The Finance Office will send FmHA or its successor agency under
Public Law 103-354 Form Letter 1951-6 to each
[[Page 42]]
borrower who still appears to be eligible for IRS offset after County
Office screening and a computer screening using the latest account
information that is available. This letter must be mailed to ensure that
borrowers receive their letters no later than October 15. Borrowers will
have 60 days from the date of receipt to provide evidence in writing to
the County Supervisor that their debt is less than 3 months delinquent
or that the debt is not legally enforceable. Borrowers who reduce their
debt to less than 3 months past due during this 60-day period will not
be offset.
[54 FR 967, Jan. 11, 1989, as amended at 55 FR 38036, Sept. 17, 1990]
Sec. 1951.125 Processing borrowers' requests not to exercise IRS offset.
If a borrower responds to FmHA or its successor agency under Public
Law 103-354 Form Letter 1951-C-6 within 60 days from the date of
receipt, the County Supervisor will review the borrower's reasons for
believing that the debt is either less than 3 months delinquent or is
not legally enforceable. After such determination, the County Supervisor
will send the borrower FmHA or its successor agency under Public Law
103-354 Form Letter 1951-C-9 advising the borrower if offset will be
exercised.
[55 FR 38036, Sept. 17, 1990, as amended at 55 FR 52037, Dec. 19, 1990]
Sec. 1951.126 Final referral to IRS.
All accounts not eliminated will be sent to IRS for offset and
Report Code 865, Borrower Accounts Submitted to IRS for Offset Report,
sent to each appropriate County Office. Each County Office will review
the list on Report Code 865 upon receipt, and each week thereafter. This
weekly review will continue until September 1 for the previous year's
submission, or until action has been taken on each account (offset or
removal). If any of the events listed under Sec. 1951.122 of this
subpart occurs, immediately submit Form FmHA or its successor agency
under Public Law 103-354 1951-43, ``Adjustment of Accounts Referred for
IRS Offset,'' in accordance with the FMI for that form. All accounts
referred to the IRS for offset will be reported to a credit bureau by
the Finance Office.
[55 FR 38036, Sept. 17, 1990, as amended at 55 FR 52037, Dec. 19, 1990]
Sec. 1951.127 Processing of amounts offset.
After IRS effects an offset, IRS will notify the Finance Office. The
Finance Office may deduct an amount equal to IRS' processing costs from
the amount offset to reimburse the Agency for the cost of processing the
offset, will credit the borrower's account for the amount required and
will notify the appropriate County Office. The County Supervisor will
review Report Code 222-C, Weekly Offset Report (Cash Collections IRS
Offset), to ensure that any borrower who would have been eliminated from
offset due to the provisions of Sec. 1951.122 of this subpart was not
subjected to an offset. If the offset was not correct, the County
Supervisor will immediately notify the Finance Office of any such
offsets using FmHA or its successor agency under Public Law 103-354 Form
Letter 1951-5. This Form Letter will be processed by the Finance Office
and a refund, including the processing fee, will be sent to the
borrower. If the offset is correct, Finance and County Office records
will be adjusted accordingly.
[54 FR 967, Jan. 11, 1989, as amended at 55 FR 38036, Sept. 17, 1990]
Sec. 1951.128 Receipt of Finance Office/IRS offset reports and listings.
The Finance Office will provide a copy of the reports or listings in
Sec. 1951.129 through Sec. 1951.135 of this subpart to each servicing
county. County Supervisors are responsible for ensuring the field
offices review each report and respond to the timeframes as indicated.
[55 FR 38036, Sept. 17, 1990]
Sec. 1951.129 Borrowers eligible for offset (prior to 60-day notice).
This listing includes borrowers eligible for offset after Finance
Office screening. The field office will screen all borrowers in
accordance with Sec. 1951.122 of this subpart. Borrowers meeting any of
the ineligibility criteria must be eliminated by drawing a
[[Page 43]]
line through the borrower's name. When all borrowers have been reviewed
for offset eligibility, the original list must be sent to the Chief,
Computer Resources Branch, mail code FC-353, in the Finance Office.
These lists must be received no later than 1 month after the date of
receipt, since the Finance Office will use the information provided to
generate letters to borrowers informing them of potential IRS offset. No
borrowers may be added to this list by the field office. A copy of this
list should be retained by each field office. If a borrower is
ineligible for IRS offset due to any of the exclusion criteria in
Sec. 1951.122 and that borrower's account does not reflect that
exclusion criteria in the accounting system, the field offices must
ensure that the account be updated immediately.
[55 FR 38036, Sept. 17, 1990]
Sec. 1951.130 Borrowers sent due process notices for IRS/Credit Bureau referrals.
This listing includes those borrowers remaining eligible for offset
after field office screening and who were sent notices of the intent to
offset their tax refund. The notice advises the borrower that they have
60 days from the date of receipt of the letter in which to provide
written information to their FmHA or its successor agency under Public
Law 103-354 County Supervisor to show that offset should not be
exercised. A borrower who has provided written notification and it has
been determined the he/she meets the criteria under Sec. 1951.122 of
this subpart must be eliminated by drawing a line through the borrower's
name on the listing. When all borrowers have been reviewed for offset
eligibility, the original must be sent to the Chief, Computer Resources
Branch, mail code FC-353, in the Finance Office. These lists must be
received no later than 2 months after the date of receipt, since the
Finance Office will use the information provided on these lists to
create the IRS annual certification tape. No borrowers may be added to
this list by the field office. A copy of this list should be retained by
each field office. If a borrower is ineligible for IRS offset due to any
of the exclusion criteria in Sec. 1951.122 and that borrower's account
does not reflect that exclusion criteria in the accounting system, the
field offices must ensure that the account be updated immediately.
[55 FR 38037, Sept. 17, 1990]
Sec. 1951.131 Form FmHA or its successor agency under Public Law 103-354 389-833, Borrower Accounts Submitted to IRS for Offset Report, RC 865.
This report lists borrowers remaining eligible for offset after the
60-day notice period and who were referred to IRS for offset. This
report should be retained by the field office and referred to when
decreasing an amount referred for offset or deleting a borrower from IRS
offset using Form FmHA or its successor agency under Public Law 103-354
1951-43.
[55 FR 38037, Sept. 17, 1990]
Sec. 1951.132 Form FmHA or its successor agency under Public Law 103-354 389-760, Annual Unprocessable Report IRS Offset, RC 822-C.
This report lists those borrowers who were referred to IRS for
offset, but were returned by IRS as evidenced by the applicable error
code. These borrowers will not be offset by IRS. This report should be
retained by each field office. It is not necessary to complete Form FmHA
or its successor agency under Public Law 103-354 1951-43 for borrowers
listed on this report.
[55 FR 38037, Sept. 17, 1990]
Sec. 1951.133 Form FmHA or its successor agency under Public Law 103-354 389-761, Annual No Match Report IRS Offset, RC 822-D.
This report lists those borrowers who were referred to IRS for
offset, but were returned by IRS as evidenced by the applicable error
code. These borrowers will not be offset by IRS. This report should be
retained by each field office. It is not necessary to complete Form FmHA
or its successor agency under Public Law 103-354 1951-43 for borrowers
listed on this report.
[55 FR 38037, Sept. 17, 1990]
[[Page 44]]
Sec. 1951.134 Form FmHA or its successor agency under Public Law 103-354 389-764, Weekly Offset Report (Cash Collections) IRS Offset, RC 222-C.
This report lists those borrowers whose income tax refund was offset
by IRS and the amount offset. Except for a minimal processing fee that
may be deducted, all monies collected from an offset will be applied
toward the borrower's delinquent loan(s). If an offset does not repay
all of the delinquent amount, the borrower is subject to additional
offsets if more than one tax year return is filed.
This report should be retained by each field office and referred to
if it has been determined a borrower has been erroneously offset. The
field office should use the amount offset from this report when
following the instructions outlined in Sec. 1951.127 for refunding the
offset to the borrower.
[55 FR 38037, Sept. 17, 1990]
Sec. 1951.135 Form FmHA or its successor agency under Public Law 103-354 389-763, Weekly Claims Report IRS Offset, RC 222-D.
This report lists those borrowers whose spouses were issued a refund
by IRS. These borrowers filed a joint tax return and incurred the debt
separately from their spouses who had no legal responsibility for the
debt and who had income and withholding and/or estimated tax payments.
The report shows the actual amount offset for the borrower only. The
spouses' portion of the income tax refund was not offset. It is not
necessary to prepare FmHA or its successor agency under Public Law 103-
354 Form Letter 1951-5 for these borrowers since the borrower's spouse
has already received a refund from IRS. Upon receipt of this report,
field offices should annotate on RC 222-C (Sec. 1951-134) the actual
amount offset for those borrowers listed in this report. This report
should be retained by each field office.
[55 FR 38037, Sept. 17, 1990]
Secs. 1951.136--1951.149 [Reserved]
Sec. 1951.150 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0119.
[51 FR 42821, Nov. 26, 1986]
Subpart D--Final Payment on Loans
Source: 57 FR 774, Jan. 9, 1992, unless otherwise noted.
Sec. 1951.151 Purpose.
This subpart prescribes authorizations, policies, and procedures of
the Farm Service Agency (FSA), Rural Housing Service (RHS), Rural
Utility Service (RUS) for its water and waste programs, and Rural
Business-Cooperative Service (RBS), herein referred to as ``Agency,''
for processing final payment on all loans. This subpart does not apply
to direct single family housing customers of the RHS.
[61 FR 59778, Nov. 22, 1996]
Sec. 1951.152 Definition.
As used in this subpart:
Mortgage. Includes real estate mortgage, deed of trust or any other
form of security instrument or lien on real property.
Sec. 1951.153 Chattel security or note-only cases.
(a) If a loan secured by both real estate and chattels is paid in
full, the chattel security instrument will be satisfied or released in
accordance with subpart A of part 1962 of this chapter.
(b) When a loan is evidenced by only a note and the note is paid in
full, FmHA or its successor agency under Public Law 103-354 will deliver
the note to the borrower in the manner prescribed in Sec. 1951.155(c) of
this subpart.
Sec. 1951.154 Satisfaction and release of documents.
(a) Authorization. FmHA or its successor agency under Public Law
103-354 is authorized to execute the necessary releases and
satisfactions and return security instruments and related documents to
borrowers. Satisfaction and release of security documents takes place:
(1) Upon receipt of payment in full of all amounts owed to the
Government including any amounts owed to the
[[Page 45]]
loan insurance account, subsidy recapture amounts, all loan advances
and/or other charges to the borrower's account;
(2) Upon verification that the amount of payment received is
sufficient to pay the full amount owed by the borrower; or
(3) When a compromise or adjustment offer has been accepted and
approved by the appropriate Government official in full settlement of
the account and all required funds have been paid.
(b) [Reserved]
(c) Lost note. If the original note is lost FmHA or its successor
agency under Public Law 103-354 will give the borrower an affidavit of
lost note so that the release or satisfaction may be processed.
Sec. 1951.155 County and/or District Office actions.
(a) Funds remaining in supervised bank accounts. When a borrower is
ready to pay an insured or direct loan in full, any funds remaining in a
supervised bank account will be withdrawn and remitted for application
to the borrower's account. If the entire principal of the loan is
refunded after the loan is closed, the borrower will be required to pay
interest from the date of the note to the date of receipt of the refund.
(b) Determining amount to be collected. FmHA or its successor agency
under Public Law 103-354 will compute and verify the amount to be
collected for payment of an account in full. Requests for payoff
balances on all accounts will be furnished in writing in a format
specified by FmHA or its successor agency under Public Law 103-354
(available in any FmHA or its successor agency under Public Law 103-354
office).
(c) Delivery of satisfaction, notes, and other documents. When the
remittance which paid an account in full has been processed by FmHA or
its successor agency under Public Law 103-354, the paid note and
satisfied mortgage may be returned to the borrower. If other provisions
exist, the mortgage will not be satisfied until the total indebtedness
secured by the mortgage is paid. For instance, in a situation where a
rural housing loan is paid-in-full and there is a subsidy recapture
receivable balance that the borrower elects to delay repaying, the
amount of recapture to be repaid will be determined when the principal
and interest balance is paid. The mortgage securing the RHS, RBS, RUS,
and/or FSA or its successor agency under Public Law 103-354 debt will
not be released of record until the total amount owed the Government is
repaid. To permit graduation or refinancing by the borrower, the
mortgage securing the recapture owed may be subordinated.
(1) If FmHA or its successor agency under Public Law 103-354
receives final payments in a form other than cash, U.S. Treasury check,
cashier's check, certified check, money order, bank draft, or check
issued by an institution determined by FmHA or its successor agency
under Public Law 103-354 to be financially responsible, the mortgage and
paid note will not be released until after a 30-day waiting period. If
other indebtedness to FmHA or its successor agency under Public Law 103-
354 is not secured by the mortgage, FmHA or its successor agency under
Public Law 103-354 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
[[Page 46]]
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]
Secs. 1951.156--1951.200 [Reserved]
Subpart E--Servicing of Community and Insured Business Programs Loans
and Grants
Source: 55 FR 4399, Feb. 8, 1990, unless otherwise noted.
Sec. 1951.201 Purpose.
This subpart prescribes the Rural Economic and Community Development
(RECD) mission area policies, authorizations, and procedures for
servicing Water and Waste Disposal System loans and grants; Community
Facility loans; Rural Business Enterprise/Television Demonstration
grants; loans for Grazing and other shift-in-land-use projects;
Association Recreation loans; Association Irrigation and Drainage loans;
Watershed loans and advances; Resource Conservation and Development
loans; Insured Business loans; Economic Opportunity Cooperative loans;
loans to Indian Tribes and Tribal Corporations; Rural Renewal loans;
Energy Impacted Area Development Assistance program grants; National
Nonprofit Corporation grants; Water and Waste Disposal Technical
Assistance and Training grants; Emergency Community Water Assistance
grants; System for Delivery of Certain Rural Development Programs panel
grants; section 306C WWD loans and grants in subpart E of part 4284 of
this title; and Rural Technology and Cooperative Development Grants in
subpart F of part 4284 of this title. RECD State Offices act on behalf
of the Rural Housing Service, the Rural Business-Cooperative Service and
the Rural Utilities Service as to loan and grant programs formerly
administered by the Farmers Home Administration, the Rural Development
Administration, and the Rural Electrification 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.
[61 FR 3781, Feb. 2, 1996]
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
[[Page 47]]
agency under Public Law 103-354 includes, but is not limited to, review
of budgets, management reports, audits and financial statements;
performing security inspections and providing, arranging for, or
recommending technical assistance; evaluating environmental impacts of
proposed actions by the borrower; and performing civil rights compliance
reviews.
Sec. 1951.203 Definitions.
(a) Approval official. An official who has been delegated loan and/
or grant approval authorities within applicable programs, subject to the
dollar limitations of exhibits A, B, and C of subpart A of part 1901 of
this chapter (available in any FmHA or its successor agency under Public
Law 103-354 office).
(b) Assumption of debt. The agreement by one party to legally bind
itself to pay the debt incurred by another.
(c) CONACT. The Consolidated Farm and Rural Development Act, as
amended.
(d) Eligible applicant. An entity that would be legally qualified
for financial assistance under the loan or grant program involved in the
servicing action.
(e) Ineligible applicant. An entity or individual that would not be
considered eligible for financial assistance under the loan or grant
program involved in the servicing action.
(f) Nonprogram (NP) loan. An NP loan exists when credit is extended
to an ineligible applicant and/or transferee in connection with loan
assumptions or sale of inventory property; any recipient in cases of
unauthorized assistance; or a recipient whose legal organization has
changed as set forth in Sec. 1951.220(e) of this subpart resulting in
the borrower being ineligible for program benefits.
(g) Servicing office. The State, District, or County Office
responsible for immediate servicing functions for the borrower or
grantee.
(h) Transfer fee. A one-time nonrefundable application fee, charged
to ineligible applicants for FmHA or its successor agency under Public
Law 103-354 services rendered in the processing of a transfer and
assumption.
Sec. 1951.204 Nondiscrimination.
Each instrument of conveyance required for a transfer, assumption,
or other servicing action under this subpart will contain the following
covenant.
The property described herein was obtained or improved with Federal
financial assistance and is subject to the nondiscrimination provisions
of title VI of the Civil Rights Act of 1964, title IX of the Education
Amendments of 1972, section 504 of the Rehabilitation Act of 1973, and
other similarly worded Federal statutes, and the regulations issued
pursuant thereto that prohibit discrimination on the basis of race,
color, national origin, handicap, religion, age, or sex in programs or
activities receiving Federal financial assistance. Such provisions apply
for as long as the property continues to be used for the same or similar
purposes for which the Federal assistance was extended, for so long as
the purchaser owns it, whichever is later.
Sec. 1951.205 Redelegation of authority.
Servicing functions under this subpart which are specifically
assigned to the State Director may be redelegated in writing to an
appropriate sufficiently trained designee.
Sec. 1951.206 Forms.
Forms utilized for actions under this subpart are to be modified
appropriately where necessary to adapt the forms for use by corporate
recipients rather than individuals.
Sec. 1951.207 State supplements.
State supplements developed to carry out the provisions of this
subpart will be prepared in accordance with subpart B of part 2006 of
this chapter (available in any FmHA or its successor agency under Public
Law 103-354 office) and applicable State laws and regulations. State
supplements are to be used only when required by National Instructions
or necessary to clarify the impact of State laws or regulations, and not
to restate the provisions of National Instructions. Advice and guidance
will be obtained as needed from the Office of the General Counsel (OGC).
[[Page 48]]
Secs. 1951.208--1951.209 [Reserved]
Sec. 1951.210 Environmental requirements.
Servicing activities such as transfers, assumptions, subordinations,
sale or exchange of security property, and leasing of security will be
reviewed for compliance with subpart G of part 1940 of this chapter. The
appropriate environmental review will be completed prior to approval of
the servicing action. When National Office approval is required, the
completed environmental review will be included with other information
submitted.
Sec. 1951.211 Refinancing requirements.
In accordance with the CONACT, FmHA or its successor agency under
Public Law 103-354 requires for most loans covered by this subpart that
if at any time it shall appear to the Government that the borrower is
able to refinance the amount of the indebtedness then outstanding, in
whole or in part, by obtaining a loan for such purposes from responsible
cooperative or private credit sources, at reasonable rates and terms for
loans for similar purposes and periods of time, the borrower will, upon
request of the Government, apply for and accept such loan in sufficient
amount to repay the Government and will take all such actions as may be
required in connection with such loan. Applicable requirements are set
forth in subpart F of part 1951 of this chapter.
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 Secs. 1951.216 and 1951.231.
Sec. 1951.214 Care, management, and disposal of acquired property.
Property acquired by FmHA or its successor agency under Public Law
103-354 will be handled according to subparts B and C of part 1955 of
this chapter.
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 Form FmHA or its successor agency under Public Law 103-354 442-
31 or 1942-31, ``Association Water or Sewer System Grant Agreement.''
Grant agreements with a revision date on or after January 29, 1979,
require that the grantee request disposition instructions from FmHA or
its successor agency under Public Law 103-354 before disposing of
property which is no longer needed for original grant purposes.
(2) When facilities financed in part by FmHA or its successor agency
under Public Law 103-354 grants are transferred or sold, repayment of
all or a portion of the grant is not required if the facility will be
used for the same purposes and the new owner provides a written
agreement to abide by the terms of the grant agreement.
(3) 7 CFR 3015 first became effective on November 10, 1981; 7 CFR
parts 3016 on October 1, 1988; and 7 CFR 3017 on
[[Page 49]]
March 18, 1989. Grants made on or after those dates are subject to the
provisions of those regulations except to the extent of the express
provisions of the Grant Agreement.
(b) Authorities. Subject to the requirements of Sec. 1951.215(a),
authority to approve servicing actions is as follows:
(1) For water and waste disposal grants, the State Director is
authorized to approve any servicing actions needed, except that prior
approval of the Administrator is required when property acquired with
grant funds is disposed of in accordance with Secs. 1951.226, 1951.230,
or 1951.232 of this subpart and the buyer or transferee refuses to
assume all terms of the grant agreement.
(2) All other grants will be serviced in accordance with the Grant
Agreement and this subpart. Prior approval of the Administrator is
required except for actions covered in the preceding paragraph.
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).
Secs. 1951.218--1951.219 [Reserved]
Sec. 1951.220 General servicing actions.
(a) Payment in full. Payment in full of a loan is handled according
to subpart D of part 1951 of this chapter. When a loan is paid in full,
the servicing official will:
(1) Notify the company providing fidelity bond coverage in writing
that the government no longer has an interest in the bond if the
government is named co-obligee on the bond.
(2) Release FmHA or its successor agency under Public Law 103-354's
interest in insurance policies according to applicable provisions of
subpart A of part 1806 (FmHA or its successor agency under Public Law
103-354 Instruction 426.1).
(3) Release FmHA or its successor agency under Public Law 103-354's
interest in any other security as appropriate, consulting with OGC if
necessary.
(b) Loan summary statements. Upon request of a borrower, FmHA or its
successor agency under Public Law 103-354 will issue a loan summary
statement showing account activity for each loan made or insured under
the CONACT. Field offices will post a notice on the bulletin board
informing borrowers of the availability of loan summary statements. See
exhibit A of subpart A of this part for a sample of the required notice.
(1) The loan summary statement period is from January 1 through
December 31. The Finance Office forwards to field offices a copy of Form
FmHA or its successor agency under Public Law 103-354 1951-9, ``Annual
Statement of Loan Account,'' to be retained in borrower files as a
permanent record of account activity for the year.
(2) Quarterly Forms FmHA or its successor agency under Public Law
103-354 1951-9 are retained in the Finance Office on microfiche. These
statements reflect cumulative data from the beginning of the current
year through the end of the most recent quarter. Servicing offices may
request copies of these
[[Page 50]]
quarterly or annual statements by sending Form FmHA or its successor
agency under Public Law 103-354 1951-57, ``Request for Loan Summary
Statement,'' to the Finance Office.
(3) The servicing office will provide a copy of the applicable loan
summary statement to the borrower on request. A copy of Form FmHA or its
successor agency under Public Law 103-354 1951-9 and, for loans with
unamortized installments, a printout of future installments owed
obtained using the borrower status screen option in the Automated
Discrepancy Processing System (ADPS), will constitute the loan summary
statement to be provided to the borrower.
(c) Insurance. FmHA or its successor agency under Public Law 103-354
borrowers shall maintain insurance coverage as follows:
(1) Community and Insured Business Programs borrowers shall
continuously maintain adequate insurance coverage as required by the
loan agreement and Sec. 1942.17(j)(3) of subpart A of part 1942 of this
chapter. Insurance coverage must be monitored in accordance with the
above-referenced section to determine that adequate policies and bonds
are in force.
(2) For all other types of loans covered by this subpart, property
insurance will be serviced according to subpart A of part 1806 of this
chapter (FmHA or its successor agency under Public Law 103-354
Instruction 426.1) in real estate mortgage cases, and according to the
loan agreement in other cases.
(d) Property taxes. Real property taxes are serviced according to
Subpart A of part 1925 of this chapter. If State statutes permit a
personal property tax lien to have priority over FmHA or its successor
agency under Public Law 103-354's lien, such taxes are serviced
according to Secs. 1925.3 and 1925.4 of subpart A of part 1925 of this
chapter.
(e) Changes in borrower's legal organization. (1) The State Director
may approve, with OGC's concurrence, changes in a recipient's legal
organization, including revisions of articles of incorporation or
charter and bylaws, when:
(i) The change does not provide for a sole member type of
organization;
(ii) The borrower retains control over its assets and the operation,
management, and maintenance of the facility, and continues to carry out
its responsibilities as set forth in Sec. 1942.17(b)(4) of subpart A of
part 1942 of this chapter; and
(iii) The borrower retains significant local ties with the rural
community.
(2) The State Director may approve, with prior concurrence of the
Administrator, changes in a recipient's legal organization which result
in a sole member type of organization, or any other change which results
in a recipient's loss of control over its assets and/or the operation,
management and maintenance of the facility, provided all of the
following have been or will be met:
(i) The change is in the best interest of the Government;
(ii) The State Director determines and documents that other
servicing options under this subpart, such as sale or transfer and
assumption, have been explored and are not feasible;
(iii) The loan is classified as a nonprogram loan;
(iv) The borrower is notified that it is no longer eligible for any
program benefits, but will remain responsible under the loan agreement;
and
(v) Prior concurrence of the Administrator is obtained. Requests
will be forwarded to the Administrator: Attention (appropriate program
division), and will include the case file; Exhibit A of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office), appropriately completed; the proposed changes; OGC comments;
and any other necessary supporting information.
(f) Membership liability. As a loan approval requirement, some
borrowers may have special agreements with members of the purchase of
shares of stock or for payment of a pro rata share of the loan in the
event of default, or they may have authority in their corporate
instruments to make special assessments in that event. Such agreements
may be referred to as individual liability agreements and may be
assigned to and held by FmHA or its successor agency under Public Law
103-354 as additional security. In other
[[Page 51]]
cases the borrower's note may be endorsed by individuals. The liability
instruments will be serviced in a manner indicated by their contents and
the advice of OGC to adequately protect FmHA or its successor agency
under Public Law 103-354's interest. Servicing actions necessary due to
such provisions will be noted on Form FmHA or its successor agency under
Public Law 103-354 1905-10, ``Management System Card--Association.''
(g) Other security. Other security such as collateral assignments,
water stock certificates, notices of lienholder interest (Bureau of Land
Management grazing permits) and waivers of grazing privileges (Forest
Service grazing permits) will be serviced to protect the interest of
FmHA or its successor agency under Public Law 103-354, and in compliance
with any special servicing actions developed by the State Director with
OGC assistance. Evidence of the security will be filed in the servicing
office case file. Necessary servicing actions will be noted on Form FmHA
or its successor agency under Public Law 103-354 1905-10.
(h) Correcting errors in security instruments. Land, buildings, or
chattels included in a mortgage through mutual mistake may be released
from the mortgage by the State Director when substantiated by the
factual situation. The release is contingent on the State Director
determining, with OGC advice, that the property was included due to
mutual error.
(i) Present market value determination. For purposes of this
subpart, the value of security is determined by the approval official as
follows:
(1) Security representing a relatively small portion of the total
value of the security property. The approval official will determine
that the real estate and chattels are disposed of at a reasonable price.
A current appraisal report may be required.
(2) Security representing a relatively large portion of the total
value of the security property. The approval official will require a
current appraisal report, and the sale prices of the real estate and
chattels disposed of will at least equal the present market value as
determined by this appraisal.
(3) Appraisal report. If required, a current appraisal report will
be completed in accordance with Sec. 1942.3 of subpart A of part 1942 of
this chapter. The appraisal will be completed by a qualified FmHA or its
successor agency under Public Law 103-354 employee or an independent
appraiser as determined appropriate by the approval official.
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 775, Jan. 9, 1992; 57 FR
21199, May 19, 1992; 57 FR 36591, Aug. 14, 1992]
Sec. 1951.221 Collections, payments and refunds.
Collections are processed in accordance with subpart B of part 1951
of this chapter. Payments and refunds are handled in accordance with the
following:
(a) Community and Insured Business Programs. (1) Field offices can
obtain data on principal installments due for Community and Insured
Business Programs loans with unamortized installments using the borrower
status screen option in the ADPS.
(2) Regular payments for Community and Insured Business Programs
borrowers are all payments other than extra payments and refunds. Such
payments are usually derived from facility revenues, and do not include
proceeds from the sale of security. They also include payments derived
from sources which do not decrease the value of FmHA or its successor
agency under Public Law 103-354's security.
(i) Distribution of such payments is made as follows:
(A) First, to the FmHA or its successor agency under Public Law 103-
354 loan(s) in proportion to the delinquency existing on each. Any
excess will be distributed in accordance with paragraphs (a)(2)(i) (B)
and (C) of this section.
(B) Second, to the FmHA or its successor agency under Public Law
103-354 loan or loans in proportion to the approximate amounts due on
each. Any excess will be distributed according to paragraph (a)(2)(i)(C)
of this section.
(C) Third, as advance payments on FmHA or its successor agency under
Public Law 103-354 loans. In making such distributions, consider the
principal balance outstanding on each loan,
[[Page 52]]
the security position of the liens securing each loan, the borrower's
request, and related circumstances.
(ii) Unless otherwise established by the debt instrument, regular
payments will be applied as follows:
(A) For amortized loans, first to interest accrued (as of the date
of receipt of the payment), and then to principal.
(B) For principal-plus-interest loans, first to the interest due
through the date of the next scheduled installment of principal and
interest and then to principal due, with any balance applied to the next
scheduled principal installment.
(3) Extra payments are derived from sale of basic chattel or real
estate security; refund of unused loan funds; cash proceeds of property
insurance as provided in Sec. 1806.5(b) of subpart A of part 1806
(paragraph V B of FmHA or its successor agency under Public Law 103-354
Instruction 426.1); and similar actions which reduce the value of basic
security. At the option of the borrower, regular facility revenue may
also be used as extra payments when regular payments are current. Unless
otherwise established in the note or bond, extra payments will be
distributed and applied as follows:
(i) First to the account secured by the lowest priority of lien on
the property from which the extra payment was obtained. Any balance will
be applied to other FmHA or its successor agency under Public Law 103-
354 loans in ascending order of priority.
(ii) For amortized loans, first to interest accrued to the date
payment is received, and then to principal. For debt instruments with
installments of principal plus interest, such payments will be applied
to the final unpaid principal installment.
(b) Grazing Association Loans, Irrigation, Drainage and other Soil
and Water Conservation Loans, and Indian Tribes and Tribal Corporation
Loans. (1) Regular payments for such loans are defined in Sec. 1951.8(a)
of subpart A of part 1951 of this chapter, and are distributed according
to Sec. 1951.9(a) of that subpart unless otherwise established by the
note or bond.
(2) Extra payments are defined in Sec. 1951.8(b) of subpart A of
part 1951 of this chapter, and are distributed according to
Sec. 1951.9(b) of that subpart.
Sec. 1951.222 Subordination of security.
When a borrower requests FmHA or its successor agency under Public
Law 103-354 to subordinate a security instrument so that another
creditor or lender can refinance, extend, reamortize, or increase the
amount of a prior lien; be on parity with; or place a lien ahead of the
FmHA or its successor agency under Public Law 103-354 lien, it will
submit a written request to the servicing office as provided below. For
purposes of this subpart, subordination is defined to include cases
where a parity security position is being considered.
(a) General. The following requirements must normally be met:
(1) The request must be for subordination of a specific amount of
the FmHA or its successor agency under Public Law 103-354 indebtedness,
and the amount must be within the approval official's authority as set
forth in exhibits A, B, and C of subpart A of part 1901 of this chapter
(available in any FmHA or its successor agency under Public Law 103-354
office).
(2) It must be determined that the borrower cannot refinance its
FmHA or its successor agency under Public Law 103-354 debt in accordance
with subpart F of part 1951 of this chapter.
(3) The transaction will further the purposes for which the FmHA or
its successor agency under Public Law 103-354 loan was made, not
adversely affect the borrower's debt-paying ability, and result in the
FmHA or its successor agency under Public Law 103-354 debt being
adequately secured.
(4) The terms and conditions of the prior lien will be such that the
borrower can reasonably be expected to meet them as well as the
requirements of all other debts.
(5) Any proposed development work will be planned and performed
according to Sec. 1942.18 of subpart A of part 1942 of this chapter or
in a manner directed by the creditor which reasonably attains the
objectives of that section.
(6) All contracts, pay estimates, and change orders will be reviewed
and concurred in by the State Director.
[[Page 53]]
(7) In cases involving land purchase, the FmHA or its successor
agency under Public Law 103-354 will obtain a mortgage on the purchased
land.
(8) When the transaction involves more than $10,000 or the approval
official considers it necessary, a present market value appraisal report
will be obtained. However, a new report need not be obtained if there is
an appraisal report not over one year old which permits a proper
determination of the present market value of the total property after
the transaction.
(9) The proposed action must not change the nature of the borrower's
activities so as to make it ineligible for FmHA or its successor agency
under Public Law 103-354 loan assistance.
(10) Necessary consent and subordination of all other outstanding
security interests must be obtained.
(11) For Indian Tribes and Tribal Corporations, loan funds will not
be used for any purpose that will contribute to excessive erosion of
highly erodible land or to the conversion of wetlands to produce an
agricultural commodity as further explained in exhibit M of subpart G of
part 1940 of this chapter. This requirement will be monitored throughout
the term of the loan.
(b) Authorities. Proposals not meeting one or more of the above
requirements will be submitted to the Administrator, Attention
(appropriate program division) for prior concurrence. All other
proposals may be approved by the official with loan approval authority
under subpart A of part 1901 of this chapter.
(c) Processing. The case file is to include:
(1) The borrower's written request on Form FmHA or its successor
agency under Public Law 103-354 465-1, ``Application for Partial
Release, Subordination, or Consent,'' if appropriate, or in other
acceptable format. The request must contain the purpose of the
subordination; exact amount of money or property involved; description
of security property involved; type of security instrument; name,
address, line of business and other general information pertaining to
the party in favor of which the request is made; and other pertinent
information to evaluate the need for the request;
(2) Current balance sheet;
(3) If development work is involved, an operating budget on Form
FmHA or its successor agency under Public Law 103-354 442-7, ``Operating
Budget,'' or similar form which projects income and expenses through the
first full year of operation following completion of planned
improvements; or if no development work is involved, an income statement
and budget on Form FmHA or its successor agency under Public Law 103-354
442-2, ``Statement of Budget, Income, and Equity,'' schedules 1 and 2,
or similar form;
(4) Copy of proposed security instrument;
(5) Appraisal report, when applicable;
(6) OGC opinion on the request;
(7) Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), appropriately
completed;
(8) Appropriate environmental review; and
(9) Any other necessary supporting information.
(d) Closing. All requests for subordination will be closed according
to instructions from OGC except those which affect only chattel liens
other than pledges of revenue. FmHA or its successor agency under Public
Law 103-354's consent on Form FmHA or its successor agency under Public
Law 103-354 465-1 will be signed concurrently with Form FmHA or its
successor agency under Public Law 103-354 460-2, ``Subordination by the
Government,'' when applicable.
Sec. 1951.223 Reamortization.
(a) State Director authorization. The State Director is authorized
to approve reamortization of loans under the following conditions:
(1) The account is delinquent and cannot be brought current within
one year while maintaining a reasonable reserve;
(2) The borrower has demonstrated for at least one year by actual
performance or has presented a budget which clearly indicates that it is
able to meet the proposed payment schedule;
(3) The amount being reamortized is within the State Director's loan
approval authorization; and
[[Page 54]]
(4) There is no extension of the final maturity date.
(b) Requests requiring National Office approval. Reamortizations not
meeting the above conditions require prior National Office approval.
Requests will be forwarded to the National Office with the case file,
including:
(1) Current budget and cash flow prepared on Form FmHA or its
successor agency under Public Law 103-354 442-2, schedules 1 and 2, or
similar form;
(2) Current balance sheet and income statement;
(3) Exhibit A of this subpart, appropriately completed;
(4) Form FmHA or its successor agency under Public Law 103-354 1951-
33, ``Reamortization Request,'' completed in accordance with
Sec. 1951.223(c)(3) of this subpart, when applicable; and
(5) Any other necessary supporting information.
(c) Processing. When legally permissible and administratively
acceptable, the total outstanding principal and interest balances will
be reamortized rather than only the delinquent amount. Accrued interest
will be at the rate currently reflected in Finance Office records.
(1) Reamortizations will be perfected in accordance with OGC closing
instructions.
(2) When debt instruments are being modified or new debt instruments
executed, bond counsel or local counsel, as appropriate, must provide an
opinion indicating any effect on FmHA or its successor agency under
Public Law 103-354's security position. The FmHA or its successor agency
under Public Law 103-354 approval official must determine that the
government's interest will remain adequately protected if the security
position will be affected.
(3) Notes. Except as provided in Sec. 1951.223(c)(4), loans
evidenced by notes will be reamortized through a new evidence of debt
unless OGC recommends that the terms of the existing document be
modified. Form FmHA or its successor agency under Public Law 103-354
1951-33 may be used to effect such modifications, if legally adequate,
or other forms may be used if acceptable to FmHA or its successor agency
under Public Law 103-354. The original of a new note or any endorsement
required by OGC is to be attached to the existing note, filed in the
servicing office, and retained until the account is paid in full or
otherwise satisfied. A copy will be forwarded to the Finance Office.
(4) Bonds and notes with other than real or chattel security pledged
to FmHA or its successor agency under Public Law 103-354. Loans
evidenced by bonds, or by notes with other than real or chattel security
pledged to FmHA or its successor agency under Public Law 103-354, may be
reamortized using procedures acceptable to the State Director and
legally permissible under State statutes in the opinion of the
borrower's counsel and the OGC.
(i) The procedure may consist of a new debt instrument or agreement
for the total FmHA or its successor agency under Public Law 103-354
indebtedness, including the delinquency, or a new instrument or
agreement whereby the borrower agrees to repay the delinquency plus
interest. If a new instrument or agreement for only the delinquent
amount is used, a new loan number will be assigned to the delinquent
amount, and the borrower will be required to pay the amounts due under
both the original and the new instruments.
(ii) When a delinquent or problem loan cannot be reamortized by
issuing a new debt instrument due to State statutes, or the cost of
preparation and closing is prohibitive, the rescheduling agreement
provided as Exhibit H of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), may be used.
(iii) Section 1942.19 of subpart A of part 1942 of this chapter
applies to any new bonds issued unless precluded by State statutes or an
exception is approved by the National Office.
(iv) If State statutes do not require the release of existing bonds,
they will be retained with the new bond instrument or agreement in the
FmHA or its successor agency under Public Law 103-354 office authorized
to store such documents. If State statutes require release of existing
bonds, the exchange will be accomplished by the District Director, and
the new bond and/or agreement will be retained in the appropriate
office.
[[Page 55]]
(5) New debt instruments or agreements. (i) A copy will be sent to
the Finance Office after execution, except that if serial bonds are
used, the original bond(s) will be submitted to the Finance Office.
(ii) Any agreement used will contain:
(A) The amount delinquent, which must equal the total delinquency on
the account and net advances (the unpaid principal on any advance and
the accrued interest on any advance through the date of reamortization,
less interest payments credited on the advance account);
(B) The effective date of the reamortization;
(C) The number of years over which the delinquency will be
amortized;
(D) The repayment schedule; and
(E) The interest rate.
(iii) A payment will be due on the next scheduled due date.
Deferment of interest and/or principal payments is not authorized.
(iv) A separate new instrument will be required for each loan being
reamortized.
(v) If amortized payments are not used, the schedule of principal
installments developed will be such that combined payments of principal
and interest closely approximate an amortized payment.
[55 FR 4399, Feb. 8, 1990, as amended at 56 FR 25351, June 4, 1991]
Sec. 1951.224 Third party agreements.
The State Director may authorize all or part of a facility to be
operated, maintained or managed by a third party under a contract,
management agreement, written lease, or other third party agreement as
follows:
(a) Leases--(1) Lease of all or part of a facility (except when
liquidation action is pending). The State Director may consent to the
leasing of all or a portion of security property when:
(i) Leasing is the only feasible way to provide the service and is
the customary practice as required under Sec. 1942.17(b)(4) of subpart A
of part 1942 of this chapter;
(ii) The borrower retains ultimate responsibility for operating,
maintaining, and managing the facility and for its continued
availability and use at reasonable rates and terms as required under
Sec. 1942.17(b)(4) of subpart A of part 1942 of this chapter. The lease
agreement must clearly reflect sufficient control by the borrower over
the operation, maintenance, and management of the facility to assure
that the borrower maintains this responsibility;
(iii) The lease agreement contains provisions prohibiting any
amendments to the lease or any subleasing arrangements without prior
written approval from FmHA or its successor agency under Public Law 103-
354;
(iv) The lease document contains nondiscrimination requirements as
set forth in Sec. 1951.204 of this subpart;
(v) The lease contains a provision which recognizes that FmHA or its
successor agency under Public Law 103-354 is a lienholder on the subject
facility and, as such, the lease is subordinate to the rights and claims
of FmHA or its successor agency under Public Law 103-354 as lienholder;
and
(vi) The lease does not constitute a lease/purchase arrangement,
unless permitted under Sec. 1951.232 of this subpart.
(2) Lease of all or part of a facility (pending liquidation action).
The State Director may consent to the leasing of all or a portion of
security property when:
(i) The lease will not adversely affect the repayment of the loan or
the Government's rights under the security or other instruments;
(ii) The State Director has determined that liquidation will likely
be necessary and the lease is necessary until liquidation can be
accomplished;
(iii) Leasing is not an alternative to, or means of delaying,
liquidation action;
(iv) The lease and use of any proceeds from the lease will further
the objective of the loan;
(v) Rental income is assigned to FmHA or its successor agency under
Public Law 103-354 in an amount sufficient to make regular payments on
the loan and operate and maintain the facility unless such payments are
otherwise adequately secured;
(vi) The lease is advantageous to the borrower and is not
disadvantageous to the Government;
[[Page 56]]
(vii) If foreclosure action has been approved and the case has been
submitted to OGC, consent to lease and use of proceeds will be granted
only with OGC's concurrence; and
(viii) The lease does not exceed a one-year period. The property may
not be under lease more than two consecutive years without authorization
from the National Office. Long-term leases may be approved, with prior
authorization from the National Office, if necessary to ensure the
continuation of services for which the loan was made and if other
servicing options contained in this subpart have been determined
inappropriate for servicing the loan.
(b) Mineral leases. Unless liquidation is pending, the State
Director is authorized to approve mineral leases when:
(1) The lessee agrees, or is liable without any agreement, to pay
adequate compensation for any damage to the real estate surface and
improvements. Damage compensation will be assigned to FmHA or its
successor agency under Public Law 103-354 or the prior lienholder by the
use of Form FmHA or its successor agency under Public Law 103-354 443-
16, ``Assignment of Income from Real Estate Security,'' or other
appropriate instrument;
(2) Royalty payments are adequate and are assigned to FmHA or its
successor agency under Public Law 103-354 on Form FmHA or its successor
agency under Public Law 103-354 443-16 in an amount determined by the
State Director to be adequate to protect the Government's interest;
(3) All or a portion of delay rentals and bonus payments may be
assigned on Form FmHA or its successor agency under Public Law 103-354
443-16 if needed for protection of the Government's interest;
(4) The lease, subordination, or consent form is acceptable to OGC;
(5) The lease will not interfere with the purpose for which the loan
or grant was made; and
(6) When FmHA or its successor agency under Public Law 103-354
consent is required, the borrower submits a completed Form FmHA or its
successor agency under Public Law 103-354 465-1. The form will include
the terms of the proposed agreement and specify the use of all proceeds,
including any to be released to the borrower.
(c) Management agreements. Management agreements should contain the
minimum suggested contents contained in Guide 24 of part 1942, subpart A
of this chapter (available in any FmHA or its successor agency under
Public Law 103-354 office).
(d) Affiliation agreements. An affiliation agreement between the
borrower and a third party may be approved by the State Director, with
OGC concurrence, if it provides for shared services between the parties
and does not result 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
[[Page 57]]
successor agency under Public Law 103-354 office), and submit it with
the District Office file to the State Office. If the State Director
determines the account should be liquidated, he or she will encourage
the borrower to dispose of the FmHA or its successor agency under Public
Law 103-354 security voluntarily through a sale or transfer and
assumption, and establish a specified period, not to exceed 180 days, to
accomplish the action. If a transfer or voluntary sale is not carried
out, the loan will be liquidated according to subpart A of part 1955 of
this chapter.
Sec. 1951.226 Sale or exchange of security property.
A cash sale of all or a portion of a borrower's assets or an
exchange of security property may be approved subject to the conditions
set forth below.
(a) Authorities. (1) The District Director is authorized to approve
actions under this section involving only chattels.
(2) The State Director is authorized to approve real estate
transactions except as noted in the following paragraph.
(3) Approval of the Administrator must be obtained when a
substantial loss to the Government will result from a sale; one or more
members of the borrower's organization proposes to purchase the
property; it is proposed to sell the property for less than the
appraised value; or the buyer refuses to assume all the terms of the
Grant Agreement. It is not FmHA or its successor agency under Public Law
103-354 policy to sell security property to one or more members of the
borrower's organization at a price which will result in a loss to the
Government.
(b) General. Approval may be given when the approval official
determines and documents that:
(1) The consideration is adequate;
(2) The release will not prevent carrying out the purpose of the
loan;
(3) The remaining property is adequate security for the loan or the
transaction will not adversely affect FmHA or its successor agency under
Public Law 103-354's security position;
(4) If the property to be sold or exchanged is to be used for the
same or similar purposes for which the loan or grant was made, the
purchaser will:
(i) Execute Form FmHA or its successor agency under Public Law 103-
354 400-4, ``Assurance Agreement.'' The covenants involved will remain
in effect as long as the property continues to be used for the same or
similar purposes for which the loan or grant was made. The instrument of
conveyance will contain the covenant referenced in Sec. 1951.204 of this
subpart; and
(ii) Provide to FmHA or its successor agency under Public Law 103-
354 a written agreement assuming all rights and obligations of the
original grantee if grant funds were provided. See Sec. 1951.215 below
for additional guidance on grant agreements.
(5) The proceeds remaining after paying any reasonable and necessary
selling expenses are used for one or more of the following purposes:
(i) To pay on FmHA or its successor agency under Public Law 103-354
debts according to Sec. 1951.221 of this subpart; on debts secured by a
prior lien; and on debts secured by a subsequent lien if it is to FmHA
or its successor agency under Public Law 103-354's advantage.
(ii) To purchase or acquire through exchange property more suited to
the borrower's needs, if the FmHA or its successor agency under Public
Law 103-354 debt will be as well secured after the transaction as
before.
(iii) To develop or enlarge the facility if necessary to improve the
borrower's debt-paying ability; place the operation on a sounder basis;
or otherwise further the loan objectives and purposes.
(6) Disposition of property acquired in whole or part with FmHA or
its successor agency under Public Law 103-354 grant funds will be
handled in accordance with the grant agreement.
(c) Processing. (1) The case file will contain the following:
(i) Except for actions approved by the District Director, Exhibit A
of this subpart (available in any FmHA or its successor agency under
Public Law 103-354 office), appropriately completed;
(ii) The appraisal report, if appropriate;
(iii) Name of purchaser, anticipated sales price, and proposed terms
and conditions;
[[Page 58]]
(iv) Form FmHA or its successor agency under Public Law 103-354
1965-8, ``Release from Personal Liability,'' including the County
Committee memorandum and the State Director's recommendations;
(v) An executed Form FmHA or its successor agency under Public Law
103-354 400-4, if applicable;
(vi) An executed Form FmHA or its successor agency under Public Law
103-354 465-1, if applicable;
(vii) Form FmHA or its successor agency under Public Law 103-354
460-4, ``Satisfaction,'' if a debt has been paid in full or satisfied by
debt settlement action. For cases involving real estate, a similar form
may be used if approved by OGC; and
(viii) Written approval of the Administrator when required under
Sec. 1951.226(a)(3) of this subpart;
(2) Releasing security. (i) The District Director is authorized to
satisfy or terminate chattel security instruments when Sec. 1951.226(b)
of this subpart and Sec. 1962.17 and Sec. 1962.27 of subpart A of part
1962 of this chapter have been complied with. Partial release may be
made by using Form FmHA or its successor agency under Public Law 103-354
460-1, ``Partial Release,'' or Form FmHA or its successor agency under
Public Law 103-354 462-12, ``Statements of Continuation, Partial
Release, Assignment, Etc.''
(ii) Subject to Sec. 1951.226(b) of this subpart, the State Director
is authorized to release part or all of an interest in real estate
security by approving Form FmHA or its successor agency under Public Law
103-354 465-1. Partial release of real estate security may be made by
use of Form FmHA or its successor agency under Public Law 103-354 460-1
or other form approved by OGC.
(3) FmHA or its successor agency under Public Law 103-354 liens will
not be released until the sale proceeds are received for application on
the Government's claim. In states where it is necessary to obtain the
insured note from the lender to present to the recorder before releasing
a portion of the land from the mortgage, the borrower must pay any cost
for postage and insurance of the note while in transit. The District
Director will advise the borrower when it requests a partial release
that it must pay these costs. If the borrower is unable to pay the costs
from its own funds, the amounts shown on the statement of actual costs
furnished by the insured lender may be deducted from the sale proceeds.
(d) Release from liability. (1) When an FmHA or its successor agency
under Public Law 103-354 debt is paid in full from the proceeds of a
sale, the borrower will be released from liability by use of Form FmHA
or its successor agency under Public Law 103-354 1965-8.
(2) When sale proceeds are not sufficient to pay the FmHA or its
successor agency under Public Law 103-354 debt in full, any balance
remaining will be handled in accordance with procedures for debt
settlement actions set forth in subpart C of part 1956 of this chapter.
(i) In determining whether a borrower should be released from
liability, the State Director will consider the borrower's debt-paying
ability based on its assets and income at the time of the sale.
(ii) Release from liability will be accomplished by using Form FmHA
or its successor agency under Public Law 103-354 1965-8 and obtaining
from the County Committee a memorandum recommending the release which
contains the following statement:
________________ in our opinion does not have reasonable debt-paying
ability to pay the balance of the debt after considering its assets and
income at the time of the sale. The borrower has cooperated in good
faith, used due diligence to maintain the security against loss, and
otherwise fulfilled the covenants incident to the loan to the best of
its ability. Therefore, we recommend that the borrower be released from
liabilty upon the completion of the sale.
Sec. 1951.227 Protective advances.
The State Director is authorized to approve, without regard to any
loan or total indebtedness limitation, vouchers to pay costs, including
insurance and real estate taxes, to preserve and protect the security,
the lien, or the priority of the lien securing the debt owed to or
insured by FmHA or its successor agency under Public Law 103-354 if the
debt instrument provides that FmHA or its successor agency under Public
Law 103-354 may voucher the account to protect its lien or security. The
State Director must determine that
[[Page 59]]
authorizing a protective advance is in the best interest of the
government. For insurance, factors such as the amount of advance,
occupancy of the structure, vulnerability to damage and present value of
the structure and contents will be considered.
(a) Protective advances are considered due and payable when
advanced. Advances bear interest at the rate specified in the most
recent debt instrument authorizing such an advance.
(b) Protective advances are not to be used as a substitute for a
loan.
(c) Vouchers are prepared in accordance with applicable procedures
set forth in FmHA or its successor agency under Public Law 103-354
Instruction 2024-A (available in any FmHA or its successor agency under
Public Law 103-354 office).
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36591, Aug. 14, 1992]
Secs. 1951.228--1951.229 [Reserved]
Sec. 1951.230 Transfer of security and assumption of loans.
(a) General. It is FmHA or its successor agency under Public Law
103-354 policy to approve transfers and assumptions to transferees which
will continue the original purpose of the loan in accordance with the
following and specific requirements relating to eligible and ineligible
borrowers set forth below:
(1) The present borrower is unable or unwilling to accomplish the
objectives of the loan.
(2) The transfer will not be disadvantageous to the Government or
adversely affect either FmHA or its successor agency under Public Law
103-354's security position or the FmHA or its successor agency under
Public Law 103-354 program in the area.
(3) Transfers to eligible applicants will receive preference over
transfers to ineligible applicants if recovery to FmHA or its successor
agency under Public Law 103-354 is not less than it would be if the
transfer were to an ineligible applicant.
(4) If the FmHA or its successor agency under Public Law 103-354
debt(s) exceed the present market value of the security as determined by
the State Director, the transferee will assume an amount at least equal
to the present value.
(5) If the transfer and assumption is to one or more members of the
borrower's organization, there must not be a loss to the government.
(6) FmHA or its successor agency under Public Law 103-354 concurs in
plans for disposition of funds in the transferor's debt service,
reserve, operation and maintenance, and any other project account,
including supervised bank accounts.
(7) When the property to be transferred is to be used for the same
or similar purposes for which the loan was made, the transferee will
execute Form 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.
[[Page 60]]
Mergers occur when two or more corporations combine in such a manner
that only one remains in existence. In a consolidation, two or more
corporations combine to form a new, consolidated corporation, with all
of the original corporations ceasing to exist. In both mergers and
consolidations, the surviving or emerging corporation takes the assets
and assumes the liabilities of the corporation(s) which ceased to exist.
Such transactions must be distinguished from transfers and assumptions,
in which a transferor will not necessarily go out of existence and the
transferee will not always take all assets or assume all liabilities of
the transferor.
(11) A current appraisal report to establish the present market
value of the security will be completed in accordance with
Sec. 1951.220(i) of this subpart when the full debt is not being
assumed.
(12) There must be no lien, judgment, or similar claims of other
parties against the FmHA or its successor agency under Public Law 103-
354 security being transferred unless the transferee is willing to
accept such claims and the FmHA or its successor agency under Public Law
103-354 approval official determines that they will not prevent the
transferee from repaying the FmHA or its successor agency under Public
Law 103-354 debt, meeting all operating and maintenance costs, and
maintaining required reserves. The written consent of any other
lienholder will be obtained where required.
(b) Authorities. The State Director is authorized to approve
transfers and assumptions of FmHA or its successor agency under Public
Law 103-354 loans in accordance with the provisions of paragraphs (c)
and (d) of this section, except for the following, which require prior
approval of the Administrator:
(1) Proposals which will involve a loss to the Government;
(2) Proposals involving a transfer to one or more members of the
present borrower's organization;
(3) Proposals involving rates and terms which are more liberal than
those set forth in Sec. 1951.230(c) of this subpart;
(4) Proposals involving a cash payment to the present borrower which
exceeds the actual sales expenses;
(5) The transferee refuses to assume all terms of the Grant
Agreement for a project financed in part with FmHA or its successor
agency under Public Law 103-354 grant funds;
(6) Proposed transfers to ineligible applicants when there is no
significant downpayment and/or the repayment period is to exceed 25
years; and
(7) For Indian Tribes and Tribal Corporations, the requirements
found in exhibit M of subpart G of part 1940 of this chapter are not
met.
(c) Eligible applicants. Except as noted in Sec. 1951.230(b) of this
subpart, the State Director is authorized to approve transfers of
security property to and 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
[[Page 61]]
provided, a new debt instrument will be issued, and the loans have the
same interest rate and are for the same purpose. If applicable,
Sec. 1942.19(h)(11) will govern the preparation of any new debt
instruments required.
(4) A loan may be made in connection with a transfer if the
transferee meets all eligibility and other requirements for the kind of
loan being made. Such a loan will be considered as a separate loan, and
must be evidenced by a separate debt instrument. However, it is
permissible to have one authorizing loan resolution or ordinance if
permitted by State statutes.
(5) Any development funds remaining in a supervised bank account
which are not to be refunded to FmHA or its successor agency under
Public Law 103-354 will be transferred to a supervised bank account for
the transferee simultaneously with the closing of the transfer for use
in completing planned development.
(d) Ineligible applicants. Except as noted in Sec. 1951.230(b) of
this subpart, the State Director is authorized to approve transfer and
assumptions to transferees who would not be eligible for financial
assistance under the loan program involved for the type of loan being
transferred. However, the State Director is authorized to approve all
transfers of incorporated Economic Opportunity Cooperative loans to
ineligible applicants without regard to the requirements set forth in
Sec. 1951.230(b). Such transfers are considered only when an eligible
transferee is not available or when the recovery to FmHA or its
successor agency under Public Law 103-354 from a transfer to an
available eligible transferee would be less. Transfers are not to be
considered as a means by which members of the transferor's governing
body can obtain an equity or as a method of providing a source of easy
credit for purchasers.
(1) Ineligible applicants must pay a one-time nonrefundable transfer
fee when they submit an application or proposal.
(i) The National Office will issue a directive annually advising the
field of the amount of the fee. Any cost for appraisals performed by
non-FmHA or its successor agency under Public Law 103-354 personnel will
be handled in accordance with FmHA or its successor agency under Public
Law 103-354 Instruction 2024-A (available in any FmHA or its successor
agency under Public Law 103-354 office), and will be added to the basic
fee.
(ii) Transfer fees will be deposited in accordance with current
instructions governing the handling of collections. The fees will be
identified as transfer fees on Form FmHA or its successor agency under
Public Law 103-354 451-2, ``Schedule of Remittances,'' and will be
included on the Daily Activity Report. The amount will be credited to
the Rural Development Insurance Fund.
(iii) If the State Director determines waiver of the transfer fee is
in the best interest of the government, he or she 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.
[[Page 62]]
(2) If less than the full amount of the debt is assumed, any balance
remaining will be handled in accordance with procedures for debt
settlement actions set forth in subpart C of part 1956 of this chapter.
(i) In determining whether a borrower should be released from
liability, the State Director will consider the borrower's debt-paying
ability based on its assets and income at the time of the sale.
(ii) Release from liability will be accomplished by using Form FmHA
or its successor agency under Public Law 103-354 1965-8 and obtaining
from the County Committee a memorandum recommending the release which
contains the statement set forth in Sec. 1951.226(d)(2)(ii) of this
subpart.
(f) Processing. Transfers and assumptions will be processed in
accordance with the following:
(1) A transfer case file organized in accordance with FmHA or its
successor agency under Public Law 103-354 Instruction 2033-A (available
in any FmHA or its successor agency under Public Law 103-354 office)
will be established, and will contain all documents and correspondence
relating to the transfer. The forms utilized for transfers and
assumptions are listed in Exhibit D (available in any FmHA or its
successor agency under Public Law 103-354 office). All forms listed must
be completed and included in the case file unless inappropriate for the
particular situation.
(2) A letter of conditions establishing requirements to be met in
connection with the transfer and assumption will be issued, and the
transferee will be required to execute Form FmHA or its successor agency
under Public Law 103-354 442-46, ``Letter of Intent to Meet
Conditions,'' prior to the closing of the transfer.
(3) Both the transferee and transferor are responsible for obtaining
the legal services necessary to accomplish the transfer.
(4) Transfers will be closed in accordance with instructions
provided by OGC.
(5) When the transferee is a public body and Form FmHA or its
successor agency under Public Law 103-354 1951-15 is not suitable, the
transferee's attorney will prepare the documents necessary to effect the
transfer and assumption and submit them for approval by FmHA or its
successor agency under Public Law 103-354 and OGC.
(6) Accrued interest to be entered in either Table 1 of Form FmHA or
its successor agency under Public Law 103-354 1951-15 or other
appropriate assumption agreement is to be obtained using the status
screen option in ADPS.
(7) The following forms, if utilized, will be sent immediately to
the Finance Office:
(i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 or other appropriate assumption agreement;
(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.
[[Page 63]]
(12) Title to all assets will be conveyed from the transferor to the
transferee unless other arrangements are agreed upon by all parties
concerned, including FmHA or its successor agency under Public Law 103-
354. All instruments of conveyance will contain the covenant referenced
in Sec. 1951.204 of this subpart.
(13) If an insured loan being held by an investor is involved, the
Finance Office will have to repurchase the note prior to processing the
assumption agreement.
(14) When National Office approval is required, the transfer case
file will be submitted to the Administrator, Attention: (appropriate
program division), with Exhibit A of this subpart (available in any FmHA
or its successor agency under Public Law 103-354 office), appropriately
completed, and a cover memorandum which denotes any unusual
circumstances.
(15) The District Director must review Form FmHA or its successor
agency under Public Law 103-354 1910-11, ``Applicant Certification,
Federal Collection Policies for Consumer or Commercial Debts,'' with the
applicant, and the form must be signed by the applicant and included in
the file.
[55 FR 4399, Feb. 8, 1990, as amended at 57 FR 36590, Aug. 14, 1992]
Sec. 1951.231 Special provisions applicable to Economic Opportunity (EO) Cooperative Loans.
(a) Withdrawal of member and transfer to and assumption by new
members of Unincorporated Cooperatives. (1) Withdrawal of a member who
is no longer utilizing the services of an association and transfer of
withdrawing member interest in the association to a new member who will
assume the entire unpaid balance of the indebtedness of the withdrawing
member may be permitted, if the remaining members agree to accept the
new member and the transfer will not adversely affect collection of the
loan. The servicing office will submit to the State Office the borrow
case file and the following:
(i) Form FmHA or its successor agency under Public Law 103-354 1951-
15 executed by the proposed new member;
(ii) Statement of the current amount of the indebtedness involved;
(iii) A description and statement of the value of the security
property;
(iv) A memorandum to justify the transaction;
(v) Form FmHA or its successor agency under Public Law 103-354 440-
2, ``County Committee Certification or Recommendation;''
(vi) Exhibit B of this subpart, ``Agreement for New Member (With or
Without Withdrawing Member),'' (available in any FmHA or its successor
agency under Public Law 103-354 office), executed by the remaining
members of the association, the proposed new member, and the withdrawing
member; and
(vii) Form FmHA or its successor agency under Public Law 103-354
450-12, ``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:
[[Page 64]]
(1) The State Director determines that the remaining members have
sufficient need for the property, and that the withdrawal of the member
will not adversely affect collection of the loan; and
(2) The remaining members obtain from the outgoing member an
agreement conveying his or her interest in the cooperative property to
them. They may also wish to agree to protect the outgoing member against
liability on the debt owed to FmHA or its successor agency under Public
Law 103-354 as well as any other debts. Exhibit C of this subpart,
``Agreement for Withdrawal of Member (Without New Member),'' (available
in any FmHA or its successor agency under Public Law 103-354 office),
may be used by the cooperative. FmHA or its successor agency under
Public Law 103-354 will not be a party to the agreement.
(c) Addition of new members (no withdrawing member or transfer
involved) for both Incorporated and Unincorporated Cooperatives. (1) A
new member may be admitted to the association even though there is no
withdrawing member, if:
(i) The members of the association agree to accept the proposed new
member, and
(ii) The State Director determines that the association owns
adequate facilities to provide service to the new member.
(2) The servicing office will submit to the State Office the case
file and items (i) through (vi) of Sec. 1951.231(a)(1).
(3) If the State Director determines after the review of the above
information that the proposed new member is eligible and the transaction
is justified, the State Director may approve the transaction by
executing Form FmHA or its successor agency under Public Law 103-354
1951-15.
(4) Form FmHA or its successor agency under Public Law 103-354 1951-
15 will be forwarded immediatly to the Finance Office with a memorandum
indicating that the form is intended only to establish liability for a
new member.
(d) Deceased members of Unincorporated Cooperatives. Form FmHA or
its successor agency under Public Law 103-354 442-24, ``Operating
Agreement,'' (now obsolete) was executed by recipients of these loans.
Paragraph 10 of that form provides that in case of the death of any
member, the heirs or personal representative of the deceased member
shall take the deceased member's place in the association. This
provision also covers sale of the decedent's interest in the association
if the sale is necessary to pay debts of the estate.
(1) If the heirs or personal representative do not wish to continue
membership in the association, the remaining members may be permitted to
continue to operate the property if FmHA or its successor agency under
Public Law 103-354's financial interest will not be jeopardized. The
remaining members should obtain from the deceased member's estate an
agreement conveying the estate's interest in the cooperative 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.
[[Page 65]]
(a) Curtailment or limitation of service. Service may not be
curtailed or limited by the inclusion of a system within an urban area.
(b) Sale or transfer and assumption. (1) The urban community or
another entity may purchase the facility involved and immediately pay
the FmHA or its successor agency under Public Law 103-354 debt in full;
or
(2) The urban community or another entity may accept a transfer of
the FmHA or its successor agency under Public Law 103-354 debt on an
ineligible applicant basis.
(3) When a grant is involved, the entity will agree in writing to
assume all rights and obligations of the original grantee. See
Sec. 1951.215 for additional guidance on grant agreements.
(c) Lease-purchase arrangement. If Sec. 1951.232(b) (l) and (2) of
this section are not practicable, the urban community may, with prior
approval of the National Office, operate and maintain the system under a
lease-purchase arrangement which provides that:
(1) The urban community will:
(i) Assume responsibility for operation and maintenance of the
facility, subject to nondiscrimination and all other requirements which
are applicable to the borrower, which are to be specified in the
agreement between the parties; and
(ii) Pay the association annually an amount sufficient to enable it
to meet all its obligations, including reserve account requirements.
(2) The FmHA or its successor agency under Public Law 103-354
borrower will:
(i) Meet its debt service and reserve account requirements to FmHA
or its successor agency under Public Law 103-354;
(ii) Retain its corporate existence until FmHA or its successor
agency under Public Law 103-354 has been paid in full; and
(iii) If agreed upon by both parties, convey title to the facility
to the urban community when the FmHA or its successor agency under
Public Law 103-354 debt has been paid in full.
(d) Processing. (1) Sale of a borrower's assets will be handled in
accordance with Sec. 1951.226 of this subpart.
(2) Transfer and assumption of a borrower's assets and indebtedness
will be handled in accordance with Sec. 1951.230 of this subpart.
(3) Lease-operation-to-purchase arrangements are not permitted.
(4) When a lease-purchase arrangement is proposed, the State
Director will obtain a proposed agreement drafted by either the borrower
or the urban community. The following will be forwarded to the
Administrator, Attention: Water and Waste Disposal Division, for review
and approval authorization:
(i) A copy of the proposed agreement;
(ii) Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office), appropriately
completed;
(iii) OGC comments;
(iv) The case file, including all documentation appropriate for the
type of servicing action involved.
[55 FR 4399, Feb. 8, 1992, as amended at 57 FR 21199, May 19, 1992]
Secs. 1951.233--1951.239 [Reserved]
Sec. 1951.240 State Director's additional authorizations and guidance.
(a) Promote financing purposes and improve or maintain
collectibility. The State Director is authorized to perform the
following functions when the action is determined likely to promote the
loan or grant purposes without jeopardizing collectibility of the loan
or imparing the adequacy of the security; will strengthen the security;
or will facilitate, improve, or maintain the orderly collection of the
loan:
(1) Approve requests for permission to modify bylaws, articles of
incorporation, or other rules and regulations of recipients, including
changes in rate or fee schedules. Changes affecting the recipient's
legal organizational structure must be approved by OGC.
(2) Consent to requests by the recipient to incur additional
indebtedness, subject to applicable FmHA or its successor agency under
Public Law 103-354 instructions and covenants in the loan or grant
agreement.
(3) Renew existing security instruments.
(4) Approve the extension or expansion of facilities and services.
(5) Require additional security when:
[[Page 66]]
(i) Existing security is inadequate and the loan or security
instruments obligate the borrower to give additional security; or
(ii) The loan is in default and additional security is acceptable in
lieu of other servicing actions.
(6) Release properties being sold by the borrower from mortgages
securing Rural Renewal loans if the amount of the notes and mortgages
given by the purchaser to the borrower equal the present market value
and are assigned and pledged to FmHA or its successor agency under
Public Law 103-354, and any money payable to the borrower is applied as
an extra payment on the Rural Renewal loan.
(7) Approve requests for rights-of-way and easements and any
subordination necessary in connection with such requests.
(b) Referrals to National Office. All proposed servicing actions
which the State Director is not authorized by this subpart to approve
will be referred to the National Office.
(c) Defeasance of FmHA or its successor agency under Public Law 103-
354 indebtedness. Defeasance is the use of invested proceeds from a new
bond issue to repay outstanding bonds in accordance with the repayment
schedule of the outstanding bonds. The new issue supersedes the
contractual agreements the borrower agreed to in the prior issue.
Defeasance, or amending outstanding loan instruments and agreements to
permit defeasance, of FmHA or its successor agency under Public Law 103-
354 debt instruments is not authorized, since defeasance limits, or
eliminates entirely, the borrower's ability to comply with statutory
refinancing requirements implemented by subpart F of part 1951 of this
chapter.
Sec. 1951.241 Special provision for interest rate change.
(a) General. Effective October 1, 1981, and thereafter, upon request
of the borrower, the interest rate charged by FmHA or its successor
agency under Public Law 103-354 to water and waste disposal and
community facility borrowers shall be the lower of the rates in effect
at either the time of loan approval or loan closing. Pub. L. 99-88
provides that any FmHA or its successor agency under Public Law 103-354
grant funds associated with such loans shall be set in the amount based
on the interest rate in effect at the time of loan approval. Loans
closed October 1, 1981, through October 25, 1985, were closed at the
interest rate in effect at the time of loan approval and that interest
rate is reflected in the borrower's debt instrument. For community
facility and water and waste disposal loans closed on or after October
1, 1981, and for which the interest rate in effect at the time of loan
closing is lower than the interest rate in effect at the time of loan
approval, the borrower may request to be charged the lower interest
rate. The loan closing interest rate will be determined by FmHA or its
successor agency under Public Law 103-354 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
[[Page 67]]
G of this subpart (available in any FmHA or its successor agency under
Public Law 103-354 office), and sent by certified mail, return receipt
requested. Borrowers will be advised at the time of notification that if
a change of interest rate is requested, the change will be accomplished
administratively by FmHA or its successor agency under Public Law 103-
354. The effect of the change on the loan account will also be fully
explained to the borrower.
(2) Borrowers must notify FmHA or its successor agency under Public
Law 103-354 within 90 calendar days of the date of FmHA or its successor
agency under Public Law 103-354 notification indicating their election
to retain the rate in effect at loan approval or to change the rate to
the rate in effect at the time of loan closing. If the borrower does not
respond within the 90-day period, FmHA or its successor agency under
Public Law 103-354 will not consider a future request for a lower
interest rate under the provisions of this subpart.
(3) The borrower is responsible for assuring that the official
executing the letter requesting the change of interest rate is duly
authorized and any action(s) necessary for this authorization have been
taken as required. Any costs associated with a change of interest rate
will be the responsibility of the borrower.
(c) Processing loan interest rate change. The State Director is
authorized to approve loan interest rate changes which meet the
requirements of this section. Loan interest rate changes will be
accomplished as follows:
(1) All loan payments already applied to the account(s) will be
reversed and reapplied by FmHA or its successor agency under Public Law
103-354 utilizing the changed interest rate. The balance remaining after
the completion of the reversal and reapplication procedures will be
applied first to any delinquency on the account and then to principal.
(2) For paid-in-full accounts which meet the criteria of
Sec. 1951.241(a) of this subpart, the balance of loan payments after
completion of the reversal and reapplication procedures will be returned
to the borrower unless the borrower is delinquent on another FmHA or its
successor agency under Public Law 103-354 loan of the same type. In
those cases the amount will be applied to the delinquent amount owed,
with any balance refunded to the borrower.
(3) The Finance Office will administratively change the interest
rate on a borrower's account in accordance with notification from the
servicing official. The installment schedule set forth in each
borrower's debt instrument will not change. The original principal
schedule for principal-plus-interest accounts where principal only is
stipulated will continue to be used for payment calculation by the
Finance Office. Amortized accounts will adhere to the original payment
schedule and amount. The last scheduled principal installment will be
reduced by the amount of the balance previously generated by the
reversal and reapplication of payments.
(4) When FmHA or its successor agency under Public Law 103-354 has
processed a change of interest rate for an amortized loan and a
reduction in installment amounts is needed to provide for a sound
operation, the borrower may request reamortization in accordance with
Sec. 1951.223 of this subpart.
(5) The borrower will be notified in writing of the new interest
rate as changed.
Secs. 1951.242--1951.249 [Reserved]
Sec. 1951.250 OMB control number.
The reporting and recordkeeping requirements contained in this
regulation have been approved by the Office of Management and Budget and
have been assigned OMB Control Number 0575-0066. Public reporting burden
for this collection of information is estimated to vary from fifteen
minutes to three hours per response including time for reviewing
instructions, searching existing data sources, gathering and maintaining
the data needed, and completing and reviewing the collection of
information. Send comments regarding this burden estimate or any other
aspect of this collection of information, including suggestions for
reducing this burden, to Department of Agriculture, Clearance Officer,
OIRM, Room 404-W, Washington, DC 20250; and
[[Page 68]]
to the Office of Management and Budget, Washington, DC 20503.
Exhibits to Subpart E
Editorial Note: Exhibits A through H are not published in the Code
of Federal Regulations.
Exhibit A--Report on Servicing Action
Exhibit B--Agreement for New Member (With or Without Withdrawing Member)
Exhibit C--Agreement for Withdrawal of Member (Without New Member)
Exhibit D--Items to be Included in Transfer and Assumption Dockets (if
applicable)
Exhibit E--Interest Rate Requirements and Effective Dates
Exhibit F--Instruction to FmHA or its successor agency under Public Law
103-354 Personnel to Implement Public Law 100-233
Exhibit G--Letter to Borrower Notifying of Choice of Interest Rate
Exhibit H--Rescheduling Agreement--Public Bodies
Subpart F--Analyzing Credit Needs and Graduation of Borrowers
Source: 61 FR 35927, July 9, 1996, unless otherwise noted.
Sec. 1951.251 Purpose.
This subpart prescribes the policies to be followed when analyzing a
direct borrower's needs for continued Agency supervision, further
credit, and graduation. All loan accounts will be reviewed for
graduation in accordance with this subpart, with the exception of
Guaranteed, Watershed, Resource Conservation and Development, Rural
Development Loan Funds, and Rural Rental Housing loans made to build or
acquire new units pursuant to contracts entered into on or after
December 15, 1989, and Intermediary Relending Program loans. The term
``Agency'' used in this subpart refers to the Farm Service Agency (FSA)
including its county and state committees and their personnel), Rural
Utilities Service (RUS), Rural Housing Service (RHS), or Rural Business-
Cooperative Service (RBS), depending upon the loan program discussed
herein. This subpart does not apply to RHS direct single family housing
(SFH) customers.
[61 FR 35927, July 9, 1996, as amended at 61 FR 59778, Nov. 22, 1996]
Sec. 1951.252 Definitions.
Commercial classified. The Agency's highest quality Farm Credit
Programs (FCP) accounts. The financial condition of the borrowers is
strong enough to enable them to absorb the normal adversities of
agricultural production and marketing. There is ample security for all
loans, there is sufficient cash flow to meet the expenses of the
agricultural enterprise and the financial needs of the family, and to
service debts. The account is of such quality that commercial lenders
would likely view the loans as a profitable investment.
Farm Credit Programs (FCP) loans. FSA Farm Ownership (FO), Operating
(OL), Soil and Water (SW), Recreation (RL), Emergency (EM), Economic
Emergency (EE), Economic Opportunity (EO), Special Livestock (SL),
Softwood Timber (ST) loans, and Rural Housing loans for farm service
buildings (RHF).
Graduation, FCP. The payment in full of all FCP loans or all FCP
loans of one type (i.e., all loans made for chattel purposes or all
loans made for real estate purposes) by refinancing with other credit
sources either with or without an Agency loan guarantee. A loan made for
both chattel and real estate purposes, for example an EM loan, will be
classified according to how the majority of the loan's funds were
expended. Borrowers must continue with their farming operations to be
considered as graduated.
Graduation, other programs. The payment in full of any direct loan
for Community and Business Programs, and all direct loans for housing
programs, before maturity by refinancing with other credit sources.
Graduated housing borrowers must continue to hold
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title to the property. Graduation, for other than FCP, does not include
credit which is guaranteed by the United States.
Prospectus, FCP. Consists of a transmittal letter with a current
balance sheet and projected year's budget attached. The applicant's or
borrower's name and address need not be withheld from the lender. The
prospectus is used to determine lender interest in financing or
refinancing specific Agency direct loan applicants and borrowers. The
prospectus will provide information regarding the availability of an
Agency loan guarantee and interest assistance.
Reasonable rates and terms. Those commercial rates and terms which
borrowers are expected to meet when borrowing for similar purposes and
similar periods of time. The ``similar periods of time'' of available
commercial loans will be measured against, but need not be the same as,
the remaining or original term of the loan. In the case of Multi-Family
Housing (MFH) loans, ``reasonable rates and terms'' would be considered
to mean financing that would allow the units to be offered to eligible
tenants at rates consistent with other multi-family housing.
Servicing official. The district or county office official
responsible for the immediate servicing functions of the borrower.
Standard classified. These loan accounts are fully acceptable by
Agency standards. Loan risk and potential loan servicing costs are
higher than would be acceptable to other lenders, but all loans are
adequately secured. Repayment ability is adequate, and there is a high
probability that all loans will be repaid as scheduled and in full.
Sec. 1951.253 Objectives.
(a) [Reserved]
(b) Borrowers must graduate to other credit at reasonable rates and
terms when they are able to do so.
(c) If a borrower refuses to graduate, the account will be
liquidated under the following conditions:
(1) The borrower has the legal capacity and financial ability to
obtain other credit.
(2) Other credit is available from a commercial lender at reasonable
rates and terms. In the case of Labor Housing (LH), Rural Rental Housing
(RRH), and Rural Cooperative Housing (RCH) Programs, reasonable rates
and terms must also permit the borrowers to continue providing housing
for low and moderate income persons at rental rates tenants can afford
considering the loss of any subsidy which will be canceled when the loan
is paid in full.
(d) The Agency will enforce borrower graduation.
Sec. 1951.254 [Reserved]
Sec. 1951.255 Nondiscrimination.
All loan servicing actions described in this subpart will be
conducted without regard to race, color, religion, sex, familial status,
national origin, age, or physical or mental handicap.
Secs. 1951.256--1951.261 [Reserved]
Sec. 1951.262 Farm Credit Programs--graduation of borrowers.
(a)-(d) [Reserved]
(e) Graduation candidates. Borrowers who are classified
``commercial'' or ``standard'' are graduation candidates. At least every
2 years, all borrowers who have a current classification of commercial
or standard must submit a year-end balance sheet, actual financial
performance information for the most recent year, and a projected budget
for the current year to enable the Agency to reclassify their status and
determine their ability to graduate.
(f) Sending prospectus information to lenders. (1) The Agency will
distribute a borrower's prospectus to local lenders for possible
refinancing only with the borrower's written permission. If more than
one lender indicates an interest in providing credit, the borrower has
the right to select a lender.
(2) If any borrower does not consent to the Agency contacting
lenders directly on their behalf, the borrower must make formal
application to at least two local lenders who typically finance
operations similar to that of the borrower. The borrower is responsible
for any application fees. Letters of denial or rejection from lenders
without formal application being made will not be accepted by the
Agency. The borrower has 60 days from the date the borrower receives the
prospectus
[[Page 70]]
information to make application and receive a response from lenders. For
good cause, the borrower may be granted a reasonable amount of
additional time by the Agency.
Sec. 1951.263 Graduation of non-Farm Credit programs borrowers.
(a)-(b) [Reserved]
(c) The thorough review. Borrowers are required to supply such
financial information as the Agency deems necessary to determine whether
they are able to graduate to other credit. At a minimum, the financial
statements requested from the borrower must include a balance sheet and
a statement of income and expenses. Ordinarily, the financial statements
will be those normally required at the end of the particular borrower's
fiscal year. For borrowers who are not requested to furnish audited
financial statements, the balance sheet and statement of income and
expenses may be of the borrower's own format if the borrower's financial
situation is accurately reflected. The borrower has 60 days for group
type loans and 30 days for individual type loans to supply the financial
information requested.
(d) [Reserved]
(e) Requesting the borrower to graduate. (1) The Agency will send
written notice to borrowers found able to graduate requesting them to
graduate. The borrower must seek a loan only in the amount necessary to
repay the unpaid balance.
(2) Borrowers must provide evidence of their ability or inability to
graduate within 30 days for RH borrowers, and 90 days for group type
borrowers, after the date of the request. The Agency may allow
additional time for good cause, for example when a borrower expects to
receive income in the near future for the payment of accounts which
would substantially reduce the amount required for refinancing, or when
a borrower is a public body and must issue bonds to accomplish
graduation.
(3) If a borrower is unable to graduate the full amount of the loan,
the borrower must furnish evidence to the Agency, showing:
(i) The names of other lenders contacted;
(ii) The amount of loan requested by the borrower and the amount, if
any, offered by the lenders;
(iii) The rates and terms offered by the lenders or the specific
reasons why other credit is not available; and
(iv) The purpose of the loan request.
(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
[[Page 71]]
Agency loan, the account will be referred for legal action.
Sec. 1951.265 Application for subsequent loan, subordination, or consent to additional indebtedness from a borrower who has been requested to graduate.
(a) Any borrower who appears to meet the local commercial lending
standards, taking into consideration the Agency's loan guarantee
program, will not be considered for a subsequent loan, subordination, or
consent to additional indebtedness until the borrower's ability or
inability to graduate has been confirmed. An exception may be made where
the proposed action is needed to alleviate an emergency situation, such
as meeting applicable health or sanitary standards which require
immediate attention.
(b) If the borrower has been requested to graduate and has also been
denied a request for a subsequent loan, subordination, or consent to
additional indebtedness, the borrower may appeal both issues.
Sec. 1951.266 Special requirements for MFH borrowers.
All requirements of subpart E of part 1965 must be met prior to
graduation and acceptance of the full payment from an MFH borrower.
Secs. 1951.267-1951.299 [Reserved]
Sec. 1951.300 OMB control number.
The reporting requirements contained in this regulation have been
approved by the Office of Management and Budget (OMB) and have been
assigned OMB control number 0575-0093.
Exhibits to Subpart F
Exhibit A--[Reserved]
Exhibit B--Suggested Outline for Seeking Information From Lenders on
Credit Criteria for Graduation of Single Family Housing Loans
Date:___________________________________________________________________
Name of Lender:_________________________________________________________
Title:__________________________________________________________________
Address:________________________________________________________________
Name of County Supervisor:______________________________________________
Service Area:___________________________________________________________
1. Is the lender interested in making loans to refinance rural
housing borrowers? Yes:____; No:____.
If later, when?_________________________________________________________
How much credit does the lender expect to have available in the next
three to four months for making such loans? $____________
In the next twelve (12) months? $____________
2. What are the loan terms? ____________
3. What is the current interest rate? ____________ {time} Variable
rate. {time} Fixed rate.
If variable, how is it determined? ____________
4. Is a risk differential used in establishing interest rates
charged for new customers? Yes: ____; No: ____.
If yes, explain:________________________________________________________
5. What can a typical loan applicant be expected to pay for:
------------------------------------------------------------------------
Dollars Or percent
------------------------------------------------------------------------
a. Filing an application................ .............. ..............
b. Real estate appraisal................ .............. ..............
c. Credit report........................ .............. ..............
d. Loan orgination fee.................. .............. ..............
e. Loan closing costs................... .............. ..............
------------------------------------------------------------------------
6. Is mortgage guarantee insurance required? Yes: ____; No: ____. If
yes, how many years? ____. Cost? ____________.
7. Is there a minimum or maximum loan size policy? Yes: ____; No:
____.
If yes, explain: --_____________________________________________________
8. Is there a minimum and maximum home value the lender will loan
on? Yes: ____; No: ____. If yes, minimum: $____________; maximum:
$____________.
9. Does the lender use a loan to market value ratio? ____________
10. Is there a minimum net and gross income criteria? Yes: ____; No:
____. If yes, net: $____________; gross: $____________.
11. Does the lender use a minimum loan or home value to income
ratio? Yes: ____; No: ____. If yes, loan to income ratio: ____________
Value to income ratio: ____________
12. Is there a percentage of gross income a typical applicant should
have available to pay housing costs? ____________
a. To pay for principal, interest, taxes and insurance (PITI)?
____%.
b. To pay for the total housing costs and other credit obligations?
____%.
13. Are there any age of home, housing type, site size, and/or
geographic restriction policies? Yes: ____; No: ____.
If yes, List:___________________________________________________________
14. Other Comments:___________________________________________________
15. For the purpose of reducing the number of inappropriate
referrals, would the lender
[[Page 72]]
like the opportunity to review specific borrower financial information
prior to the borrower being asked to file a formal application? Yes:
____; No: ____. If the answer is yes, only those borrowers who are
listed on Form FmHA or its successor agency under Public Law 103-354
1951-24 will be referred to the bank. The lenders should be advised,
however, the information supplied to them will not include the
borrower's name, social security number, exact address, or place of
employment that could be used to link a specific borrower to the
information being provided by FmHA or its successor agency under Public
Law 103-354.
[48 FR 40203, Sept. 6, 1983; 48 FR 41142, Sept. 14, 1983]
Subpart G--I [Reserved]
Subpart J--Management and Collection of Nonprogram (NP) Loans
Source: 58 FR 52646, Oct. 12, 1993, unless otherwise noted.
Sec. 1951.451 General.
This subpart contains policies and procedures of the Farm Service
Agency (FSA) for making, managing, collecting, liquidating, and
servicing loans on nonprogram (NP) terms. All references in this subpart
to farm real estate, farm property and farm chattels also include
nonfarm property that was security for a Farm Credit debt of the FSA.
(a) An NP loan is a loan on terms more stringent than terms for a
program loan and it is an extension of credit for the convenience of the
Government because the applicant does not qualify for program assistance
or the property to be financed is not suited for program purposes. Such
loans are made or continued only when it is in the best interest of the
Government. NP loans include:
(1) Sale of inventory property on NP terms;
(2) Assumption of a program loan on NP terms;
(3) Loans converted to NP status as a result of receipt of
unauthorized assistance;
(4) Loans converted to NP status when only a portion of the security
property is being transferred and the FmHA or its successor agency under
Public Law 103-354 debt is not paid in full;
(5) Sale of the real property that was security for an FP loan to
the previous owner under the Leaseback/Buyback program on NP terms;
(6) Sale of the real property of an FP borrower under the Homestead
Protection program; or
(7) FP accounts rescheduled under an accelerated repayment
agreement.
(b) C&BP/NP and MFH/NP transactions involving transfer of the
security property will be submitted to the National Office for review,
authorization and processing guidance. The submission must include a
justification for the proposed action, a servicing and management plan,
the State Director's recommendations, and the case files. The sale of
C&BP and MFH inventory property to NP purchasers will be handled in
accordance with subpart C of part 1955 of this chapter.
(c) Borrowers who have program and NP loans will have their loan
accounts serviced and liquidated in accordance with the regulation
applicable to the particular loan(s). Therefore, NP loans are not
eligible for any program servicing except those permitted in this
subpart. However, even though the NP loan will not be eligible for
program servicing benefits or entitlements, the borrower is not
precluded from receiving assistance on the program loan (e.g., having an
NP farm loan should not preclude a borrower from being considered for
debt restructuring assistance in the form of a deferral, rescheduling,
consolidation, etc., on a FP program loan). When the decision has been
made to liquidate the program loan of a borrower who is also indebted
for an NP loan and the NP security is also additional security for the
program loan the NP loan will be accelerated at the same time as the
program loan using the program acceleration notice. Likewise, if an NP
loan is to be liquidated and the borrower is also indebted for a program
loan which serves as additional security for the NP loan the program
loan will be accelerated at the same time as the NP loan using the
program acceleration notice. Any appeal of an adverse decision involving
[[Page 73]]
both an NP and program loan would affect only the program loan.
[58 FR 52646, Oct. 12, 1993, as amended at 61 FR 59778, Nov. 22, 1996]
Sec. 1951.452 Policy.
NP credit is extended for the convenience of the Government in
servicing an existing loan or to facilitate sale of inventory property.
Where a borrower has both program and NP loans outstanding, servicing
will be according to the regulation applicable to the particular
loan(s). NP borrowers are not eligible for program entitlements or
servicing actions such as subsidy, moratorium, reamortization,
rescheduling, consolidation, deferral, limited resource assistance,
buyout, writedown and conservation easements. Neither are NP borrowers
subject to occupancy/operation requirements, graduation or other similar
requirements imposed on program borrowers. NP borrowers are required to
adequately maintain the security, pay real estate taxes and/or
assessments when due or make scheduled escrow installments for taxes and
insurance when required by FmHA or its successor agency under Public Law
103-354, and keep buildings insured according to the promissory note and
mortgage or security agreement, but may lease all or a portion of the
security without FmHA or its successor agency under Public Law 103-354's
consent, except as provided in Sec. 1951.460 (a) and (b) of this
subpart.
Sec. 1951.453 [Reserved]
Sec. 1951.454 Review of adverse decisions.
NP applicants and borrowers are not entitled to appeal rights under
subpart B of part 1900 of this chapter; except that a borrower does have
appeal rights if the decision involves the denial of NP loan assistance
under the Leaseback/Buyback and Homestead Protection provisions of
subpart S of this part 1951. However, decisions involving NP applicants,
borrowers or property are reviewable by the next level supervisor.
Sec. 1951.455 NP loan making for Single Family Housing (SFH) and farm property (real and chattel).
(a) Application for NP credit. Applications for credit on NP terms
are made at the County Office serving the area where the property is
located or through an approved packager or real estate broker if so
instructed by County Office personnel. To apply for NP credit, except
Leaseback/Buyback and Homestead Protection, standard forms used to
process program applications may be utilized or comparable documentation
which contains information to establish financial stability,
creditworthiness, and repayment ability for the requested credit.
However, the loan approval official will have the discretion to
determine what information is required to support approval of the loan.
For property purchased under the Leaseback/Buyback and Homestead
Protection programs the information required to support approval of the
loan will be in accordance with subpart S of part 1951 of this chapter.
The creditworthiness standards in Sec. 1944.9 of subpart A of part 1944
of this chapter will be used to evaluate an NP applicant's eligibility
for FmHA or its successor agency under Public Law 103-354 assistance to
purchase a single family residence. The application is not complete
until all information requested by FmHA or its successor agency under
Public Law 103-354 is received.
(b) Fees. A nonrefundable application fee must be submitted with the
application. In addition, credit reports will be ordered to determine
the eligibility of NP applicants requesting FmHA or its successor agency
under Public Law 103-354 credit. A nonrefundable credit report fee will
be charged the applicant. The amounts of these fees change periodically;
current fees will be quoted by FmHA or its successor agency under Public
Law 103-354 county office personnel upon request. A borrower whose loan
is reclassified as NP because unauthorized assistance was received; or
only a portion of the security property is being transferred and the
FmHA or its successor agency under Public Law 103-354 debt is not paid
in full; or FP accounts rescheduled under an accelerated repayment
agreement will not be required to submit an application or pay the
application fee.
(c) Eligibility restrictions. If farm property is being purchased or
the debt assumed, and an individual or member,
[[Page 74]]
stockholder, partner, or joint operator of a proposed entity transferee
or purchaser has been convicted after December 23, 1985, under Federal
or State law of planting, cultivating, growing, producing, harvesting,
or storing a controlled substance (see 21 CFR part 1308, which is
exhibit C of subpart A of part 1941 of this chapter (available in any
FmHA or its successor agency under Public Law 103-354 office), for the
definition of ``controlled substance'') prior to the approval of the
credit sale or assumption in any crop year, the individual or entity
shall be ineligible for FmHA or its successor agency under Public Law
103-354 credit for the crop year in which the individual was convicted
four succeeding crop years following the conviction. Purchasers will
attest on the application form used that as individuals or that its
members, if an entity, have not been convicted of such crime after
December 23, 1985.
(d) [Reserved]
(e) Downpayment. A downpayment must be collected at closing and
remitted in accordance with subpart B of this part 1951 (available in
any FmHA or its successor agency under Public Law 103-354 office). The
minimum downpayment will be based on the purchase price for a credit
sale and the current market value (less any prior liens for chattel
security) or the debt, whichever is lower, for an assumption.
Downpayment requirements vary from time to time and vary by type of
property. Current downpayment requirements will be provided by FmHA or
its successor agency under Public Law 103-354 county office personnel
upon request.
(f) Interest rate. The SFH/NP interest rate in effect at the time of
loan approval will be charged on all NP assumptions and credit sales
involving a single family residence. The FP/NP interest rate for real
property or chattel property, as applicable, in effect at the time of
loan approval, will be charged on NP assumptions and credit sales
involving all other types of sales, except as otherwise stated. For the
Leaseback/Buyback program, the FP/NP farmer program interest rate for
farm real estate in effect at the time of loan approval will be charged.
The Homestead Protection program interest rate in effect at the time of
loan approval will be charged on Homestead Protection properties.
(g) Terms. The purchase price for credit sales or the FmHA or its
successor agency under Public Law 103-354 debt being assumed, less the
downpayment amount, will be amortized as follows, except the term will
never be longer than the period for which the property will serve as
adequate security:
(1) Single family residence. (i) When a purchaser does not own an
adequate home and intends to occupy the house, the term may be for a
period not to exceed 30 years.
(ii) For purchasers who do not meet the criteria in paragraph
(g)(1)(i) of this section, the amortization period will not be for more
than 10 years unless FmHA or its successor agency under Public Law 103-
354 determines that more favorable terms are necessary to facilitate the
sale, in which case the assumption may be amortized using up to a 20-
year factor with payment in full (balloon payment) due not later than 10
years from the date of closing.
(iii) When a presently indebted NP owner/occupant wishes to purchase
another property which he/she intends to occupy, the term may be for a
period not to exceed 30 years on the condition that the existing debt is
reamortized for a period not to exceed 10 years less the number of years
the loan has been outstanding. If the existing loan has been outstanding
for more than 10 years, the loan must be paid off.
(2) Farm property (real estate security) and CONACT residential
property classified as surplus. The note amount will be amortized over a
period not to exceed 15 years. When an NP loan was initially scheduled
for repayment in 15 years or less together with a 25-year amortization,
FmHA or its successor agency under Public Law 103-354 may authorize an
extension not to exceed a total of 25 years from the date the NP
assumption or credit sale was closed provided it is in the Government's
best interest and FmHA or its successor agency under Public Law 103-354
retains the same lien priority.
[[Page 75]]
(3) Farm property (chattels security). The note amount will be
amortized over a period not to exceed 5 years.
(4) Farm property (Leaseback/Buyback). The note amount will be
amortized over a period not to exceed 25 years.
(5) Homestead protection. The note amount will be amortized over a
period not to exceed 35 years.
(h) Modification of security instruments. Any convenants in the
promissory note and/or security instruments (mortgage or deed of trust)
relating to graduation to other credit, inability to secure other
financing, restrictions on leasing, FP operation requirements, and
consent to junior lien encumbrance will be deleted.
(i) Security. The security requirements for an NP loan on a single
family residence will be in accordance with subpart A of part 1944 of
this chapter. The security requirements for NP loans on farm real estate
will be in accordance with subpart A of part 1943 of this chapter and NP
loans on chattel property will be secured in accordance with subpart A
of part 1962 of this chapter. Except that, an NP loan will be secured
only by the property purchased.
(j) Closing. Title clearance, preparation of deeds, loan closing and
property insurance requirements are the same as for an FmHA or its
successor agency under Public Law 103-354 program loan on the same type
property, except the purchaser must pay his/her own closing costs.
Sec. 1951.456 [Reserved]
Sec. 1951.457 Payments.
(a) Receiving payments. Borrowers indebted for a Single Family
residence or who have purchased property under the Homestead Protection
program will mail their payments directly to the address shown on the
coupon. Borrowers who bring or send regular payments to the County
Office will be instructed to mail them directly to the address shown on
their coupon. Borrowers who bring in cash payments will be charged a fee
necessary to convert the cash to a money order. If the fee is not paid,
it will be deducted from the payment. Borrowers indebted for a farm
loan(s), including property purchased under the Leaseback/Buyback
program will mail or bring their payments to the County Office.
(b) Payments not received when due. NP borrowers are expected to
make scheduled payments when due. The Agency personnel are not required
to provide program supervision, servicing, management or credit
counseling in accordance the agency servicing instructions if payments
are not received when due. To ensure consistency, a series of contacts
will be made when servicing delinquent accounts. All actions taken,
agreements reached and recommendations made in the servicing of the
borrower's account are to be documented. When appropriate, the Agency
may work out a reasonable agreement with an NP borrower to cure a
delinquency; however, such an agreement will not usually exceed 1 year.
Failure to make payments as agreed will result in actions determined by
the agency to best protect the Government's interest. Collection of a
delinquency from an Internal Revenue Service (IRS) offset will be used
to the extent permitted by law.
[58 FR 52646, Oct. 12, 1993, as amended at 60 FR 55146, Oct. 27, 1995]
Sec. 1951.458 Servicing real estate taxes.
In this section, ``taxes'' include assessments which, if not paid,
will become a lien on the property. Borrowers are required to pay the
taxes on FmHA or its successor agency under Public Law 103-354 security
property when they become due. Security instruments for FmHA or its
successor agency under Public Law 103-354 credit provide that the
borrower will escrow funds for the payment of taxes if requested by FmHA
or its successor agency under Public Law 103-354. Existing borrowers
requested to escrow will be notified by letter at least 90 days prior to
initiating escrowing for taxes. Monthly payment borrowers will be
required to escrow, except that, a borrower who is also indebted for an
FP program loan will not be required to escrow. Failure to pay the taxes
is a default of the loan convenants. Borrowers who have not paid their
taxes will be notified by FmHA or its successor agency under Public Law
103-354. FmHA or its successor agency under Public Law 103-354 will not
voucher for taxes on NP loans
[[Page 76]]
except to protect the Government's security interest. FmHA or its
successor agency under Public Law 103-354 will advance funds for the
payment of taxes as follows:
(a) Borrowers required to escrow for taxes. Taxes will be paid as
they become due from the borrower's escrow account. If a borrower's
escrow account contains sufficient funds, all discounts will be taken
advantage of when it is determined by FmHA or its successor agency under
Public Law 103-354 to be in the best financial interest of the borrower
and the Government. If a borrower has insufficient funds in his/her
escrow account to pay the taxes when due, the escrow servicer will
request the borrower to pay an amount equal to the difference between
the taxes due and the escrow balance in a lump sum within 30 days after
notification. If the borrower fails to remit the amount requested, the
amount will be advanced and charged to the borrower's account as a
recoverable cost. When initially establishing a borrower on an escrow
system, NP accounts can be reamortized provided taxes for 1 or more
years are vouchered and the borrower is not able to repay the advance
within the number of years represented by the taxes.
(b) Foreclosure-pending cases--(1) Borrowers not required to escrow.
Where State law permits property will be sold at foreclosure sale
subject to outstanding taxes. Where taxes must be paid up to the
foreclosure sale date, payment should be deferred until the date for the
foreclosure sale is set unless the taxing authority scheduled a tax sale
sooner. This permits a single advance to be processed and allows
flexibility for a management decision if it is later determined, due to
such considerations as high tax rate, length of time required to
foreclose, and possible vandalism or other loss, there is no recovery to
be made. If a tax sale is scheduled while foreclosure is pending, FmHA
or its successor agency under Public Law 103-354 will either pay the
taxes by voucher in accordance with paragraph (c) of this section or
allow the property to be sold at the tax sale, as determined to be in
the Government's best interest.
(2) Borrowers required to escrow for taxes. Taxes will continue to
be paid as outlined in paragraph (a) of this section until the property
is acquired by FmHA or its successor agency under Public Law 103-354.
(c) Processing tax advances. When a borrower's taxes are to be paid
by an escrow servicer, an advance will be drawn from FmHA or its
successor agency under Public Law 103-354 to cover the escrow shortage.
When a borrower's taxes are to be paid by FmHA or its successor agency
under Public Law 103-354, the advance will be charged to the borrower's
account as an unamortized cost item. A tax advance will bear interest at
the rate which is in effect on the initial loan or the lowest loan
number within the fund code still outstanding.
Sec. 1951.459 Preservation of security.
(a) Inspections of NP security property. Inspections will be made on
NP security as necessary to protect FmHA or its successor agency under
Public Law 103-354's security interest. In the event of abandonment,
servicing actions will be taken according to Sec. 1955.55 of subpart B
of part 1955 of this chapter.
(b) Subordination. Subordination is not authorized where an NP
borrower only owes FmHA or its successor agency under Public Law 103-354
an NP loan(s). Subordination of a mortgage may be permitted to
refinance, extend, reamortize, increase the amount of an existing prior
lien, or to permit a prior lien only when the security for the NP loan
is also security for an FmHA or its successor agency under Public Law
103-354 program loan, the request for the subordination meets all the
requirements for the subordination of the FmHA or its successor agency
under Public Law 103-354 program loan and is in the best interest of the
Government.
(c) Bankruptcy. NP loans on single family residences will be
serviced in accordance with subpart C of part 1965 of this chapter, farm
real estate in accordance with subpart A of part 1965 of this chapter,
and farm chattel in accordance with subpart A of part 1962 of this
chapter.
[[Page 77]]
Sec. 1951.460 Release of security property or sale or lease of related property rights.
(a) Partial release. Release of a portion of the security property
may be made when the borrower requests it and FmHA or its successor
agency under Public Law 103-354 determines the release will not
adversely affect the Government's interest. Release may be approved when
payment is received by FmHA or its successor agency under Public Law
103-354 in the amount of the market value, as determined by FmHA or its
successor agency under Public Law 103-354, of the property to be
released. Proceeds from such transactions (less related expenses
authorized by FmHA or its successor agency under Public Law 103-354)
will be applied to the FmHA or its successor agency under Public Law
103-354 indebtedness as an extra payment or to prior liens in order of
lien priority.
(b) Easements, right-of-ways, and lease of mineral rights or other
rights. Consent may be given by FmHA or its successor agency under
Public Law 103-354 for the borrower to grant an easement or lease
mineral rights when it is determined by FmHA or its successor agency
under Public Law 103-354 the action will not adversely affect the
Government's interest. The granting of an easement or right-of-way and
lease of mineral rights may be approved when payment is received by FmHA
or its successor agency under Public Law 103-354 in the amount of the
market value, as determined by FmHA or its successor agency under Public
Law 103-354, for rights granted or benefits are derived which are equal
to or greater than the value of the property being disposed of. Proceeds
from these transactions (less related expenses authorized by FmHA or its
successor agency under Public Law 103-354) will be applied to the FmHA
or its successor agency under Public Law 103-354 debt as an extra
payment or to prior liens in order of lien priority.
(c)-(d) [Reserved]
Sec. 1951.461 Release of valueless FmHA or its successor agency under Public Law 103-354 lien without monetary consideration.
Release of an FmHA or its successor agency under Public Law 103-354
lien without monetary consideration may be granted when it is determined
by FmHA or its successor agency under Public Law 103-354 to have no
present or prospective value or when enforcement would be ineffectual or
uneconomical. Judgment liens or statutory redemption rights may be
released only with prior consent of OGC.
Sec. 1951.462 Deceased borrower.
When an NP borrower dies, FmHA or its successor agency under Public
Law 103-354 will determine whether or not arrangements can be effected
for continuation of the loan under one of the provisions of this
section. If not, the loan may be liquidated according to Sec. 1951.468
of this subpart. The servicing actions and the circumstances under which
they may be considered are outlined in paragraphs (a) through (d) of
this section.
(a) Continue with jointly liable borrower. If a jointly liable
borrower will repay the loan and fulfill other obligations of the loan,
FmHA or its successor agency under Public Law 103-354 will take no
action to liquidate the loan.
(b) Assumption by spouse not liable for the FmHA or its successor
agency under Public Law 103-354 debt. The spouse of a deceased borrower
who is not liable for the FmHA or its successor agency under Public Law
103-354 debt and who wishes to assume the debt may do so in accordance
with Sec. 1951.463(d)(1) of this subpart.
(c) Continue with joint tenant, tenant by the entirety, or other
person. When a joint tenant, tenant by the entirety, or other person who
inherits title to (or an interest in) the security property, on which
the principal residence is located, by devise, descent, or operation of
law upon the death of a borrower makes payments as scheduled in the
promissory note (or assumption agreement), FmHA or its successor agency
under Public Law 103-354 may not take
[[Page 78]]
action to liquidate the loan as long as the property is adequately
maintained, real estate taxes and assessments are paid when due, and the
dwelling is not known to be uninsured (if funds for taxes and insurance
are being escrowed, the escrow is a part of the scheduled payments). The
loan may be assumed in accordance with Sec. 1951.463(d) of this subpart;
however, assumption of the indebtedness is not required. Continuation
with a joint tenant, tenant by the entirety, or other person under the
provisions of this paragraph applies only to the transfer of title
resulting from death of the borrower; it does not apply to any
subsequent transfer of title by the inheritor(s) except by devise,
descent, or operation of law upon the death of the inheritors or sale of
interests among inheritors to consolidate title. Any other subsequent
transfer of title will be treated as a sale and is subject to the
requirements of Sec. 1951.463 of this subpart.
(d) Assumption by a person, other than the spouse, who is not liable
for the FmHA or its successor agency under Public Law 103-354 loan. A
person other than the deceased borrower's spouse who wishes to assume
the loan for the benefit of persons who were dependent on the deceased
borrower at the time of death, without receiving title to the property,
may do so in accordance with Sec. 1951.463(d)(1) of this subpart
provided:
(1) The residence will continue to be occupied by one or more
persons who were dependent on the borrower at the time of death; and
(2) There is reasonable prospect for orderly repayment of the loan
and other obligations of the loan will be met.
Sec. 1951.463 Transfer of security and assumption of indebtedness.
When a borrower proposes to sell security property, assumption of
the indebtedness may be approved on program or NP terms, as applicable,
subject to the provisions of paragraphs (c) and (d) of this section.
Assumptions under paragraphs (b)(2), (b)(3), (b)(4), (b)(5) and (d) of
this section only are authorized on existing terms. When security
property is sold (or title is otherwise conveyed), whether by full
conveyance or by land contract, contract-for-deed, or other similar
instrument, and the FmHA or its successor agency under Public Law 103-
354 debt is not assumed by the purchaser (new owner) or paid in full,
the conveyance will not be approved, except as provided in paragraphs
(b)(2) and (b)(5) of this section or Sec. 1951.462 of this subpart. If
the conveyance is not approved the loan must be liquidated unless FmHA
or its successor agency under Public Law 103-354 determines it is not in
the Government's best interest. If FmHA or its successor agency under
Public Law 103-354 decides to continue with the loan, the account will
be serviced in the borrower's name and the borrower will remain liable
for the loan under the terms of the security instrument.
(a) [Reserved]
(b) General. The following policies apply to all transfers and
assumptions under this subpart:
(1) Amount of assumption. Except for transfers covered in paragraphs
(b)(2), (b)(3), (b)(4), (b)(5) and (d) of this section, the transferee
will assume the lesser of the indebtedness, or current market value as
determined by FmHA or its successor agency under Public Law 103-354,
less any prior liens and the downpayment.
(2) Conveyance of security property by borrower to spouse or child.
When a borrower conveys security property to his/her spouse or children,
assumption of the indebtedness is not required and FmHA or its successor
agency under Public Law 103-354 may not take action to liquidate the
loan as long as payments are made as scheduled and other obligations of
the loan are met. In the event the transferee(s) wishes to assume the
indebtedness, it may be assumed on the terms outlined in paragraph
(d)(1) of this section as applicable to the circumstances.
(3) Withdrawal of jointly liable borrower. When a stockholder/
member/partner/joint operator of an entity who is personally liable on
the note withdraws from the entity or dies, and all of the remaining
individuals are not personally liable on the note(s), the loan must be
assumed by all remaining parties.
(4) Addition of new transferee(s). When new stockholders/members/
partners/
[[Page 79]]
joint operators enter an entity, assumption of the indebtedness is
required, however, the indebtedness may be assumed on existing terms. A
downpayment based on the unpaid balance of the loan is required when the
assumption is closed.
(5) Conveyance of security property into an inter vivos trust. When
the borrower conveys security property into an inter vivos trust,
whereby the borrower does not transfer rights of occupancy in the
property, FmHA or its successor agency under Public Law 103-354 may not
take action to liquidate the loan as long as payments are made as
scheduled and other obligations of the loan are met.
(c) Program assumption. A NP loan may be assumed by an eligible
program applicant if the property meets the eligibility requirements for
a currently authorized program (SFH, Farm Ownership (FO), etc.). In such
cases, the assumption will be at the interest rate and up to the maximum
term in effect for the type loan involved at the time the assumption is
approved. After assumption on program terms, the loan will be
reclassified as Rural Housing (RH), FO, etc., as applicable.
(d) NP assumption. The rates and terms for an NP assumption will be
as provided in Sec. 1951.455 of this subpart. A loan may be assumed on
existing terms only in the situations outlined in paragraphs (b)(2),
(b)(3), (b)(4), (b)(5), (d)(1), (d)(2), and (d)(3) of this section. An
individual not liable for the loan who acquires title to or an interest
in the security by means of one of the situations mentioned may assume
the indebtedness on existing terms or current terms if more favorable,
in which case a downpayment based on the unpaid balance would be
required. The interest rate, final due date, payment date, and account
status (current, delinquent, ahead of schedule) will not be changed by
virtue of an assumption on existing terms, after assumption compliance
with loan conditions is required. If a same terms assumption is
consummated and the account is delinquent, it may be reamortized in
accordance with applicable program regulations. Situations where these
terms are authorized are:
(1) An individual who acquires title to or an interest in the
security property by virtue of death, divorce, or deed from a spouse or
parent but is not liable for the debt and who wishes to assume the loan
may do so. Any subsequent transfer of title, except between inheritors
to consolidate title, will be treated as a sale and is not covered by
these provisions. Individuals in this category are:
(i) A deceased borrower's surviving spouse.
(ii) A divorced borrower's spouse.
(iii) A joint tenant with right of survivorship or relative of a
deceased borrower.
(2) The spouse or child of a living borrower to whom title to the
security property has been conveyed by spouse or parent.
(3) A person other than the deceased borrower's spouse who wishes to
continue with the loan under conditions outlined in Sec. 1951.462 (c) or
(d) of this subpart may do so.
(e) County Committee actions on Farmer Program assumptions. On
program assumptions, the County Committee must certify the transferee's
eligibility for the type of loan to be assumed.
(f) Title clearance and loan closing. Title clearance and closing
will be the same as for any program loan of the same type.
(g) Release from liability. Release from liability of NP borrowers
is not authorized.
Secs. 1951.464--1951.467 [Reserved]
Sec. 1951.468 Liquidation.
When it is determined an NP borrower cannot or will not successfully
repay the loan, FmHA or its successor agency under Public Law 103-354
will attempt to have the borrower liquidate voluntarily.
(a) Voluntary. If an NP borrower in default indicates a willingness
to voluntarily liquidate, other liquidation actions by FmHA or its
successor agency under Public Law 103-354 may be delayed for a
reasonable period, usually not to exceed 120 days for real estate, if
the borrower is earnestly seeking other financing, or has the security
property listed or offered for sale and it is being
[[Page 80]]
actively marketed at a reasonable price.
(b) Foreclosure. If an NP borrower in default (monetary or
nonmonetary) does not cure the default and is not willing or able to
voluntarily liquidate, the servicing official will refer the case to the
next level supervisor with a recommendation for further action. If
foreclosure is approved, the account will be accelerated. NP borrowers
do not have appeal rights under subpart B of part 1900 of this chapter;
however, the NP borrower may request a review of the decision to
foreclose by the next level supervisor to consider evidence that the
loan is not in default. If the borrower fails to satisfy the account
during the period specified in the demand letter, FmHA or its successor
agency under Public Law 103-354 will proceed with foreclosure without
further notice or extension of time.
(c) Conveyance to FmHA or its successor agency under Public Law 103-
354. FmHA or its successor agency under Public Law 103-354 does not
solicit or encourage conveyance of NP security property to the
Government and will consider a borrower's offer to convey by deed in
lieu of foreclosure only after the debt has been accelerated and when it
is in the Government's best interest. Release of the borrower from
liability is not authorized. Upon receipt of an offer to convey, FmHA or
its successor agency under Public Law 103-354 will remind the borrower
of provisions for voluntary liquidation under paragraph (a) of this
section. The borrower will also be informed of the consequences of a
conveyance by deed in lieu of foreclosure as follows:
(1) All costs related to the conveyance which FmHA or its successor
agency under Public Law 103-354 pays will be added to the debt;
(2) A credit equal to the market value of the property, as
determined by FmHA or its successor agency under Public Law 103-354,
less prior liens, will be applied to the debt; and
(3) If the credit does not satisfy the debt, the debtor remains
liable for the payment of the account balance and the account will be
debt settled.
(d) Consent to sale of real estate security when the FmHA or its
successor agency under Public Law 103-354 debt and authorized selling
expenses exceed market value. If an NP borrower proposes to sell real
estate security for an amount which will be insufficient to pay the FmHA
or its successor agency under Public Law 103-354 debt, prior lien(s) if
any, and sale expenses authorized by FmHA or its successor agency under
Public Law 103-354, an appraisal will be completed and FmHA or its
successor agency under Public Law 103-354 may consent to the sale if the
proposed sale price is not less than the market value. No commission
will be allowed or paid under this paragraph when the sale is to the
broker, broker's salesperson(s), to persons living in his/her or
salesperson(s) immediate household or to legal entities in which the
broker or salesperson(s) have an interest if the sale involves FmHA or
its successor agency under Public Law 103-354 credit. If credit is not
being extended to the persons mentioned in the preceding sentence (a
cash sale), a commission will be allowed or paid. In no case will the
borrower (seller) receive any cash proceeds from the sale. Any real
estate taxes due from the transferor and other authorized selling
expenses for which there is insufficient equity proceeds for payment at
closing will be charged to the borrower's account prior to loan closing.
Authorized selling expenses will not be considered or included in the
amount assumed. Release from liability is not authorized.
Sec. 1951.469 Actions after liquidation of property.
(a) [Reserved]
(b) Servicing unsatisfied account balances. A current financial
statement will be obtained, if possible, when application of sale
proceeds does not satisfy an NP loan; or if a conveyance to FmHA or its
successor agency under Public Law 103-354 has been accepted and credit
of the market value less prior liens and estimated inventory handling
expenses does not satisfy the debt, FmHA or its successor agency under
Public Law 103-354 will pursue collection if there appears to be income
or assets from which to collect. Where the borrower owns other real
estate, or if the borrower is known to be in the process of purchasing
other real estate (such as another dwelling), a judgment
[[Page 81]]
for the remaining debt including expenses paid by FmHA or its successor
agency under Public Law 103-354 will be sought.
(c) [Reserved]
Secs. 1951.470-1951.478 [Reserved]
Sec. 1951.479 Pilot projects.
From time to time FmHA or its successor agency under Public Law 103-
354 conducts pilot projects to test concepts related to the management
and/or sale of SFH inventory property which may deviate from the
provisions of this subpart, but will not be inconsistent with provisions
of the authorizing statutes, or other Acts affecting FmHA or its
successor agency under Public Law 103-354's loan programs. Prior to
initiation of a pilot project, FmHA or its successor agency under Public
Law 103-354 will publish in the Federal Register a Notice outlining the
nature, scope, and duration of the pilot. The pilot projects may be
handled by FmHA or its successor agency under Public Law 103-354
employees and/or under contract with persons, firms, or other entities
in the private sector.
Sec. 1951.480 [Reserved]
Sec. 1951.481 FmHA or its successor agency under Public Law 103-354 Instructions.
Detailed FmHA or its successor agency under Public Law 103-354
Instructions for administering this subpart are available in any FmHA or
its successor agency under Public Law 103-354 office (FmHA or its
successor agency under Public Law 103-354 Instruction 1951-J).
Secs. 1951.482-1951.500 [Reserved]
Subpart K--Predetermined Amortization Schedule System (PASS) Account
Servicing
Source: 50 FR 8597, Mar. 4, 1985, unless otherwise noted.
Sec. 1951.501 General.
(a) This subpart prescribes the policies, authorizations, and
procedures for implementing and servicing PASS for all of the following
Farmers Home Administration or its successor agency under Public Law
103-354 (FmHA or its successor agency under Public Law 103-354) Multiple
Family Housing (MFH) loan recipients which includes Farm Labor Housing
(LH) and Rural Rental Housing (RRH) including Rural Cooperative Housing
(RCH) and Congregate Housing and includes:
(1) All MFH loans, credit sales, reamortizations, and transfers
closed on or after May 1, 1985, and
(2) All MFH loan recipients converting from the Daily Interest
Accrual System (DIAS) to PASS according to Sec. 1951.517 of this
subpart, except:
(i) Seasonal LH and LH loans to individual farmers may be closed on
monthly or annual payment schedules and also may be closed on Daily
Interest Accrual under subpart A of part 1951 of this chapter.
Instructions for scheduling payments are according to the Forms Manual
Insert (FMI) for Form FmHA or its successor agency under Public Law 103-
354 1944-52, ``Multiple Family Housing Promissory Note.''
(ii) Rural Housing Site (RHS) loans and Site Option (SO) loans will
be closed and serviced on Daily Interest Accrual under subpart A of part
1951 of this chapter. Payment billings are subject to Sec. 1951.506 of
this subpart.
(b) All MFH loan recipients not described in paragraph (a) of this
section will continue to be subject to the servicing and collection
requirements of subpart A of part 1951 of this chapter. For the purposes
of this subpart, all references to ``County Supervisor'' in subpart A of
part 1951 shall be construed to mean ``District Director.''
(c) All FmHA or its successor agency under Public Law 103-354 MFH
loans (RRH, RCH, LH, RHS, and SO) whether DIAS or PASS, are subject to
the definitions contained in Sec. 1951.504 of this subpart, and payment
application as outlined in Sec. 1951.510 of this subpart.
(d) All MFH loan payments will be processed using Exhibit A of this
subpart (available in any FmHA or its successor agency under Public Law
103-354 office).
[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16244, May 6, 1988; 56 FR
28038, June 19, 1991]
[[Page 82]]
Sec. 1951.502 [Reserved]
Sec. 1951.503 Authorities and responsibilities.
District Directors are responsible for administering this subpart
under the general guidance and supervision of the State Director. The
District Office Management System will be fully used to accomplish this
responsibility.
Sec. 1951.504 Definitions and statements of policy.
(a) Advance regular payment. Regular payments made at election of
the borrower to pay the account ahead of schedule. These payments may be
either full or partial payments and will be applied to the amortized
payment schedule by the Finance Office.
(b) Amortization schedule. An amortization schedule is the projected
application of periodic payments to principal and interest at the
promissory note rate so the debt will be paid in full over the number of
periods specified in the promissory note, assumption agreement (new
terms), or reamortization agreement. Computation is based on a 30-day
month and a 360-day year.
(c) Amortized recoverable costs. Recoverable cost items may be
amortized over a period up to 5 years. This function will allow the
servicing official to voucher recoverable cost items such as taxes.
(1) Payment of real estate taxes. When a borrower's taxes are paid
by voucher, the amortization period of the tax advance will be the
number of months for which the taxes are being vouchered with a maximum
of 5 years.
(2) Costs other than real estate taxes. Advances for costs other
than real estate taxes will be amortized for 12 months unless, based on
the borrower's repayment ability, a longer period is needed. An
amortization period of more than 12 months will be used only when the
cost is of a nonrecurring type. In no case, however, will the repayment
period exceed 5 years.
(3) Retroactive amortization of recoverable costs. Recoverable costs
which have been vouchered since May 1, 1985, may, with National Office
approval, be retroactively amortized for applicable time periods as
shown in paragraphs (c)(1) and (c)(2) of this section, if payments made
since the costs were vouchered are sufficient to bring both the loan and
cost accounts current. The following information should be forwarded to
the National Office for approval of the reclassification to amortized
status, and forwarded to the Finance Office for processing: An audit
showing all costs vouchered along with payments made since the date of
the cost item and to be made prior to the reclassification; the
estimated reapplication of the payments due to reclassification showing
that the account will be current after the reclassification; and the
proposed budget and management case files.
(d) Audit receivables. Loan, grant or subsidy funds which were used
by the borrower for unauthorized purposes; have been identified by the
Office of Inspector General (OIG) in an audit; and, which FmHA or its
successor agency under Public Law 103-354 is requiring the borrower to
repay.
(e) Conversion. The act of changing a borrower's account from DIAS
to PASS.
(f) Daily Interest Accrual System (DIAS). A system whereby interest
is charged daily from the date a payment is received in the District
Office to the next date a payment is received. A daily interest accrual
factor is computed by multiplying the outstanding principal balance by
the effective interest rate and dividing by 365 days. Computation is
always based on a 365 day year. Interest on each payment is charged on
the actual number of days that a principal balance is outstanding.
(g) District Director. For the purpose of this subpart the term
includes the Assistant District Director, and other qualified District
staff who may be delegated responsibilities according to Sec. 1930.143
of subpart C of part 1930 of this chapter, and the provisions of subpart
F of part 2006 of this chapter (available in any FmHA or its successor
agency under Public Law 103-354 office). In the case of LH loans still
being serviced in the County Office, this definition also includes
qualified County Office staff. This definition further includes the Area
Loan Specialists in Alaska, Island Directors in Hawaii, Directors of
Western Pacific Territories, and other qualified staff members in
[[Page 83]]
Alaska, Hawaii, and Western Pacific Territories, respectively.
(h) Extra payment. Extra payments are applied all to principal on
the end of the loan and are funds derived from:
(1) Sale of basic chattel or real estate security, including rental
or lease of real estate security of a depreciating or depleting nature.
(2) Refinancing of real estate debt.
(3) Mineral royalties.
(4) Cash proceeds of real property insurance as provided in subpart
A of part 1806 of this chapter (FmHA or its successor agency under
Public Law 103-354 Instruction 426.1).
(5) Sale of real estate not mortgaged to the Government, pursuant to
a condition of loan approval.
(6) Transactions of a similar nature which reduce the value of the
security for the loan(s).
(i) Project late fee. The amount charged a borrower's project
account for a delinquent payment according to Sec. 1951.510(c)(2) of
this subpart, or when an uncollectible regular payment has been
processed according to Sec. 1951.506(c) of this subpart.
(j) Non-recoverable costs. Payments charged to a loan program
insurance fund by use of a fund code. These costs are only incurred
after Government acquisition of title to the property, and are therefore
charged to an inventory account.
(k) Occupancy surcharges. A monthly surcharge on units in projects
where the initial loan was made or insured pursuant to a contract
entered into on or after December 15, 1989. These surcharges will be
collected from the tenant by the borrower on the same day and in
addition to regular rents. The amounts to be collected will be in
accordance with exhibit B of this subpart.
(l) Overage. This term refers to both ``overage'' and ``surcharge''
described in exhibit H to subpart C of part 1930 of this chapter.
(m) Payment effective date. The payment effective date is the day of
the month on which payments will be effectively applied to the account
by the Finance Office for the month payment is due regardless of the
payment reception date. On PASS all payments will be applied as of the
first day of the month.
(n) Payment reception date. The day of the month the payment is
received in the District Office.
(o) Predetermined Amortization Schedule System (PASS). System
whereby FmHA or its successor agency under Public Law 103-354 will apply
loan payments based on an amortization schedule.
(p) Promissory note installment. The unrounded amortized installment
shown on the promissory note, conversion agreement, assumption agreement
or reamortization agreement, whichever is currently in effect.
(q) Recoverable costs. Additional project costs such as vouchered
insurance or taxes which FmHA or its successor agency under Public Law
103-354 requires a borrower to pay.
(r) Refund payment. Payments from unused loan funds which are
applied to principal on the end of the loan account.
(s) Regular payment. All monthly payments scheduled according to
PASS. Does not include extra payments, advance regular payments, refund
payments or voluntary additional principal payments.
(t) Subsidized installment. The promissory note installment reduced
by the terms of Form FmHA or its successor agency under Public Law 103-
354 1944-7, ``Multiple Family Housing Interest Credit and Rental
Assistance Agreement.'' The subsidized installment is the unrounded
amortized installment computed at the subsidized interest rate.
(u) Subsidy credit. The difference between a borrower's monthly
promissory note installment and the monthly subsidized installment.
(v) Voluntary additional principal payment. Payments applied all to
principal which are made at the election of the borrower in addition to
regularly scheduled payments and with FmHA or its successor agency under
Public Law 103-354 approval. Such payments will not affect the schedule
payment status or change the amount of the regular monthly payments.
Funds for voluntary additional principal payments are derived from
sources other than
[[Page 84]]
extra payment sources. Payments will be applied to current loans only.
[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 2194, Jan. 26, 1988; 53
FR 16244, May 6, 1988; 55 FR 25078, June 20, 1990; 56 FR 66961, Dec. 27,
1991]
Sec. 1951.505 [Reserved]
Sec. 1951.506 Processing payments.
(a) Regular payments. Regular payments and advance regular payments
will be processed as follows:
(1) All payments will be based on tenants occupying the units as of
the first day of the month prior to the payment due date. For example, a
payment due on July 1 is based on tenants occupying the units June 1.
For the purposes of this subpart, the word ``tenant'' also means RCH
``member.''
(2) The borrower must deliver all Forms FmHA or its successor agency
under Public Law 103-354 1944-8, ``Tenant Certification,'' or for
tenants receiving Section 8 assistance, the acceptable Department of
Housing and Urban Development (HUD) form to the District Director
according to paragraph VII F 1 of exhibit B to subpart C to part 1930 of
this chapter. The District Director will date stamp each certification
and will verify the information on the tenant certification also as
required in paragraph VII F of exhibit B to subpart C of part 1930 of
this chapter. The data from the tenant certifications must be entered
into the Multi-Family Housing Tenant File System (MTFS) which will
calculate the tenant's rent payment.
(i) If the calculations on the tenant certification do not agree
with MTFS, the District Office will contact the borrower/management to
resolve the discrepancy. MTFS calculations will be used to calculate
interest credit and rental assistance due the borrower.
(ii) A copy of MTFS ``Project Worksheet--Interest Credit and Rental
Assistance,'' an automated printout, will be generated and compared to
the borrower's Form FmHA or its successor agency under Public Law 103-
354 1944-29, ``Project Worksheet for Interest Credit and Rental
Assistance.'' Only tenants with current tenant certifications shown on
MTFS will be certified for interest credit or rental assistance when
processing payments.
(iii) A copy of the monthly MTFS project worksheet report will be
filed with Form FmHA or its successor agency under Public Law 103-354
1944-29 to document the approved subsidies.
(iv) At the borrower's request, a copy of the MTFS project worksheet
report may be used as Parts I and II in lieu of Form FmHA or its
successor agency under Public Law 103-354 1944-29. The District Office
will provide a copy of the MTFS project worksheet report to the borrower
about the 20th of the month. When using the MTFS project worksheet
report as Parts I and II of Form FmHA or its successor agency under
Public Law 103-354 1944-29, the borrower will verify the data, sign the
MTFS project worksheet report, and return it with the monthly payment to
the District Office. Borrowers using the MTFS project worksheet report
as Part II, only, will complete, sign, and attach Part I of Form FmHA or
its successor agency under Public Law 103-354 1944-29 to the MTFS
project worksheet report, before returning it with the monthly payment.
Borrowers with Section 8 units who are reporting overage payment, and/or
excess HUD contract rent to the reserve account are required to complete
Part I of either Form FmHA or its successor agency under Public Law 103-
354 1944-29 or the MTFS project worksheet report.
(3) On or about the 11th day of each month, the Finance Office will
generate and mail to each borrower that is delinquent and/or has late
fees, Form FmHA or its successor agency under Public Law 103-354 1944-
9A, ``Multiple Family Housing Statement of Payment Due,'' showing the
current monthly payment due, unpaid late fees, and delinquent payments,
if any, due on the first day of the following month. This payment
statement will be determined from current Finance Office records but
will not reflect overage or occupancy surcharge due from the borrower or
rental assistance (RA) due the borrower.
(4) Each borrower will submit to the District Office Form FmHA or
its successor agency under Public Law 103-354 1944-29 with the required
monthly payment indicated or adjusted as indicated
[[Page 85]]
in paragraph (a)(5) of this section regardless of whether or not Form
FmHA or its successor agency under Public Law 103-354 1944-9A is
received.
(5) Form FmHA or its successor agency under Public Law 103-354 1944-
29, prepared by the borrower must reflect the following:
(i) Only tenants occupying units the first day of the month prior to
the payment due date.
(ii) Interest credit and (RA) may be claimed only for tenants with
current tenant certification as specified in paragraph VII F 2 of
exhibit B to subpart F of part 1930 of this chapter.
(iii) Overage up to the market rent must be paid to FmHA or its
successor agency under Public Law 103-354 by the borrower for tenants
without current tenant certifications unless there is a formal eviction
in process, then the payment will be calculated based on the expired
tenant certificate. The District Director may determine that the tenant
may be required to reimburse the borrower for that overage as allowed in
paragraph VII F 6 c of exhibit B to subpart C of part 1930 of this
chapter.
(iv) Any occupancy surcharge due FmHA or its successor agency under
Public Law 103-354 as described in exhibit B of this subpart.
(v) The borrower may subtract any RA due the project (supported by
current tenant certifications) from the payment due and remit a ``net''
payment. Calculations supporting the ``net'' payment must be shown on
Part I of Form FmHA or its successor agency under Public Law 103-354
1944-29. The Finance Office will net enough RA to bring the account
status current and pay any unpaid overage, late fees, occupancy
surcharges, interest on delinquent principal, etc., based on the payment
reception date. If the account is on or ahead of schedule on the payment
reception date, enough RA will be netted to pay one full installment and
any unpaid coverage, occupancy surcharge, interest on delinquent
principal, etc.
(6) The District Director will certify that data on current tenant
certifications held in the District Office supports claims on Form FmHA
or its successor agency under Public Law 103-354 1944-29. The District
Director will transmit payments as directed in exhibit A of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office).
(7) Payment input by FmHA or its successor agency under Public Law
103-354 will be based on correct amounts regardless of the amount
remitted by the borrower.
(b) Other payments. Payments made through the District Office will
be processed according to subpart B of part 1951 of this chapter
(available in any FmHA or its successor agency under Public Law 103-354
office).
(c) Uncollectible payment. Uncollectible payments will be handled
under subpart B of this part 1951 of this chapter. The payment effective
date for the replacement payment will be the date the replacement
payment is received in the District Office, not the date of the original
payment.
[50 FR 8597, Mar. 4, 1985, as amended at 51 FR 27671, Aug. 1, 1986; 55
FR 25078, June 20, 1990; 56 FR 28038, June 19, 1991; 58 FR 40954, July
30, 1993; 59 FR 54789, Nov. 2, 1994]
Sec. 1951.507 Maintaining borrower accounts.
(a) Accounts of active borrowers. The foundation for proper and
timely debt payment is sound budgeting and monthly review of income and
expenses by the borrower and, as necessary, the District Office staff.
Account maintenance, therefore, must begin with initial planning and
must be an integral part of ongoing analysis, planning and follow-up
management assistance.
(b) Accounts of collection-only borrowers. Collection only accounts
will be serviced according to Sec. 1951.7(b) of subpart A of this part.
(c) Notifying borrowers of late fees and past due payments. The
Finance Office will automatically notify each borrower of late fees for
payments which were unpaid on the 10th day of the month. A copy of the
notice will be mailed to the District Office servicing the account.
(d) Subsequent servicing. Delinquent accounts will be serviced
according to the respective program requirements. Accounts will also be
serviced under subpart B of part 1965 of this chapter.
(e) District Office monitoring. District Offices should review each
account at
[[Page 86]]
least monthly by accessing the Automated Multi-Housing Accounting System
(AMAS) through field office terminals. For projects on PASS, the
Management System card will be flagged with an orange signal between
Position ``5'' and ``RRH.'' Exhibit A-1 of this subpart (available in
any FmHA or its successor agency under Public Law 103-354 office) should
be used to track payments.
[50 FR 8597, Mar. 4, 1985, as amended at 58 FR 40955, July 30, 1993]
Sec. 1951.508 [Reserved]
Sec. 1951.509 Occupancy surcharges.
(a) Authorization to Collect Occupancy Surcharge. Public Law 101-235
enacted December 15, 1989, and amended by Public Law 101-625, prescribes
provisions for FmHA or its successor agency under Public Law 103-354 to
collect an additional monthly amount from borrowers on all initial
section 515 loans made or insured pursuant to a contract entered into on
or after December 15, 1989.
(1) A contract entered into for this purpose is when a completed
Form FmHA or its successor agency under Public Law 103-354 1944-51,
``Multiple Family Housing Obligation--Fund Analysis,'' is properly
delivered to the borrower on or after December 15, 1989. (That delivery
date is the date entered in Item 51 on Form FmHA or its successor agency
under Public Law 103-354 1944-51).
(2) The term occupancy surcharge shall be used hereafter to describe
this additional monthly charge.
(b) Occupancy Surcharge Payments. These monthly payments shall be
made from project income which will be collected from tenants or from
subsidy which the tenant will be entitled to. The amount of surcharge
assessed per unit, in the initial year of operation will be $2 per unit.
This surcharge assessment will increase by $2 per unit each year
thereafter for 19 years. The amount of the surcharge assessment which
the tenant pays will be based on the income level of each tenant
household. Tenant households who pay more than 30 percent of their
annual adjusted income in rent and utilities will not be required to pay
occupancy surcharge.
(1) Annual increases will cease 20 years from the date of the first
surcharge payment due on the initial or oldest loan in the project.
(2) Surcharge payments will continue after the annual increase
period has expired, but surcharge unit assessments will remain at the
levels established at year 20 of the initial loan for the remaining life
of the loan.
(3) If a subsequent loan is made and the initial loan in the project
is subject to occupancy surcharge, the annual increase period will still
expire 20 years from the first surcharge payment due on the initial
loan.
(c) Increases in Tenant Contribution Due to Occupancy Surcharges.
Borrowers/Managers are responsible for initiating and monitoring
surcharge annual increases and all surcharge increases and decreases due
to change in tenant contributions. These changes require no prior review
by FmHA or its successor agency under Public Law 103-354. All tenants
must be notified of any changes in their surcharge contribution in the
following manner:
(1) Tenants moving into newly constructed projects in their first
year of operation should be informed of the occupancy surcharge
requirements when their lease and initial tenant certification is
signed. They should also be apprised at that time of possible surcharge
changes based on their income levels.
(2) When there are surcharge changes due to income changes and
regular recertifications, the current signed tenant certification
showing the level of surcharge due will serve as notification of the
change.
(3) Tenants who experience surcharge changes due to the annual $2
per unit increase on the surcharge anniversary date must be sent a
notification of the change in accordance with exhibit B of this subpart.
(d) Occupancy Surcharge Account. Occupancy surcharge monies
collected by FmHA or its successor agency under Public Law 103-354 will
be deposited in the Rural Housing Insurance Fund (RHIF) in such a manner
as to accrue interest on the total amount of funds collected. These
monies will be made
[[Page 87]]
available only for payments of principal and interest on guaranteed
equity loans made under the authorization of section 515 of the HUD Act
of 1989. Payments from the occupancy surcharge account will only be in
amounts necessary to ensure that additional project expense from the
incurred guaranteed equity loan does not raise rent payments above
prescribed maximum rent levels necessary to operate the project. Any
monies not expended in the project from which the payments were made
will be used in other projects to make payments of principal and
interest on a guaranteed equity loan.
(e) Occupancy Surcharge Takeout. The method for allowing payments on
these guaranteed equity loans out of the occupancy surcharge account
will be forthcoming a such time as needed and will conform with
appropriate legislative requirements in effect at that time.
(f) Collection of Occupancy Surcharge by FmHA or its successor
agency under Public Law 103-354. The policies and methods for collecting
surcharge are set forth in exhibit B of this subpart.
[56 FR 66961, Dec. 27, 1991]
Sec. 1951.510 Payment application.
(a) Regular payment due date. The regular payment due date is the
first day of each month. All months will be counted as 30 days (360 day
year).
(b) First regular payment. (1) The first regular amortized payment
after loan closing for transfers (new terms), reamortizations, voluntary
conversions, credit sales, or loans closed after interim financing must
be at least one (1) month from closing. For example, if a loan is closed
on January 31, the first regular amortized payment will be due March 1.
For multiple advance loans the first payment must be at least one (1)
month after the final advance.
(2) For transfers (same terms) payments on loans already on PASS
will be due on the next scheduled due date.
(3) Transfers (same terms) converting from DIAS to PASS are loans
retaining the same interest rate and final due date and regular
amortized payments will be due 30 days form either the date of closing
or the interest only installment, whichever is later.
(c) Delinquent payments. (1) A loan payment is due on the first day
of a month. A loan payment is considered past due when it is received on
the second day or a subsequent day through the close of business of the
tenth day of the month. A loan payment is late when it is received after
normal business hours of the tenth day of the month, without regard to
weekends, holidays or payment transmission factors. Thereafter, a late
fee will be charged as described in paragraphs (c)(2) and (c)(4) of this
section.
(2) The project account will be charged a late fee when the regular
payment is not received in the District Office by close of business of
the tenth (10) day of the month the payment is due or when the payment
is applied by the Finance Office and does not fully pay the regular
payment and other charges for each project loan. Late fees collected by
the Finance Office will be deposited in the Rural Housing Insurance Fund
(RHIF).
(i) The project late fee is six percent of the total regular
payment(s) due shown on the promissory note(s), conversion agreement(s),
assumption agreement(s) or reamortization agreement(s).
(ii) A project late fee will be charged for any unpaid portion of
the regular payment(s) exceeding $15.00.
(iii) A project late fee will be charged one time only, for each
regular payment.
(iv) Except for cooperative housing, project late fees may not be
paid from project income as specified in paragraph XIII B2a(4) of
exhibit B to subpart C of part 1930 of this chapter.
(v) Exceptions may be made to late fee charges only as follows:
(A) The State Director may allow an exception for any project for
three (3) monthly project late fee charges in any calendar year, based
on the State Director's determination that the late fees place an unfair
burden on the project. For each exception requested, the borrower must
provide a written explanation of the circumstances which caused the late
payment and what actions will be taken to bring the account current.
[[Page 88]]
(B) The National Office may authorize exceptions to late fees for
borrowers who have late fees exceeding the State Director's exception
authority. When the State Director determines that the application of a
late fee would place an unfair burden on the borrower, the State
Director may submit a request for an exception to the late fee to the
National Office. The request will include an explanation of the
circumstances, a recommendation for action and all relevant case file
material. The National Office will review the request and notify the
State Director what action should be taken on the account.
(C) When an exception to late fees is granted, the State Director
will notify the borrower on Form FmHA or its successor agency under
Public Law 103-354 1951-51, ``Multiple Family Housing Exception to Late
Fees,'' completed according to the FMI.
(D) When an application for late fee exception is denied the State
Director must give the borrower appeal rights under subpart B of part
1900 of this chapter.
(3) A project is considered delinquent on the 30th day of the month
when any due amount is unpaid.
(4) When a regular PASS payment continues to be delinquent on the
first of the month following the delinquent payment due date, interest
will be charged on the unpaid delinquent principal at the note rate from
the date the principal was due until all regular payments, recoverable
cost charges, late fees, and occupancy surcharges have been paid current
in accordance with the number of full installments required by the
promissory note. This interest will be in addition to the scheduled
interest of the regular payment. The interest on delinquent principal
will be added to the regular payment amount due for the month.
(d) Subsidy credit. When the Finance Office receives the regular
payment, subsidy credit will be applied to the loan account before any
payment or other credit is applied to the account. Subsidy credit will
be applied first to accrued interest and then to principal after all
interest is paid. Subsidy credit will not be applied to late fees, audit
receivables, or recoverable cost charges.
(e) Regular payments. Regular payments will be applied in the
following priority:
(1) Amortized audit receivables.
(2) Unamortized audit receivables.
(3) All project late fees due.
(4) Occupancy surcharges.
(5) Amortized recoverable costs due.
(6) Unamortized recoverable costs due.
(7) Overage.
(8) All other interest due.
(9) Principal.
(10) Any remaining regular payment will be applied as an advance
regular payment unless specifically designated otherwise.
(f) Advance regular payments. These payments affect the payment
status of the loan. The loan account must be current before a payment
can be applied as an advance payment. The payment effective date will be
the due date of the next regular payment which is not fully paid.
(g) Extra and refund payments. Both will be applied as principal to
the last installment to become due under the note.
(h) Voluntary additional principal payments. These payments will
only be credited to the account when all regularly scheduled payments on
the account have been paid. Voluntary additional principal payments are
credited all to principal, as of the payment effective date, and do not
affect the payment status of the loan.
(i) Projects with initial and subsequent loan(s). Regular payments
on projects with an initial and subsequent loan(s) will be applied
according to the priorities listed in Sec. 1951.510(e) of this subpart.
Each priority item will be paid for all project loans before moving to
the next item.
Payments will be applied for each priority item in accordance with the
loan number, beginning with the initial loan and ending with the highest
numbered subsequent loan.
(j) Final payments. Final payments will be applied on the next
payment due date or the final due date shown on the promissory note,
assumption agreement or reamortization agreement, whichever is sooner.
The District Office
[[Page 89]]
must contact the Finance Office for the amount of the final payment.
Final payment should be accepted under conditions specified in
Sec. 1965.90 of subpart B to part 1965 of this chapter.
[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16245, May 6, 1988; 55 FR
5975, Feb. 21, 1990; 55 FR 25078, June 20, 1990; 56 FR 2257, Jan. 22,
1991; 58 FR 40955, July 30, 1993]
Sec. 1951.511 [Reserved]
Sec. 1951.512 Changes in the application of loan payments.
District Office employees with State Director authorization
according to Sec. 1930.143 of subpart C to part 1039 of this chapter are
authorized to approve reapplication of loan payments between accounts
when payments have been applied in error. All authorization for
reapplication of payments must conform to the policies expressed in this
subpart. No change may be made if the loan is paid in full, the
cancelled note or notes have been returned to the borrower, and the
security instruments have been satisfied. The District Director will
process the changes as prescribed in exhibit A of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office) by the AMAS Coordinator.
[56 FR 28038, June 19, 1991, as amended at 58 FR 40955, July 30, 1993]
Sec. 1951.513 Overpayments and refunds to borrowers.
Overpayments and refunds to borrowers will be processed according to
Sec. 1951.13 of Subpart A of this part.
Sec. 1951.514 Recoverable and non-recoverable cost charges.
The District Director will service recoverable and non-recoverable
cost items according to Sec. 1951.14 of subpart A of this part and FmHA
or its successor agency under Public Law 103-354 Instruction 2024-A
which is available in any FmHA or its successor agency under Public Law
103-354 office. (Recoverable and non-recoverable costs are defined in
Sec. 1951.504 of this subpart.)
[53 FR 16245, May 6, 1988, as amended at 57 FR 36591, Aug. 14, 1992]
Sec. 1951.515 Promissory notes for borrowers who convert to PASS.
Promissory notes in the hands of investors when a loan is converted
to PASS will be repurchased by the Finance Office and forwarded to the
District Office for storage.
Sec. 1951.516 [Reserved]
Sec. 1951.517 Conversion from DIAS to PASS.
(a) Conversion prior to May 1, 1985. The account of any existing RRH
loan recipient who elected to convert to PASS before October 31, 1983,
by following instructions prescribed by FmHA or its successor agency
under Public Law 103-354, and who signed their conversion documents
before May 1, 1985, or any recipient of a new loan, credit sale, or
transfer (new terms) closed between November 1, 1983, and April 30,
1985, who elected to convert to PASS, was converted, as if the loan has
been on an amortization schedule from the date of the loan, transfer
(new terms), or reamortization (new terms), whichever occurred later.
(b) Conversion on or after May 1, 1985--(1) Required conversion.
After May 1, 1985, all MFH loans, transfers or reamortizations must be
closed on PASS, except LH loans specified in Sec. 1951.501(a)(2)(i) of
this subpart. All borrowers receiving subsequent loans or
reamortizations must convert all initial and subsequent loans on the
project to PASS. If the subsequent loan and conversion are not closed on
the first of the month, the interest from the date of closing to the
first of the month will be capitalized. Recoverable costs and unpaid
interest may be capitalized on coversions required by subsequent loans
or reamortization of one loan on the project account.
(2) Voluntary conversion. District Directors shall approve voluntary
conversion of any account from DIAS to PASS upon a request by the
borrower, when the following conditions are met:
(i) The loan account and reserve account are current less any
authorized withdrawals at the time of conversion.
(ii) Conversion does not result in a rent increase.
(iii) The conversion is effective the first day of the month.
[[Page 90]]
(3) Processing conversions. The following actions must be taken to
convert an account from DIAS to PASS:
(i) Form FmHA or its successor agency under Public Law 103-354 1951-
50, ``Multiple Family Housing Conversion Agreement,'' will be completed
according to the FMI except loans converted on Form FmHA or its
successor agency under Public Law 103-354 1965-9, ``Multiple Family
Housing Assumption Agreement,'' or FmHA or its successor agency under
Public Law 103-354 1965-16, ``Multiple Family Housing Reamortization
Agreement.'' The terms of Forms FmHA or its successor agency under
Public Law 103-354 1965-9 and FmHA or its successor agency under Public
Law 103-354 1965-16 convert the account to PASS.
(ii) When the borrower will continue to receive interest credit
following conversion, the current interest credit plan type will be
passed through to the PASS loan. However, a new Form FmHA or its
successor agency under Public Law 103-354 1944-7 must be prepared to
reflect the PASS payment and subsidy amount.
(iii) On the back of the original note or assumption agreement (new
terms), below all signatures and endorsements, the District Director
will insert the following: ``A Form FmHA or its successor agency under
Public Law 103-354 1951-50 dated ______ 198__, in the principal sum of
$______, has been given to modify the payment schedule of the note.
(4) Principal balance to be converted. For transfers and
reamortizations, the applicable transfer or reamortization form will
convert the account to PASS. The principal balance converted to PASS
will be established according to the FMI for Forms FmHA or its successor
agency under Public Law 103-354 1965-9, FmHA or its successor agency
under Public Law 103-354 1965-10, ``Information on Assumption of
Multiple Family Housing Loans,'' or FmHA or its successor agency under
Public Law 103-354 1965-16, and the following:
(i) For DIAS to PASS transactions (new terms):
(A) First of the month closings: The unpaid interest, overage,
occupancy surcharge and late fees accrued through the last day of the
previous month will be capitalized.
(B) Other than the first of the month closing: Accrued interest,
overage, occupancy surcharge and late fees through the date of closing
will be capitalized. An interest only installment from the date of
closing through the 30th day of the month will be collected from the
transferee and applied to the transferee's account. This interest only
installment will be calculated on the same interest credit rate in
effect for the previous borrower.
(ii) For DIAS to PASS transactions (same terms):
(A) First of the month closings: Accrued interest, overage,
occupancy surcharge and late fees through the last day of the previous
month will be collected from the transferor at closing and credited to
the transferor's account.
(B) Other than the first of the month closings: Accrued interest,
overage, occupancy surcharge and late fees through the date of closing
will be collected from the transferor at closing and credited to the
transferor's account. The date of credit is the day before closing. An
interest only installment from the date of closing through the 30th day
of the month will be collected from the transferee and credited to the
transferee's account. This interest only installment will be calculated
on the same interest credit rate in effect for the previous borrower.
(iii) Reamortizations will always be effective the first day of the
month. Unpaid interest, including any unpaid overage, occupancy
surcharge and late fees may be capitalized as follows: DIAS to PASS
transactions, through the last day of the previous month; PASS to PASS
transactions, through the 30th day of the previous month.
(iv) Audit receivables may not be transferred or reamortized. They
will be established as a ``Collection Only'' account for the transferor
and must be collected or charged off.
(5) Terms of conversion. All conversion on Form FmHA or its
successor agency under Public Law 103-354 1951-50 will be
[[Page 91]]
at the interest rate and within the remaining terms shown on the
converting promissory note, assumption agreement (new terms) or
reamortization agreement (new terms).
[50 FR 8597, Mar. 4, 1985, as amended at 53 FR 16245, May 6, 1988; 58 FR
40955, July 30, 1993]
Sec. 1951.518 Determining current loan balances for transfer.
Same terms transfers, when the transferor has been converted to
PASS, must take place in a current loan status on the date of the
transfer. Any delinquent principal and interest must be brought current.
Overpayments and advance regular payments made on PASS accounts result
in the creation of a ``future paid'' status account under AMAS. These
advance payments must be reversed off and applied to the transferor's
principal balance prior to determining the loan balance to be
transferred. If the future payments have been made through rental
assistance, they must be refunded to the transferor and reapplied in the
form of cash on the loan balance.
[53 FR 16245, May 6, 1988]
Secs. 1951.519--1951.547 [Reserved]
Sec. 1951.548 Exception authority.
The Administrator of the Farmers Home Administration or its
successor agency under Public Law 103-354 may, in individual cases, make
an exception to any requirements of this Subpart not required by the
authorizing statute if the Administrator finds that application of such
requirement would adversely affect the interest of the Government. The
Administrator will exercise the authority only at the request of the
State Director. The District Director will submit the request supported
by data: demonstrating the adverse impact; identifying the particular
requirement involved; showing proper alternative courses of action; and,
identifying how the adverse impact will be eliminated.
Sec. 1951.549 [Reserved]
Sec. 1951.550 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0106. Public reporting burden for this collection of
information is estimated to be 15 minutes per response, with an average
of 15 minutes per response including time for reviewing instructions,
searching existing data sources, gathering and maintaining the data
needed, and completing and reviewing the collection of information. Send
comments regarding this burden estimate or any other aspect of this
collection of information, including suggestions for reducing this
burden, to Department of Agriculture, Clearance Office, OIRM, Room 404-
W, Washington, DC 20250; and to the Office of Management and Budget,
Paperwork Reduction Project (OMB 0575-0106), Washington, DC 20503.
[56 FR 28039, June 19, 1991]
Exhibits to Subpart K
Exhibit A--[Reserved]
Exhibit B--Occupancy Surcharge Payments
I. Objectives
This exhibit prescribes the methods for arriving at monthly
occupancy surcharge rates for tenants in Farmers Home Administration or
its successor agency under Public Law 103-354 (FmHA or its successor
agency under Public Law 103-354) Rural Rental Housing (RRH) and Rural
Cooperative Housing (RCH) section 515 projects. This exhibit affects all
initial loans made or insured pursuant to a contract entered into (when
a properly completed Form FmHA or its successor agency under Public Law
103-354 1944-51, ``Multiple Family Housing Obligation--Fund Analysis,''
is delivered to the borrower. This delivery date is the date entered in
item 51 on the 1944-51) on or after December 15, 1989.
II. Eligible Projects
A. Initial loans made pursuant to contracts entered into on or after
December 15, 1989, will be subject to all occupancy surcharge
requirements contained within this exhibit.
B. Subsequent loans will not be subject to occupancy surcharge
unless the initial loan in the project is subject to occupancy
surcharge.
C. Project consolidations will make the new consolidated project
subject to occupancy surcharge when one or more of the loans are subject
to occupancy surcharge and will be handled in accordance with subpart B
of part 1965 of this chapter.
[[Page 92]]
III. Initial Understanding With Borrower
All RRH and RCH applicants will be informed at the application stage
of the Agency's occupancy surcharge requirements and procedures. All
borrowers will be advised that all occupancy surcharge charges must
comply with this Exhibit.
IV. Initial Understanding With Tenant
Tenants moving into projects that are subject to occupancy surcharge
requirements should be informed by the borrower/manager of those
requirements when the lease and initial tenant certification are signed
by the tenant. They should also be apprised at that time of possible
surcharge changes based on tenant household income levels.
V. Surcharge Payment Due Dates
The first monthly occupancy surcharge payment and all payments
thereafter will have the same due dates as amortized loan installment
due dates. Surcharges will be based on tenants in residence on the first
of the month prior to the payment due date.
VI. Defining Occupancy Surcharge
Occupancy surcharge is a monthly charge on units in projects where
the initial loan was made or insured pursuant to a contract entered into
on or after December 15, 1989. The surcharge assessment due will be
collected from borrowers by FmHA or its successor agency under Public
Law 103-354 and set aside to offset any rent increases which may result
when the project becomes eligible for a guaranteed equity loan, 20 years
from the date the initial loan was made or insured.
The amount of surcharge assessed in the initial year will be $2 per
unit, per month, with annual increases of $2 per unit for a 19 year
period. At the expiration of the 20 year period, annual increases will
stop but the surcharge payment will continue at that established rate
for the remaining life of the loan.
The residing tenant will only be required to pay the portion of the
surcharge assessment that would be included within 30 percent of their
annual adjusted gross income.
Example: (No RA Available for Unit)
Basic Rent for Project--$200 per month
Occupancy Surcharge Assessment for Year One is $2
Net Tenant Contribution (NTC)--$195
Tenant Pays--$200--No Occupancy Surcharge (To pay any portion of the $2
would have put the tenant over 30 percent of their annual adjusted
income).
Borrowers will not be required to pay the unpaid portion of the
surcharge assessment that exceeds the tenant contribution.
Vacant units will not be subject to surcharge payments but will be
subject to annual increases in unit surcharge rates on surcharge
anniversary dates.
VII. Adjustments to Occupancy Surcharge Due to Changes In Tenant's
Income
A. If a tenant's income increases, and that tenant was not
previously paying surcharge at the maximum level assessed to the unit,
they may become subject to paying a higher level of surcharge. This
amount of surcharge increase is not to exceed the maximum surcharge
assessed to the unit by annual increases.
B. If a tenant's income decreases and that decrease will cause the
level of surcharge previously paid to exceed 30 percent of their annual
adjusted income, the surcharge payments will be decreased accordingly.
C. Annual increases in occupancy surcharges will always be in $2
increments but tenants may qualify to pay any portion of the surcharge
unit assessment, rounded up to the nearest $1.
Example: Basic Rent for Project--$200 per month
Occupancy Surcharge Assessment for Year 2 is $4
Tenant NTC--$203
Tenant Pays $200 + $3 Occupancy Surcharge
VIII. Tenants Receiving Rental Assistance (RA)
Tenants receiving RA will always be subject to the maximum occupancy
surcharge assessments because their rent contributions will never exceed
30 percent of their annual adjusted gross income.
Example: Basic Rent in Project--$200 per month
Tenant NTC = $150
Year One--Tenant Pays $150 and RA Pays $52 = $202 ($50 Basic Rent + $2
Surcharge)
Year Two--Tenant Pays $150 and RA Pays $54 = $204 ($50 Basic Rent + $4
Surcharge)
If the tenant continues to receive RA, annual increase surcharge
assessments will continue to be paid from RA.
IX. Tenants Paying Overage
Tenants paying overage will be subject to maximum surcharge
assessments until their rent, utilities and surcharge equals 30 percent
of their annual adjusted gross income. The amount of overage tenants pay
will reduce by the amount of surcharge assessed to the unit.
Example: Basic Rent for Project is $200 per month
Tenants NTC--$210 (No change in income throughout example)
Year One--Tenant Pays $210 ($200 basic + $2 Surcharge + $8 overage)
Year Two--Tenant Pays $210 ($200 basic + $4 Surcharge + $6 overage)
Year Five--Tenant pays $210 ($200 basic + $10 Surcharge + $0 overage)
[[Page 93]]
Year Six--Tenant Pays $210 ($200 + $10 Surcharge) While the unit
surcharge increases to $12, the tenant experienced no surcharge annual
increase because, at this point, 30 percent of their annual adjusted
gross income will only cover rent, utilities and a $10 occupancy
surcharge.
X. Tenants Paying Market Rent
Tenants paying market rent will pay up to the maximum surcharge
assessments plus any annual increases until rent, utilities and the
surcharge level equals 30 percent of their annual adjusted gross income.
Note: An easy formula to use for market tenants is:
Take the lesser figure of Tenant's 30 Percent or Maximum Contribution
(Market plus Surcharge).
Minus Basic Rent.
Minus Occupancy Surcharge unit assessment.
Balance is Overage.
Example: Basic Rent is $200 per month, Market Rent is $425 per month
Tenant NTC--$430 (no change in income throughout example)
Tenant's maximum contribution is $425 plus surcharge rate
Year One--Tenant Pays $427 ($425 Market Rent + $2 Surcharge) minus basic
Rent minus Surcharge = $225 Overage
Year Two--Tenant Pays $429 ($425 Market Rent + $4 Surcharge) minus Basic
Rent minus Surcharge = $225 Overage
Year Three--Tenant Pays $430 ($425 Market Rent + $5 Surcharge) minus
Basic Rent minus Surcharge = $224 overage
Year Four--Tenant Still Pays $430. Tenant did not pay surcharge annual
increase for this year because they are now paying 30 percent of their
annual adjusted gross income for rent, utilities and surcharge.
XI. Projects Receiving Rental Assistance From Sources Other Than FmHA or
its successor agency under Public Law 103-354
A. Projects subject to occupancy surcharge provisions where tenants
are receiving sources of rental assistance other than from FmHA or its
successor agency under Public Law 103-354 (private project RA, HUD
Section 8, State Funded RA, etc.) should be handled on a case-by-case
basis and in consultation with the National Office.
B. Whether occupancy surcharge will be paid by rental assistance
coming from sources other than FmHA or its successor agency under Public
Law 103-354 is dependent upon the terms of the contracts from which the
funds are expended.
XII. Annual Increases of Occupancy Surcharges
A. The annual surcharge increases will continue for a period of 19
years from the first surcharge anniversary date of the loan in the
project that established the surcharge.
B. After the 19 year annual increase period expires, tenants will
continue surcharge payments for the remaining life of the loan at the
unit rate established on the anniversary date of year 19. The tenant
will continue to pay the portion of that unit rate that is within 30
percent of their annual adjusted gross income.
XIII. Surcharge Anniversary Date
The surcharge anniversary date is the effective date for the $2 per
unit annual increase assessment. This date will always be established
one year from the first surcharge payment due. The first surcharge
payment is due at the same time the first amortized loan installment is
due which is one month from the Amortized Effective Date (AED).
Example:
Loan Closed--10/12/91
AED Date--11/01/91
1st Amortized Payment Due--12/01/91
1st Surcharge Payment Due--12/01/91
Surcharge Anniversary Date--12/01 for all Subsequent Years
No Further Annual Increases after Year 2011
XIV. Occupancy Surcharge Changes
A. Changes in the amount of surcharge tenants pay due to income
changes, the regular tenant recertification process and surcharge
anniversary increases will always be handled as separate actions, even
though they could be effective on the same date. Examples of change in
tenant surcharge payments are:
1. Changes in tenant income during the year can increase or decrease
the portion of the assessed surcharge per unit which the tenant must
pay.
2. The amount of surcharge paid by the tenant can increase or
decrease on the yearly recertification date of Form FmHA or its
successor agency under Public Law 103-354 ``Tenant Certification'' if
the tenants income has changed.
3. The amount of surcharge paid by the tenant can increase on the
surcharge anniversary date.
4. Tenants paying market rent may experience a increase/decrease in
the amount of cash they pay for surcharge as a result of the anniversary
increase and any income changes.
B. When there are surcharge changes due to income changes and
regular recertifications, the current signed tenant certification
showing the level of surcharge due will serve as notification of the
change.
C. Prior to the project anniversary date, all current Forms FmHA or
its successor agency under Public Law 103-354 1944-8, ``Tenant
Certification'' must be reviewed for any changes occurring during the
year that
[[Page 94]]
would change the status of the tenant related to a surcharge annual
increase. Surcharge anniversary reviews must be accomplished by the
borrower/manager in a timely manner. The process requires no prior
review by FmHA or its successor agency under Public Law 103-354 and
should be handled in accordance with the following:
1. Prior to the surcharge anniversary date established for the
project, all current tenant certifications on file must be reviewed.
2. All tenants in the project will be sent a notification that the
surcharge unit assessment has increased by $2, that a review of their
income has occurred and notice of any change in their contribution
brought about by the surcharge annual increase. Tenants who will
actually experience an increase in their Net Tenant Contribution
(tenants paying market rent) should be notified at least 30 to 60 days
(or in accordance with State or local statutes) prior to the effective
date of the increase. These notifications should do the following:
a. Make all tenants aware of the review of their tenant
certification and of any changes in the amount of RA they receive,
overage they pay or any changes in cash they pay as a result of the
review.
b. Offer the tenants an opportunity to meet with management to
discuss the changes brought about by the review. (The point of
discussion should be based solely on information contained on the tenant
certification since the occupancy surcharge requirement is mandated by
law).
D. If there are surcharge changes due the tenant as a result of the
surcharge anniversary date, it should be manually recorded on the
current tenant certification by marking through the old recorded
surcharge rate and inserting the new rate.
XV. Responsibility To Pay Occupancy Surcharge
A. Payment of occupancy surcharge must be a viable part of the lease
agreement between the tenant and the borrower/manger in accordance with
paragraph VIII A 3 of exhibit B of subpart C of part 1930 of this
chapter.
B. Nonpayment of occupancy surcharge by the tenant is a violation of
that lease and can be used as grounds for eviction.
C. If the borrower/manager has correctly followed the certification
procedure as outlined in paragraph VII F of exhibit B of subpart C of
part 1930 of this chapter, and there is still no current valid Tenant
Certification on file for the tenant at the time of the surcharge
anniversary review, and it is determined the fault of the tenant, the
tenant will automatically be subject to paying market rent plus the
maximum surcharge assessed to the unit. The tenant should be notified of
this action in accordance with paragraph VII F 6 c of exhibit B of
subpart C of part 1930 of this chapter.
D. The District Director can authorize a waiver of occupancy
surcharge while eviction is being actively pursued up to resolution of
the eviction action in two instances.
1. When there is not a valid tenant certification on file and it is
the fault of the tenant.
2. When the tenant refuses to pay occupancy surcharge.
E. If it is concluded that the lack of current tenant certification
is the fault of the borrower/manager, then the borrower/manager
(project) must pay market rent plus the maximum occupancy surcharge due
for that unit until there is a current certification.
XVI. Subsequent Loans
A. If the initial loan in the project is subject to occupancy
surcharge, all other loans in the project will be subject to occupancy
surcharge.
B. Subsequent loans, made for any purpose, will not subject a
project to paying occupancy surcharge if the initial loan in the project
is not subject to occupancy surcharge.
C. If units are added with a subsequent loan and the project is
subject to surcharge because of the initial loan, the anniversary date
for the project will remain the same as the one already established by
the initial loan. See paragraph XII A for how occupancy surcharge
increases apply, and paragraph XII B for period of duration of
collection.
1. Tenants moving into the new units will be subject to the level of
surcharge assessment already reached for the project by annual
increases.
2. The first surcharge payment for the new tenants will begin when
their first rent payment for the project is due.
3. On the project anniversary date, all Tenant Certifications for
the project will be checked for tenant eligibility for any occupancy
surcharge changes.
XVII. Consolidations of Projects Subject to Occupancy Surcharge
A. If none of the loans in any of the projects to be consolidated
are subject to the occupancy surcharge provisions, the new consolidated
project will not be subject to occupancy surcharge.
B. If one of the projects being consolidated is subject to the
occupancy surcharge provisions and one project is not, the following
conditions apply:
1. The total units in the project after consolidation will be
subject to the occupancy surcharge.
2. The level of the surcharge assessment for the consolidated
project will be the same as the assessment for the oldest project
already subject to the surcharge. (EXAMPLE:
[[Page 95]]
If the project with the oldest surcharge is in its fourth year, the
assessment for all units in the new consolidated project will begin at
$8 per unit).
3. All tenants in the project, who were not previously subject to
surcharge but will now be subject to surcharge because of the
consolidation, must be notified 30 to 60 days prior to the first
surcharge payment due date.
4. All leases not previously modified to include occupancy surcharge
must be modified.
5. The first occupancy surcharge payment for the new consolidated
project is due when the first new amortized loan installment is due for
the project.
6. The anniversary date established for the project already subject
to the occupancy surcharge will be the anniversary date for the new
consolidated project.
7. The annual surcharge increase period will expire twenty (20)
years from the due date of the first occupancy surcharge payment for the
first project that was subject to the assessment prior to consolidation.
C. If all projects being consolidated are subject to the occupancy
surcharge provisions, but have different anniversary dates and different
twenty (20) year expiration dates, the following conditions apply:
1. The earliest anniversary date of the projects being consolidated
will be the anniversary date for the newly consolidated project.
Example:
Project 01-1: Anniversary Date on 10/1/90
Project 02-2: Anniversary Date on 5/1/91
Consolidated Project Anniversary Date is 10/1
2. The beginning level of the surcharge assessment for the
consolidated project will be the same as the project with the earliest
surcharge payment due date.
Example:
Project 01-1 First Surcharge Payment 10/1/90
Project 02-2 First Surcharge Payment 5/1/91
Date of Consolidation 12/1/91
Project 01-1 is in the 2nd Year of Surcharge
Tenants in project 02-2 will be assessed $4 per unit, effective 1/1/92
All tenants in the consolidated project will be reviewed for the
surcharge anniversary increase on 10/1/92
3. The annual surcharge increase period will expire twenty (20)
years from the due date of the first occupancy surcharge payment for the
newest loan of the projects being consolidated.
XVIII. Surcharge Collection Process
A. Project owners/managers will collect the occupancy surcharge
amount from tenants at the same time they collect monthly rents.
B. Project owners/managers will collect information from Forms FmHA
or its successor agency under Public Law 103-354 1944-8 and report the
amount of surcharge due FmHA or its successor agency under Public Law
103-354 on Form FmHA or its successor agency under Public Law 103-354
1944-29, ``Project Worksheet for Interest Credit and Rental
Assistance,'' both as a project total and per unit amounts.
C. Project owners will remit the collected amount to FmHA or its
successor agency under Public Law 103-354 when they remit their monthly
loan payments as a part of that payment. The method of RA ``netting''
will also apply to occupancy surcharges.
D. If occupancy surcharges are not remitted to FmHA or its successor
agency under Public Law 103-354 in correct amounts and in the specified
timely manner, and the project account becomes delinquent as a result,
late fees, if applicable, will be assessed to the account.
E. FmHA or its successor agency under Public Law 103-354 will remit
the collected amount to the Finance Office in accordance with the
prescribed collection process in FmHA or its successor agency under
Public Law 103-354 Instruction 1951-B and of 1951-K of this subpart.
XIX. Tracking Responsibilities
A. The occupancy surcharge monies collected nationwide by FmHA or
its successor agency under Public Law 103-354 will be deposited in the
Rural Housing Insurance Fund (RHIF) and will accrue interest to the
account on the total amount of funds collected.
B. FmHA or its successor agency under Public Law 103-354 will track
occupancy surcharge balances by project through the use of the Automated
Multi-Housing Accounting System (AMAS).
C. FmHA or its successor agency under Public Law 103-354 will report
to borrowers the amount of surcharge collected per project once a year
on Form FmHA or its successor agency under Public Law 103-354 1951-54,
``Annual Statement of Account.''
[56 FR 66962, Dec. 27, 1991; 57 FR 1313, Jan. 13, 1992, as amended at 58
FR 40956, July 30, 1993]
Subpart L--Servicing Cases Where Unauthorized Loan or Other Financial
Assistence was Received--Farmer Programs
Source: 50 FR 45777, Nov. 1, 1985, unless otherwised noted.
Sec. 1951.551 Purpose.
This subpart prescribes the policies and procedures for servicing
insured Operating (OL), Farm Ownership (FO), Soil and Water (SW),
Recreation (RL),
[[Page 96]]
Emergency (EM), Economic Emergency (EE), Special Livestock (SL),
Softwood Timber (ST), Economic Opportunity (EO) loans, and Rural Housing
loans for farm service buildings (RHF) (referred to as farmer program
(FP) loans), when it is determined that the borrower was not eligible
for all or part of the financial assistance received in the form of a
loan or subsidy granted. It does not apply to guaranteed loans.
[52 FR 26138, July 13, 1987]
Sec. 1951.552 Definitions.
As used in this subpart, the following definitions apply:
(a) Active borrower. A borrower who has an outstanding account in
the records of the Finance Office, including collection-only or an
unsatisfied account balance where a voluntary conveyance was accepted
without borrower being released from liability or where liquidation did
not satisfy the indebtedness.
(b) Assistance. Financial assistance in the form of a loan or
interest subsidy received.
(c) Debt instrument. Used as a collective term to include promissory
note or assumption agreement.
(d) False information. Information, known to be incorrect, provided
with the intent to obtain benefits which would not have been obtainable
based on correction information.
(e) Inaccurate information. Incorrect information provided
inadvertently without intent to obtain benefits fraudulently.
(f) Inactive borrower. A former active borrower whose loan(s)
has(have) been paid in full or assumed by another party(ies), and who
does not have an outstanding account in the records of the Finance
Office.
(g) Unauthorized Assistance. Any loan, primary loan servicing
action, including Net Recovery Buyout, or interest subsidy received for
which there was no authorization, for which the borrower was not
eligible, or which was obligated from the wrong appropriation or fund.
An unauthorized interest subsidy is a benefit received through a loan
that was made at a lower interest rate than that to which the borrower
was entitled, whether the incorrect interest rate was selected
erroneously by the approval official, or the documents were prepared in
error.
[50 FR 45777, Nov. 1, 1985, as amended at 56 FR 33862, July 24, 1991]
Sec. 1951.553 Policy.
When it is determined that unauthorized assistance has been
received, an effort must be made to collect from the borrower the sum
which is determined to be unauthorized, regardless of amount, unless any
applicable Statute of Limitations has expired.
Secs. 1951.554--1951.555 [Reserved]
Sec. 1951.556 Initial determination that unauthorized assistance was received.
Unauthorized assistance may be identified through audits conducted
by the Office of the Inspector General (OIG), USDA; through reviews made
by Farmers Home Administration or its successor agency under Public Law
103-354 (FmHA or its successor agency under Public Law 103-354)
personnel; or through other means such as information provided by a
private citizen which documents that unauthorized assistance has been
received by a borrower. If FmHA or its successor agency under Public Law
103-354 has reason to believe unauthorized assistance was received, but
is unable to determine whether or not the assistance was in fact
unauthorized, the case will be referred to the Office of the General
Counsel (OGC) or the National Office, as appropriate, for review and
advice. In every case where it is known or believed by FmHA or its
successor agency under Public Law 103-354 that the assistance was based
on false information, investigation by the OIG will be requested, as
provided for in FmHA or its successor agency under Public Law 103-354
Instruction 2012-B (available in any FmHA or its successor agency under
Public Law 103-354 office). If OIG conducts an investigation, the
actions outlined in Sec. 1951.557 of this subpart will be deferred until
the OIG investigation is completed and the report is received. The
reason(s) for the unauthorized assistance being received by the borrower
will be well documented in the case file, and will specifically state
whether it was due to:
[[Page 97]]
(a) Submission of inaccurate information by the borrower;
(b) Submission of false information by the borrower;
(c) Submission of inaccurate or false information by another party
on the borrower's behalf such as a seller, developer, real estate
broker, or attorney, when the borrower did not know the other party had
submitted inaccurate or false information;
(d) Error by FmHA or its successor agency under Public Law 103-354
personnel, either in making computations or failure to follow published
regulations or other agency issuances; or
(e) Error in preparation of a debt instrument which caused a loan to
be closed at an interest rate lower than the correct rate in effect when
the loan was approved.
Sec. 1951.557 Notification to borrower.
(a) Collection efforts will be initiated by the County Supervisor by
a letter substantially similar to Exhibit A of this Subpart (available
in any FmHA or its successor agency under Public Law 103-354 office),
and mailed to the borrower by ``Certified Mail, Return Receipt
Requested,'' with a copy to the State Director; and, for a case
identified in an OIG audit report, copies to the OIG office which
conducted the audit and the Planning and Analysis Staff of the National
Office. This letter will be sent to all borrowers who received
unauthorized assistance, regardless of amount. The letter will:
(1) Specify in detail the reason(s) the assistance was determined to
be unauthorized;
(2) State the amount of unauthorized assistance to be repaid
according to Exhibit D of this Subpart (available in any FmHA or its
successor agency under Public Law 103-354 office); and
(3) Establish an appointment for the borrower to discuss with the
County Supervisor the basis for FmHA or its successor agency under
Public Law 103-354's claim; and give the borrower an opportunity to
provide facts, figures, written records or other information which might
refute FmHA or its successor agency under Public Law 103-354's
determination that the assistance received was unauthorized.
(b) If the borrower meets with the County Supervisor, the County
Supervisor will outline to the borrower why the assistance was
determined to be unauthorized. The borrower will be given an opportunity
to provide information to refute FmHA or its successor agency under
Public Law 103-354's findings. When requested by the borrower, the
County Supervisor may grant additional time for the borrower to assemble
documentation. When an extension is granted, the County Supervisor will
specify a definite number of days to be allowed and establish the follow
up necessary to assure that servicing of the case continues without
undue delay.
Sec. 1951.558 Decision on servicing actions.
When the County Supervisor is the same official who approved the
unauthorized assistance, the District Director must review the case
before further actions are taken by the County Supervisor.
(a) Payment in full. If the borrower agrees with FmHA or its
successor agency under Public Law 103-354's determination and agrees to
repay in a lump sum, the County Supervisor may allow a reasonable period
of time (not to exceed 90 days) for the borrower to arrange for
repayment. The amount due will be the amount stated in the letter as
shown in Exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office). The County Supervisor
will remit collections to the Finance Office according to the Forms
Manual Insert (FMI) for Form FmHA or its successor agency under Public
Law 103-354 451-2, ``Schedule of Remittances,'' for application to the
borrower's account as an extra payment. After a borrower repays an
unauthorized interest subsidy benefit in a lump sum, the loan will be
serviced in accordance with Sec. 1951.561(a)(3) of this subpart. In the
case of unauthorized assistance which was identified in an OIG audit,
the County Supervisor will report the repayment as outlined in
Sec. 1951.568(a) of this subpart.
(b) Continuation with borrower. If the borrower agrees with FmHA or
its successor agency under Public Law 103-
[[Page 98]]
354's determination or is willing to repay but cannot repay the
unauthorized assistance in a lump sum within a reasonable period of
time, continuation may be authorized. Servicing actions outlined in
Sec. 1951.561 of this subpart will be taken, provided all of the
following conditions are met:
(1) The borrower did not provide false information as defined in
Sec. 1951.552(d) of this subpart.
(2) It would be highly inequitable to require prompt repayment of
the unauthorized assistance; and
(3) Failure to collect the unauthorized assistance in full will not
adversely affect FmHA or its successor agency under Public Law 103-354's
financial interests.
(c) Liquidation of loan(s) or legal action to enforce collection.
When a case cannot be handled according to the provisions of paragraph
(a) or (b) of this section, or if the borrower refuses to execute the
documents necessary to make account adjustments or establish an
obligation to repay the unauthorized assistance as provided in
Sec. 1951.561 of this subpart, or when a borrower fails to respond to
the initial letter prescribed in Sec. 1951.557 of this subpart within 30
days, one of the following actions will be taken:
(1) Active borrower with a secured loan. (i) The County Supervisor
will send Exhibit B of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office.)
(ii) If the borrower wants to voluntarily convey, the County
Supervisor will follow the directions in Sec. 1955.10 or Sec. 1955.20 as
applicable, of subpart A of part 1955 of this chapter.
(iii) If the borrower does not appeal, does not repay the
unauthorized assistance in full, does not voluntarily convey,
voluntarily sell or refinance the entire FmHA or its successor agency
under Public Law 103-354 debt, the borrower's account will be
accelerated and there will be no appeal of this action. The County
Supervisor and District Director will follow the directions in
Sec. 1955.15 of subpart A of part 1955 of this chapter.
(iv) Forced liquidation will not be pursued when:
(A) The amount of unauthorized assistance outstanding, including
principal, accrued interest, and recoverable costs charged to the
account, is less that $1,000; or
(B) It can be clearly documented that it would not be in the best
financial interest of the Government to force liquidation. If the
servicing official wishes to make an exception to forced liquidation
under paragraph (c)(1)(B) of this section, a request for an exception
under Sec. 1951.569 of this subpart will be made.
(v) Account adjustments will be made by FmHA or its successor agency
under Public Law 103-354 without the signature of the borrower according
to Sec. 1951.568(a)(5) of this subpart. In these cases, the borrower
will be notified by letter of the actions taken with a copy of Forms
FmHA or its successor agency under Public Law 103-354 1951-12,
``Correction of Loan Account,'' or 1951-13, ``Change in Interest Rate,''
as applicable, enclosed to reflect the adjustments.
(2) (Inactive borrower or active borrower with unsecured loan such
as collection-only or unsatisfied balance after liquidation). The County
Supervisor will document the facts in the case and submit it to the
State Director who will request the advice of OGC on pursuing legal
action to effect collection. The State Director will tell OGC what
assets, if any, are available from which to collect.
[50 FR 45777, Nov. 1, 1985, as amended at 53 FR 35717, Sept. 14, 1988]
Secs. 1951.559--1951.560 [Reserved]
Sec. 1951.561 Servicing options in lieu of liquidation or legal action.
When all of the conditions outlined in Sec. 1951.558(b) of this
subpart are met, servicing options outlined in this section will be
considered; and accounts will be serviced according to this section and
Sec. 1951.568 of this subpart.
(a) Active borrower--(1) Entire loan, or loan servicing
unauthorized. When the entire loan, or all or a portion of primary loan
servicing, is determined to be unauthorized because the borrower was not
eligible, or because the loan or primary loan servicing was approved for
unauthorized purposes, the following alternatives will be considered in
the order listed:
[[Page 99]]
(i) Execution of Form FmHA or its successor agency under Public Law
103-354 1965-11, ``Accelerated Repayment Agreement,'' according to
Sec. 1965.26(e) of subpart A of part 1965 of this chapter, for loans
secured by real estate, or rescheduling according to Subpart A of this
part, for loans not secured by real estate, based on the borrower's
repayment ability.
(ii) Refinancing with another type of FmHA or its successor agency
under Public Law 103-354 loan to repay the unauthorized loan, if the
borrower is eligible for the type loan being considered.
(iii) When the case cannot be handled according to paragraph
(a)(1)(i) or (a)(1)(ii) of this section, continuance with the loan on
the existing terms may be approved, and the loan will, thereafter, be
serviced as an authorized loan.
(2) Portion of loan unauthorized. When a portion of a loan is
determined to be unauthorized, the Finance Office will be instructed to
separate the authorized and unauthorized portions of the loan, setting
up each as a separate loan at the correct interest rate. The correct
interest rate will be taken from Exhibit C of this subpart (available in
any FmHA or its successor agency under Public Law 103-354 office) as of
the date of loan approval. All payments made on the loan being corrected
will be reversed and reapplied to the unauthorized portion. If after
reapplication of payments the unauthorized portion is not paid in full,
the options outlined in paragraph (a) of this section may be considered
for repayment of the balance of the unauthorized portion; and the
authorized portion will be serviced as an outlined loan. See
Sec. 1951.568 of this subpart for instructions on setting up separate
accounts.
(3) Unauthorized interest subsidy benefits received. When the
borrower was eligible for the loan, but should properly have been
charged a higher interest rate than that shown in the debt instrument on
all or a portion of the loan, resulting in the receipt of unauthorized
interest subsidy benefits, the case will be handled as outlined below.
The unauthorized interest rate will be corrected to the interest rate in
effect on the date the original loan was approved as outlined in
paragraph (a)(3)(iii) of this section.
(i) When a subsidized interest rate was incorrectly charged on the
entire loan, all payments made will be reversed and reapplied at the
correct interest rate; and future installments will be scheduled at the
correct interest rate. After reapplication of payments, the loan will be
treated as an authorized loan.
(ii) When a subsidized interest rate was incorrectly charged on only
a portion of the loan, the Finance Office will be instructed by the
County Supervisor to separate the loan into two portions, with the
correct interest rate established for the portion having the incorrect
subsidized interest rate. All payments made on the loan being adjusted
will be reversed and reapplied, first to the portion with the corrected
interest rate. After reapplication of payments at the correct interest
rate, both portions will be serviced as authorized loans.
(iii) Incorrect interest rates will be corrected as follows
referring to Exhibit C of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office) for interest rates in
effect on specific dates:
(A) For disaster Emergency (EM) loans, to the rate for EM annual
production loans.
(B) For Operating Loans--Limited Resource (OL-LR), to the rate for
regular Operating Loans (OL).
(C) For Farm Ownership--Limited Resource (FO-LR), to the rate for
regular Farm Ownership (FO).
(D) For all other types of FP loans, to the correct rate for the
type loan involved which was in effect when the loan was approved.
(b) Inactive borrower. When the individual or entity does not have
an outstanding account in the records of the Finance Office, the
following actions will be taken:
(1) Have the inactive borrower execute a promissory note in the
amount of the assistance determined to be unauthorized according to
Sec. 1951.557 of this subpart. This note will bear interest at the rate
which was in effect for the type loan associated with the unauthorized
assistance when it was approved. The term will not exceed 10
[[Page 100]]
years or the term of the original loan, whichever is the shorter term.
(2) Take the best lien obtainable on any collateral having equity
value to secure the note.
[50 FR 45777, Nov. 1, 1985, as amended at 51 FR 4138, Feb. 3, 1986; 56
FR 33862, July 24, 1991]
Secs. 1951.562--1951.567 [Reserved]
Sec. 1951.568 Account adjustments and reporting requirements.
When a final determination has been made that unauthorized
assistance has been granted, the Finance Office will be notified of
necessary account adjustments as outlined in this section, depending
upon whether the case of unauthorized assistance was identified by OIG
in an audit report or by another means. The Finance Office will service
the accounts as prescribed in this section.
(a) Audit cases. Only cases of unauthorized assistance identified by
OIG will be reported to the Finance Office by submission on Form FmHA or
its successor agency under Public Law 103-354 1951-12 completed in
accordance with the FMI. The Finance Office will flag the account for
monitoring and reporting as required. Each payment reversed will be
reapplied as of the original date of credit. ``Loan'' refers to an
account with an active borrower unless specified as ``inactive.'' If the
borrower has arranged to repay in a lump sum, the payment will be
remitted with Form FmHA or its successor agency under Public Law 103-354
451-2, according to the FMI. Form FmHA or its successor agency under
Public Law 103-354 1951-12 will reflect the amount and the Schedule
Number.
(1) Entire loan unauthorized. When the entire loan is unauthorized
because the borrower was not eligible or because the loan was approved
for unauthorized purposes, and continuation is authorized, the Finance
Office will be advised as follows:
(i) Accelerated repayment agreement or loan rescheduled. If the
borrower has executed Form FmHA or its successor agency under Public Law
103-354 1965-11 for loans secured by real estate; or has executed Form
FmHA or its successor agency under Public Law 103-354 1951-4 for loans
not secured by real estate, the form(s) will be prepared and distributed
according to the FMIs, attaching the original form(s) to Form FmHA or
its successor agency under Public Law 103-354 1951-12.
(ii) Continuation with loan on existing terms. When it is determined
that all the conditions outlined in Sec. 1951.558(b) of this subpart are
met and continuation with the loan on the existing terms is approved,
the servicing official will submit Form FmHA or its successor agency
under Public Law 103-354 1951-12 to the Finance Office to reflect this.
(2) Portion of loan unauthorized. When a loan is to be separated
into authorized and unauthorized portions, the authorized portion will
retain the original loan number, and the original principal amount will
be reduced by the unauthorized amount. A new loan in the unauthorized
amount will be established as the unauthorized loan with the next
available number assigned by the Finance Office. Payments made on the
loan being adjusted will be reversed and reapplied first to the
unauthorized loan. If the reapplication of payments does not pay the
unauthorized loan in full, upon receipt of Forms FmHA or its successor
agency under Public Law 103-354 451-26, ``Transaction Record,'' showing
the balances of the authorized and unauthorized loans, the servicing
official will proceed under the provisions of Sec. 1951.561(a)(2) and
will submit a revised Form FmHA or its successor agency under Public Law
103-354 1951-12 (along with a copy of the original Form FmHA or its
successor agency under Public Law 103-354 1951-12).
(3) Unauthorized subsidy benefits received. (i) Entire loan. When
the interest rate on an entire loan is changed, Form FmHA or its
successor agency under Public Law 103-354 1951-12 will be submitted to
notify the Finance Office of the correct interest rate to be charged
from the original loan closing date. Payments made will be reversed and
reapplied at the corrected interest rate, after which the unauthorized
subsidy benefits will be reported to OIG as resolved. The loan will then
be treated as an authorized loan.
(ii) Portion of loan. When the interest rate on only a portion of a
loan must
[[Page 101]]
be changed, the portion which has the incorrect interest rate will be
established as a new loan at the correct interest rate shown on Form
FmHA or its successor agency under Public Law 103-354 1951-12. Payments
made on the loan being adjusted will be reversed and reapplied first to
the loan with the corrected interest rate. Both loans will then be
treated as authorized loans.
(4) Liquidation pending. When liquidation is initiated under the
provisions of this subpart, Form FmHA or its successor agency under
Public Law 103-354 1951-12 will be submitted to advise the Finance
Office to establish the unauthorized assistance account. This account
will be flagged ``FAP'' (Foreclosure Action Pending) or ``CAP'' (Court
Action Pending), as applicable.
(5) Liquidation not initiated. Cases in which liquidation would
normally be initiated, but where it is not because of the provisions of
Sec. 1951.558 (c)(1)(iv)(A) or (c)(1)(iv)(B) of this subpart, will be
adjusted according to Sec. 1951.561 (a)(2) or (a)(3) of this subpart and
this section, and the adjustments will be reflected on Form FmHA or its
successor agency under Public Law 103-354 1951-12. In this instance
only, account adjustments will be made even though the borrower does not
sign Form FmHA or its successor agency under Public Law 103-354 1951-12
and any related documents.
(6) Establishment of account of inactive borrower. (i) When an
inactive borrower agrees to repay unauthorized assistance and executes
documents to evidence such an obligation, Form FmHA or its successor
agency under Public Law 103-354 1951-12 will reflect this, and the
Finance Office will establish or the account according to the terms
indicated on Form FmHA or its successor agency under Public Law 103-354
1951-12.
(ii) When a judgment is obtained against such a borrower, Form FmHA
or its successor agency under Public Law 103-354 1962-20, ``Notice of
Judgment,'' will be prepared and distributed in accordance with the FMI
to establish a judgment account. The FmHA or its successor agency under
Public Law 103-354 field office will process the judgment or the third
party judgment via the FmHA or its successor agency under Public Law
103-354 field office terminal system.
(7) Payments on authorized and unauthorized loans concurrently. When
a borrower has both authorized and unauthorized loans outstanding,
installments may be scheduled to be paid concurrently on all loans.
Payments may be adjusted by means of rescheduling or reamortizing to
coincide with the borrower's repayment ability according to servicing
regulations for the type loan involved. The County Supervisor will
complete Form FmHA or its successor agency under Public Law 103-354 451-
2 so that payments received will be applied first to the unauthorized
loan account to maintain it current, with the remainder of the payment
applied to the other loan(s).
(8) Reporting. At prescribed intervals, the Finance Office will
report to the OIG on the status of cases involving unauthorized
assistance which were identified by OIG in audit reports. For reporting
purposes, the following applies:
(i) For an unauthorized loan account established as provided in
paragraph (a) (1), (2), or (6) of this section, reporting will be as
follows:
(A) When unauthorized assistance is paid in full, it will be
reported on the next scheduled report only, giving the amount collected.
(B) When unauthorized assistance is to be repaid under an
accelerated repayment agreement, the unpaid balance will be reported
initially and the collections and status will be included on each
scheduled report until the account is paid in full.
(C) When continuation with the loan on existing terms is approved,
or after a loan is rescheduled or reamortized, it will be reported as
resolved on the next scheduled report, and no further reporting is
required.
(ii) For unauthorized subsidy cases as provided in paragraph (a)(3)
of this section, when the unauthorized amount has been repaid, or
payments have been reversed and reapplied at the correct interest rate,
the unauthorized subsidy will be reported as resolved on the next
scheduled report. No further reporting is required.
[[Page 102]]
(iii) When an account is established with liquidation action pending
as provided in paragraph (a)(4) of this section, the status will be
included on each scheduled report until the liquidation is completed or
the account is otherwise paid in full.
(iv) When liquidation is not initiated as provided in paragraph
(a)(5) of this section, it will be reported on the next scheduled report
(along with collections, if any). No further reporting is required.
(b) Nonaudit cases. Basically, servicing options which may be used
are the same for audit and nonaudit cases; however, when receipt of
unauthorized assistance is identified by a means other than an OIG audit
report, the Finance Office will be notified only if adjustments to an
account or reinstatement of an inactive account are necessary. Once
adjustments are made as provided in this paragraph, the loan(s) will be
treated as an authorized loan(s). Each payment reversed will be
reapplied as of the original date of credit. After payments are reversed
and reapplied, the servicing official will receive Forms FmHA or its
successor agency under Public Law 103-354 451-26 from the Finance Office
reflecting the account status.
(1) Account adjustments will be handled as follows:
(i) When a change in interest rate is necessary, retroactive to the
date of loan closing on all or a portion of a loan, Form FmHA or its
successor agency under Public Law 103-354 1951-13 will be completed
according to the FMI and submitted to the Finance Office. Payments will
be reversed and reapplied accordingly.
(ii) For accounts to be rescheduled or reamortized, Forms FmHA or
its successor agency under Public Law 103-354 1951-4, or 1965-11, as
applicable, will be prepared and submitted in accordance with the
respective FMI.
(iii) When an inactive borrower agrees to repay unauthorized
assistance and executes documents to evidence such an obligation, the
County Supervisor will notify the Finance Office by memorandum,
attaching a copy of the promissory note. The Finance Office will
establish or reinstate the account according to the terms of the
promissory note.
(iv) If a loan is paid in full, the remittance will be handled in
the same manner as any other final payment.
(2) A delinquency created through reversal and reapplication of
payments to effect corrections outlined in paragraph (b)(1) of this
section will be serviced according to the applicable servicing
regulations for the type loan involved.
[50 FR 45777, Nov. 1, 1985, as amended at 55 FR 35295, Aug. 29, 1990]
Sec. 1951.569 Exception authority.
The Administrator may in individual cases make an exception to any
requirement or provision of this subpart which is not inconsistent with
the authorizing statute or other applicable law if the Administrator
determines that application of the requirement or provision would
adversely effect the Government's interest. The Administrator will
exercise this authority only at the request of the State Director and on
the recommendation of the appropriate Program Assistant Administrator.
Requests for exceptions must be made in writing by the State Director
and supported with documentation to explain the adverse effect on the
Government's interest, propose alternative courses of action, and show
how the adverse effect will be eliminated or minimized if the exception
is granted.
Secs. 1951.570--1951.599 [Reserved]
Sec. 1951.600 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0102.
Subpart M [Reserved]
Subpart N--Servicing Cases Where Unauthorized Loan or Other Financial
Assistance Was Received--Multiple Family Housing
Source: 50 FR 12996, Apr. 2, 1985, unless otherwise noted.
[[Page 103]]
Sec. 1951.651 Purpose.
This subpart prescribes the policies and procedures for servicing
multiple family housing (MFH) loans and/or grants made by Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) when it is determined
that the borrower or grantee was not eligible for all or part of the
financial assistance received in the form of a loan, grant, subsidy
granted, any other direct financial assistance, or was not made subject
to restrictive-use provisions required by law and/or regulation. As used
in this subpart, MFH loans and grants are section 515 rural rental
housing (RRH) and rural cooperative housing (RCH) loans and sections 514
and 516 labor housing (LH) loans and grants.
[58 FR 38926, July 21, 1993]
Sec. 1951.652 Definitions.
As used in this subpart, the following definitions apply:
(a) Active borrower. A borrower who has an outstanding account in
the records of the Finance Office, including collection-only or an
unsatisfied account balance where a voluntary conveyance was accepted
without release from liability or foreclosure did not satisfy the
indebtedness.
(b) Assistance. Financial assistance in the form of a loan, grant,
or subsidy received.
(c) Debt instrument. Used as a collective term to include promissory
note, assumption agreement, grant agreement/resolution, or bond.
(d) False information. Information, known to be incorrect, provided
with the intent to obtain benefits which would not have been obtainable
based on correct information.
(e) Inaccurate information. Incorrect information provided
inadvertently without intent to obtain benefits fraudulently.
(f) Inactive borrower. A former borrower whose loan(s) has(have)
been paid in full or assumed by another party(ies) and who does not have
an outstanding account in the records of the Finance Office.
(g) Recipient. ``Recipient'' refers to an individual or entity that
received a loan, or portion of a loan, an interest subsidy, or a grant
which was unauthorized or was not made subject to restrictive-use
provisions required by law and/or regulation.
(h) Unauthorized assistance. Any loan, interest subsidy, or grant,
or any portion thereof, received by a borrower or grantee for which
there was no regulatory authorization, or for which the recipient was
not eligible.
Interest subsidy includes interest credits, rental assistance, and
subsidy benefits received because a loan was made at a lower interest
rate than that to which the recipient was entitled, whether the
incorrect interest rate was selected erroneously by the approval
official, or the documents were prepared in error.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]
Sec. 1951.653 Policy.
When unauthorized assistance has been received, an effort must be
made to collect the sum which is determined to be unauthorized from the
recipient, regardless of amount, unless any applicable statute of
limitations has expired.
[58 FR 38926, July 21, 1993]
Sec. 1951.654 Categories of unauthorized assistance.
Unauthorized assistance includes, but is not limited to, these
categories:
(a) The recipient was not eligible for the assistance.
(b) The property, as approved, does not qualify for the program. For
example: An RRH or LH project which clearly is above modest in size,
design and/or cost or was not located in an area designated as rural
when the initial loan was made.
(c) The loan or grant was made for unauthorized purposes. For
example: Purchase of an excessive amount of land.
(d) The recipient was granted unauthorized subsidy in the form of:
(1) Interest credits (IC) on an RRH loan;
(2) Rental Assistance (RA) in connection with an RRH or LH loan; or
[[Page 104]]
(3) A subsidy benefit received through use of an incorrect interest
rate.
(e) The recipient was not subjected to obligations required by the
assistance, such as restrictive-use provisions, at the time the
assistance was provided.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]
Sec. 1951.655 [Reserved]
Sec. 1951.656 Initial determination that unauthorized assistance was received.
Unauthorized assistance may be identified through audits conducted
by the Office of the Inspector General, USDA, (OIG); through reviews
made by FmHA or its successor agency under Public Law 103-354 personnel;
or through other means such as information provided by a private citizen
which documents that unauthorized assistance has been received by a
recipient of FmHA or its successor agency under Public Law 103-354
assistance. If FmHA or its successor agency under Public Law 103-354 has
reason to believe unauthorized assistance was received, but is unable to
determine whether or not the assistance was in fact unauthorized, the
case will be referred to the Regional Office of the General Counsel
(OGC) or the National Office, as appropriate, for review and advice. In
every case where it is known or believed by FmHA or its successor agency
under Public Law 103-354 that the assistance was based on false
information, investigation by the Office of the Inspector General (OIG)
will be requested as provided for in FmHA or its successor agency under
Public Law 103-354 Instruction 2012-B (available in any FmHA or its
successor agency under Public Law 103-354 office). If OIG conducts an
investigation, the actions outlined in Sec. 1951.657 of this subpart
will be deferred until the OIG investigation is completed and the report
is received. The reason(s) for the unauthorized assistance being
received by the recipient will be well documented in the case file, and
will specifically state whether it was due to:
(a) Submission of inaccurate information by the recipient;
(b) Submission of false information by the recipient;
(c) Submission of inaccurate or false information by another party
on the recipient's behalf such as a loan packager, developer, real
estate broker, or professional consultants such as engineers,
architects, management agents and attorneys, when the recipient did not
know the other party had submitted inaccurate or false information;
(d) Error by FmHA or its successor agency under Public Law 103-354
personnel, either in making computations or failure to follow published
regulations or other agency issuances; or
(e) Error in preparation of a debt instrument which caused a loan to
be closed at an interest rate lower than the correct rate in effect when
the loan was approved or which was caused by omission from the
instrument of language required by applicable regulation.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]
Sec. 1951.657 Notification to recipient.
(a) Collection efforts will be initiated by the District Director by
a letter substantially similar to exhibit A of this subpart (available
in any FmHA or its successor agency under Public Law 103-354 office),
and mailed by the servicing official to the recipient by ``Certified
Mail, Return Receipt Requested,'' with a copy to the State Director and,
for a case identified in an OIG audit report, a copy to the OIG office
which conducted the audit and the Planning and Analysis Staff of the
National Office. This letter will be sent to all recipients who received
unauthorized assistance, regardless of amount. The letter will:
(1) Specify in detail the reason(s) the assistance was determined to
be unauthorized;
(2) State the amount of unauthorized assistance to be repaid
according to exhibit C of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office); and
(3) Establish an appointment for the recipient to discuss with the
District Director the basis for FmHA or its successor agency under
Public Law 103-354's claim; and give the recipient an opportunity to
provide facts, figures, written records or other information
[[Page 105]]
which might alter FmHA or its successor agency under Public Law 103-
354's determination that the assistance received was unauthorized.
(b) If the recipient meets with the District Director, the District
Director will outline to the recipient why the assistance was determined
to be unauthorized. The recipient will be given an opportunity to
provide information to refute FmHA or its successor agency under Public
Law 103-354's findings. When requested by the recipient, the District
Director may grant additional time for the recipient to assemble
documentation. When an extension is granted, the District Director will
specify a definite number of days to be allowed and establish the
followup necessary to assure that servicing of the case continues
without undue delay.
Sec. 1951.658 Decision on servicing actions.
When the District Director is the same individual who approved the
unauthorized assistance, the State Director must review the case before
further actions are taken by the District Director.
(a) Payment in full. If the recipient agrees with FmHA or its
successor agency under Public Law 103-354's determination or will pay in
a lump sum, the District Director may allow a reasonable period of time
(usually not to exceed 90 days) for the recipient to arrange for
repayment. The amount due will be the amount stated in the letter as
shown in exhibit A of this subpart (available in any FmHA or its
successor agency under Public Law 103-354 office). The requirements of
subpart E of part 1965 will be followed with appropriate modifications
for prepayments under this subpart. If the loan was subject to
restrictive-use provisions prior to the request for payment in full, the
project will remain subject to restrictive-use provisions. Wherever
feasible, appropriate, or necessary to protect tenants and the low- and
moderate-income population of the community, all attempts to encourage
the borrower to sell the project to an acceptable transferee will be
made before the prepayment is accepted. All tenant notifications and
restrictive-use provisions, when applicable, must be followed when
prepayment of all debt on an MFH project is demanded. The District
Director will remit collections as follows:
(1) In the case of the loan, for application to the borrower's
account as an extra payment.
(2) In the case of a grant, as a ``Miscellaneous Collection for
Application to the General Fund.''
(3) In the case of a loan or grant which was identified in an OIG
audit, the District Director will report the repayment as outlined in
Sec. 1951.668 (a)(1)((i), (a)(3), or (a)(6) as applicable.
(4) In the case of RA, the repayment will be handled as outlined in
Sec. 1951.661 (a)(3) and exhibit E to FmHA or its successor agency under
Public Law 103-354 Instruction 1930-C.
(b) Continuation with recipient. If the recipient agrees with FmHA
or its successor agency under Public Law 103-354's determination or is
willing to pay the amount in question but cannot repay the unauthorized
assistance within a reasonable period of time, continuation is
authorized and servicing actions outlined in Sec. 1951.668 will be taken
provided all of the following conditions are met:
(1) The recipient did not provide false information as defined in
Sec. 1951.652 (d);
(2) It would be highly inequitable to require prompt repayment of
the unauthorized assistance; and
(3) Failure to collect the unauthorized assistance in full will not
adversely affect FmHA or its successor agency under Public Law 103-354's
financial interests.
(c) Notice of determination when agreement is not reached. If the
recipient does not agree with FmHA or its successor agency under Public
Law 103-354's determination, or if the recipient fails to respond to the
initial letter prescribed in Sec. 1951.657 within 30 days, the District
Director will notify the recipient by letter substantially similar to
exhibit B of this subpart (available in any FmHA or its successor agency
under Public Law 103-354 office) (sent by Certified Mail, Return Receipt
Requested), with a copy to the State Director, and for a case identified
in an OIG audit report, a copy to the OIG office which conducted the
audit and the Planning
[[Page 106]]
and Analysis Staff of the National Office. This letter will include:
(1) The amount of assistance finally determined by FmHA or its
successor agency under Public Law 103-354 to be unauthorized;
(2) A statement of further actions to be taken by FmHA or its
successor agency under Public Law 103-354 as outlined in paragraph
(e)(1) or (e)(2) of this section; and
(3) The appeal rights as prescribed in exhibit B of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office).
(d) Appeals. Appeals resulting from the letter prescribed in
paragraph (c) of this section will be handled according to subpart B of
part 1900 of this chapter. All appeal provisions will be concluded
before proceeding with further actions. If the recipient does not
prevail in an appeal, or when an appeal is not made during the time
allowed, the District Director will proceed with the actions outlined in
paragraph (e) of this section, as applicable. If during the course of
appeal the appellant decides to agree with FmHA or its successor agency
under Public Law 103-354's findings or is willing to repay the
unauthorized assistance, the District Director will proceed with the
actions outlined in paragraph (a) or (b) of this section.
(e) Liquidation of loan(s) or legal action to enforce collection. If
the recipient is unwilling or unable to arrange for repayment as
provided in paragraph (a) of this section or continuation is not
feasible as provided in paragraph (b) of this section, one of the
following actions, as appropriate, will be taken:
(1) Active borrower with a secured loan. (i) The District Director
will attempt to have the recipient liquidate voluntarily. If the
recipient agrees to liquidate voluntarily, this will be documented by an
entry in the running record of the case file. Where real property is
involved, a letter will be prepared by the District Director and signed
by the recipient agreeing to voluntary liquidation. For organizations, a
resolution of the governing body may be necessary in addition to the
running record notation. If the recipient does not agree to voluntary
liquidation, or agrees but it cannot be accomplished within a reasonable
period of time (usually not more than 90 days), forced liquidation
action will be initiated in accordance with subpart A of 1955 of this
chapter unless:
(A) The amount of unauthorized assistance outstanding, including
principal, accrued interest, and any recoverable costs charged to the
account, is less than $1,000; or
(B) It can be clearly documented that it would not be in the best
financial interest of the Government to force liquidation. If the
District Director wishes to make an exception to forced liquidation
under paragraph (e)(1)(i)(B) of this section, a request for an exception
under Sec. 1951.669 will be made.
(ii) When all of the conditions of paragraph (a) or (b) or this
section are met, but the recipient does not repay or refuses to execute
documents to effect necessary account adjustments according to the
provisions of Sec. 1951.661, liquidation action will be initiated as
provided in paragraph (e)(1)(i) of this section.
(iii) When forced liquidation would be initiated except that the
loan is being handled under paragraph (e)(1)(i)(A) or (e)(1)(i)(B) of
this section account adjustments will be made by FmHA or its successor
agency under Public Law 103-354 without the signature of the recipient
according to Sec. 1951.668(a)(5). In these cases, the recipient will be
notified by letter of the actions taken with a copy of Form FmHA or its
successor agency under Public Law 103-354 1951-12, ``Correction of Loan
Account,'' if applicable.
(2) Grantee, inactive borrower, or active borrower with unsecured
loan (such as collection-only, or unsatisfied balance after
liquidation). The District Director will document the facts in the case
and submit it to the State Director who will request the advice of OGC
on pursuing legal action to effect collection. The State Director will
tell OGC what assets, if any, are available from which to collect. The
case file, recommendation of State Director and OGC comments will be
forwarded to the National Office for review and authorization to
implement recommended servicing actions.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]
[[Page 107]]
Secs. 1951.659--1951.660 [Reserved]
Sec. 1951.661 Servicing options in lieu of liquidation or legal action to collect.
When all of the conditions outlined in Sec. 1951.658(b) are met, an
unauthorized loan or grant will be serviced according to this section
and Sec. 1951.668, provided the recipient has the legal and financial
capabilities.
(a) Active borrower/grantee--(1) Unauthorized loan. (i) Correction
of problem. If the problem causing the assistance to be unauthorized can
be corrected, corrective action will be required. For example, where a
loan was in excess of the authorized amount, the recipient will be
required to refund the difference; or where the loan included funds for
purchase of excess land, the recipient will be required to sell the
excess land and the proceeds will be applied to the account as an extra
payment; or where a restrictive-use provision was omitted from a loan
document, the provision will be inserted.
(ii) Continuation on existing terms. When there is no specific
problem which can be corrected, continuation on the existing terms is
authorized.
(2) Unauthorized subsidy benefits received through use of incorrect
interest rate. When the recipient was eligible for the loan but should
properly have been charged a higher interest rate than that shown in the
debt instrument, resulting in the receipt of unauthorized subsidy
benefits, the interest rate must be corrected to that which was in
effect when the loan was approved. All payments made will be reversed
and reapplied at the correct interest rate and future installments will
be scheduled at the correct interest rate. A delinquency which is
created will be serviced according to subpart B of part 1965 of this
chapter. After reapplication of payments, the loan will be serviced as
an authorized loan. Change in interest rate will be accomplished
according to Sec. 1951.668. When the recipient is a public body with
loans secured by bonds on which interest rate cannot legally be changed
or payments reversed or reapplied, continuation on existing terms is
authorized.
(3) Unauthorized interest credits or rental assistance. In cases
involving RA and/or IC, the subsidy benefits should be terminated as
provided in the Interest Credit and Rental Assistance Agreement.
Unauthorized RA will be serviced as a delinquent account according to
paragraph X B of exhibit E of subpart C of part 1930 of this chapter.
(i) Tenant's failure to properly report changes in income or size of
the household to the borrower. In cases where a tenant has received RA
and/or IC benefits to which he/she was not entitled because of the
tenant's failure to properly report income or changes in household size,
the borrower-landlord will provide the tenant with a notice of intent to
recoup improperly advanced rental subsidy benefits. Such a notice must
inform the tenant of the amount improperly advanced and the lump sum or
monthly amount that will be added to the tenant's rent to recoup the
improper rental subsidy. The borrower will inform the District Director
of the unauthorized benefits and of the agreement made by the tenant to
repay. Money collected will be remitted according to the FMI for Form
FmHA or its successor agency under Public Law 103-354 1944-9. If the
borrower has rental assistance, that portion attributable to RA will be
credited to the borrower's RA account. In the event that the tenant does
not repay through active collection efforts including legal remedy, the
borrower will report the facts to the District Director. The District
Director will report to the State Director who will obtain the advice of
OGC on further actions.
(ii) Tenant knowingly misrepresented income or number of occupants
to the borrower. If it appears the tenant has knowingly misrepresented
income to the borrower, the District Director will look into the case to
determine the facts. If the District Director determines that income or
number of occupants was misrepresented, he/she will direct the borrower-
landlord to demand and to attempt to recoup improperly received rental
subsidy from the tenant. Money collected will be remitted to the Finance
Office according to the FMI for Form FmHA or its successor agency under
Public Law 103-354 1944-9.
[[Page 108]]
If the tenant fails to make restitution, the District Director will
refer the case to the State Director who will request the advice of OGC
on further actions.
(iii) Unauthorized RA and/or IC paid due to borrower's error.
Whether unauthorized RA or IC was received by the borrower due to
miscalculation or oversight by the borrower or the borrower's management
agent, the borrower is required to make restitution to FmHA or its
successor agency under Public Law 103-354. This restitution will not be
charged to any tenant or to the project as any part of the budget or
operating expense. The restitution will be handled as a refund according
to the FMI for Form FmHA or its successor agency under Public Law 103-
354 1944-49. In the case of a nonprofit or public body borrower, when
funds from nonproject sources are not available, the State Director may
make an exception and allow project income not required for approved
operating budget items to cover the cost of restitution.
(iv) Rental assistance assigned to wrong household. When the tenant
has correctly reported income and household size, but RA was assigned by
the borrower to the household in error, the tenant's RA benefit will be
cancelled and reassigned.
(A) Notification and cancellation. Before the borrower notifies the
tenant, the borrower or management agent will review the case with the
District Director. If the District Director verifies that an error was
made based on information available at the time the unit was assigned,
the tenant will be given 30 days written notice by the borrower or
management agent that the unit was assigned in error and that the RA
benefit will be cancelled effective on the next monthly rental payment
due after the end of the 30-day notice period. The written notice will
provide that:
(1) The tenant has the right to cancel the lease based on the loss
of subsidy benefit to the tenant.
(2) The RA granted in error will not be recaptured.
(3) The tenant may meet with management to discuss the cancellation
and the facts on which the decision was based. The borrower must give
the tenant appeal rights under subpart L or part 1944 of this chapter.
(B) Reassignment of RA. Rental assistance will be reassigned in
accordance with paragraph XII of exhibit E to subpart C of part 1930 of
this chapter.
(v) Rental assistance in excess of contract. When rental assistance
is advanced in excess of the RA contract limit, the District Director
will send a report of the facts and a recommendation of proposed action
through the State Director to the Assistant Administrator, Housing. The
Assistant Administrator will determine the disposition of the case and
notify the State Director, who will instruct the District Director of
the required action.
(4) Unauthorized grant assistance. (i) When the recipient will repay
unauthorized grant assistance over a period of time, interest will be
charged at the rate specified in the grant agreement for default from
the date received until paid. Repayment will be scheduled over a period
consistent with the recipient's repayment ability but not to exceed 10
years. The District Director must maintain collection records as the
Finance Office cannot set upon an account for repayment of a grant. The
District Director will attempt to collect the monies due, and all
collections will be remitted with Form FmHA or its successor agency
under Public Law 103-354 451-2, ``Schedule of Remittances,'' as a
``Miscellaneous Collection for Application to the General Fund.'' For
cases identified in OIG audits only, the District Director will report
quarterly to the State Office according to Sec. 1951.668 (a)(6).
(ii) If it is determined the recipient cannot repay unauthorized
grant assistance, the assistance may be left outstanding under the terms
of the grant agreement. In the case of committed funds not yet
disbursed, no further disbursements will be made without prior consent
of the Administrator.
(5) Cases where recipient has both authorized and unauthorized loans
outstanding. When a recipient has both authorized and unauthorized loans
outstanding, installments will be scheduled to be paid concurrently on
all
[[Page 109]]
loans. Each loan will be serviced according to the loan servicing
regulations in effect for an authorized loan of its type.
(b) Inactive borrower. When a borrower no longer has an outstanding
account in the records of the Finance Office, the following actions will
be taken:
(1) Have the recipient execute a promissory note in the amount of
the assistance determined to be unauthorized in the exhibit A (available
in any FmHA or its successor agency under Public Law 103-354 office)
letter according to Sec. 1951.657. This note will bear interest at the
rate which was in effect for the type loan associated with the
unauthorized assistance when it was approved. The term will not exceed
10 years.
(2) Take the best mortgage obtainable to secure the note.
[50 FR 12996, Apr. 2, 1985, as amended at 51 FR 11563, Apr. 4, 1986; 58
FR 38926, July 21, 1993]
Secs. 1951.662--1951.667 [Reserved]
Sec. 1951.668 Servicing unauthorized assistance accounts.
When a final determination has been made that unauthorized
assistance has been granted, the Finance Office will be notifed of
necessary account adjustments as outlined in this section, depending
upon whether the case or unauthorized assistance was identified by OIG
in an audit report or by another means. The Finance Office will service
the accounts as prescribed in this section.
(a) Audit cases. Ony the cases of unauthorized assistance identified
by OIG will be reported to the Finance Office. Form FmHA or its
successor agency under Public Law 103-354 1951-12 will be completed in
accordance with the FMI, and the District Director will prepare and
submit Form FmHA or its successor agency under Public Law 103-354 1951-
52, ``MFH Record Adjustment--Audit Claim,'' according to the FMI to
advise the Finance Office. The Finance Office will flag the account for
monitoring and reporting as required. Each payment reversed will be
reapplied as of the original date of credit. ``Loan'' as used in this
section refers to an account with an active borrower unless specified as
``inactive.''
(1) Unauthorized loan. When the loan is unauthorized because the
recipient was not eligible or because the loan was approved for
unauthorized purposes, the Finance Office will be advised as follows:
(i) Repayment in full. If the recipient has arranged to repay the
unauthorized loan, the payment will be remitted with Form FmHA or its
successor agency under Public Law 103-354 1944-9, in accordance with the
FMI. Forms FmHA or its successor agency under Public Law 103-354 1951-12
and 1951-52 will reflect the amount and the Schedule Number from Form
FmHA or its successor agency under Public Law 103-354 1944-9.
(ii) Continuation with loan on existing terms. When continuation
with the loan on the existing terms is approved according to
Sec. 1951.661 (a)(1)(ii), the District Director will submit Form FmHA or
its successor agency under Public Law 103-354 1951-52 to the Finance
Office to reflect this.
(2) Unauthorized subsidy benefits received through use of incorrect
interest rate. When the interest rate on an entire loan is changed, Form
FmHA or its successor agency under Public Law 103-354 1951-52 will be
submitted to notify the Finance Office of the correct interest rate to
be charged from the loan closing date. Payments made will be reversed
and reapplied at the corrected interest rate, after which the
unauthorized subsidy benefits will be reported to OIG as resolved. The
loan will thereafter be treated as an authorized loan.
(3) Unauthorized interest credits and/or rental assistance.
Unauthorized rental assistance and/or interest credits will be recovered
according to the provisions of Sec. 1951.661. The District Director will
report to the State Office by the 1st of March, June, September, and
December of each year, the repayment of unauthorized rental assistance
and/or interest credits by account name, case number, account code,
audit report number, finding number, date of claim, amount of claim,
amount collected during period, and balance owed at end of reporting
period. The State Office will forward a consolidated report to
[[Page 110]]
the Finance Office no later than the 15th of March, June, September, and
December of each year for inclusion in the OIG report.
(4) Liquidation pending. When liquidation is initiated under the
provisions of this subpart, Form FmHA or its successor agency under
Public Law 103-354 1951-52 will be submitted to advise the Finance
Office of the unauthorized assistance account to be established. This
account will be flagged ``FAP'' (Foreclosure Action Pending) or ``CAP''
(Court Action Pending), as applicable. The account status will also be
amended in the MFH Information Tracking and Retrieval System (MISTR)
according to subpart G of part 2033 (available in any FmHA or its
successor agency under Public Law 103-354 State or District Office).
(5) Liquidation not initiated. Cases in which Liquidation has not
been initiated because of the provisions of Sec. 1951.658 (e)(1)(i)(A)
or (e)(1)(i)(B) will be adjusted according to Sec. 1951.661 and this
section of this subpart, and the adjustments will be reflected on Form
FmHA or its successor agency under Public Law 103-354 1951-52. In this
instance only, account adjustments will be made even though the
recipient does not sign Form FmHA or its successor agency under Public
Law 103-354 1951-52 and any related documents.
(6) Unauthorized grant assistance. When grant funds are to be
repaid as provided in Sec. 1951.661(a)(4) the District Director will
report to the State Office by the 1st of March, June, September, and
December of each year, the amount of collections by account name, case
number, fund code, audit report number, finding number, date of claim,
original amount of claim, amount collected during period, and the
balance owed at end of reporting period on the unauthorized grant
assistance. The State Office will submit a composite report to the
Finance Office by the 15th of March, June, September, and December of
each year.
(7) Establishment of account for inactive borrower. When an inactive
borrower agrees to repay unauthorized assistance and executes documents
to evidence such an obligation, Forms FmHA or its successor agency under
Public Law 103-354 1951-12 and 1951-52 will be completed according to
the FMIs. The Finance Office will establish the account according to the
terms indicated on Form FmHA or its successor agency under Public Law
103-354 1951-52.
(8) Reporting. At prescribed intervals, the Finance Office will
report to the OIG on the status of cases involving unauthorized
assistance which were identified by OIG in audit reports. The amounts to
be reported will be determined by the Finance Office after account
servicing actions have been completed. For reporting purposes, the
following applies:
(i) For an unauthorized loan account as provided in paragraph (a)(1)
or (a)(4) of this section, reporting will be as follows:
(A) When unauthorized assistance is paid in full, this will be
reported on the next scheduled report only.
(B) When continuation with the loan on existing terms is approved,
the case will be reported as resolved on the next scheduled report, and
no further reporting is required.
(ii) For unauthorized subsidy cases as provided in paragraph (a)(2)
or (a)(3) of this section, after the unauthorized amount has been repaid
or payments have been reversed and reapplied at the correct interest
rate, the unauthorized subsidy will be reported as resolved on the next
scheduled report. No further reporting is required.
(iii) When an account is established with liquidation action pending
as provided in paragraph (a)(4) of this section, the status will be
included on each scheduled report until the liquidation is completed or
the account is otherwise paid in full.
(iv) When liquidation is not initiated as provided in paragraph
(a)(5) of this section, this will be reported on the next scheduled
report (along with collections, if any). No further reporting is
required.
(v) When unauthorized grant assistance is scheduled to be repaid,
the collections and status reported by the State Office to the Finance
Office by memorandum according to paragraph (a)(6) of this section will
be included in the OIG Report until the account is paid in full.
[[Page 111]]
(vi) When an inactive borrower has agreed to repay unauthorized
assistance according to paragraph (a)(7) of this section, the account
will be reported initially, and collections and status will be included
in each scheduled report until the account is paid in full.
(b) Nonaudit cases. Basically, servicing is the same for audit and
nonaudit case; however, when receipt of unauthorized assistance is
identified by a means other than an OIG audit report, the Finance Office
will be notified only if adjustments to an active account or
reinstatement of an inactive account are necessary, or grant funds are
repaid. Once adjustments are made as provided in this paragraph, the
loan(s) will be treated as an authorized loan(s). Any payment reversed
will be reapplied as of the original date of credit. After payments are
reversed and reapplied, the District Director will receive Form FmHA or
its successor agency under Public Law 103-354 451-26, ``Transaction
Record,'' from the Finance Office reflecting the account status.
(1) Account adjustments will be handled as follows:
(i) When a change in interest rate retroactive to the date of loan
closing is necessary, Form FmHA or its successor agency under Public Law
103-354 1951-13, ``Change in Interest Rate,'' will be completed
according to the FMI and executed by the borrower. Form FmHA or its
successor agency under Public Law 103-354 1951-521 will be submitted to
the Finance Office. Payments will be reversed and reapplied accordingly.
(ii) When an inactive borrower agrees to repay unauthorized
assistance and executes documents to evidence such an obligation, the
District Director will notify the Finance Office by memorandum,
attaching a copy of the promissory note. The Finance Office will
establish or reinstate the account according to the terms of the
promissory note.
(iii) If a loan is paid in full, the remittance will be handled in
the same manner as any other final payment.
(2) A delinquency created through reversal and reapplication of
payments to effect corrections outlined in paragraph (b)(1)(i) of this
section will be serviced according to subpart B of part 1965 of this
chapter.
(c) Collection of unauthorized assistance. Collection of
unauthorized assistance will be made in accordance with the appropriate
sections of subpart K of part 1951 of this chapter. If full prepayment
of an MFH loan is required, the prepayment will be accepted in
accordance with the requirements of subpart E of part 1965 of this
chapter, and appropriate restrictive-use provisions, if applicable, will
remain in the deeds of release.
[50 FR 12996, Apr. 2, 1985, as amended at 58 FR 38926, July 21, 1993]
Sec. 1951.669 Exception authority.
The Administrator may in individual cases make an exception to any
requirement or provision of this subpart which is not inconsistent with
any applicable law or opinion of the Comptroller General, provided the
Administrator determines that application of the requirement or
provision would adversely affect the Government's interest. Requests for
exceptions must be made in writing by the State Director and submitted
through the Assistant Administrator, Housing. Requests will be supported
with documentation to explain the adverse effect on the Government's
interest, proposed alternative courses of action, and show how the
adverse effect will be eliminated or minimized if the exception is
granted.
Secs. 1951.670--1951.699 [Reserved]
Sec. 1951.700 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0104.
Subpart O--Servicing Cases Where Unauthorized Loan(s) or Other Financial
Assistance Was Received--Community and Insured Business Programs
Source: 50 FR 13000, Apr. 2, 1985, unless otherwise noted.
[[Page 112]]
Sec. 1951.701 Purpose.
This subpart prescribes the policies and procedures for servicing
Community and Business Program loans and/or grants made by Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) when it is determined
that the borrower or grantee was not eligible for all or part of the
financial assistance received in the form of a loan, grant, or subsidy
granted, or any other direct financial assistance. It does not apply to
guaranteed loans. Loans sold without insurance by the FmHA or its
successor agency under Public Law 103-354 to the private sector will be
serviced in the private sector and will not be serviced under this
subpart. The provisions of this subpart are not applicable to such
loans. Future changes to this subpart will not be made applicable to
such loans.
[52 FR 38908, Oct. 20, 1987]
Sec. 1951.702 Definitions.
As used in this subpart, the following definitions apply:
(a) Active borrower. A borrower who has an outstanding account in
the records of the Finance Office, including collection-only or an
unsatisfied account balance where a voluntary conveyance was accepted
without release from liability of foreclosure did not satisfy the
indebtedness.
(b) Assistance. Finance assistance in the form of a loan, grant, or
subsidy received.
(c) Debt instrument. Used as a collective term to include promissory
note, assumption agreement, grant agreement agreement/resolution, or
bond.
(d) False information. Information, known to be incorrect, provided
with the intent to obtain benefits which would not have been obtainable
based on correct information.
(e) Inaccurate information. Incorrect information provided
inadvertently without intent to obtain benefits fraudulently.
(f) Inactive borrower. A former borrower whose loan(s) has (have)
been paid in full or assumed by another party(ies) and who does not have
an outstanding account in the records of the Finance Office.
(g) Recipient. ``Recipient'' refers to an individual or entity that
received a loan, or portion of a loan, an interest subsidy, a grant, or
a portion of a grant which was unauthorized.
(h) Servicing official. For Community Programs, the servicing
official is the District Director, an Assistant District Director, or a
District Loan Specialist so designated. For Business Programs, the
servicing official is the State Director or Designee.
(i) Unauthorized assistance. Any loan, interest subsidy, grant, or
portion thereof received by a recipient for which there was no
regulatory authorization for which the recipient was not eligible.
Interest subsidy includes subsidy benefits received because a loan was
closed at a lower interest rate than that to which the recipient was
entitled, whether the incorrect interest rate was selected erroneously
by the approval official or the documents were prepared in error.
Sec. 1951.703 Policy.
When unauthorized assistance has been received, an effort must be
made to collect from the recipient the sum which is determined to be
unauthorized, regardless of amount, unless any applicable Statute of
Limitation has expired.
Secs. 1951.704--1951.705 [Reserved]
Sec. 1951.706 Initial determination that unauthorized assistance was received.
Unauthorized assistance may be identified through audits conducted
by the Office of the Inspector General, USDA, (OIG); through reviews
made by FmHA or its successor agency under Public Law 103-354 personnel;
or through other means such as information provided by a private citizen
which documents that unauthorized assistance has been receive by a
recipient of FmHA or its successor agency under Public Law 103-354
assistance. If the servicing official has reason to believe unauthorized
assistance was received, but is unable to determine whether or not the
assistance was in fact unauthorized, the case
[[Page 113]]
file including the advice of the Regional Office of the General Counsel
(OGC) will be referred to the National Office for review and comment. In
every case where it is known or believed by FmHA or its successor agency
under Public Law 103-354 that the assistance was based on false
information, investigation by the OIG will be requested as provided for
in FmHA or its successor agency under Public Law 103-354 Instruction
2012-B (available in any FmHA or its successor agency under Public Law
103-354 office). If OIG conducts an investigation, the actions outlined
in Sec. 1951.707 will be deferred until the OIG investigation is
completed and the report is received. The reason(s) for the unauthorized
assistance being received by the recipient will be well documented in
the case file, and will specifically state whether it was due to:
(a) Submission of inaccurate information by the recipient;
(b) Submission of false information by the recipient.
(c) Submission of inaccurate or false information by another
authorized party acting on the recipient's behalf including professional
consultant such as engineers, architects, and attorneys, when the
recipient did not know the other part had submitted inaccurate or false
information;
(d) Error by FmHA or its successor agency under Public Law 103-354
personnel, either in making computations or failure to follow published
regulations or other agency issuances; or
(e) Error in preparation of a debt instrument which caused a loan to
be closed at an interest rate lower than the correct rate in effect when
the loan was approved.
Sec. 1951.707 Notification to recipient.
(a) Collection efforts will be initiated by the servicing official
by a letter substantially similar to exhibit A of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office), and mailed to the recipient by ``Certified Mail, Return Receipt
Requested,'' with a copy to the State Director and, for a case identifed
in an OIG audit report, a copy to the OIG office which conducted the
audit and the Planning and Analysis Staff of the National Office. This
letter will be sent to all recipients who received unauthorized
assistance, regardless of amount. The letter will:
(1) Specify in detail the reason(s) the assistance was determined to
be unauthorized;
(2) State the amount of unauthorized assistance, including any
accrued interest to be repaid; and
(3) Establish an appointment for the recipient to discuss with the
servicing official the basis for FmHA or its successor agency under
Public Law 103-354's claim; and give the recipient an opportunity to
provide facts, figures, written records or other information which might
alter FmHA or its successor agency under Public Law 103-354's
determination that the assistance received was unauthorized.
(b) If the recipient meets with the servicing official, the
servicing official will outline to the recipient why the assistance was
determined to be unauthorized. The recipient will be given an
opportunity to provide information to refute FmHA or its successor
agency under Public Law 103-354's findings. When requested by the
recipient, the servicing official may grant additional time for the
recipient to assemble documentation. When an extension is granted, the
servicing official will specify a definite number of days to be allowed
and establish the follow up necessary to assure that servicing of the
case continues without undue delay.
Sec. 1951.708 Decision on servicing actions.
When the servicing official is the same individual who approved the
unauthorized assistance, the next-higher supervisory official must
review the case before further actions are taken by the servicing
official.
(a) Payment in full. If the recipient agrees with FmHA or its
successor agency under Public Law 103-354's determination or will pay
the amount in question, the servicing official may allow a reasonable
period of time (usually not to exceed 90 days) for the recipient to
arrange for repayment. The amount due will be determined according to
Sec. 1951.711(a). the servicing official will remit collections to the
Finance
[[Page 114]]
Office according to the Forms Manual Insert (FMI) for Form FmHA or its
successor agency under Public Law 103-354 451-2, ``Schedule of
Remittances,'' as follows:
(1) In the case of a loan, for application to the borrower's account
as an extra payment.
(2) In the case of a grant, as a ``Miscellaneous Collection for
Application to the General Fund.''
(3) In the case of a loan or grant which was identified in an OIG
audit, the servicing official will report the repayment as outlined in
Sec. 1951.711(b)(2) or 1951.715 as applicable.
(b) Continuation with recipient. If the recipient agrees with FmHA
or its successor agency under Public Law 103-354's determination or is
willing to pay the amount in question but cannot repay the unauthorized
assistance within a reasonable period of time, continuation is
authorized and servicing actions outlined in Sec. 1951.711 will be taken
provided all of the following conditions are met:
(1) The recipient did not provide false information as defined in
Sec. 1951.702(d);
(2) It would be highly inequitable to require prompt repayment of
the unauthorized assistance; and
(3) Failure to collect the unauthorized assistance in full will not
adversely affect FmHA or its successor agency under Public Law 103-354's
financial interests.
(c) Notice of determination when agreement is not reached. If the
recipient does not agree with FmHA or its successor agency under Public
Law 103-354's determination, or if the recipient fails to respond to the
initial letter prescribed in Sec. 1951.707 within 30 days, the servicing
official will notify the recipient by letter substantially similar to
exhibit B of this subpart (available in any FmHA or its successor agency
under Public Law 103-354 office) (sent by Certified Mail, Return Receipt
Requested), with a copy to the State Director, and for a case identified
in an OIG audit report, a copy to the OIG office which conducted the
audit and the Planning and Analysis Staff of the National Office. This
letter will include:
(1) The amount of assistance finally determined by FmHA or its
successor agency under Public Law 103-354 to be unauthorized including
any accrued interest.
(2) A statement of further actions to be taken by FmHA or its
successor agency under Public Law 103-354 as outlined in paragraph
(e)(1) or (e)(2) of this section; and
(3) The appeal rights as prescribed in exhibit B of this subpart
(available in any FmHA or its successor agency under Public Law 103-354
office).
(d) Appeals. Appeals resulting from the letter prescribed in
paragraph (c) of this section will be handled according to subpart B of
part 1900 of this chapter. All appeal provisions will be concluded
before proceeding with further actions. If the recipient does not
prevail in an appeal, or when an apeal is not made during the time
allowed, the servicing official will document the facts in the case file
and submit to State Director, if the servicing official is other than
State Director, who will proceed with the actions outlined in paragraph
(e) of this section, as applicable. If during the course of appeal the
appellant decides to agree with FmHA or its successor agency under
Public Law 103-354's findings or is willing to repay the unauthorized
assistance, the servicing official will proceed with the actions
outlined in paragraph (a), (b), or (e) of this section.
(e) Liquidation of loan(s) or legal action to enforce collection.
When a case cannot be handled according to the provisions of paragraph
(a) or (b) of this section, or if the recipient refuses to execute the
documents necessary to establish an obligation to repay the unauthorized
assistance as provided in Sec. 1951.711, one of the following actions
will be taken:
(1) Active borrower with a secured loan. (i) The servicing official
will attempt to have the recipient liquidate voluntarily. If the
recipient agrees to liquidate voluntarily, this will be documented in
the case file. Where real property is involved, a letter will be
prepared by the servicing official and signed by the recipient agreeing
to voluntary liquidation. A resolution of the governing body may be
required. If the recipient does not agree to voluntary liquidation, or
agrees but it cannot be accomplished within a reasonable period of time
(usually not more than 90
[[Page 115]]
days), forced liquidation action will be initiated in accordance with
applicable provisions of subpart A of part 1955 of this chapter unless:
(A) The amount of unauthorized assistance outstanding, including
principal, accrued interest, and any recoverable costs charged to the
account, is less than $1,000; or
(B) It can be clearly documented that it would not be in the best
financial interest of the Government to force liquidation. If the
servicing official wishes to make an exception to forced liquidation
under paragraph (e)(1)(i)(B) of this section, a request for an exception
under Sec. 951.716 will be made.
(ii) When all of the conditions of paragraph (a) or (b) of this
section are met, but the recipient does not repay or refuses to execute
documents to effect necessary account adjustments according of the
provisions of Sec. 1951.711, liquidation action will be initiated as
provided in paragraph (e)(1)(i) of this section.
(iii) When forced liquidation would be initiated except that the
loan is being handled under paragraph (e)(1)(i)(A) or (e)(1)(i)(B) of
this section, continuation with the loan on existing terms will be
provided. In these cases, the recipient will be notified by letter of
the actions taken.
(2) Grantee, inactive borrower, or active borrower with unsecured
loan (such as collection-only, or unsatisfied balance after
liquidation). The servicing official will document the facts in the case
file and submit it to the State Director, if the servicing official is
other than the State Director, who will request the advice of the OGC on
pursuing legal action to effect collection. The case file,
recommendation of State Director and OGC comments will be forwarded to
the National Office for review and authorization to implement
recommended servicing actions. The State Director will tell OGC what
assets, if any, are available from which to collect.
Secs. 1951.709--1951.710 [Reserved]
Sec. 1951.711 Servicing options in lieu of liquidation or legal action to collect.
When the conditions outlined in Sec. 1951.708(b) are met, the
servicing options outlined in this section will be considered. Accounts
will be serviced according to this section and Sec. 1951.715.
(a) Determination of unauthorized loan and/or grant assistance
amount--(1) Unauthorized loan amount. The principal loan amount that was
unauthorized will be determined. The unauthorized amount will be the
unauthorized principal plus any accrued interest on the unauthorized
principal at the note interest rate until the date paid in accordance
with Sec. 1951.708(a), or until the date other satisfactory financial
arrangements are made in accordance with paragraph (b)(1) or (c) of this
section.
(2) Unauthorized grant amount. The unauthorized grant actually
expended will be determined. The unauthorized amount will be the
unauthorized grant with accrued interest at the interest rate stipulated
in the respective executed grant agreement for default cases until the
date paid in accordance with Sec. 1951.708(a), or until the date other
satisfactory financial arrangements are made in accordance with
paragraph (b)(2) or (c) of this section.
(b) Continuation on modified terms. When the recipient has the legal
and financial capabilities, the case will be serviced according to one
of the following, as appropriate. In each instance, the servicing
official will advise the Finance Office by memorandum of the actions
necessary to effect the account adjustment.
(1) Unauthorized loan. A loan for the unauthorized amount determined
according to paragraph (a)(1) of this section will be established at the
interest rate specified in the outstanding debt instrument or at the
present market interest rate, whichever is greater, for the respective
Community and Business program area. The loan will be amortized for a
period not to exceed fifteen (15) years, the remaining term of the
original loan, or the remaining useful life of the facility whichever is
shorter.
(2) Unauthorized grant. The unauthorized grant amount determined
according to paragraph (a)(2) of this section will be converted to a
loan at the market interest rate for the respective Community and
Business Programs area in effect on the date the financial
[[Page 116]]
assistance was provided, and will be amortized for a period not to
exceed fifteen (15) years. The recipient will be required to execute a
debt instrument to evidence this obligaton, and the best security
position practicable in a manner which will adequately protect the FmHA
or its successor agency under Public Law 103-354's interests during the
repayment period will be taken as security. When the recipient is to
repay grant assistance, the servicing official must maintain records on
the ``account'' as the Finance Office cannot set up an account for
repayment of a grant. The servicing official will attempt to collect the
monies due and all collections will be remitted with Form FmHA or its
successor agency under Public Law 103-354 451-2 to the Finance Office as
``Miscellaneous Collections for Application to the General Fund.'' For
cases identified in OIG audits only, the servicing official will report
by the 1st of March, June, September, and December of each year the
following information on cases of this type to the State Director:
Recipient's name, fund code, audit report number, audit finding number,
date of claim, amount of claim, amount collected during the reporting
period, and the balance owed on the unauthorized grant assistance.
(3) Unauthorized subsidy benefits received. When the recipient was
eligible for the loan but should have been charged a higher interest
rate than that in the debt instrument, which resulted in the receipt of
unauthorized subsidy benefits, the case will be handled as outlined in
this paragraph. The recipient will be given the option to submit a
written request that the interest rate be adjusted to the lower of the
rate for which they were eligible that was in effect at the date of loan
approval or loan closing. (See exhibit C of this subpart for interest
rates (available in any FmHA or its successor agency under Public Law
103-354 office).) FmHA or its successor agency under Public Law 103-354
servicing officials will make a concerted effort to collect all
unauthorized subsidy benefits from the recipient and will contact the
Office of General Counsel in each case for advice in accomplishing
corrective actions.
(c) Continuation on existing terms. When the recipient does not have
the legal and/or financial capabilities for the options outlined in
paragraph (b)(1), (b)(2), or (b)(3) of this section, as appropriate, to
be exercised, the recipient may be allowed to continue to meet the loan/
grant obligations outlined in the existing loan/grant instruments.
Unless the unauthorized assistance was identified in an OIG audit, no
Finance Office notification or action is necessary. If identified by
OIG, the servicing official will advise the Finance Office by memorandum
of the determination to continue with the recipient on the existing
terms of the loan/grant.
(d) Reporting requirements to National Office. An annual report will
be submitted by the State Office to the Assistant Administrator,
Community and Business Programs, within 30 days following the end of the
Government's fiscal year for each case of unauthorized assistance or
subsidy benefits. The report will include for each case the account
name, case number, fund code, OIG audit number (if applicable), amount
collected during period, and the balance owed on the unauthorized
assistance. Each State Office is responsible for coordinating with the
servicing official's office so that this information can be accumulated
and consolidated by the State Office within the allotted time. A
negative report is required from States which have no unauthorized
assistance cases.
[50 FR 13000, Apr. 2, 1985, as amended at 51 FR 11563, Apr. 4, 1986; 54
FR 28020, July 5, 1989]
Secs. 1951.712--1951.714 [Reserved]
Sec. 1951.715 Account adjustments and reporting requirement.
Cases of unauthorized assistance which require Finance Office
notification and action, regardless of whether they were identified in
an OIG audit or by other means, will be submitted to the Finance Office
by memorandum from the servicing official, as provided in applicable
paragraphs of Sec. 1951.711 of this subpart. Each memorandum should
include account (borrower) name, case number, audit report number (if
applicable), finding number (if
[[Page 117]]
applicable), fund code, loan number, and an explanation of the actions
to be taken. If the unauthorized assistance was identified in an OIG
audit report, the memorandum should be clearly annotated ``Audit Claim
for OIG Report'' as a part of the subject. The explanation should
provide sufficient details to allow the Finance Office to properly
adjust the account. The State Office will forward a consolidated report
on unauthorized grant assistance identified in an OIG audit to the
Finance Office by the 15th of March, June, September, and December of
each year reflecting the information reported by servicing officials in
accordance with Sec. 1951.711(b)(2) for inclusion in the report to OIG.
(a) Entire loan unauthorized. When the entire loan is unauthorized
because the recipient was not eligible or because the loan was approved
for unauthorized purposes, the servicing official will advise the
Finance Office, by memorandum, which of the following servicing actions
will be taken.
(1) Repayment in full. If the recipient has arranged to repay the
unauthorized loan in full through refinancing or other available
resources, the payment will be remitted with Form FmHA or its successor
agency under Public Law 103-354 451-2 and the schedule number will be
included in the memorandum.
(2) Continuation with loan on existing or modified terms. When it is
determined, according to Sec. 1951.711 (b)(1) or (c), that continuation
with the loan on the existing or modified terms will be provided, the
servicing official will advise the Finance Office by memorandum of this
determination including an explanation of the terms, if modified.
(b) Portion of loan unauthorized. When only a portion of the loan
has been determined to be for unauthorized purposes, the servicing
official will advise the Finance Office, by memorandum, of the servicing
actions as follows:
(1) Repayment in full of unauthorized portion. If the recipient has
arranged to repay the unauthorized portion of the loan through
refinancing or other available resources, the remittance will be
submitted with Form FmHA or its successor agency under Public Law 103-
354 451-2, and the schedule number will be included in the memorandum.
(2) Continuation with unauthorized portion of loan on existing or
modified terms. When it is determined, according to Sec. 1951.711 (b)(1)
or (c), that continuation with the unauthorized portion of the loan on
the existing or modified terms will be provided, the servicing official
will advise the Finance Office by memorandum of this determination,
including an explanation of the terms if modified. The authorized
portion will retain the original loan number with installments adjusted
accordingly. Payments previously made will not be reversed and
reapplied. The amortized unauthorized amount will be assigned the next
available loan number. Installments for the authorized and unauthorized
loans will be scheduled and paid concurrently.
(c) Unauthorized subsidy benefits received. The unauthorized subsidy
benefits received will be serviced according to Sec. 1951.711 (b)(3) or
(c).
(d) Liquidation pending. When liquidation is initiated under the
provisions of this subpart, the servicing official will advise the
Finance Office, by memorandum, that an unauthorized assistance account
is to be established. This account will be flagged ``FAP'' (Foreclosure
Action Pending) or ``CAP'' (Court Action Pending), as applicable.
(e) Liquidation not initiated. Cases in which liquidation would
normally be initiated, but where it is not because of the provisions of
Sec. 1951.708(e)(1), will be serviced in accordance with
Sec. 1951.708(e)(1)(iii). If the unauthorized assistance was identified
through means other than an OIG audit report, the Finance Office will
not be notified and no action is necessary.
(f) Unauthorized grant assistance. A grant that is to be repaid will
be serviced according to Sec. 1951.711(b)(2). If the unauthorized
assistance was identified through means other than an OIG audit report
and a determination has been made not to recover, the Finance Office
will not be notified and no action is necessary.
(g) Reporting. At prescribed intervals, the Finance Office will
report to the OIG on the status of cases involving unauthorized
assistance which were identified by OIG in audit reports. The
[[Page 118]]
amounts to be reported will be determined by the Finance Office after
account servicing actions have been completed. For reporting purposes,
the following applies:
(1) For an unauthorized loan account established as provided in
paragraph (a) or (b) of this section, reporting will be as follows:
(i) When unauthorized assistance is paid in full, this will be
reported on the next scheduled report only.
(ii) When continuation with the loan on existing or modified terms
is approved, this will be reported on the next scheduled report, and no
further reporting is required.
(2) For unauthorized subsidy cases as provided in paragraph (c) of
this section, once the interest rate has been appropriately adjusted,
the unauthorized subsidy will be reported as resolved on the next
scheduled report. No further reporting is required.
(3) When an account is established with liquidation action pending
as provided in paragraph (d) of this section, the status will be
included on each scheduled report until the liquidation is completed or
the account is otherwise paid in full.
(4) When liquidation is not initiated as provided in paragraph (e)
of this section, this will be reported on the next scheduled report. No
further reporting is required.
(5) When unauthorized grant assistance is scheduled to be repaid as
provided in paragraph (f) of this section, collections and status will
be included in the report to OIG until the amount is paid in full.
Sec. 1951.716 Exception authority.
The Administrator may in individual cases make an exception to any
requirement or provision of this subpart which is not inconsistent with
any applicable law or opinion of the Comptroller General, provided the
Administrator determines that application of the requirement or
provision would adversely affect the Government's interest. Requests for
exceptions must be made in writing by the State Director and submitted
through the Assistant Administrator, Community and Business Programs.
Requests will be supported with documentation to explain the adverse
effect on the Government's interest, propose alternative courses of
action, and show how the adverse effect will be eliminated or minimized
if the exception is granted.
Secs. 1951.717--1951.749 [Reserved]
Sec. 1951.750 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
control number 0575-0103.
Subparts P-Q--[Reserved]
Subpart R--Rural Development Loan Servicing
Source: 53 FR 30656, Aug. 15, 1988, unless otherwise noted.
Sec. 1951.851 Introduction.
(a) This subpart contains regulations for servicing or liquidating
loans made by the Farmers Home Administration or its successor agency
under Public Law 103-354 (FmHA or its successor agency under Public Law
103-354) under the Intermediary Relending Program (IRP) to eligible IRP
intermediaries and applies to ultimate recipients and other involved
parties. The provisions of this subpart supersede conflicting provisions
of any other subpart.
(b) This subpart also contains regulations for servicing the
existing Rural Development Loan Fund (RDLF) loans previously approved
and administered by the U.S. Department of Health and Human Services
(HHS) under 45 CFR part 1076. This action is needed to implement the
provisions of Section 1323 of the Food Security Act of 1985, Pub. L. 99-
198, which provides for the transfer of the loan servicing authority for
those loans from the HHS to the U.S. Department of Agriculture (USDA).
(c) The portion of this regulation pertaining to loanmaking applies
to RDLF intermediaries cited in Sec. 1951.851(b) which have RDLF funds
from HHS and have not fully utilized relending of those funds to
ultimate recipients at the date of these regulations. The loanmaking of
all other IRP loans serviced by this regulation is in accordance
[[Page 119]]
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 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:
(1) B&I--Business and Industry
(2) CSA--Community Services Administration
(3) EIS--Environmental Impact Statement
(4) FmHA or its successor agency under Public Law 103-354--Farmers
Home Administration or its successor agency under Public Law 103-354
(5) HHS--U.S. Department of Health and Human Services
(6) IRP--Intermediary Relending Program
(7) OCS--Office of Community Services
(8) OIG--Office of Inspector General
(9) OGC--Office of the General Counsel
(10) RDLF--Rural Development Loan Fund
(11) USDA--United States Department of Agriculture
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
[[Page 120]]
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 FmHA or its successor agency under Public Law 103-
354.
(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 as outlined in Sec. 1948.116(b)
of part 1948, subpart C.
(x) Aquaculture including conservation, development, and utilization
of water for aquaculture. Aquaculture means the culture or husbandry of
aquatic animals or plants by private 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.
Sec. 1951.854 Ineligible assistance purposes.
(a) RDLF Intermediaries. RDLF loans may not be used by the
intermediary:
(1) For payment of the intermediary's own administrative costs or
expenses.
(2) To purchase goods or services or render assistance in excess of
what is needed to accomplish the purpose of the ultimate recipient
project.
(3) For distribution or payment to the owner, partners,
shareholders, or beneficiaries of the ultimate recipient or members of
their families when such persons will retain any portion of their equity
in the ultimate recipient.
(4) For charitable and educational institutions, churches,
organizations affiliated with or sponsored by churches, and fraternal
organizations.
(5) For assistance to government employees, military personnel, or
principals or employees of the intermediary who are directors, officers
or have major ownership (20 percent or more) in the ultimate recipient.
(6) For relending in a city with a population of twenty-five
thousand or more as determined by the latest decennial census.
(7) For a loan to an ultimate recipient which has applied or
received a loan from another intermediary unless FmHA or its successor
agency under Public Law 103-354 provides prior written approval for such
loan.
(8) For any line of credit.
(9) To finance more than 75 percent of the total cost of a project
by the ultimate recipient. The total amount of RDLF loan funds requested
by the ultimate recipient plus the outstanding balance of any existing
RDLF loan(s) will not exceed $150,000. Other loans, grants, and/or
intermediary or ultimate recipient contributions or funds
[[Page 121]]
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.
(7) For any hotels, motels, tourist homes, or convention centers.
(8) For any tourist, recreation, or amusement centers.
Secs. 1951.855--1951.858 [Reserved]
Sec. 1951.859 Term of loans.
(a) No loans shall be extended for a period exceeding 30 years.
Principal payments on loans will be made at least annually. The initial
principal payment may be deferred not more than 3 years.
(b) The terms of loan repayment will be those stipulated in the loan
agreement and/or promissory note.
Sec. 1951.860 Interest on loans.
(a) RDLF intermediaries: When the RDLF loan portfolio was
transferred from HHS to USDA as required under Pub. L. 99-198, section
1323 of the Food Security Act of 1985, there were provisions that
affected the interest rates on those loans.
(1) Those loans made in 1980 and 1981 carried an original note rate
of 1 percent interest when they were first issued. The legislation
provides for those loans made in 1980 and 1981 to have a permanent
interest rate reduction to 1 percent effective December 23, 1985, to
maturity. However, the interest rates on the loans made in 1983 and 1984
may remain the same as the original note rate.
(2) Loans made in 1983 and 1984 do not automatically qualify for a
lower rate than the level of interest rates when
[[Page 122]]
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.
Secs. 1951.861--1951.865 [Reserved]
Sec. 1951.866 Security.
(a) Loans from RDLF intermediaries to ultimate recipients. Security
requirements for loans from intermediaries to ultimate recipients will
be negotiated between the intermediaries and ultimate recipients. FmHA
or its successor agency under Public Law 103-354 concurrence in the
intermediary's security proposal is required only when security for the
loan from the intermediary to the ultimate recipient will also serve as
security for the FmHA or its successor agency under Public Law 103-354
loan.
(b) Additional security. The FmHA or its successor agency under
Public Law 103-354 may require additional security at any time during
the term of a loan to an intermediary if, after review and monitoring,
an assessment indicates the need for such security.
(c) Appraisals. Real property serving as security for all loans to
intermediaries and for loans to ultimate recipients serving as security
for loans to intermediaries will be appraised by a qualified appraiser.
For all other types of property, a valuation shall be made using any
recognized, standard technique for the type of property involved
(including standard reference manuals), and this valuation shall be
described in the loan file.
[[Page 123]]
Sec. 1951.867 Conflict of interest.
The intermediary will, for each proposed loan to an ultimate
recipient, inform FmHA or its successor agency under Public Law 103-354
in writing and furnish such additional evidence as FmHA or its successor
agency under Public Law 103-354 requests as to whether and the extent to
which the intermediary or its principal officers (including immediate
family) hold any legal or financial interest or influence in the
ultimate recipient or the ultimate recipient or any of its principal
officers (including immediate family) holds any legal or financial
interest or influence in the intermediary. FmHA or its successor agency
under Public Law 103-354 shall determine whether such ownership,
influence or financial interest is sufficient to create potential
conflict of interest. In the event FmHA or its successor agency under
Public Law 103-354 determines there is a conflict of interest, the
intermediary's assistance to the ultimate recipient will not be approved
until such conflict is eliminated.
Sec. 1951.868--1951.870 [Reserved]
Sec. 1951.871 Post award requirements.
(a) RDLF intermediaries with undisbursed RDLF loan funds shall be
governed by these regulations, the loan agreement, the approved work
program, security interests, and other conditions which FmHA or its
successor agency under Public Law 103-354 may require in awarding a
loan.
(b) Unless otherwise specifically agreed to in writing by the FmHA
or its successor agency under Public Law 103-354, any loan funds held by
an intermediary and any funds obtained from loaning FmHA or its
successor agency under Public Law 103-354-derived funds and recollecting
them that are not immediately needed by the intermediary for an ultimate
recipient should be deposited in an interest-bearing account in a bank
or other financial institution which will be covered by a form of
Federal deposit insurance. Any interest or income earned as a result of
such deposits shall be used by the intermediary only for purposes
authorized by FmHA or its successor agency under Public Law 103-354.
(c) Intermediaries operating relending programs must maintain
separate ledgers and segregated accounts for RDLF funds at all times.
(d) Reporting requirements shall be those delineated in the loan
agreement between the United States and the intermediary and such
subsequent requirements as FmHA or its successor agency under Public Law
103-354 deems appropriate. The intermediaries must document periodically
the extent to which increased employment, income and ownership
opportunities are provided to rural residents for each loan made by such
intermediary.
(e) No intermediary may make a loan to an ultimate recipient who has
applied for or received a loan from another intermediary unless FmHA or
its successor agency under Public Law 103-354 provides prior written
approval for such loan.
(f) All loan payments that are due on RDLF loans will be made
payable to the Farmers Home Administration or its successor agency under
Public Law 103-354, using the number assigned, and mailed directly to:
Farmers Home Administration or its successor agency under Public Law
103-354, Finance Office, FC 35, 1520 Market Street, St. Louis, Missouri
63103.
Sec. 1951.872 Other regulatory requirements.
(a) Intergovenmental consultation. The RDLF program is subject to
the provisions of Executive Order 12372 which requires intergovernmental
consultation with State and local officials. For each ultimate recipient
to be assisted with a loan under this subpart and for which the State in
which the ultimate recipient is to be located has elected to review the
program under their intergovernmental review process, the State Point of
Contact must be notified. Notification, in the form of a project
description, can be initiated by the intermediary or the ultimate
recipient. Any comments from the State must be included with the
intermediary's request to use the loan funds for the ultimate recipient.
Prior to FmHA or its successor agency under Public Law 103-354's
decision on the request, compliance with the requirements of
intergovernmental consultation must be
[[Page 124]]
demonstrated for each ultimate recipient. These requirements should be
carried out in accordance with FmHA or its successor agency under Public
Law 103-354 Instruction 1940-J, ``Intergovernmental Review of Farmers
Home Administration or its successor agency under Public Law 103-354
Programs and Activities,'' available in any FmHA or its successor agency
under Public Law 103-354 office.
(b) Environmental requirements. (1) Unless specifically modified by
this section, the requirements of subpart G of part 1940 of this chapter
apply to this subpart. FmHA or its successor agency under Public Law
103-354 will give particular emphasis to ensuring compliance with the
environmental policies contained in Secs. 1940.303 and 1940.304 in
subpart G of part 1940 of this chapter. Intermediaries and ultimate
recipients of loans must consider the potential environmental impacts of
their projects at the earliest planning stages and develop plans to
minimize the potential to adversely impact the environment.
(2) As part of the intermediary's request to FmHA or its successor
agency under Public Law 103-354 for concurrence to make a loan to an
ultimate recipient, the intermediary will include for the ultimate
recipient a properly completed Form FmHA or its successor agency under
Public Law 103-354 1940-20, ``Request for Environmental Information,''
if it is classified as a Class I or Class II action. FmHA or its
successor agency under Public Law 103-354 will complete the
environmental review required by subpart G of part 1940 of this chapter.
The results of this review will be used by FmHA or its successor agency
under Public Law 103-354 in making its decision on the request.
(c) Equal opportunity and nondiscrimination requirements.
(1) In accordance with Title V of Pub. L. 93-495, the Equal Credit
Opportunity Act, neither the intermediary nor FmHA or its successor
agency under Public Law 103-354 will discriminate against any applicant
on the basis of race, color, religion, national origin, age, physical or
mental handicap (provided that the applicant has the capacity to enter
into a binding contract), sex or marital status with respect to any
aspect of a credit transaction anytime Federal funds are involved.
(2) The regulations contained in part 1901, subpart E of this
chapter apply to loans made under this program.
(3) The Administrator will assure that equal opportunity and
nondiscrimination requirements are met in accordance with Title VI of
the Civil Rights Act of 1964, ``Nondiscrimination in Federally Assisted
Programs,'' 42 U.S.C. 2000d-2000d-4. If there is indication of
noncompliance with these requirements, such facts will be reported in
writing to the Administrator, ATTN: Equal Opportunity Officer.
Secs. 1951.873--1951.876 [Reserved]
Sec. 1951.877 Loan agreements.
(a) A loan agreement will have been executed by the RDLF
intermediary and OCS or HHS for each loan. The loan agreement ordinarily
would contain the following provisions:
(1) The amount of the loan.
(2) The interest rate.
(3) The term and repayment schedule.
(4) The provisions for late charges.
(5) Provisions regarding default.
(6) Disbursement procedure.
(7) Insurance requirements.
(i) Hazard insurance with a standard mortgage clause naming the
intermediary as beneficiary will be required on every ultimate recipient
in an amount that is at least the lesser of the depreciated replacement
value of the property being insured or the amount of the loan. Hazard
insurance includes fire, windstorm, lightning, hail, business
interruption, explosion, riot, civil commotion, aircraft, vehicle,
marine, smoke, builder's risk, public liability, property damage, flood
or mudslide, or any other hazard insurance that may be required to
protect the security. The RDLF intermediary's interest in the insurance
ordinarily will be assigned to the FmHA or its successor agency under
Public Law 103-354.
(ii) Ordinarily, life insurance, which may be decreasing term
insurance, is required for the principals and key employees of the
ultimate recipient and will be assigned or pledged to the RDLF
intermediary and subsequently to FmHA or its successor agency under
[[Page 125]]
Public Law 103-354. A schedule of life insurance available for the
benefit of the loan will be included as part of the application.
(iii) Workmen's compensation insurance on ultimate recipients is
required in accordance with State law.
(iv) The RDLF intermediary is responsible for determining if an
ultimate recipient is located in a special flood or mudslide hazard area
anytime Federal funds are involved. If the ultimate recipient is in a
flood or mudslide area, then flood or mudslide insurance must be
provided.
(b) The RDLF intermediary will agree:
(1) Not to make any changes in the RDLF intermediary's articles of
incorporation, charter or bylaws without the concurrence of FmHA or its
successor agency under Public Law 103-354.
(2) Not to make a loan commitment to an ultimate recipient without
first receiving FmHA or its successor agency under Public Law 103-354's
written concurrence in the proposed use of loan funds.
Secs. 1951.878--1951.880 [Reserved]
Sec. 1951.881 Loan servicing.
(a) These regulations do not negate contractual arrangements that
were previously made by the HHS, Office of Community Services (OCS), or
the intermediaries operating relending programs that have already been
entered into with ultimate recipients under previous regulations.
preexisting documents control when in conflict with these regulations.
The loan is governed by terms of existing legal documents of each
intermediary. The RDLF/IRP intermediary is responsible for compliance
with the terms and conditions of the loan agreement.
(b) Each intermediary will be monitored by FmHA or its successor
agency under Public Law 103-354 based on progress reports submitted by
the intermediary, audit findings, disbursement transactions,
visitations, and other contract with the intermediary as necessary.
(c) Loan servicing is intended to be preventive rather than a
curative action. Prompt followup on delinquent accounts and early
recognition of potential problems and pursuing a solution to them are
keys to resolving many problem loan cases.
(d) Written notices on payments coming due will be prepared and sent
to the intermediary by the FmHA or its successor agency under Public Law
103-354 Finance Office approximately 15 days in advance of the due date
of the payments. A copy of the notice will be sent to the FmHA or its
successor agency under Public Law 103-354 Administrator or designee.
(e) If the scheduled payment is not made by the intermediary within
30 days after the due date of the payment, the Finance Office will send
a past due notice to the intermediary. The notice will show the late
charge amount, if applicable, and the interest amount past due. The late
charge amount, if applicable, and the interest past due amount will be
capitalized as principal due 30 days after the due date of the monthly
payment unless existing loan documents prior to this regulation state
otherwise. If the loan documents state when late charge amounts or
interest accruals are to be capitalized, the loan documents will
prevail.
(1) A per diem amount will be shown on the late notice sent to the
intermediary. The Finance Office will send this notice to the
Administrator or designee 30 days after the past due notice has been
sent to the intermediary and the account remains delinquent. Thereafter,
further notices by FmHA or its successor agency under Public Law 103-354
designee will be sent to the intermediary on the late payments or any
further payments until the account is in a current status.
(2) The Finance Office will notify the Administrator or designee on
any payments due from the delinquent intermediary. It will be the
responsibility of the Administrator or designee to follow up on
delinquent payments to bring the account to a current status.
(3) A copy of any correspondence or notice generated by the
Administrator or designee on any delinquent loan will be sent to the
Finance Office.
(4) Interest will be computed on a 365-day basis unless legal
documents state otherwise.
[[Page 126]]
(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.
(10) Furnish upon request by the Finance Office, the information
necessary to help reconcile account balances, obtain evidence of
payments made by the borrower, and any other related data necessary to
keep the financial records correct and in balance.
(11) Answer Congressional and other correspondence.
(12) Review intermediary's plans, cash flow projections, balance
sheets, and operating statements.
Sec. 1951.882 Field visits.
(a) During or in preparation for field visits to RDLF/IRP
intermediaries by FmHA or its successor agency under Public Law 103-354
personnel, the following loan servicing activities are to be performed:
(1) Review what is being done to inform eligible applicants of the
program's existence.
(2) Obtain current and proper financial information and analyze for
trends on all RDLF/IRP intermediaries. Also determine if there is a
sufficient interest rate spread between the interest rate charged the
intermediary and the interest rate charged the ultimate recipients to
cover the administrative costs, including bad debts of operating the
program.
(3) Include in the writeups of the field visit any issues or
problems not resolved from the last visitation in the agenda.
(4) Review credit elsewhere information (has the ultimate recipient
been refused funds by other sources?) to determine if this information
is in the files.
[[Page 127]]
(5) Observe collateral and its condition, maintenance, protection
and utilization by the intermediary or ultimate recipient.
(6) Review the process for handling loan proceeds to assure they are
deposited in an interest-bearing account or time deposit in a bank or
other financial institution fully protected by Federal or State
insurance.
(7) Review materials to determine if the purpose of the program is
being fulfilled; i.e., loan funds are being used in accordance with FmHA
or its successor agency under Public Law 103-354 policies, procedures,
the approved work plan and the Loan Agreement.
(8) A report of the visit will be made on ``RDLF/IRP Review Summary
Sheet,'' or otherwise documented and included in the loan file in the
format of the ``RDLF/IRP Review Summary Sheet.'' The report should
include an opinion on the financial condition of the intermediary based
upon the review of the annual audited financial statement, periodic
financial statements, and observations made during the visit and other
sources.
(9) Determine if the ultimate recipients' files are complete,
organized, and current.
(10) Any instructions, directions, or corrective action should be
confirmed by letter to the intermediaries.
(b) All intermediaries are required to provide an annual audited
financial statement as well as a summary sheet of their lending program
on each ultimate recipient receiving Federal funds. The summary sheet of
their lending program on each ultimate recipient should include but not
be limited to: the borrower's name and address, type of business, use of
loan funds, loan amount, date of note, outstanding balance, date of
final payment, interest rate, amount and type of collateral, insurance
information, loan status, and the date of FmHA or its successor agency
under Public Law 103-354 approval, if applicable.
(c) The intermediary should perform an analysis on its ultimate
recipients and follow up in writing on any servicing action required. A
copy of the analysis will be provided to FmHA or its successor agency
under Public Law 103-354 for those ultimate recipients having Federal
funds.
Sec. 1951.883 Reporting requirements.
(a) Intermediaries are to provide FmHA or its successor agency under
Public Law 103-354 with reports as required in their respective loan
agreements, applicable statutes and as required by FmHA or its successor
agency under Public Law 103-354. The report shall include the following:
(1) An annual audit; dates of audit report period need not
necessarily coincide with other reports on the RDLF/IRP. Audits shall be
due 90 days following the audit period. Audits must cover all of the
intermediary's activities. Audits will be performed by an independent
certified public accountant or by an independent public accountant
licensed and certified on or before December 31, 1970, by a regulatory
authority of a State or other political subdivision of the United
States. An acceptable audit will be performed in accordance with
generally accepted auditing standards and include such tests of the
accounting records as the auditor considers necessary in order to
express an opinion on the financial condition of the intermediary. FmHA
or its successor agency under Public Law 103-354 does not require an
unqualified audit opinion as a result of the audit. Compilations or
reviews do not satisfy the audit requirement.
(2) Quarterly reports for periods ending March 31, June 30,
September 30, and December 31 (due 30 days after the end of the period).
FmHA or its successor agency under Public Law 103-354 at its option may
change this requirement to semiannual reports. These reports shall
contain information only on the RDLF/IRP loan funds, or if other funds
are included, the RDLF/IRP loan program portion shall be segregated from
the others; and in the case where the intermediary has more than one
RDLF/IRP loan, from FmHA or its successor agency under Public Law 103-
354, a separate report shall be made for each of these RDLF/IRP loans.
The reports will include:
(i) Form FmHA or its successor agency under Public Law 103-354 1951-
4,
[[Page 128]]
``Report of IRP/RDLF Lending Activity'' (available in the FmHA or its
successor agency under Public Law 103-354 National Office). This report
will include information on the intermediary's lending activity, income
and expenses, and financial condition and a summary of names and
characteristics of the ultimate recipients the intermediary has
financed.
(ii) Project Progress Review Narrative.
(3) An annual report on the extent to which increased employment
income and ownership opportunities are provided to low-income persons,
farm families, and displaced farm families for each loan made by such
intermediary.
(4) Proposed budget for the following year.
(5) Other reports as FmHA or its successor agency under Public Law
103-354 may require from time to time.
(b) Intermediaries shall report to FmHA or its successor agency
under Public Law 103-354 whenever an ultimate recipient is more than 90
days in arrears in the repayment of principal or interest.
Sec. 1951.884 Non-Federal funds.
Once all the FmHA or its successor agency under Public Law 103-354-
derived loan funds have been utilized by the intermediary for assistance
to ultimate recipients according to the provisions of these regulations
and the loan agreement, assistance to new ultimate recipients financed
thereafter from the intermediary's revolving loan fund shall not be
considered as being derived from Federal funds and the requirements of
these regulations will not be imposed on those new ultimate recipients.
Ultimate recipients assisted by the intermediary with FmHA or its
successor agency under Public Law 103-354-derived loan funds shall be
required to comply with the provisions of these regulations and/or loan
agreement.
Sec. 1951.885 Loan classifications.
All loans to intermediaries in the FmHA or its successor agency
under Public Law 103-354 portfolio will be classified by FmHA or its
successor agency under Public Law 103-354 at loan closing and again
whenever there is a change in the loan which would impact on the
original classification. No one classification should be viewed as more
important than others. The uncollectibility aspect of Doubtful and Loss
classifications is of obvious importance. However, the function of the
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,
[[Page 129]]
but which FmHA or its successor agency under Public Law 103-354 is
unable to supervise properly because of an inadequate loan agreement,
the condition or lack of control over the collateral, failure to obtain
proper documentation or any other deviations from prudent lending
practices. Adverse trends in the intermediary's operation or an
imbalanced position in the balance sheet which has not reached a point
that jeopardizes the repayment of the loan should be assigned to this
classification. Loans in which actual, not potential, weaknesses are
evident and significant should be considered for a Substandard
classification.
(d) Substandard classification. This classification includes loans
which are inadequately protected by the current sound worth and paying
capacity of the obligor or of the collateral pledged, if any. Loans in
this classification must have a well defined weakness or weaknesses that
jeopardize the payment in full of the debt. If the deficiencies are not
corrected, there is a distinct possibility that FmHA or its successor
agency under Public Law 103-354 will sustain some loss.
(e) Doubtful classification. This classification includes those
loans which have all the weaknesses inherent in those classified
Substandard with the added characteristic that the weaknesses make
collection or liquidation in full, based on currently known facts,
conditions and values, highly questionable and improbable.
(f) Loss classification. This classification includes those loans
which are considered uncollectible and of such little value that their
continuance as loans is not warranted. Even though partial recovery may
be effected in the future, it is not practical or desirable to defer
writing off these basically worthless loans.
Secs. 1951.886--1951.888 [Reserved]
Sec. 1951.889 Transfer and assumption.
(a) All transfers and assumptions must be approved in advance in
writing by FmHA or its successor agency under Public Law 103-354. Such
transfers and assumptions must be to an eligible intermediary.
(b) Available transfer and assumption options to eligible
intermediaries include the following:
(1) The total indebtedness may be transferred to another eligible
intermediary on the same terms.
(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.
[[Page 130]]
Sec. 1951.890 Office of Inspector General and Office of General Counsel referrals.
When facts or circumstances indicate that criminal violations, civil
fraud, misrepresentations, or regulatory violations may have been
committed by an applicant or an intermediary, FmHA or its successor
agency under Public Law 103-354 will refer the case to the appropriate
Regional Inspector General for Investigations, OIG, USDA, in accordance
with FmHA or its successor agency under Public Law 103-354 Instruction
2012-B (available in any FmHA or its successor agency under Public Law
103-354 office) for criminal investigation. Any questions as to whether
a matter should be referred will be resolved through consultation with
OIG and FmHA or its successor agency under Public Law 103-354 and
confirmed in writing. In order to assure protection of the financial and
other interests of the Government, a duplicate of the notification will
be sent to the OGC. OGC will be consulted on legal questions. After OIG
has accepted any matter for investigation, FmHA or its successor agency
under Public Law 103-354 staff must coordinate with OIG in advance
regarding routine servicing actions on existing loans.
Sec. 1951.891 Liquidation; default.
(a) In the event that FmHA or its successor agency under Public Law
103-354 takes over the servicing of the ultimate recipient of an
intermediary, those loans will be serviced by this regulation and in
accordance with the contractual arrangement between the intermediary and
the ultimate recipient. Should the FmHA or its successor agency under
Public Law 103-354 determine that it is necessary or desirable to take
action to protect or further the interests of FmHA or its successor
agency under Public Law 103-354 in connection with any default or breach
of conditions under any loan made hereunder, the FmHA or its successor
agency under Public Law 103-354 may:
(1) Declare that the loan is immediately due and payable.
(2) Assign or sell at public or private sale, or otherwise dispose
of for cash or credit at its discretion and upon such terms and
conditions as FmHA or its successor agency under Public Law 103-354
shall determine to be reasonable, any evidence of debt, contract, claim,
personal or real property or security assigned to or held by the FmHA or
its successor agency under Public Law 103-354 in connection with
financial assistance extended hereunder.
(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
[[Page 131]]
under Public Law 103-354 is responsible for protecting the interests of
the Government. All bankruptcy cases should be reported immediately to
the Regional Attorney. The Administrator must approve in advance and in
writing the estimated liquidation expenses on loans in liquidation
backruptcy. These expenses must be considered by FmHA or its successor
agency under Public Law 103-354 to be reasonable and customary.
(g) Liquidation, management, and disposal of inventory property will
be handled in accordance with subparts A, B, and C of part 1955 of this
chapter.
Secs. 1951.892--1951.893 [Reserved]
Sec. 1951.894 Debt settlement.
Debt settlement of all claims will be handled in accordance with the
Federal Claims Collection Standards (4 CFR parts 101-105).
Sec. 1951.895 [Reserved]
Sec. 1951.896 Appeals.
Any appealable adverse decision made by FmHA or its successor agency
under Public Law 103-354 which affects the borrower may be appealed upon
written request of the aggrieved party in accordance with subpart B of
part 1900 of this chapter.
Sec. 1951.897 Exception authority.
The Administrator may, in individual cases, grant an exception to
any requirement or provision of this subpart which is not inconsistent
with an applicable law or opinion of the Comptroller General, provided
the Administrator determines that application of the requirement or
provision would adversely affect the Government's interest. The basis
for this exception will be fully documented. The documentation will:
demonstrate the adverse impact; identify the particular requirement
involved; and show how the adverse impact will be eliminated.
Secs. 1951.898--1951.899 [Reserved]
Sec. 1951.900 OMB control number.
The collection of information requirements in this regulation have
been approved by the Office of Management and Budget and assigned OMB
Control Number 0575.0131. In accordance with 5 CFR part 1320, summarized
below is the annualized public reporting burden for this regulation.
[[Page 132]]
Total Est. No. of
Estimated Report filed annual man-hrs. Est. total
Sect. of regulations Title Form No. (if any) No. of annually responses per manhours
respondents (d) x (e) response (f) x (g)
(A) (B)................... (C)................. (D) (E)................. (F) (G) (H)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reporting Requirements--No Forms
--------------------------------------------------------------------------------------------------------------------------------------------------------
1951.860(a)(3)(i)............... Weighted average Written............. 12 1................... 12 3.0 36
interest calculation.
1951.877(a)(7)(i)............... Insurance............. Assignment.......... 36 On occasion......... 100 1.0 100
1951.882(a)..................... Intermediary Meeting............. 36 1................... 36 4.5 162
visitations.
1951.882(b)..................... Audited financial Written............. 36 1................... 36 .5 18
statement.
1951.883(a)(2)(ii).............. Program narrative..... Written............. ........... .................... ........... ........... ...........
IRP borrower.......... .................... 10 4................... 40 4.0 160
RDLF borrower......... .................... 26 2................... 52 4.0 208
1951.833(a)(2)(iii)............. Employment/income Written............. 36 1................... 36 1.5 54
narrative.
1951.883(a)(2)(iv).............. Proposed budget....... Written............. 36 1................... 36 2.5 90
1951.883(c)..................... Intermediary's report Written............. 36 On occasion......... 50 1.0 50
of loans 90 days in
arrears.
1951.889(c)..................... Assumption Agreement.. Written............. 2 1................... 2 3.5 7
1951.889(d)..................... Transferee financial Written............. 2 1................... 2 .5 1
statement.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form Approved with this Docket
--------------------------------------------------------------------------------------------------------------------------------------------------------
1951.883(a)(2).................. IRP Lending Activity 1951-4.............. ........... .................... ........... ........... ...........
Report.
IRP borrower.......... .................... 10 4................... 40 20 800
RDLF borrower......... .................... 26 2................... 52 20 1040
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reporting Requirements Under Other Numbers
--------------------------------------------------------------------------------------------------------------------------------------------------------
1951.872(b)..................... Request for 1940-20 (0575-0094). ........... .................... ........... ........... ...........
Environmental
Information.
\1\494 ........... \2\2,726
\1\ Docket totals. \2\ Total hours.
[[Page 133]]
Subpart S--Farmer Program Account Servicing Policies
Source: 57 FR 18626, Apr. 30, 1992, unless otherwise noted.
Sec. 1951.901 Purpose.
This subpart describes the policies and procedures that Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) will use in servicing
most Farmer Program loans. The loans include Operating Loan (OL), Farm
Ownership Loan (FO), Soil and Water Loan (SW), Softwood Timber
Production Loan (ST), Emergency Loan (EM), Economic Emergency Loan (EE),
Economic Opportunity Loan (EO), Recreation Loan (RL), and Rural Housing
Loan for farm service buildings (RHF) accounts. Cases involving
unauthorized assistance will be serviced as described in subpart L of
this part. For the purposes of subpart L of this part, when it has been
determined that all the conditions outlined in Sec. 1951.558(b) of
subpart L of this part have been met, the loan will be treated as an
authorized loan and may be serviced under this subpart. Cases involving
graduation of borrowers to other sources of credit will be serviced as
described in subpart F of this part. This subpart does not apply to
Farmer Program Non-Program (NP) loans. Examples of primary loan service
actions that FmHA or its successor agency under Public Law 103-354 may
take are: consolidation, rescheduling and/or reamortization, deferral of
principal and interest payments, reclassifying to ST loans, reducing
interest rate on the loan, writedown of debt and conservation set-aside
easements, or a combination of these actions. Examples of preservation
loan service actions that FmHA or its successor agency under Public Law
103-354 may take are leaseback/buyback and/or homestead protection. Any
processing or servicing activity conducted pursuant to this subpart
involving authorized assistance to FmHA or its successor agency under
Public Law 103-354 employees, members of their families, known close
relatives, or business or close personal associates, is subject to the
provisions of subpart D of part 1900 of this chapter. Applicants for
this assistance are required to identify any known relationship or
association with an FmHA or its successor agency under Public Law 103-
354 employee.
[57 FR 18626, Apr. 30, 1992, as amended at 58 FR 228, Jan. 5, 1993]
Sec. 1951.902 General.
(a) Supervision and servicing. It is a primary objective of the
Agency to provide supervised credit to borrowers in financial difficulty
in a manner that will assure the maximum opportunity for the borrower's
recovery and at the same time, get the best net recovery for the
Government. Supervision and servicing is a continuing process that
begins the day a farmer comes into the FmHA or its successor agency
under Public Law 103-354's credit program. Providing supervised credit
to farmers has two objectives; to help the farmers work out of financial
difficulty so they can move to private sector credit, and to minimize
costs to the Government. The continuing process of supervision and
servicing can be described as phases a borrower's account may go through
during the borrower's tenure with FmHA or its successor agency under
Public Law 103-354. There are five possible phases which are summarized
under paragraph (b) of this section. This summary provides only a
general outline of the servicing process. It will not be construed as
providing substantive or procedural rights or obligations to the extent
of any conflict with other FmHA or its successor agency under Public Law
103-354 regulations. Adverse decisions made during the servicing process
are subject to appeal procedures set out in subpart B of part 1900 of
this chapter.
(b) Phases--(1) Phase (I). The borrower is current or can be current
on payments but is in financial distress. The borrowers will be notified
of available servicing options in accordance with Sec. 1951.908 of this
subpart. FmHA or its successor agency under Public Law 103-354 will
carefully analyze the farming operation at least annually to determine
the cause of any financial deterioration. Remedial action needed to
reverse the trend will be identified. The use of rescheduling and/or
reamortization at regular interest rates
[[Page 134]]
and terms will be considered in an effort to keep the borrower from
becoming delinquent. If those options will not provide the assistance
needed, the borrower will be considered in Phase II.
(2) Phase (II). In Phase II, additional restructuring options are
available. In addition to rescheduling and/or reamortization, limited
resource interest rates, deferrals, including ST loans, and an easement
in exchange of debt will be considered. The borrower will be considered
in Phase III when the accounts are 30 days behind schedule. The borrower
will be notified of the available primary, preservation loan servicing
and debt settlement programs in accordance with Sec. 1951.907 of this
subpart.
(3) Phase (III). In Phase III, in addition to all of the servicing
options considered in Phases I and II, the borrower at this point, is
considered for a debt writedown. FmHA or its successor agency under
Public Law 103-354 determines whether or not the best recovery to the
Government is by keeping the farmer on the farm or by liquidation. To do
this, FmHA or its successor agency under Public Law 103-354 compares the
present value of the restructured debt to the net recovery value of the
collateral as defined in this subpart. If the calculations show that the
present value of the payments to be received on the restructured debt
are greater than or equal to the net recovery value of the collateral,
FmHA or its successor agency under Public Law 103-354 will offer to
restructure the debt. FmHA or its successor agency under Public Law 103-
354 also will consider any nonessential assets that the borrower may
own. If a feasible plan of operation cannot be developed, will send the
borrower information concerning any available State mediation program or
meeting of creditors. If a feasible plan cannot be developed through
mediation or a meeting of creditors, the borrower will be notified of
FmHA or its successor agency under Public Law 103-354's intent to
accelerate the account and offer the borrower the opportunity to retain
the security property by paying FmHA or its successor agency under
Public Law 103-354 the net recovery value (buyout). The borrower will be
in Phase IV at this point.
(4) Phase (IV). When all combinations of primary servicing have been
fully and carefully considered and liquidation is the only course of
action, the borrower will be considered in Phase IV which is the
beginning of the liquidation process. Before acceleration, FmHA or its
successor agency under Public Law 103-354 will offer preservation loan
service options to borrowers. These options include both an opportunity
to lease or buy back the property that is subject to foreclosure. The
borrower can apply for debt settlement when conveying the property,
either by sale at market value or voluntary conveyance to FmHA or its
successor agency under Public Law 103-354. Debt settlement procedures
are set out in subpart B of part 1956 of this chapter.
(5) Phase (V). After acceleration and foreclosure, the borrower is
considered in Phase V. This Phase begins when the property securing the
borrower's debt to FmHA or its successor agency under Public Law 103-354
passes into FmHA or its successor agency under Public Law 103-354
inventory. If FmHA or its successor agency under Public Law 103-354
acquires the property, Preservation Loan Service Programs will be
offered to the borrower.
Sec. 1951.903 Authorities and responsibilities.
(a) Responsibilities. County Supervisors will make full use of the
National automated tracking system to track and manage the FP primary
and preservation loan servicing and debt settlement programs.
(b) Authorities. All loan servicing decisions except as set forth in
this section will be made by the County Supervisor except the approval
of writedown and buyout of a borrower's debt. Also, all applications for
debt settlement of FP loans must be recommended by the FmHA or its
successor agency under Public Law 103-354 County Committee (except where
the debt has been discharged through bankruptcy), approved by the FmHA
or its successor agency under Public Law 103-354 State Director or the
FmHA or its successor agency under Public Law 103-354 Administrator
(depending upon the amount of
[[Page 135]]
debt to be settled), and processed in accordance with the provisions of
subpart B of part 1956 of this chapter. County Supervisors are
authorized to accept a buyout payment when the borrower(s) pays the net
recovery value of the FmHA or its successor agency under Public Law 103-
354 security set forth in Sec. 1951.909 of this subpart. Only State
Directors are authorized to approve writedown and buyout in accordance
with Sec. 1951.909 of this subpart. Only State Directors are authorized
to release a divorced spouse from liability on the debt in accordance
with Sec. 1951.909(a) of this subpart. County Supervisors are authorized
to consolidate and reschedule/reamortize or defer a borrower's loans
only one time. If subsequent reschedulings/reamortizations and/or
deferrals are necessary, approval must be in writing by the District
Director.
Secs. 1951.904--1951.905 [Reserved]
Sec. 1951.906 Definitions.
As used in this subpart, the following definitions apply:
Borrower. An individual or entity which has or is presently
operating the farm and has outstanding obligations to the Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) under any Farmer Program
loan(s), without regard to whether the loan has been accelerated, but
does not include any such debtor whose total loans and accounts have
been foreclosed or liquidated, voluntarily or otherwise. Collection-only
borrowers are considered borrowers. Borrower also includes any other
party liable for the FmHA or its successor agency under Public Law 103-
354 debt. Non-program (NP) borrowers are not considered borrowers for
purposes of this subpart.
Conact or Conact property. Property which secured a loan made or
insured under the Consolidated Farm and Rural Development Act. Within
this subpart, it shall also be construed to cover property which secured
other Farmer Programs loans.
Debt settlement. The settlement of debts owed the United States for
FmHA or its successor agency under Public Law 103-354 Farmer programs,
Single-Family Housing and Multiple Family Housing programs. The types of
debt settlement programs are: compromise, adjustment, cancellation and
chargeoff. These programs are administered in accordance with the
provisions of subpart B of part 1956 of this chapter.
Delinquent borrower. A borrower who has failed to make all or part
of a payment which is due for 30 or more calendar days after the due
date.
Entity. A corporation, partnership, joint operation, or cooperative.
Entity members. For purposes of leaseback/buyback, entity members
are stockholders of a corporation, partners of a partnership, joint
operators of a joint operation and members of a cooperative, provided
that the shareholders of the corporation, partners of the partnership,
joint operators of a joint operation or members of a cooperative must be
exclusively members of the same family. To be considered members of the
same family, the members of an entity must be related by blood or
marriage.
Farm plan. Form FmHA or its successor agency under Public Law 103-
354 431-2, ``Farm and Home Plan,'' or other plans or documents
acceptable to FmHA or its successor agency under Public Law 103-354 that
will accurately reflect the production and financial management of the
farming operation for one production cycle. FmHA or its successor agency
under Public Law 103-354 will not require the use of consolidated
financial statements.
Farmer Program (FP) loans. This refers to Farm Ownership (FO), Soil
and Water (SW), Recreation (RL), Economic Opportunity (EO), Operating
(OL), Emergency (EM), Economic Emergency (EE), Softwood Timber (ST)
loans, and Rural Housing loans for farm service buildings (RHF).
Feasible plan. A feasible plan is a plan based upon the applicant's
or borrower's actual records that show the farming operation's actual
income, production and expenses. Income tax returns and supporting
documents (hereafter called income tax records) must be submitted to
verify the actual records. The records, including income tax records,
must be for the most recent 5-
[[Page 136]]
year period or if the borrower has been farming less than 5 years, the
records for the period which the borrower has farmed. For borrowers who
have been farming for less than 5 years, the borrower's actual records
will be used along with other available records in the order listed in
Sec. 1924.56 to complete a 5-year history. Future production yields will
be based on a 5-year average of the most recent past 5 years' actual
production yields. Borrowers that have yields affected by disasters in
at least 2 of the 5 most recent years' actual production may exclude the
crop year with the lowest actual yield. In accordance with Sec. 1924.56,
if the applicant's remaining disaster year's yields are less than the
county average yield and the borrower's yields were affected by the
disaster, county average yields will be used for that year. If county
average yields are not available, State average yields will be used.
These records will be used along with realistic anticipated prices,
including any planned farm program payments, to determine that the
income from the farming operation and any reliable off-farm income, will
provide the income necessary for an applicant or borrower to at least be
able to:
(1) Pay all operating expenses and all taxes which are due during
the projected farm business accounting period.
(2) Meet scheduled payments on all debts, except as provided in
Sec. 1941.14 of subpart A of part 1941 of this chapter for annual
production loans or subordinations made to delinquent borrowers.
(3) Meet up to 105 percent, but not less than 100 percent, of the
scheduled payments on all debts, except as provided in Sec. 1941.14 for
annual production loans or subordinations made to a delinquent borrower
submitting a ``NEW APPLICATION.'' The Agency will assume that a borrower
needs up to 105 percent of the scheduled payments on all the debts for
the business accounting period in order to meet the obligations and
continue farming. However, this will not prohibit a borrower from
receiving debt restructuring because the projected income is less than
105 percent of the scheduled payments. In no case will a borrower
receive restructuring if projected income is less than 100 percent of
scheduled payments.
(4) Provide living expenses for the family members of an individual
borrower or a wage for the farm operator in the case of a cooperative,
corporation, partnership, or joint operation borrower, which is in
accordance with the essential family needs. Family members include the
individual borrower or farm operator in the case of an entity, and the
immediate members of the family who reside in the same household.
Financially distressed. A financially distressed borrower is one who
will not be able to make payments as planned for the current or next
business accounting period. Borrowers will also be considered
financially distressed if the borrower will not be able to project a
feasible plan of operation for the next business accounting period.
Foreclosed. The completed act of selling security either under the
``power of sale'' in the security instrument or through court
proceedings.
Good faith. An eligibility requirement for Primary Loan Servicing
including Net Recovery Buyout, and Leaseback/Buyback. A borrower is
considered to have acted in ``good faith'' if the borrower has
demonstrated honesty and sincerity in carrying out the agreements on
Form FmHA 1962-1 (available in any Agency office) and any other written
agreements with the Agency. Findings of a lack of good faith will be
based on violations within the borrower's control. These actions will
demonstrate the borrower's intent to violate written agreements with the
Agency. The Agency must substantiate any allegations of fraud, waste, or
conversion with a written legal opinion by the Office of the General
Counsel (OGC) when such allegations are used to deny a servicing
request. A borrower will not be considered to lack good faith if the
sole basis for such determination was the disposition of normal income
security, as defined in Sec. 1962.4, prior to October 14, 1988 without
the Agency's consent and the borrower demonstrates that the proceeds
were used to pay essential family living and farm operating expenses
that the Agency could have approved according to Sec. 1962.17.
Homestead Protection. This refers to the right of a former owner to
lease
[[Page 137]]
with an option to purchase the Homestead Protection property, not to
exceed 10 acres.
Homestead Protection property. This refers to the principal
residence which secured a Farmer Program loan.
Indian Reservation. Indian reservation means all land located within
the limits of any Indian reservation under the jurisdiction of the
United States, notwithstanding the issuance of any patent, and including
rights-of-way running through the reservation; trust or restricted land
located within the boundaries of a former reservation of a Federally
recognized Indian tribe in the State of Oklahoma; or all Indian
allotments the Indian titles to which have not been extinguished if such
allotments are subject to the jurisdiction of a federally recognized
Indian Tribe.
Leaseback/buyback property. Real farm and ranch property and any
off-farm principal residence(s) of the operator(s) which secured an FP
loan. Any off-farm principal residence(s) of the former borrower(s) and/
or owner(s), who are not the operator(s) of the farm or ranch property,
are not considered leaseback/buyback property.
Liquidated. The completed act of voluntarily selling security to end
the obligation for the debt, or involuntarily as the result of a
completed civil suit against a borrower to recover collateral against
the debt. The filing of a claim in a bankruptcy action is not a complete
liquidation of the borrower's accounts. Collection-only accounts are not
considered liquidated.
Loan service program. Loan service program means a Primary Loan
Service Program or a Preservation Loan Service Program for FP borrowers.
New application. An application submitted by a borrower on or after
November 28, 1990, for loan servicing programs. This does not include an
application reconsidered after an appeal or revision of an application
submitted before November 28, 1990.
Nonessential assets. Nonessential assets are assets which FmHA or
its successor agency under Public Law 103-354 does not have a lien on
and which the borrower has an ownership interest in, that:
(1) Do not contribute a net income to pay essential family living
expenses or to maintain a sound farming operation (See Sec. 1962.17 of
subpart A of part 1962 of this chapter for further guidance.); and
(2) Are not exempt from judgment creditors or in a bankruptcy
action. Each State Director with the guidance of the Office of the
General Counsel will issue a State Supplement to establish guidelines on
items that are exempt from judgment creditors and are exempt under
bankruptcy law in accordance with the laws for their State.
NonProgram (NP) loan. An NP loan results when loan(s) are made to
ineligible applicants and/or transferees in connection with loan
assumptions and sale of surplus inventory properties at ineligible terms
after first being offered for public sale by sealed bid or auction. A
borrower is not considered to have a NON-PROGRAM loan, if the borrower
is found to be ineligible after receiving the loan, when the reason the
borrower was originally determined eligible by FmHA or its successor
agency under Public Law 103-354 or by a court of law, was due to a
mistake on FmHA or its successor agency under Public Law 103-354's part.
Preservation loan service program. Preservation loan service program
means:
(a) Homestead protection as described in Sec. 1951.911 of this
subpart, and
(b) Leaseback or buyback of farm land as described in Sec. 1951.911
of this subpart.
Primary loan service program. Primary loan service program means:
(1) Loan consolidation, rescheduling, or reamortization;
(2) Interest rate reduction, including use of the limited resource
program;
(3) Loan restructuring, including deferral, or writing down of the
principal or accumulated interest charges, or both, of the loan; or
(4) Any combination of actions listed in the paragraphs 4 (i), (ii),
and (iii) of this definition.
(i) Consolidate. Consolidate means to combine and reschedule the
rates and terms of two or more notes of the same type of OL or EO loans,
EE operating-type loans or EM loans. EM actual loss loans will not be
consolidated.
(ii) Deferral. Deferral is an approved delay in making regularly
scheduled
[[Page 138]]
payments, including softwood timber (ST) loan.
(iii) Limited Resource Program. The limited resource program is a
reduction of interest rates for operating loans (OL), farm ownership
loans (FO) and soil and water loans (SW).
(iv) Reamortization. Reamortization means to rearrange the
installment payments of a real estate loan and may include changing the
interest rate and terms of the loan made for subtitle A purposes.
(v) Reschedule. Reschedule means to rewrite the rates and/or terms
of OL, SL, EO loans, EE operating-type loans or EM loans made for
subtitle B purposes.
(vi) Writedown. For purposes of this part, writedown is reducing a
borrower's debt in an amount that will result in a feasible plan of
operation.
[57 FR 18626, Apr. 30, 1992, as amended at 61 FR 35929, July 9, 1996]
Sec. 1951.907 Notice of Loan Service Programs.
In those instances where the applicable notice is sent certified
mail, and the certified mail is not accepted by the borrower, the County
Supervisor will immediately send the documents from the certified mail
package to the borrower's last known address, first class mail. The
appropriate response time will commence 3 days following the date of
first class mailing.
(a) Notification of borrowers who file bankruptcy. The account will
be serviced in accordance with instructions from the Regional Office of
the General Counsel (OGC), and in accordance with Sec. 1962.47(a)(3) of
subpart A of part 1962 of this chapter.
(b) Notification of borrowers who have been discharged in bankruptcy
or who have plans confirmed by bankruptcy courts. If the borrower has
been discharged in bankruptcy or the borrower is operating under a
confirmed plan, the account will be serviced in accordance with
instructions from the Regional OGC and in accordance with Sec. 1962.47
(a) or (c) of subpart A of part 1962 of this chapter.
(c) Notification of borrowers that are 30 days late on the payments.
(1) A borrower who has failed to make all or a part of a payment which
is due for 30 or more calendar days after the due date, as listed on the
540 or 580 delinquency reports, will be sent exhibit A of this subpart
with attachments 1 and 2 within 15 days of receiving the report. If the
borrower submits attachment 2 with a complete application as described
in paragraph (f)(1) of this section, the application will be processed
in accordance with Sec. 1951.909 of this subpart. The borrower will not
be renotified when the account becomes 180 days delinquent. If the
borrower submits an incomplete application see paragraph (f) of this
section.
(2) If the borrower does not submit attachment 2 of exhibit A of
this subpart with a completed application within 60 days, the
application will not be processed. The borrower will be renotified when
180 days delinquent in accordance with paragraph (d) of this section.
(d) Notification of borrowers 180 days delinquent. Farmer Program
borrowers who are 180 days delinquent, as listed on the 540 or 580
delinquency report, will be sent exhibit A of this subpart with
attachments 1 and 2 within 15 days of receiving the report, by certified
mail, return receipt requested unless they are already being processed
for servicing in accordance with paragraph (c) of this section. If the
borrower submits an incomplete application see paragraph (f) of this
section for procedures on requesting additional information. Borrowers
who are 180 days delinquent and have also violated their loan agreements
with FmHA or its successor agency under Public Law 103-354 will be
handled in accordance with paragraph (e) of this section. In addition to
the requirements set forth above, FmHA or its successor agency under
Public Law 103-354 County Supervisors will provide attachments 1 and 2
of exhibit A of this subpart to Farmer Program borrowers, as set forth
below:
(1) At the time an application is made for participation in an FmHA
or its successor agency under Public Law 103-354 loan service program,
unless such application is the result of the notice provided to the
borrower in accordance with this section,
(2) On written request of any FP borrower, whether delinquent or
not, and
[[Page 139]]
(3) If a borrower has not previously received exhibit A and
attachments 1 and 2 of this subpart, such exhibit and attachments will
be provided before the earliest of:
(i) Initiating any FmHA or its successor agency under Public Law
103-354 liquidation action,
(ii) Accepting a voluntary conveyance of security, or the borrower
requesting permission to sell security,
(iii) Accelerating payments on the loan,
(iv) Repossessing the borrower's property,
(v) Foreclosing on property, or
(vi) Taking any other collection action,
(e) Notification of borrowers in non-monetary default or for
delinquent borrowers also in non-monetary default or when a prior or
junior lienholder is foreclosing and FmHA or its successor agency under
Public Law 103-354 is notified of the foreclosure. Farmer Program
borrowers who are in non-monetary default will be sent attachments 1, 3,
and 4 of exhibit A of this subpart by certified mail, return receipt
requested. If a case is in the hands of the U.S. Attorney, no loan
servicing action will be taken without the U.S. Attorney's concurrence
as set forth in Sec. 1962.49 of subpart A of part 1962 of this chapter.
If the borrower has filed bankruptcy, the account will be serviced in
accordance with instructions from OGC. Any servicing request will be
processed as indicated in Sec. 1951.909 of this subpart. The account
will not be liquidated until the borrower has the opportunity to appeal
any adverse decision. After any final FmHA or its successor agency under
Public Law 103-354 appeal decision, that does not result in a resolution
on the loan defaults, the account will be accelerated as set forth in
Sec. 1955.15 of subpart A of part 1955 of this chapter.
(f) Request for primary and preservation loan service programs. (1)
To request consideration for Primary and Preservation Loan Service
Programs FP borrowers who are sent exhibit A, with attachments 1 and 2
or attachments 1, 3, and 4 must complete and return attachment 2 or
attachment 4, as appropriate, to the FmHA or its successor agency under
Public Law 103-354 County Office within 60 days after receiving the
notices with the forms required by this paragraph for a completed
application. If the borrower submits an incomplete application within
the 60 days, the County Supervisor will immediately contact the borrower
to request any additional information needed for a complete application.
The County Supervisor will inform the borrower what information must be
submitted, and that it must be submitted within 60 days of the date the
borrower received the initial notices. The borrower also will be
informed of the expiration date for submitting information. The County
Supervisor's request for additional information will be documented in
the case file.
(2) If the borrowers were sent attachments 3 and 4 and do not
request servicing within 60 days or a hearing to appeal the nonmonetary
default within 30 days, FmHA or its successor agency under Public Law
103-354tion in accordance with Sec. 1955.15 of subpart A of part 1955 of
this chapter.
(3) If borrowers were sent exhibit A and attachments 1 and 2 of this
subpart when they are 180 days delinquent and do not submit a completed
application within the 60-day time period, the County Supervisor will
send attachments 9 and 10, or 9-A and 10-A of exhibit A of this subpart,
as applicable. These attachments will not be sent to borrowers who are
being serviced in accordance with paragraph (c) of this section or
Sec. 1951.908 of this subpart. For borrowers receiving attachments 9 and
10 or 9-A and 10-A, after the expiration of appeal rights, FmHA or its
successor agency under Public Law 103-354 will proceed with liquidation
in accordance with Sec. 1955.15 of subpart B of part 1955 of this
chapter. The account will not be accelerated until any appeal has been
concluded.
(4) If a borrower has moved and left a forwarding address, the
certified mail will be forwarded. If no forwarding address is given, the
mail will be returned to the County Office. The County Supervisor will
immediately send the documents from the certified mail package to the
borrower's last known address, first-class mail. The borrower's response
date for a completed application will begin 3 days following the date of
first-class mailing.
[[Page 140]]
(5) An application for loan service programs will include the
following forms (available in any FmHA or its successor agency under
Public Law 103-354 office), records and information:
(i) 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,'' including a current (within 90 days) financial statement
of all individuals and entities personally liable for the FmHA or its
successor agency under Public Law 103-354 debt.
(ii) Form FmHA or its successor agency under Public Law 103-354 410-
8, ``Applicant Reference Letter.''
(iii) Form FmHA or its successor agency under Public Law 103-354
410-9, ``Statement Required by the Privacy Act.''
(iv) Form FmHA or its successor agency under Public Law 103-354 431-
2, ``Farm and Home Plan,'' or any other plan acceptable to FmHA or its
successor agency under Public Law 103-354 that sets forth a plan of
operation. A copy of the commodity prices used by FmHA or its successor
agency under Public Law 103-354 will be included with the forms sent to
the borrower. The County Supervisor will assist the borrower in the use
of these prices.
(v) Form(s) FmHA or its successor agency under Public Law 103-354
440-32, ``Request for Statement of Debts and Collateral.''
(vi) Form(s) FmHA or its successor agency under Public Law 103-354
1910-5, ``Request for Verification of Employment.''
(vii) Form FmHA or its successor agency under Public Law 103-354
1924-1, ``Development Plan,'' if development is planned. Plans,
specifications, and cost estimates must be attached to Form FmHA or its
successor agency under Public Law 103-354 1924-1. When development is
required to comply with ``Highly Erodible and Wetland'' requirements,
estimated costs and the conservation plan developed by SCS will be used
to satisfy this requirement. If Form FmHA or its successor agency under
Public Law 103-354 1924-1 is submitted with the application the County
Supervisor will assist the borrower in completing the plan and advise
the borrower of any additional information that is needed.
(viii) Form AD-1026, ``Highly Erodible Land Conservation (HELC) and
Wetland Conservation (WC) Certification,'' is included as part of the
complete application after being completed by SCS. (This form is
available at SCS County Offices.)
(ix) Form SCS CPA-26, ``Highly Erodible Land and Wetland
Determination,'' if not previously on file with FmHA or its successor
agency under Public Law 103-354 for the farm operation(s). This form is
included as part of the complete application after being completed by
SCS. (This form is available at SCS County Offices.)
(x) An ASCS photo of the farm, on which the applicant must show that
portion of the farm and approximate acres to be considered in a request
for debt restructuring provided for in the Conservation Easement
program. This information does not need to be provided if the applicant
does not want to be considered for conservation easement at this time.
(xi) The most recent five years income tax returns and supporting
documents unless the borrower has been farming for less than five years.
If the farmer has been farming for less than 5 years, income tax returns
and supporting documents for the tax years immediately preceding the
year of application during which the borrower farmed will be provided.
Income tax returns and supporting documents will be returned to the
borrower when the request has been processed. A copy of the income tax
returns and supporting documents will be stamped ``Confidential'' and
filed in the borrower's FmHA or its successor agency under Public Law
103-354 file, and not released outside of the U.S. Department of
Agriculture without approval of the Regional Attorney.
(xii) The County Supervisor will provide the borrower with copies of
the above forms when exhibit A is forwarded. When requested by the
borrower, copies of FmHA or its successor agency under Public Law 103-
354 regulations and the forms manual inserts (FMI) will be provided
within 10 days of the request. The borrower's County Office case file
will be documented to provide a record that the FmHA or its
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successor agency under Public Law 103-354 regulations were sent.
(xiii) Form FmHA or its successor agency under Public Law 103-354
1956-1, ``Application for Settlement of Indebtedness.'' This form need
not be provided if the borrower does not want to be considered for debt
settlement. The borrower can apply for debt settlement any time in
accordance with subpart B of part 1956 of this chapter.
(6) Not more than one 60-day period will be provided to a borrower
to respond to the notice of loan service programs except in accordance
with paragraph (c) of this section or Sec. 1951.908 of this subpart.
Subsequent notices as provided for in this section will not be issued
until the first notice is resolved.
Sec. 1951.908 Servicing financially distressed current borrowers.
A Borrower That Is Financially Distressed, But Is Not Yet Delinquent on
FmHA or its successor agency under Public Law 103-354 Payments May
Request Servicing at Any Time.
(a) Notification. If a current plan of operation demonstrates that
the borrower is or will be financially distressed, as defined in
Sec. 1951.906 of this subpart or if the borrower otherwise requests
servicing, the FmHA or its successor agency under Public Law 103-354
official will provide the borrower with attachments 1 and 2 of exhibit A
of this subpart. It will be documented in the file that the borrower was
provided the attachments.
(b) Eligibility. In order to be considered for servicing in
accordance with this section, the borrower must submit to FmHA or its
successor agency under Public Law 103-354 within 60 days attachment 2 of
exhibit A of this subpart and a complete application in accordance with
the requirements of paragraph (f)(1) of this section.
(1) The eligibility requirements of Sec. 1951.909(c) (1) and (2) of
this subpart apply to servicing under this section.
(2) Eligible financially distressed borrowers who are current on
their FmHA or its successor agency under Public Law 103-354 payments may
be considered for the Primary Loan Service Programs described in
Sec. 1951.909(e) (1), (2), and (3) of this subpart.
(3) Financially distressed borrowers that are not delinquent are not
eligible for the writedown of debt or buyout described in Sec. 1951.909
of this subpart.
(c) Processing the application. The County Supervisor must process a
completed application and notify the borrower of the decision within 90
days of receiving the application.
(1) Current borrowers will only be considered for the Primary Loan
Servicing Programs described in Sec. 1951.909(e) (1), (2), and (3) of
this subpart for consolidation, rescheduling, reamortization and
deferral of Farmer Program loans. The County Supervisor must use the
FmHA or its successor agency under Public Law 103-354 computer program
Debt and Loan Restructuring System (DALR$) in accordance with exhibit J-
1 of this subpart to determine if a feasible plan can be developed as
defined in Sec. 1951.906. The County Supervisor will assist the borrower
in developing the necessary farm and home plans.
(2) If a feasible plan can be developed, the borrower will be sent
exhibit B of this subpart with attachment 1 and the printout of the
DALR$ calculations to notify the borrower of the favorable decision. The
borrower must notify FmHA or its successor agency under Public Law 103-
354 of acceptance of the offer within 45 days of its receipt by
returning attachment 1 to exhibit B of this subpart or the offer will
expire. If the borrower accepts the offer the loan restructuring will be
processed in accordance with Sec. 1951.909(e)(1), (2), and/or (3) of
this subpart, as applicable.
(3) If a feasible plan cannot be developed, the borrower will be
informed of the reasons for the adverse decision and given appeal rights
in accordance with subpart B of part 1900 of this chapter. The DALR$
printout will be attached to the letter. The borrower will be notified
by exhibit A of subpart B of part 1924 of this chapter of the right to
release of normal income security as provided for in Sec. 1962.17 of
subpart A of part 1962 of this chapter.
(4) If the borrower does not apply for primary loan servicing, does
not accept the offer for restructuring or does not appeal an adverse
decision, and later becomes 30 days past due on the FmHA or its
successor agency under Public
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Law 103-354 payment, the borrower will be sent new notices as described
in Sec. 1951.907 of this subpart.
(5) Release of proceeds from the sale of normal income security must
be provided as set forth in Sec. 1962.17 of subpart A of part 1962 of
this chapter for both financially distressed and delinquent borrowers
until the account is accelerated.
Sec. 1951.909 Processing Primary Loan Service Programs requests.
For Borrowers Who Submit New Applications Also See Sec. 1951.910 of This
Subpart.
(a) FmHA or its successor agency under Public Law 103-354
responsibilities. (1) Within 90 days after receipt of attachment 2 or 4
and a completed application in accordance with Sec. 1951.907(f) of this
subpart, the County Supervisor will consider all primary service
programs options in this subpart. The County Supervisor must use the
FmHA or its successor agency under Public Law 103-354 computer program,
``Debt and Loan Restructuring System (DALR$),'' in accordance with
exhibit J for borrowers who applied before November 28, 1990, or exhibit
J-1 of this subpart for borrowers who submit a new application, to
attempt to find the combination of loan service programs that will
result in a feasible plan for the borrower. Borrowers who request loan
servicing and who have disposed of all the FmHA or its successor agency
under Public Law 103-354 security, including Collection-Only borrowers,
will be processed in accordance with subpart B of part 1956 of this
chapter. If the borrower's completed application for primary loan
servicing includes a request for the Farm Debt Restructure and
Conservation Set-Aside Easement Program, as indicated by the borrower's
submission of the information required in Sec. 1951.907 (f)(2)(x) of
this subpart, the County Supervisor will determine if the borrower is
eligible based on criteria as set forth in exhibit H of this subpart. If
the borrower is eligible, the County Supervisor will make an estimate of
the inputs needed to permit the DALR$ computer program to make the
calculations of feasibility of the Conservation Set-Aside Easement. The
assumptions used to establish the estimates will be documented in the
borrower's case file and will be based on the County Supervisor's
knowledge of the borrower's farm, land values, the borrower's repayment
ability, and the proposed easement acreage. When the DALR$ calculations
for restructuring are completed, the borrower will be notified as set
forth in paragraph (h) of this section.
(2) When jointly liable individual borrowers have been divorced and
one of the individuals has withdrawn from the operation, the State
Director will consider upon the recommendation of the County Supervisor,
the release of liability for the individual that has withdrawn from the
operation provided that conditions of paragraphs (a)(2) (i) through (iv)
of this section are met. Any adverse decision under this paragraph is
appealable according to subpart B of part 1900 of this chapter.
(i) A divorce decree or property settlement document did not make
the withdrawing party responsible for the loan payments.
(ii) The withdrawing party's interest in the security is conveyed to
the person with whom the loan will be continued; and
(iii) It can be clearly documented that the person withdrawing does
not have any repayment ability for repaying the loan, and does not own
any nonessential assets as defined in Sec. 1951.906 of this subpart.
(iv) The State Director completes part 1 and 3 on form FmHA or its
successor agency under Public Law 103-354 1965-8, Release from Personal
Liability.
(3) If the borrower's completed application for Primary Loan
Servicing includes a request for a waiver from the training required in
paragraph (c)(5) of this section, the County Committee will, prior to
the County Supervisor's offer of any Primary Loan Servicing, evaluate
the borrower's knowledge and ability in production and financial
management and determine the need for additional training as set forth
in Sec. 1924.74 of subpart B of part 1924 of this chapter.
(b) Adverse determination. (1) If the County Supervisor or approval
official determines that the borrower is not eligible for any of the
Primary Loan
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Service Programs or restructuring is not feasible because of debt held
by other lenders, the borrower will be advised of mediation or meeting
of creditors as provided in paragraph (h)(3) of this section. If
mediation or the meeting of creditors does not result in a feasible
plan, the borrower will be sent attachments 5 and 6, or 5-A and 6-A, of
exhibit A of this subpart, as applicable. These notices list and explain
the options available to the borrower.
(2) Borrowers sent notices on or after November 28, 1990, who do not
buyout at the net recovery value or who indicate in writing that they do
not wish to buyout at the net recovery value, will automatically be
considered for debt settlement if the borrower submitted an
``Application For Debt Settlement.'' Any appeal of a primary loan
servicing denial will be completed before FmHA or its successor agency
under Public Law 103-354 begins any further processing of the borrower's
Debt Settlement and/or Preservation Loan Service Programs request. Once
the appeal is concluded and if the adverse decision on restructuring is
upheld, the borrower will be considered for the Debt Settlement and/or
Preservation Loan Service Programs. FmHA or its successor agency under
Public Law 103-354 will complete the processing of the borrower's
application for Debt Settlement in accordance with part 1956 of subpart
B of this chapter. Homestead Protection and/or Leaseback/Buyback will be
processed in accordance with Sec. 1951.911 of this subpart. No
acceleration or foreclosure will occur until the appeal process has been
completed for servicing and/or debt settlement requests timely submitted
under this subpart.
(3) Borrowers who submitted new applications may request a
negotiated appraisal in accordance with paragraph (i) of this section if
they object to the FmHA or its successor agency under Public Law 103-354
appraisal. Negotiation of the appraisal, if requested by the borrower,
will take place before mediation or a voluntary meeting of creditors. If
the borrower does not negotiate the FmHA or its successor agency under
Public Law 103-354 appraisal, the borrower will be given the opportunity
to appeal the FmHA or its successor agency under Public Law 103-354
appraisal by checking the appropriate block for an appeal on attachment
6-A of exhibit A or attachment 2 of exhibit F of this subpart.
(c) Eligibility. The County Supervisor or approval official
authorized by Sec. 1951.903(b) of this subpart must find that the
borrower who has applied for Primary Loan Service Programs meets all of
the following requirements:
(1) The delinquency or financial distress does exist and any
delinquency is due to circumstances beyond the control of the borrower
due to a reduction in income which reduces the operator's cash flow to a
point where outflows exceed inflows, and which causes the need for
Primary Loan Service Programs. A reduction of income does not by itself
mean that the borrower is eligible. Acceptable circumstances for
reductions of income beyond the control of the borrower include:
(i) The reduction in essential income from a non-farm job due to
unemployment or underemployment of the borrower-operator or spouse
caused by circumstances beyond the borrower's control; or
(ii) Illness, injury, or death of an individual borrower,
stockholder, member or partner who operates the farm; or
(iii) Natural disasters, an outbreak of uncontrollable disease, and/
or uncontrollable insect damage which caused severe loss of agricultural
production that reduced the repayment ability of the borrower so that
scheduled payments cannot be made; or
(iv) Economic factors that are widespread and not limited to an
individual case, such as high interest rates or low market prices for
agricultural commodities as compared to production costs, that reduce
the repayment ability of the borrower so that the scheduled payments
cannot be made.
(2) The borrower has acted in good faith as defined in Sec. 1951.906
of this subpart.
(3) Borrowers who do not meet the eligibility requirements of this
section will be notified of the adverse decision by sending the borrower
attachments 5 and 6, or 5-A and 6-A, of exhibit A of
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this subpart, as appropriate. These notices provide the opportunity to
appeal.
(4) Borrowers that have sufficient nonessential assets to bring the
FmHA or its successor agency under Public Law 103-354 account current
are not eligible for assistance under this subpart and will be processed
in accordance with Sec. 1951.910 of this subpart.
(5) The borrower must agree to meet the training requirements of
Sec. 1924.74 of subpart B of part 1924 of this chapter unless a waiver
is granted in accordance with that section. The training requirement
applies to all primary loan servicing programs, except for net recovery
buyout offers. In the case of a cooperative, corporation, partnership,
or joint operation, any individual member, stockholder, partner, or
joint operator holding a majority interest in the operation or who is
operating the farm must agree to complete the training or qualify for
the waiver on behalf of the entity. However, if one entity member is
solely responsible for financial or production management, then only
that entity member will be required to complete the training in that
area for the entity or qualify for a partial waiver. If the financial
and production functions of the farming operation are shared, the
knowledge and skills of the individual(s) with the responsibility of
production and/or financial management of the operation will be
considered in the aggregate for granting a waiver or requiring that
training be completed. If a waiver is not granted, these individuals
will be required to complete the training in accordance with their
responsibilities. If the borrower has previously been required to obtain
training, the borrower must be enrolled in and attending, or have
satisfactorily completed, the training required to be considered
eligible.
(d) FmHA or its successor agency under Public Law 103-354's
feasibility determinations. The County Supervisor must determine:
(1) That the borrower will be able to develop a feasible plan as
defined in Sec. 1951.906 of this subpart;
(2) That the loan, if restructured, will result in a net recovery to
the Government, during the term of the loan as restructured, that will
be equal to or greater than the net recovery value to the Government
from involuntary liquidation or foreclosure as calculated in accordance
with paragraph (f) of this section. A comparison to net recovery to the
Government, however, will not be made when establishing conservation
easements under Exhibit H of this subpart.
(e) Primary loan service programs. Any FP borrower may request
Primary Loan Service Programs described in this subpart at any time.
However, borrowers must show that they are not able to pay their debt as
scheduled before FmHA or its successor agency under Public Law 103-354
will approve Primary Loan Service Programs. FmHA or its successor agency
under Public Law 103-354 will consider the borrower's other assets in
accordance with Sec. 1951.910 of this subpart. Rescheduling,
reamortization, consolidation, or deferral may be utilized for any
eligible borrower. Existing deferrals must be entered into DALR$ as if
they were cancelled. Debt writedown will only be used for delinquent
borrowers who cannot develop feasible plans of operations without debt
writedown.
(1) Consolidation and rescheduling of OL and EO loans, EE operating-
type loans and EM loans made for subtitle B purposes including EM loss
loans. This subsection explains how to consolidate and/or reschedule
existing loans, providing the borrower agrees to such actions. When the
County Supervisor determines that consolidation and/or rescheduling will
assist in the orderly collection of the loan, the County Supervisor
should take such action provided all of the following conditions exist:
(i) The borrower meets the eligibility requirements in paragraph (c)
of this section;
(ii) Such action is not taken to circumvent FmHA or its successor
agency under Public Law 103-354's graduation requirements;
(iii) The borrower's account is not being serviced by the OGC or the
U.S. Attorney and there are no FmHA or its successor agency under Public
Law 103-354 plans to have the account serviced by either of these
offices in the near future;
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(iv) Loans may be rescheduled or reamortized, as appropriate, to
bring the account current or to keep the account from becoming
delinquent. A sufficient number of notes including all delinquent notes
will be rescheduled to permit the development of a feasible plan of
operation;
(v) The borrower will comply with the highly Erodible Land and
Wetland Conservation provisions of exhibit M of subpart G of part 1940
of this chapter, if applicable;
(vi) Loans secured by real estate will not be consolidated and/or
rescheduled, until the County Supervisor reviews the Government's real
estate lien priority and value of security and decides that such an
action will be in the best interest of the Government and the borrower.
If there are any liens which were not in existence at the time the note
was signed, the County Supervisor will ask the OGC for an opinion as to
what lien position the Government will have if a new note is taken
unless a State supplement authorizing this action has been issued on
this subject;
(vii) Only loans of the same type and interest rate will be
consolidated;
(viii) EM actual loss loans will not be consolidated;
(ix) The County Supervisor will not consolidate a loan serviced
under subpart L of this part with another loan;
(x) Loans that have been deferred under this section will not be
consolidated and/or rescheduled during the deferral period;
(xi) Terms of consolidated and/or rescheduled loans are as follows:
(A) Consolidated and/or rescheduled loans will be repaid according
to the borrower's repayment ability, but will not exceed 15 years from
the date of the consolidation and/or rescheduling action, except:
(B) Repayment of loans solely for recreation and/or nonfarm
enterprise purposes may not exceed seven years from the date of the
consolidation and/or rescheduling action (the date the new note is
signed).
(C) Repayment of EE loans may not exceed 20 years from the date of
the original note.
(xii) Interest rates of consolidated and/or rescheduled loans will
be as follows:
(A) The interest rate for consolidated and/or rescheduled loans will
be the lesser of the current interest rate for that type of loan or the
lowest original loan note rate on any of the original notes being
consolidated and/or rescheduled. In the case of an OL-limited resource
loan, it will be the lesser of the current limited resource OL loan rate
or the original note rate. The interest rate for loans rescheduled but
not consolidated will be the lesser of the current interest rate for
that type of loan or the original loan note rate.
(B) At the time of the consolidation and/or rescheduling action, OL
loans may be assigned a limited resource rate if:
(1) The borrower meets the requirements for the limited resource
interest rate, and
(2) A feasible plan cannot be developed at regular interest rates
and maximum terms permitted in this section.
(xiii) The original (old) note(s) will be marked ``Rescheduled'' and
stapled to the new rescheduled promissory note and will be filed in the
operation file. Copy(ies) for the borrower's(s') case file should be
marked and stapled the same and filed in position 2 of the case file. If
a transfer is involved, assumption agreement(s) will be marked and
stapled with the note(s) and copies filed as indicated above. If part of
a note is written down, the written down note will be marked
``Rescheduled with Debt Write Down,'' and will be filed in the operation
file.
(xiv) For applications received before November 28, 1990, the amount
of outstanding accrued interest more than 90 days overdue and any
outstanding protective advances, as defined in Sec. 1965.11(b) of
subpart A of part 1965 of this chapter, made on the loan will be added
to the principal at the time of consolidation and/or rescheduling (the
date the new note is signed by the borrower). Protective advances are
not authorized for the payment of prior or junior liens except real
estate tax liens. See section II E of exhibit J of this subpart for an
explanation of how to schedule payment of interest not more than 90 days
overdue; and
[[Page 146]]
(xv) For new applications, the amount of outstanding accrued
interest and any outstanding protective advances, as defined in
Sec. 1965.11(b) of subpart A of part 1965 of this chapter, made on the
loan will be added to the principal at the time of consolidation and/or
rescheduling (the date the new note is signed by the borrower) in
accordance with the provisions of exhibit J-1 of this subpart.
Protective advances are not authorized for the payment of prior or
junior liens except real estate tax liens.
(2) Reamortization of FO, SW, RL, RHF, EE, or EM loans made for real
estate purposes. This subsection explains how the FmHA or its successor
agency under Public Law 103-354 County Supervisor can reamortize
existing loans. When the County Supervisor determines that a
reamortization action will assist in the orderly collection of the loan,
the County Supervisor should take such action, provided:
(i) The borrower meets the eligibility requirements of
Sec. 1951.909(c) of this subpart;
(ii) Such action is not taken to circumvent FmHA or its successor
agency under Public Law 103-354's graduation requirements;
(iii) The borrower's account is not being serviced by the OGC or the
U.S. Attorney, and there are no plans to have the account serviced by
either of these offices in the foreseeable future;
(iv) A feasible plan for the borrower cannot be developed with the
existing repayment schedule. A sufficient number of notes including all
delinquent notes will be reamortized to permit the development of a
feasible plan of operation;
(v) The borrower will comply with the Highly Erodible Land and
Wetland Conservation requirements of exhibit M of subpart G of part 1940
of this chapter, if applicable;
(vi) Loans that have been deferred in this subpart will not be
reamortized during the deferral period unless the deferral is cancelled;
(vii) Terms of repayment of reamortized loans are as follows:
(A) Reamortized installments usually will be scheduled for repayment
within the remaining time period of the note or assumption agreement
being reamortized. If repayment terms are extended, the new repayment
period may not exceed 40 years from the date of the original note or
assumption agreement or the useful life of the security, whichever is
less. RHF loans may not exceed 33 years from the date of the original
note or assumption agreement.
(B) The FmHA or its successor agency under Public Law 103-354's lien
priority may be affected if the final due date of the original loan is
extended. A State supplement will be issued to provide instructions on
the effect that a change in the final due date has on security
instruments and the actions necessary to retain the Government's lien
priority. The State supplement will also include instructions for
releasing the original security instrument when a new one is obtained.
(viii) Interest:
(A) The interest rate will be the current interest rate in effect on
the date of reamortization (the date the new note is signed by the
borrower), or the interest rate on the original Promissory Note to be
reamortized, whichever is less. In the case of a limited resource loan,
it will be the limited resource FO or SW loan rate or the original loan
note rate, whichever is less.
(B) At the time of the reamortization, an FO or SW loan may be
changed to a limited resource interest rate if:
(1) The borrower meets the requirements for a limited resource
interest rate, and
(2) A feasible plan cannot be developed at regular interest rates
and at the maximum terms permitted in this section.
(C) For applications received before November 28, 1990, the amount
of accrued interest more than 90 days overdue and any protective
advances, as defined in Sec. 1965.11(b) of subpart A of part 1965 of
this chapter charged to the borrower's account, will be added to the
principal at the time of the reamortization action (the date the new
note is signed by the borrower). Protective advances are not authorized
for the payment of prior or junior liens except real estate tax liens.
If there are no deferred installments, the first installment payment
under the reamortization will be at least equal to the interest amount
which will accrue
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on the new principal between the date the Form FmHA or its successor
agency under Public Law 103-354 1940-17 is processed and the next
installment due date. See section II E of exhibit J of this subpart for
an explanation of how to schedule payments of interest not more than 90
days overdue. For new applications, the amount of outstanding accrued
interest and any outstanding protective advances made on the loan will
be added to the principal at the time of reamortization (the date the
new note is signed by the borrower) in accordance with the provisions of
exhibit J-1 of this subpart.
(ix) The original (old) note(s) will be marked ``Reamortized'' and
will be stapled to the new promissory note and filed in the operational
file. Copies for the borrower(s) case file should be marked and stapled
the same and filed in position 2 of the case file. If a transfer is
involved, assumption agreement(s) will be marked and stapled with the
note(s) and copies filed as indicated above. If a part of a note is
written down, the written down note will be marked ``Reamortized with
Debt Writedown'' and will be filed as indicated above in this paragraph.
(3) Deferral of existing OL, FO, SW, RL, EM, EO, RHF, and EE loans--
(i) Loan deferrals. Deferrals will be considered by FmHA or its
successor agency under Public Law 103-354 only after it has been
determined that consolidation, rescheduling, and reamortization, in
accordance with this subpart, will not provide a feasible plan.
(ii) Conditions. In order to be considered for a deferral, the
borrower must meet both of the following conditions:
(A) The need for the deferral must be temporary. To be ``temporary''
means that the borrowers will be able to show to the satisfaction of
FmHA or its successor agency under Public Law 103-354 that they will be
able to resume payment on the debt by the end of the deferral period, or
the new payments, as established by using consolidation, rescheduling,
or reamortization can be resumed at the end of the deferral period; and
(B) Continuation of loan payments as presently scheduled without
change, will unduly impair the borrower's standard of living. An unduly
impaired standard of living is a condition whereby the borrower, due to
circumstances beyond the borrower's control, is unable to pay essential
family living expenses (partnerships, joint operators, corporations, and
cooperatives do not have family living expenses), pay normal farm
operating expenses, including reasonable and customary hired labor and/
or salary paid to the operator(s) of a partnership, a joint operation, a
corporation, or a cooperative, maintain essential chattels and real
estate, and meet the scheduled payments of all debts.
(iii) FmHA or its successor agency under Public Law 103-354's
determinations. The FmHA or its successor agency under Public Law 103-
354 approval official must:
(A) Determine that the borrower meets the eligible requirements of
Sec. 1951.909(c) of this subpart;
(B) Determine that a deferral of payments is necessary and
appropriately document the conditions causing the need for deferral;
(C) If a borrower owns 50 acres or more of marginal land as defined
in exhibit G of this subpart and a feasible plan cannot be developed
after consideration of a deferral, the County Supervisor will inform the
borrower about the Softwood Timber (ST) loan program authorized by
exhibit G of this subpart by sending Attachment 1 of exhibit G of this
subpart by certified mail, return receipt requested, within 5 days after
the adverse deferral determination. If the borrower requests the County
Supervisor to determine that an ST loan may allow the borrower to
continue to farm, within 15 days of the borrower's receipt of attachment
1, the County Supervisor will determine if the borrower is eligible,
based on criteria as set forth in exhibit G of this subpart. If the
borrower is eligible the County Supervisor will help the borrower to
develop a plan to determine if a feasible operation can be developed
utilizing this program. The discussion will be documented in the
borrower's case file.
(iv) FmHA or its successor agency under Public Law 103-354 loan
deferral considerations. The County Supervisor will assist the borrower
in completing
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a typical-year plan. If there is no typical year, the County Supervisor
will assist the borrower with completing a plan of operation for each
year of the deferral. The plans must be considered in DALR$.
(A) A sufficient number of loans must be considered for deferral to
permit the borrower to have a feasible plan.
(B) A deferral plan may include a reorganization of the farming
operation, including the use of new enterprises, to overcome existing
financial, economic or other limitations of the operation. If the
proposed restructuring requires capital expenditures, a subordination or
additional loan will be considered. Deferral of additional loan
installments beyond those needed to allow the borrower to develop a
feasible plan will not be used to create additional cash reserve for
capital purchases. Such purchases are not considered operating expenses.
(C) A typical year during the deferral period is a year which most
closely represents the borrower's average operation for the entire
deferral period. There may be no typical year for farming or ranching
operations undergoing a major reorganization. If there is no typical
year, then it will be necessary to develop a plan of operation for each
year of the deferral. The plans must be considered in DALR$ to determine
if each plan is feasible.
(D) The deferral of loan installments is not intended to create a
high net cash reserve where revenue substantially exceeds expenses. If
the deferral of a complete note would cause a high net cash reserve
during the entire deferral period, a full deferral should not be
granted. In such a case, a partial deferral should be considered to
obtain a feasible plan of operation. The same approach should be used
for situations in which there is no typical year and debt payments must
vary throughout the deferral period.
(E) The borrower must have feasible plans of operation to support
any deferral request. Plans of operation in conjunction with loan
deferrals must be realistic and supported by the borrower's actual
records.
(v) Additional and subsequent deferrals. If, during the period of
the initial deferral, the borrower is unable to make the scheduled
payments, the borrower may again request primary loan service actions.
When considering primary servicing actions, existing deferred notes must
be entered into DALR$ as if they had not been deferred. If it is
necessary to defer additional loans to develop a feasible plan, such
action will be taken if the deferral will result in a greater net
recovery to the Government than debt writedown. Borrowers may obtain
subsequent deferrals after the deferral period provided the conditions
of this subsection are met.
(vi) Term and interest rate. A deferral period will not exceed five
(5) annual installments. Deferral interest rates will be determined as
specified in paragraphs (e)(1)(xii) and (e)(2)(viii) of this section.
(A) All loans being deferred will be consolidated, rescheduled or
reamortized, as applicable. The promissory note rescheduled, reamortized
or consolidated for the deferral will show ``zero'' as the installments
due during the period of the deferral if the whole note is deferred and
will not be changed during the deferral period unless the conditions of
paragraph (e)(3)(v) of this section are met. The County Supervisor will
determine the amount of interest that will accrue during the deferred
period. This interest will be repaid in equal amortized installments
during the term of the loan remaining after the deferral period. The
calculated installments will be added to the remaining installments for
the remaining principal balance and inserted on the promissory note as a
scheduled installment for the remaining period of the loan. The Finance
Office will apply the payments made on the note in accordance with
subpart A of this part. For applications received before November 28,
1990, the amount of outstanding accrued interest more than 90 days
overdue and any outstanding protective advances, as described in
Sec. 1965.11(b) of subpart A of part 1965 of this chapter, made on the
loan will be added to the principal at the time of the deferral (the
date the new note is signed by the borrower). Protective advances are
not authorized for the payment of prior or junior liens except real
estate taxes. See section II
[[Page 149]]
E of exhibit J of this subpart for an explanation of how to schedule
payment of interest not over 90 days overdue. For new applications, the
amount of outstanding accrued interest and any outstanding protective
advances made on the loan will be added to the principal at the time of
deferral (the date the new note is signed by the borrower).
(B)-(C) [Reserved]
(D) Six months prior to the end of the deferral period the County
Supervisor will notify the borrower in writing of the expiration of the
deferral and the amount and date of the borrower's first upcoming
installment of the FmHA or its successor agency under Public Law 103-354
debt.
(E) The County Supervisor must notify the Finance Office of any
cancellation of a deferral by letter.
(vii) Increase in repayment ability. At the time the County
Supervisor makes the analysis required by Sec. 1924.55, the County
Supervisor will determine whether the borrower has had an increase in
income and repayment ability. If an income increase is substantial
enough to enable the borrower to graduate, the case will be handled in
accordance with subpart F of part 1951 of this chapter. If an increase
would enable the borrower to make some payments during the deferral
period, the County Supervisor will, in writing, ask the borrower to sign
a Form FmHA or its successor agency under Public Law 103-354 440-9,
``Supplementary Payment Agreement,'' within 30 days of the date of the
written request. The letter will provide the borrower with the right to
appeal. When doing the analysis to determine whether there is a
substantial increase in income and repayment ability, the County
Supervisor will determine whether this increase exists by comparing it
to the original plan developed in the deferral application and also to
plans developed for the current operating year to determine that the
excess income is not needed for essential living and operating expenses
or scheduled debt payment. If the borrower does not sign a Form FmHA or
its successor agency under Public Law 103-354 440-9 or appeal the
request for a supplement payment within the required time, and/or does
not honor the terms and conditions of the repayment agreement, such
actions will be considered abuse of the program. The borrower's account
will be handled as set forth in Sec. 1951.907(e) of this subpart.
(4) Writedown of Agency loans. The following conditions shall be met
in order for a borrower to get writedown of FmHA or its successor agency
under Public Law 103-354 loans:
(i) No other Primary Loan Service Program including deferral nor any
combination thereof will produce a feasible plan that will permit the
borrower to continue the operation;
(ii) A borrower who submits a New Application and only has
outstanding loans with original promissory notes dated after January 6,
1988, has a lifetime limit of either ONE writedown or ONE buyout. Any
writedown or buyout or buyout which resulted from an application
submitted before November 28, 1990, will not be counted towards this
limitation;
(iii) A borrower who submits a New Application and has any
outstanding loans with original promissory notes dated on or before
January 6, 1988, and has NEVER received deferral, writedown, or buyout
on any loans after that date, my receive two writedowns or buyouts, or
one of each. If such borrower receives buyout, the loans dated on or
before January 6, 1988, will be satisfied or terminated in accordance
with this section. If the borrower obtains a new loan(s) after receiving
a buyout, the borrower could receive a (second) writedown or buyout in
accordance with paragraph (e)(4)(ii) of this section. If the borrower
first receives a deferral or writedown, instead of buyout, the borrower
could receive a (second) writedown or buyout in accordance with
paragraph (e)(4)(iv) of this section;
(iv) A borrower who submits a New Application and has any
outstanding loans with original promissory notes dated on or before
January 6, 1988, and HAS received deferral, writedown, or buyout on any
loan after that date may receive one (more) writedown or buyout;
(v) A borrower who submits a New Application has a total lifetime
limit for writedown or writeoff of $300,000 regardless of the number of
writedowns
[[Page 150]]
or buyouts the borrower receives under this section. The amount of any
writedown or writeoff which resulted from an application submitted
before November 28, 1990, will not be counted towards this $300,000
limit;
(vi) Writedowns received through bankruptcy, debt settlement, or
conservation easements will not be counted toward the lifetime
limitations in paragraphs (e)(4)(ii) through (e)(4)(v) of this section;
(vii) A feasible plan, as defined in Sec. 1951.906 of this subpart,
must be developed that will result in a present value of loans to be
repaid to the Government which is equal to or more than a net recovery
from an involuntary liquidation or foreclosure;
(viii) The borrower must comply with the Highly Erodible Land and
Wetland Conservation requirements of exhibit M of subpart G of part 1940
of this chapter, if applicable;
(ix) The borrower must agree to a Shared Appreciation Agreement if
the loan(s) is secured by real estate;
(x) Loans written down with the Primary Loan Servicing Programs will
be rescheduled, reamortized, or deferred in accordance with paragraph
(e) of this section; and
(xi) Borrower must agree to a lien on certain assets as provided in
Sec. 1951.910 of this subpart, including nonessential assets where the
NRV of these assets was not paid to Agency. The Agency lien will be
taken only at the time of closing the restructured Agency loans.
(f) Determining value of net recovery from involuntary liquidation.
Within 90 days of the County Supervisor's receipt of a complete
application which requests Primary and Preservation Loan Service
Programs, the County Supervisor must make the calculations required in
this section. For new applications as defined in Sec. 1951.906 of this
subpart, nonessential assets will be considered in accordance with
Sec. 1951.910(a) of this subpart.
(1) The County Supervisor will use the computer program, DALR$, to
determine the net recovery to the Government equivalent to involuntary
liquidation of the collateral securing the FmHA or its successor agency
under Public Law 103-354 debt in accordance with exhibit J or J-1 of
this subpart, ``Debt and Loan Restructuring System,'' as applicable, and
will follow the guidance provided by State supplements and exhibit I of
this subpart, ``Guidelines for Determining Adjustments for Net Recovery
Value of Collateral.'' The County Supervisor will determine the current
market value of the collateral in the borrower's possession including
tangible property in existence and of record in accordance with subpart
E of part 1922 of this chapter for real estate property, and on Form
FmHA or its successor agency under Public Law 103-354 440-21,
``Appraisal of Chattel Property'' (available in any FmHA or its
successor agency under Public Law 103-354 office). The County Supervisor
also will determine the current market value of any bank accounts,
stocks and bonds, certificates of deposit and the like pledged to and/or
in the possession of FmHA or its successor agency under Public Law 103-
354. Collateral may include real estate, chattels, tangible property and
property such as bank accounts, stocks and bonds, certificates of
deposit, and the like. Chattels include machinery, equipment, livestock,
growing crops, and crops in storage. Tangible property may include
accounts receivable (including Government payments), inventories,
supplies, feed, etc. From the current market value of the collateral in
the borrower's possession, or pledged to and/or in the possession of
FmHA or its successor agency under Public Law 103-354 (in the case of
bank accounts, stock and bonds, certificates of deposit, and the like),
the following adjustments will be made:
(i) Subtract the amount which would be required to pay prior liens
on the collateral;
(ii) Subtract taxes and assessments, depreciation, management costs,
and interest cost to the Government based on the 90-day Treasury Bills
(published in 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). Taxes and assessments, depreciation,
management costs, as well as interest costs will be calculated on the
current market value of the property for the average inventory holding
period. The holding period
[[Page 151]]
for suitable inventory farm property will be established by each State
as of July 1 each year using FmHA or its successor agency under Public
Law 103-354 Report Code 597. The months that the suitable property is
under lease will not be included in determining the average holding
period for purposes of this subpart;
(iii) Adjust the current market value for estimated increases or
decreases in value of the property for the holding period specified in
paragraph (f)(2) of this section;
(iv) Subtract resale expenses, such as repairs, commissions, and
advertising;
(v) Other administrative and attorney's expenses;
(vi) Add income which will be received after acquisition; and
(vii) For a borrower who submits a ``new application'' as defined in
Sec. 1951.906 of this subpart, add the value of any collateral that is
not in the borrower's possession and that has not been approved on the
Form FmHA or its successor agency under Public Law 103-354 1962-1 or
released in writing by FmHA or its successor agency under Public Law
103-354, minus the value of any prior lienholder's interest. Collateral
not in possession of the borrower is defined as any property specified
in any FmHA or its successor agency under Public Law 103-354 security
instruments for such borrower's FmHA or its successor agency under
Public Law 103-354 debt that the borrower has disposed of and that FmHA
or its successor agency under Public Law 103-354 has not approved or
released in writing. The value of normal income security not in
possession of the borrower will not be added to the NRV if it could be
post-approved for release in accordance with Sec. 1962.17 of subpart A
of part 1962 of this chapter. The value of any collateral that is not in
the possession of the borrower will be determined by the County
Supervisor based upon the best information available about the value of
the collateral on or about the time of its disposition. In determining
the value of such property, FmHA or its successor agency under Public
Law 103-354 will use such sources as the publications' Hotline (Farm
Equipment Guide) and Official Guide (Tractor and Farm Equipment), sale
prices at local public auctions, public livestock sale barn prices,
comparable real estate sales, etc. FmHA or its successor agency under
Public Law 103-354 appraisal forms will be used to record the value of
the missing collateral and the basis for the valuation.
(2) The State Directors will determine costs of involuntary
liquidation of collateral for farm loans by analyzing the costs of
involuntary liquidation within the geographic areas of their
jurisdiction. State Directors also will issue a State supplement of
estimated costs and average holding time to be used as guidelines by
County Supervisors in making calculations of net recovery value under
this subsection. Such cost analyses will be carried out in July of each
year. State Directors will consult with State Directors of adjoining
States, other lenders, real estate agents, auctioneers, and others in
the community to gather and analyze the information specified in this
subpart.
(g) Determining net recovery value resulting from primary servicing.
The value of the restructured debt will be based on the present value of
payments the borrower would make to the FmHA or its successor agency
under Public Law 103-354 using any combination of primary loan service
programs that will provide a feasible plan. Present value is a
calculation concept which assigns a lower current value to dollars
received in later years than to dollars received at the present time.
County Supervisors will use a discount rate based on 90-day Treasury
Bills as of the date the borrower files the application for
restructuring. The National Office will publish the 90-day Treasury Bill
rate in 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).
(h) Notification requirements. In those instances where the
applicable notice is sent certified mail, and the certified mail is not
accepted by the borrower, the County Supervisor will immediately send
the documents from the certified mail package to the borrower's last
known address, first class mail. The appropriate response time
[[Page 152]]
will commence 3 days following the date of mailing.
(1) Offer. If the calculations show that the value of the
restructured debt is greater than or equal to the NRV as determined in
paragraph (f) of this section, the County Supervisor will forward to the
State Director the borrower's Farm and Home Plan and the original
printout of the DALR$ calculations. The County Supervisor will certify
that the borrower meets all requirements for debt restructuring with the
writedown amount specified on the printout. The State Director's
authorization to the County Supervisor to proceed with the writedown
will be evidenced by the State Director's signature affixed to the
original copy of the DALR$ printout returned to the County Supervisor.
Within 90 days after receiving a complete application, the County
Supervisor will notify the borrower of the results of the calculations
by sending exhibit F of this subpart, certified mail, return receipt
requested, and offer to restructure the debt. A printout of the DALR$
calculations will be attached to exhibit F of this subpart.
(i) Exhibit F of this subpart will inform the borrower(s) of FmHA or
its successor agency under Public Law 103-354's offer to restructure the
debt or appeal such offer, the right to request a copy of the FmHA or
its successor agency under Public Law 103-354 appraisal, and other
options which may include payment of nonessential assets and negotiation
of the appraisal. If the borrower accepts the offer within 45 days
following any appeal, the County Supervisor will restructure the debt
within 45 days after receipt of the written notice of the borrower's
acceptance.
(ii) If the borrower does not respond to exhibit F within 45 days,
or declines FmHA or its successor agency under Public Law 103-354's
offer to restructure the debt without requesting an appeal or
negotiation, the County Supervisor will send attachments 9 and 10, or 9-
A and 10-A of exhibit A of this subpart, as applicable. If the borrower
requests an appeal by returning attachment 2 of exhibit F of this
subpart and loses the appeal, attachments 9-A and 10-A will not be sent
until the borrower is given the opportunity to accept the original offer
within 45 days following the final appeal decision. These borrowers will
not have an additional opportunity to appeal the offer in attachments 9-
A and 10-A. If attachment 10 or 10-A is not returned within 30 days of
the borrower's receipt of the attachments, the account will be
accelerated or foreclosed in accordance with Sec. 1955.15 of subpart A
of part 1955-A of this chapter.
(iii) If the borrower submitted a new application and requests a
negotiated appraisal within 30 days of receiving exhibit F, the
negotiation of the appraisal will be completed in accordance with
paragraph (i) of this section.
(A) After completing a negotiation of the appraisal, if the debt can
be restructured, the County Supervisor will send exhibit F to the
borrower making the new offer in accordance with paragraph (h)(1)(i) of
this section.
(B) If the negotiated appraisal changes the DALR$ calculations so
that the debt cannot be restructured, the borrower will be sent exhibit
E, ``Notification of Request For Mediation or Meeting of Creditors and
Other Options,'' in accordance with paragraph (h)(3) of this section.
The appraisal cannot be negotiated again and is not subject to appeal.
(2) Conservation easement. If the borrower previously returned
attachment 2 or 4 to exhibit A of this subpart within 60 days,
requesting a Farm Debt Restructure and Conservation Set-Aside Easement
Program, by submitting an ASCS photo of the farm showing the portion of
the farm and approximate acres to be considered in their request, the
County Supervisor will proceed with processing the request for debt
relief. The request will be processed as set forth in exhibit H of this
subpart. If the borrower did not previously submit a request for this
servicing action, the borrower can make a request for the easement at
this time by submitting the ASCS photo indicating that portion of the
farm and appropriate acres to be considered. The borrowers must submit
the ASCS photo to FmHA or its successor agency under Public Law 103-354
within 30 days of receiving exhibit E of this subpart.
[[Page 153]]
(3) Mediation/voluntary meeting of creditors. If the DALR$
calculations indicate a feasible plan of operation cannot be developed
considering all Primary Loan Service Programs, Softwood Timber, or
Conservation Set-Aside Easement Programs, the County Supervisor will
take the following actions within 15 days from the date of the
determination that the borrower's debt cannot be restructured as
requested:
(i) Exhibit E, ``Notification of Request For Mediation or Meeting of
Creditors and Other Options,'' of this subpart will be sent to the
borrower in all cases by certified mail, return receipt requested. A
printout of the DALR$ calculations will be attached to exhibit E of this
subpart.
(A) When the borrower is in a State with a USDA Certified Mediation
Program, paragraph I in exhibit E will be used. Paragraph I tells the
borrower that FmHA or its successor agency under Public Law 103-354 is
requesting mediation with the borrower's creditors in an effort to
obtain debt adjustment which would permit the development of a feasible
plan of operation. If the borrower submitted a new application, the
borrower must respond to exhibit E of this subpart if the borrower wants
to negotiate the FmHA or its successor agency under Public Law 103-354
appraisal in accordance with paragraph (i) of this section. The borrower
may request a copy of the FmHA or its successor agency under Public Law
103-354 appraisal. FmHA or its successor agency under Public Law 103-354
must participate in USDA Certified Mediation Programs whether or not the
borrower responds to exhibit E of this subpart. Any negotiation of the
FmHA or its successor agency under Public Law 103-354 appraisal must be
completed prior to any mediation.
(B) In States without a certified mediation program, exhibit E of
this subpart will be sent by certified mail, return receipt requested,
to inform the borrower about the applicable options which may include a
request for a copy of the FmHA or its successor agency under Public Law
103-354 appraisal, a meeting of creditors, payment of nonessential
assets, negotiation of the appraisal and a request for an independent
appraisal. Paragraph I of exhibit E of this subpart will be deleted. The
purpose of the voluntary meeting of creditors is to develop a feasible
plan. Paragraph II of exhibit E of this subpart, therefore, will be used
to offer a voluntary meeting of creditors when the borrower has
undersecured creditors who hold a substantial part of the borrower's
total debt. A ``substantial part of the borrower's total debt'' means
that the debt of the undersecured creditors is large enough so that if
it were written down to zero, a feasible plan could be developed
considering all primary servicing options. The County Supervisor will
document such determination in the case file, and the County Supervisor
will not offer to carry out a voluntary meeting of creditors when the
undersecured debt is not a substantial part of the borrower's total
debt. Such borrower will be informed later of additional rights,
including appeal rights, when FmHA or its successor agency under Public
Law 103-354 sends attachments 5 and 6, or attachments 5-A and 6-A, of
exhibit A of this subpart. Any appeal may challenge FmHA or its
successor agency under Public Law 103-354's determination not to offer a
voluntary meeting of creditors because the undersecured debt is not a
substantial part of the borrower's total debt.
(C) Any negotiation of the FmHA or its successor agency under Public
Law 103-354 appraisal must be completed prior to the meeting of
creditors or mediation. If the borrower does not request any of the
options offered in exhibit E of this subpart within 45 days, the County
Supervisor will send attachments 5 and 6, or 5-A and 6-A of exhibit A of
this subpart, as applicable, certified mail, return receipt requested.
(ii) If mediation or the voluntary meeting of creditors is held but
is not successful, the borrower will be sent attachments 5 and 6, or 5-A
and 6-A, of exhibit A of this subpart, as applicable, certified mail,
return receipt requested, within 15 days of the unsuccessful mediation
or meeting. The DALR$ computer printout will be attached to attachment 5
or 5-A of exhibit A of this subpart.
[[Page 154]]
(4) Net recovery buyout. The following notification and processing
provisions also apply to buyout as offered in attachments 5 and 5-A of
exhibit A of this subpart.
(i) Borrowers who applied for Primary and Preservation Loan Service
Programs before November 28, 1990, have 45 days after the receipt of the
notification of ineligibility for Primary Loan Service Programs to
buyout their loans at NRV. Eligible borrowers who submit new
applications will have 90 days after the receipt of the notification of
ineligibility for Primary Loan Service Programs to buyout their loans at
NRV.
(ii) The present value of the restructured loan must be less than
the NRV to receive buyout.
(iii) FmHA or its successor agency under Public Law 103-354 will not
provide insured or guaranteed credit for a buyout.
(iv) A borrower who submits a New Application and only has
outstanding loans with original promissory notes dated after January 6,
1998, has a lifetime limit of either ONE writedown or ONE buyout. Any
writedown or buyout which resulted from an application submitted before
November 28, 1990, will not be counted towards this limitation.
(v) A borrower who submits a New Application and has any outstanding
loans with original promissory notes dated on or before January 6, 1988,
and has NEVER received deferral, writedown, or buyout on any loans after
that date, may receive two writedowns or buyouts, or one of each. If
such borrower receives buyout, the loans dated on or before January 6,
1988, will be satisfied or terminated in accordance with this section.
If the borrower obtains a new loan(s) after receiving a buyout, the
borrower could receive a (second) writedown or buyout in accordance with
paragraph (h)(4)(iv) of this section. If the borrower first receives a
deferral or writedown, instead of buyout, the borrower could receive a
(second) writedown or buyout in accordance with paragraph (h)(4)(vi) of
this section;
(vi) A borrower who submits a New Application and has any
outstanding loans with original promissory notes dated on or before
January 6, 1988, and HAS received deferral, writedown, or buyout on any
loan after that date may receive one (more) writedown or buyout;
(vii) A borrower who submits a New Application has a total lifetime
limit for writedown or writeoff of $300,000 regardless of the number of
writedowns or buyouts the borrower receives under this section. The
amount of any writedown or writeoff which resulted from an application
submitted before November 28, 1990, will not be counted towards this
$300,000 limit.
(viii) Writedowns received through bankruptcy, debt settlement, or
conservation easements will not be counted toward the lifetime
limitations in paragraphs (h)(4)(iv) through (h)(4)(vii) of this
section.
(ix) The borrower must have acted in good faith as defined in
Sec. 1951.906 of this subpart.
(x) Prior to the buyout at NRV, the borrower who has real estate
security must, as a condition of the sale, enter into a written
recapture agreement covering all real estate security. Borrowers who
applied for Primary and Preservation Loan Service Programs before
November 28, 1990, will execute exhibit C of this subpart, ``Net
Recovery Buyout Recapture Agreement,'' for a term of 2 years. Borrowers
who submitted new applications will execute exhibit C-1 of this subpart,
``Net Recovery Buyout Recapture Agreement,'' for a term of 10 years.
(xi) The County Supervisor will process the net recovery buyout
payment to the borrower's loan accounts on Form FmHA or its successor
agency under Public Law 103-354 451-2, ``Schedule of Remittance,'' as a
miscellaneous collection and will input the information to establish an
equity record via the FmHA or its successor agency under Public Law 103-
354 field office computer terminal system.
(xii) A new mortgage or deed of trust will be taken for the best
lien obtainable on the real estate that served as security for the FmHA
or its successor agency under Public Law 103-354 loans. The new mortgage
or deed of trust will describe exhibit C or C-1, as appropriate, and the
amount due under the
[[Page 155]]
net recovery buyout recapture agreement. The new mortgage or deed of
trust will secure repayment of the net recovery buyout recapture
agreement.
(xiii) The old mortgage or deed of trust will be released in
accordance with paragraph (k) of this section.
(xiv) The County Supervisor will obtain the State Director's
authorization for the writeoff of the debt for the buyout in accordance
with paragraph (h)(1) of this section for the writedown of debt.
(i) Administrative appeals and negotiation of appraisals--(1)
Appeals. The time limit for the borrower to pay FmHA or its successor
agency under Public Law 103-354 NRV of the security as set out in
paragraph (h)(4) of this section will start on the day the borrower
receives the final appeal or review decision upholding the initial
decision. Such appeal decision letter will be sent to the borrower by
the hearing officer or review officer by certified mail, return receipt
requested. The return receipt is to be sent to the address of the County
Office which services the loans by the hearing and/or review officer.
(2) Appeal process. (i) If the administrative appeal process results
in a determination that the borrower is eligible for Primary Loan
Servicing, the County Supervisor will process the request pursuant to
section 1900.59(d) of subpart B of part 1900 of this chapter in
accordance with the appeal/review officer's decision within 60 days of
receiving the decision. The information used to implement the appeal
officer's decision will be the information the appeal officer used in
making the decision on the appeal, unless stated otherwise by the appeal
officer in the final appeal decision letter. In cases of debt
restructure resulting from favorable decisions on appeals, the interest
rate will be the lesser of the current rate or the original note rate on
the date of the closing of the transaction. However, the debt writedown
or writeoff can never exceed the lifetime limit of $300,000 in
accordance with Sec. 1951.909 of this section. If implementation of the
appeal officer's decision would cause writedown or writeoff of more than
$300,000 because of interest accrued after the adverse decision, the
County Supervisor will take the following steps. The interest that
accrued after the adverse decision will be applied to the FmHA or its
successor agency under Public Law 103-354 debt as a noncash credit. The
time period covered by the noncash credit is from the effective date on
the DALR$ printout for the initial adverse decision to the date of
closing of the transaction unless otherwise specified by the appeal
officer. The noncash credit will be applied to the accrued interest for
this time period for each loan affected by the transaction. The County
Supervisor will notify the Finance Office of the noncash credit in
accordance with the ADPS manual.
(ii) If the administrative appeal process results in a determination
that the borrower is ineligible for Primary Loan Servicing, the borrower
will be sent exhibit K and attachment 1 of this subpart, advising the
borrower of FmHA or its successor agency under Public Law 103-354's
intent to continue processing the application for Preservation Loan
Service Programs, as set forth in Sec. 1951.911 of this subpart, and any
application for debt settlement that may have been submitted in
accordance with subpart B of part 1956 of this chapter. If the borrower
does not return attachment 1 of exhibit K of this subpart within 15 days
of the date that exhibit K of this subpart is sent, the County
Supervisor will continue to process the borrower's request. The account
will not be accelerated or foreclosure will not continue until the
borrower has the opportunity to appeal any denial of the Preservation
Loan Service and any Debt Settlement request. If the borrower returns
attachment 1 of exhibit K of this subpart within 15 days of the date
exhibit K of this subpart is sent, the account will be accelerated or
foreclosure will proceed in accordance with Sec. 1955.15 of subpart A of
part 1955 of this chapter. When the account is accelerated the borrower
will not be considered for further loan assistance under Sec. 1941.14 of
subpart A of part 1941 of this chapter.
(3) Appraisal appeals. (i) If a borrower appeals the current market
appraisal completed by FmHA or its successor agency under Public Law
103-354, the borrower may obtain an appraisal by an independent
appraiser selected from a list of three names provided by the
[[Page 156]]
FmHA or its successor agency under Public Law 103-354 County Supervisor.
A borrower who submitted a new application may appeal the FmHA or its
successor agency under Public Law 103-354 appraisal if the borrower has
not previously negotiated the appraisal under paragraph (i)(4) of this
section. The appeal may be requested by checking the appropriate block
on attachments 6-A of exhibit A or attachment 2 of exhibit F of this
subpart. The borrower may appeal the current market appraisal, and/or
the denial of other issues of Primary Loan Service Programs in which the
appraisal, as part of the NRV calculation, is relevant. The cost of the
independent appraisal must be paid by the borrower. If possible, the
borrower should submit a copy of the independent appraisal to the FmHA
or its successor agency under Public Law 103-354 County Supervisor and
the hearing officer prior to the appeal hearing. The borrower will have
access to the case file as set forth in Sec. 1900.56(a)(2) of subpart B
of part 1900 of this chapter and may request a copy of the FmHA or its
successor agency under Public Law 103-354 appraisal. The independent
appraisal will be considered by the appeal officer. For those States
that have mandatory certification/licensing requirements, the
independent appraiser must be a State certified general appraiser.
(ii) For those States that have voluntary certification/licensing
requirements not later than December 31, 1992, the independent appraiser
must be a State certified general appraiser in accordance with FIRREA.
Until that time, the independent appraiser must meet at least one of the
following qualifications as determined by the FmHA or its successor
agency under Public Law 103-354 County Supervisor:
(A) Certification by a National or State Appraisal Society;
(B) 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; or
(C) The appraiser has recent, relevant documented appraisal
experience or training, or other factors clearly establishing the
appraiser's qualifications.
(iii) The appraisal report also must conform to subpart E of part
1922 of this chapter for real estate and Form FmHA or its successor
agency under Public Law 103-354 440-21 for chattels.
(iv) If either the County Supervisor or the borrower discover any
mathematical or property description errors in the appraisal prior to or
at the time of the review and comparison of the appraisals the necessary
corrections may be made if they both agree to the corrections and
initial the corrections. Either the County Supervisor or the borrower,
depending upon who discovers the error, must contact the other one for a
meeting to approve the corrections.
(v) If the FmHA or its successor agency under Public Law 103-354's
appraisal and the borrower's independent appraisal vary in value by not
more than five percent, the borrower must select the appraisal he or she
wants FmHA or its successor agency under Public Law 103-354 to use for
the request for servicing under this subpart. This will be the final
appraisal. It cannot be appealed.
(4) Negotiation appraisals. A borrower who submits a new application
may object to an FmHA or its successor agency under Public Law 103-354
appraisal used to make a favorable or unfavorable restructuring decision
by requesting to negotiate the appraisal. Negotiation of appraisals is
offered in exhibits E and F of this subpart as discussed in subsection
(h) of this section. Such borrower may negotiate the FmHA or its
successor agency under Public Law 103-354 appraisal only one time. All
appraisals used in the negotiations must reflect the value of the
property as of the same timeframe of the FmHA or its successor agency
under Public Law 103-354 initial appraisal. If either the County
Supervisor or the borrower discover any mathematical or property
description errors in the appraisal prior to or at the time of the
review and comparison of the appraisals the necessary corrections may be
made if they both agree to the corrections and initial the corrections.
Either the County Supervisor or the borrower, depending upon who
discovers the error, must contact the other one for a meeting to approve
the corrections.
[[Page 157]]
(i) The borrower can request the list of independent appraisers from
the County Supervisor on attachment 2 of exhibits E and F of this
subpart. The borrower has 30 days after requesting negotiation to
provide FmHA or its successor agency under Public Law 103-354 with a
copy of his or her independent appraisal. The borrower must pay for this
independent appraisal. The independent appraiser does not need to be on
FmHA or its successor agency under Public Law 103-354's list of
qualified appraisers. The borrower's independent appraiser and appraisal
report, however, must meet the qualifications described in paragraph
(i)(3)(ii) of this section. If the FmHA or its successor agency under
Public Law 103-354's appraisal and the borrower's independent appraisal
vary in value by not more than five percent, the borrower must select
the appraisal he or she wants to use for the request for servicing under
this subpart. This is the final appraisal. It cannot be further
negotiated or appealed.
(ii) After receiving the borrower's independent appraisal, the FmHA
or its successor agency under Public Law 103-354 County Supervisor will
give the borrower a list of qualified, independent appraisers from which
to select an appraiser for the third appraisal if the borrower's
independent appraisal differs from the FmHA or its successor agency
under Public Law 103-354 appraisal by more than five percent. The
borrower will select one appraiser from the FmHA or its successor agency
under Public Law 103-354 approved list of qualified appraisers to
conduct the third appraisal. The appraiser cannot be the same appraiser
that conducted either the FmHA or its successor agency under Public Law
103-354 appraisal or the borrower's independent appraisal. The appraiser
also must meet the qualifications set out in paragraph (i)(3) of this
section. The borrower, the appraiser and the FmHA or its successor
agency under Public Law 103-354 County Supervisor will complete and sign
the Appraisal Agreement (attachment 3 of exhibit F of this subpart). The
appraiser will be sent a copy of the appraisal standards, subpart E of
part 1922 of this chapter for real estate and Form FmHA or its successor
agency under Public Law 103-354 440-21 for chattels. The borrower will
submit to the County Supervisor the original or a copy of the third
appraisal and its attachments and the appraiser's bill. The FmHA or its
successor agency under Public Law 103-354 payment will be processed for
FmHA or its successor agency under Public Law 103-354's one-half share
of the cost as a nonrecoverable cost in accordance with the provisions
of FmHA or its successor agency under Public Law 103-354 Instruction
2024-P (available in any FmHA or its successor agency under Public Law
103-354 office). The borrower is responsible for paying the appraiser
directly the remaining one-half of the cost of the appraisal.
(iii) Following the completion of the third appraisal, the three
appraisals (the FmHA or its successor agency under Public Law 103-354
appraisal, the borrower's independent appraisal and the third appraisal
done for negotiation) will be compared by the County Supervisor. The two
appraisals that are the closest in value will be averaged by the County
Supervisor. These appraisals may be reviewed by the borrower, if
requested, and the average value will become the final appraised value.
If the borrower or the County Supervisor discover any mathematical or
property description errors in the appraisals at the time of the review,
the necessary corrections may be made in accordance with paragraph
(i)(3) of this section.
(j) Processing of writedown. Borrowers who are eligible for Primary
Loan Service Programs with writedown will have their loans rescheduled
or reamortized in accordance with this subpart. All loan servicing
actions approved in connection with the writedown must take place
simultaneously. The borrower and County Supervisor will complete exhibit
D to this subpart, ``Shared Appreciation Agreement.'' Exhibit D provides
for recapture as specified in Sec. 1951.914 of this subpart of a portion
of any appreciation in the value of the real property securing the debt
remaining after the writedown. The FmHA or its successor agency under
Public Law 103-354 DALR$ computer program will be used to determine the
notes to be written down.
[[Page 158]]
(1) A separate Form FmHA or its successor agency under Public Law
103-354 1940-17, ``Promissory Note,'' will be used for each note or
assumption agreement being reamortized.
(2) A Form FmHA or its successor agency under Public Law 103-354
1940-17 will be completed, signed, and distributed as provided in the
FMI.
(3) The loan servicing action date of approval is also the date that
will be inserted on the rescheduled or reamortized Form FmHA or its
successor agency under Public Law 103-354 1940-17 in accordance with the
provisions in the ADPS manual when establishing an equity record.
(4) A Form FmHA or its successor agency under Public Law 103-354
1940-17 may be processed provided the County Office has possession of
the original note being reamortized. If the County Office does not have
possession of the original note, the County Supervisor will ask the FmHA
or its successor agency under Public Law 103-354 Finance Office to
return the original note so that it is in the County Office before Form
FmHA or its successor agency under Public Law 103-354 1940-17 is
processed.
(5) The FmHA or its successor agency under Public Law 103-354 field
office will process the reamortization or consolidation via the FmHA or
its successor agency under Public Law 103-354 field office computer
terminal system in accordance with Form FmHA or its successor agency
under Public Law 103-354 1940-17, and complete exhibit D of this
subpart.
(6) The original (old) note(s) will be marked ``Rescheduled or
Reamortized with Writedown Debt'' and stapled to the new rescheduled or
reamortized promissory note(s) and will be filed in the promissory note
file in the operation file. Copies for the borrower(s) case file should
be marked and stapled the same and filed in position 2 of the case file.
If a transfer is involved, assumption agreement(s) will be marked and
stapled with the note(s) and copies will be filed as indicated above.
(7) A lien will be taken on assets in accordance with Sec. 1951.910
of this subpart.
(k) Real estate liens. If the writedown of the borrower's real
estate debt results in all debts to FmHA or its successor agency under
Public Law 103-354 being written down, FmHA or its successor agency
under Public Law 103-354 real estate liens will be maintained and will
not be subordinated to increase the amount of the prior liens during the
shared appreciation period. Shared appreciation agreements will be
serviced in accordance with Sec. 1951.914 of this subpart. Upon payment
by the borrower of net recovery in a buyout, the original mortgage or
deed of trust will be released on real estate for the FmHA or its
successor agency under Public Law 103-354 loans bought out. The notes
will be marked ``Satisfied at Net Recovery Value'' and returned to the
debtor or the debtor's legal representative. Net recovery buyout
recapture agreements will be serviced in accordance with Sec. 1951.913
of this subpart.
(l) Non-real estate liens. If a borrower's FmHA or its successor
agency under Public Law 103-354 loan(s) were not secured by real estate,
there will be no recapture and the borrower will not be required to
enter into a recapture agreement. Upon payment by the borrower of the
NRV in a buyout, the original security instruments will be released on
chattel security for the FmHA or its successor agency under Public Law
103-354 loans bought out. These notes will be marked ``Satisfied at Net
Recovery Value'' and returned to the debtor or the debtor's legal
representative.
(m) Notes. Notes evidencing debts written off as a result of Primary
Servicing debt writedown or buyout at NRV will be returned to the debtor
or to the debtor's legal representative. The notes will be returned at
the end of any recapture period. If there is no recapture period, the
notes will be returned when the County Office verifies that the
transaction has been recorded in the Finance Office. For a buyout, the
original and copies of the notes will be marked ``Satisfied by Approved
Net Recovery Buyout.'' For writedown, the original and copies of the
notes will be marked ``Satisfied by Approved Debt Writedown.'' If a note
is only partially written-down, the note will be returned to the debtor
or debtor's legal representative when the note is paid in
[[Page 159]]
full. The original and copies of such notes will be marked ``Satisfied
by Approved Partial Writedown.''
[57 FR 18626, Apr. 30, 1992, as amended at 58 FR 30104, May 26, 1993; 58
FR 44752, 44753, Aug. 25, 1993; 58 FR 69200, Dec. 30, 1993; 61 FR 35929,
July 9, 1996]
Sec. 1951.910 Consideration of borrower's other assets for NEW APPLICATIONS.
If the County Supervisor finds that a delinquent borrower has other
assets that are not serving as collateral for the FmHA or its successor
agency under Public Law 103-354 debt, the County Supervisor will
determine if the assets are nonessential assets as defined in
Sec. 1951.906 of this subpart.
(a) Nonessential assets. The net recovery value (NRV) of
nonessential assets must be considered when the borrower's application
is processed for loan servicing in accordance with this subpart. FmHA or
its successor agency under Public Law 103-354 will not write down or
write off any debt or portion of a debt that could be paid by
liquidation of nonessential assets, or by payment of the loan value of
the assets that could be received from non-FmHA or its successor agency
under Public Law 103-354 sources. The loan value of the assets will be
considered as the same as the NRV of the assets.
(1) Determining the value of nonessential assets. The NRV of the
nonessential assets is the market value less any prior liens and any
selling costs which may include such items as taxes due, commissions and
advertising costs. The determination of NRV of nonessential assets does
NOT include a deduction for carrying the property in FmHA or its
successor agency under Public Law 103-354 inventory. The market value of
the nonessential assets must be estimated by a current appraisal in
accordance with subpart E of part 1922 of this chapter for real estate
property, and on Form FmHA or its successor agency under Public Law 103-
354 440-21, ``Appraisal of Chattel Property,'' (available in any FmHA or
its successor agency under Public Law 103-354 office) for chattels. If
the borrower disagrees with the FmHA or its successor agency under
Public Law 103-354 appraisal, the borrower may request a negotiated
appraisal or appeal in accordance with Sec. 1951.909(i) of this subpart.
(2) Eligibility. If the NRV of the nonessential assets is sufficient
to bring the delinquent FmHA or its successor agency under Public Law
103-354 account current, the borrower is not eligible for primary loan
servicing including buyout in accordance with this subpart. The
borrower, instead, will be sent attachments 5-A and 6-A of exhibit A of
this subpart. The County Supervisor will indicate the values of both the
NRV of nonessential assets and FmHA or its successor agency under Public
Law 103-354 security on attachment 5-A. The borrower's nonessential
assets and their NRVs also will be listed on attachment 5-A. The
borrower will have 90 days to bring the FmHA or its successor agency
under Public Law 103-354 account current from the date of the receipt of
attachments 5-A and 6-A. If the borrower does not pay current within
this time period, the account will be accelerated after all appeal
rights have been exhausted. If the NRV of the nonessential assets is not
sufficient to bring the FmHA or its successor agency under Public Law
103-354 account current, then the nonessential assets will be considered
as set out in paragraph (a)(3) of this section.
(3) Inclusion in NRV. If the NRV of the nonessential assets is not
sufficient to bring the FmHA or its successor agency under Public Law
103-354 account current, then FmHA or its successor agency under Public
Law 103-354 will add the NRV of these assets to the NRV of the FmHA or
its successor agency under Public Law 103-354 collateral according to
Sec. 1951.909(f) of this subpart. FmHA or its successor agency under
Public Law 103-354 will encourage, but not require the borrower to
liquidate those nonessential assets and apply the proceeds to his/her
outstanding debts. If the borrower liquidates the nonessential assets,
or obtains a loan against the equity in such assets, and pays FmHA or
its successor agency under Public Law 103-354 the NRV of the
nonessential assets within 45 days of receiving exhibit E or F of this
subpart, as appropriate, the payment will be subtracted from the FmHA or
its
[[Page 160]]
successor agency under Public Law 103-354 debt and then FmHA or its
successor agency under Public Law 103-354 will recalculate the debt
restructuring without considering the NRV of the nonessential assets. If
the borrower does not sell these assets, FmHA or its successor agency
under Public Law 103-354 will include their NRV in calculating the debt
restructuring and take a lien on the assets at the time of closing the
restructured loan.
(b) Lien on certain assets. Delinquent borrowers must pledge certain
assets, essential and nonessential, unencumbered to FmHA or its
successor agency under Public Law 103-354 as security at the time FmHA
or its successor agency under Public Law 103-354 loans are restructured,
as follows:
(1) The best lien obtainable will be taken on all assets owned by
the borrower. When the borrower is an entity, the best lien obtainable
will be taken on all assets owned by the entity, and all assets owned by
all members of the entity. Different lien positions on real estate are
considered separate and identifiable collateral.
(2) Security will include, but is not limited to, the following:
land, buildings, structures, fixtures, machinery, equipment, livestock,
livestock products, growing crops, stored crops, inventory, supplies,
accounts receivable, certain cash or special cash collateral accounts,
marketable securities, certificates of ownership of precious metals, and
cash surrender value of life insurance.
(3) Security will also include assignments of leases or leasehold
interests having mortgageable value, revenues, royalties from mineral
rights, patents and copyrights, and pledges of security by third
parties.
(4) The exceptions set forth in Sec. 1941.19(c) of subpart A of part
1941 apply.
(5) These assets will be considered as additional security for the
loans as well as any shared appreciation agreement. The value of the
essential assets will not be included in the NRV calculation to
determine restructuring. The FmHA or its successor agency under Public
Law 103-354 lien will be taken only at the time of closing the
restructured FmHA or its successor agency under Public Law 103-354
loans.
[57 FR 18626, Apr. 30, 1992, as amended at 58 FR 44753, Aug. 25, 1993;
59 FR 25803, May 18, 1994]
Sec. 1951.911 Preservation Loan Service Programs.
(a) Leaseback/buyback. This section contains the policies and
procedures pertaining to the FP Leaseback/Buyback Program. The FP
Leaseback/Buyback Program will permit the previous owner of real farm
and ranch property, including any off-farm principal residence of the
former operator, which was security for an FP loan(s) to have the first
opportunity to lease or purchase the leaseback/buyback property from
FmHA or its successor agency under Public Law 103-354. If FmHA or its
successor agency under Public Law 103-354 has only chattel property the
as security, preservation servicing will not be offered. In addition,
any off-farm residence(s) of the former borrower(s) and/or owner(s), who
is not the operator(s) of the farm or ranch property, is not considered
leaseback/buyback property. If the previous owner is not interested in
leasing or purchasing the property, preference for leaseback/buyback
will be given to the spouse or child of the previous owner who are
actively engaged in farming (if the previous owner was an individual);
and entity members (if the previous owner is an entity that is composed
exclusively of members of the same family) who are actively engaged in
farming; and after them to the immediate previous family-size operator
(lessee). CONACT property that is acquired on or after January 6, 1988,
that secured an FmHA or its successor agency under Public Law 103-354
loan will be considered for leaseback/buyback under this section. CONACT
property acquired prior to January 6, 1988, will also be considered
under this section, but only if the former owner/previous operator was
not advised of his or her leaseback/buyback rights under FmHA or its
successor agency under Public Law 103-354's previous leaseback/buyback
regulation. If there is a conflict between leaseback/buyback and FmHA or
its successor agency under Public Law 103-354's Homestead Protection
Program,
[[Page 161]]
priority will be given to the application for homestead protection with
respect to the lease of the borrower's principal dwelling. The same
application may be considered for both leaseback/buyback and homestead
protection if requested. The applicant can obtain homestead protection
under the Homestead Protection Program and the balance of the farm under
the Leaseback/Buyback Program. The authorities contained in this section
supplement subparts A, B and C of part 1955 of this chapter and provide
information that is necessary to administer the Leaseback/Buyback
Program. Inventory property which is located within the boundaries of an
Indian reservation of a Federally recognized Indian Tribe and the
previous owner is a member of the Indian Tribe that has jurisdiction
over the reservation in which such real estate is located is treated
differently than real property located outside a reservation. See
Sec. 1955.66(d) of subpart B of part 1955 of this chapter for further
details.
(1) Notification. In those instances where the applicable notice is
sent certified mail, and the certified mail is not accepted by the
borrower, the County Supervisor will immediately send the documents from
the certified mail package to the borrower's last known address, first
class mail. The appropriate response time will commence 3 days following
the date of mailing.
(i) When a borrower(s) becomes at least 30 days behind schedule on
an FmHA or its successor agency under Public Law 103-354 loan(s), the
borrower will be sent exhibit A with attachments 1 and 2 of this
subpart. The sending of this exhibit and attachments will be the notice
to the borrower of the availability of Primary and Preservation Loan
Service. If a feasible plan for restructuring the borrower's debt cannot
be developed using Primary Loan Service Programs, the borrower will be
notified of Preservation Loan Service Programs and other servicing
options by sending attachments 5 and 6 or 5-A and 6-A of exhibit A of
this subpart, as applicable. If a borrower requests an appeal and the
adverse decision is not overturned, the borrower does not request an
appeal, or fails to pay FmHA or its successor agency under Public Law
103-354 the net recovery value of the property, the borrower will be
advised by use of exhibit K with attachment 1 of this subpart that FmHA
or its successor agency under Public Law 103-354 will continue with the
processing of Preservation Loan Service Programs, if applicable, unless
the borrower returns attachment 1 of exhibit K within 15 days of the
date of the exhibit.
(ii) When FmHA or its successor agency under Public Law 103-354
acquires real farm and ranch property, including the principal residence
of the former operator, which secured an FP loan, the former owner will
be sent exhibit O of this subpart within 30 days from the date of
acquisition. The former owner has 180 days from the date FmHA or its
successor agency under Public Law 103-354 acquired the real farm and
ranch property, including any off-the-farm principal residence of the
former operator, to apply for leaseback/buyback, unless State laws
provide for a longer period. The exhibit will be sent certified mail,
return receipt requested. If the former borrower/owner entered into a
leaseback/buyback agreement (exhibit N of this subpart) prior to FmHA or
its successor agency under Public Law 103-354 acquisition of the real
property, and such agreement has not terminated, exhibit O will not be
sent. The notification letter to an owner who is an individual will
inform the owner that if the owner is not interested in leaseback/
buyback, the owner's spouse or child, if actively engaged in farming,
may be eligible for leaseback/buyback. If the farm or ranch was owned by
an entity, the stockholders or partners of which are exclusively members
of the same family, the notification letter will inform the owner that
if the owner is not interested in leaseback/buyback, the entity members
who are actively engaged in farming may be eligible for leaseback/
buyback. It will be the responsibility of the owner to inform his or her
spouse and/or children or the entity members about their possible
participation in the leaseback/buyback program and that they must notify
the County Supervisor of their intent to participate in the leaseback/
buyback program within 190 days from the date
[[Page 162]]
of acquisition unless State redemption laws prescribe a longer period.
The notification letter sent to the previous owner will also request the
previous owner to notify the County Supervisor if the security was
operated by a lessee at the time it was taken into inventory and, if so,
to notify the County Supervisor of the name and address of that lessee.
If the farm property is located within an Indian Reservation, and the
former owner is a member of such Indian tribe, the Indian Tribe will be
notified of the potential availability of the farm property for lease or
purchase by sending exhibit B of subpart B of part 1955 of this chapter.
The Indian tribe will be notified at the same time as the previous
owner.
(iii) If the previous owner provides FmHA or its successor agency
under Public Law 103-354 with the name of the immediate previous
operator (lessee), or if the County Supervisor is aware that the
property was leased by the owner and knows the name and address of such
immediate previous operator (lessee), the operator will be notified of
leaseback/buyback by use of exhibit P of this subpart. This letter will
be sent certified mail, return receipt requested. The County Supervisor
will send exhibit P of this subpart to the operator (lessee) within 30
days after the 190-day period or applicable period under State
redemption laws has expired. The County Supervisor, however, may notify
the operator (lessee) prior to the 190-day period after acquisition of
the property or applicable period under State redemption laws if the
previous owner, spouse and all children (if the former owner was an
individual), and entity members (if the former owner was an entity)
inform the County Supervisor, in writing, that they are not interested
in purchasing or leasing the property. The operator (lessee) will be
given 30 days from the date he or she is notified about leaseback/
buyback to notify the County Supervisor, in writing, of their intent to
participate in leaseback/buyback.
(iv) The rights regarding the lease or purchase of property provided
by this section and accorded a person or entity described above may be
freely and knowingly waived by such person or entity. Exhibit Q of this
subpart will be used by each person or entity that wishes to waive their
rights to leaseback/buyback.
(2) Priority. (i) FmHA or its successor agency under Public Law 103-
354 shall give priority for the Leaseback/Buyback Program in the
following order:
Priority 1.--The immediate previous owner of the acquired property.
Priority 2.--If actively engaged in farming:
a. The spouse or child of the previous owner if the previous owner
was an individual;
b. If the previous owner was an entity, to the entity members of the
corporation, partnership, joint operation or cooperative.
Priority 3.--The immediate previous family-size farm operator of the
security. (If the farm property is located within an Indian Reservation
and the former owner is a member of such tribe, see Sec. 1955.66(d) of
subpart B of part 1955 of this chapter for leaseback/buyback rights of
the Tribe.)
(ii) Within each of the foregoing priorities, if there is more than
one individual eligible for leaseback/buyback in any category who has
indicated an intention, in writing, to the County Supervisor to
participate in the leaseback/buyback program (e.g., one individual wants
to purchase and the other individual wants to rent), priority within the
category will be given to an individual who wants to purchase all the
leaseback/buyback property, either for cash or by credit sale. There is
no preference for a cash sale over a credit sale. If there are two or
more individuals in the same priority category who are eligible for
leaseback/buyback who both want to purchase (or to lease if no one wants
to purchase), the County Committee will make the selection of the lessee
and/or purchaser 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. The random selection of the County Committee is not
an appealable item for those individuals that are not the successful
lessee and/or purchaser.
(iii) If there are individuals in different priority categories who
inform the County Supervisor, in writing, of their intention to
participate in the
[[Page 163]]
leaseback/buyback program, the County Supervisor will first consider the
eligibility for leaseback/buyback of individuals in the highest priority
in which there is interest before considering individuals in the lower
priority. If an individual in a higher priority is eligible, the
individuals in the lower priority will be notified by the County
Supervisor that an individual with higher priority has been selected.
This is not an appealable item.
(iv) The inventory property will not be leased or sold until any
appeals are exhausted.
(v) The rights afforded individuals under the Leaseback/Buyback
Program will only be offered once after the property comes into FmHA or
its successor agency under Public Law 103-354 inventory. If a previous
owner, previous owner's spouse or child, an entity member (if the
previous owner was an entity held exclusively by members of the same
family), or immediate previous family-size operator (lessee) leases the
property and does not exercise the option to purchase and the lease
terminates, no other individuals will be offered the property under the
Leaseback/Buyback Program. These individuals, however, may lease or
purchase the property when it becomes available for lease or sale in
accordance with subparts B and C of part 1955 of this chapter.
(3) Receiving applications. (i) Borrowers who return attachment 2 of
exhibit A of this subpart and a completed application as outlined in
Sec. 1951.907(f) of this subpart will have their applications processed
for Primary Loan Service Programs before considering the application for
leaseback/buyback. The County Supervisor will automatically consider the
borrower for Preservation Loan Service Programs if the use of Primary
Loan Service Programs will not allow the borrower to develop a feasible
plan of operation.
(ii) Borrowers who return attachment 2 of exhibit A of this subpart
must also be the owners of the real property to be considered for
leaseback/buyback. Such borrowers will also be advised by attachment 5
or 5-A of exhibit A of this subpart, as appropriate, of the availability
of Preservation Loan Service Programs.
(iii) Former owners who wish to make application for leaseback/
buyback must make application within 180 days or applicable period under
State redemption law after the date FmHA or its successor agency under
Public Law 103-354 acquires the property. Such application will be made
as outlined in Sec. 1951.907(f) of this subpart.
(iv) The spouse or child of a former owner or entity members must
make application for leaseback/buyback within 190 days or applicable
period under State redemption laws after the date FmHA or its successor
agency under Public Law 103-354 acquires the property. Such application
will be made as outlined in Sec. 1951.907(f) of this subpart.
(v) Operators must make application for leaseback/buyback within 30
days of receipt of exhibit N of this subpart. Such application must be
made as outlined in Sec. 1951.907(f) of this subpart.
(4) Eligibility. The County Supervisor will determine the
applicant's eligibility.
(i) Any applicant for leaseback/buyback who either (1) first applied
for primary servicing on or after November 28, 1990, or (2) first
applied for leaseback/buyback on or after November 28, 1990, without
first applying for primary servicing, and who is also the borrower/
former owner, must have acted in good faith as defined in Sec. 1951.906
of this subpart.
(A) If a good faith determination has already been made in
connection with the borrower/former borrower's request for primary
servicing of his or her loan pursuant to the definition in Sec. 1951.906
of this subpart, such determination will be binding on the borrower/
former borrower's request for leaseback/buyback. In such case of a
denial of leaseback/buyback when the borrower/former borrower had
previously been denied primary loan servicing because of a determination
that the borrower/former borrower has not acted in good faith, the
denial of leaseback/buyback will not be appealable. NOTE: If the lack of
good faith determination was made prior to November 28, 1990, for
primary servicing, which was based on the sole fact that the borrower
disposed of normal income security before October 14, 1988, without FmHA
or its
[[Page 164]]
successor agency under Public Law 103-354 consent, and it has been
determined the proceeds were used for essential household and farm
operating expenses of which the borrower would have been entitled to a
release of income proceeds in accordance with Sec. 1962.17(b)(2)(iii)
and exhibit E of subpart A of part 1962 of this chapter, such a lack of
good faith determination will not be binding for a leaseback/buyback
application filed on or after November 28, 1990.
(B) If the borrower/former borrower had not previously been
considered for primary servicing and no good faith determination had
been previously made, then the County Supervisor will initially
determine if the borrower/former borrower acted in good faith, as
defined in Sec. 1951.906 of this subpart. Disposal of normal income
security prior to October 14, 1988, without FmHA or its successor agency
under Public Law 103-354's consent, will not constitute a lack of good
faith if the proceeds were used to pay essential household and farm
operating expenses and the borrower would have been entitled to a
release of income proceeds in accordance with Sec. 1962.17(b)(2)(iii)
and exhibit E of subpart A of part 1962 of this chapter.
(ii) The previous owner is the individual(s) or entity that held fee
title to the property at the time FmHA or its successor agency under
Public Law 103-354 acquired the property. The previous owner, as an
applicant for leaseback/buyback, may be an operator of larger than a
family-size farm and may be a different individual or entity than the
former borrower, but the owner must have pledged the farm as security
for a CONACT loan.
(iii) The spouse and child of the previous owner (if the previous
owner was an individual) are next on the priority list. Child includes
the son or daughter of a previous owner of property that has been
acquired by FmHA or its successor agency under Public Law 103-354 and
who is of legal age to enter into a binding contract. The spouse and/or
any child who apply for leaseback/buyback must have been actively
engaged in farming at the time of application for leaseback/buyback. The
applicant may be an operator of larger than a family-size farm.
(iv) Entity members (if the previous owner was an entity) must be
members of the entity which is owned exclusively by members of the same
family and must have been actively engaged in farming at the time of
application for leaseback/buyback. Ths applicant may be an operator of
larger than a family-size farm.
(v) Previous operator must have been the operator (lessee) of the
farm property at the time FmHA or its successor agency under Public Law
103-354 acquired the farm property from the former owner (lessor) and be
an operator of not larger than a family-size farm after execution of any
lease or purchase agreement. The applicant does not need to be an FmHA
or its successor agency under Public Law 103-354 borrower.
(vi) All applicants must meet the application requirements of
paragraph (a)(3) of this section.
(vii) Except as provided in Sec. 1951.911(a)(2) (ii) and (iii), if
the County Supervisor determines that the applicant is not eligible for
leaseback/buyback, the applicant will be advised of appeal rights in
accordance with subpart B of part 1900 of this chapter.
(5) Processing applications prior to acquisition of property. (i) An
owner may apply for leaseback/buyback and/or homestead protection at any
time before FmHA or its successor agency under Public Law 103-354
acquires the owner's property, provided that an application for pre-
acquisition leaseback/buyback will not prevent FmHA or its successor
agency under Public Law 103-354's continued processing of an
acceleration or foreclosure of the account. All applications made for
pre-acquisition leaseback/buyback must be in writing. If application is
made for both leaseback/buyback and homestead protection, consideration
will be given to both options and the borrower will be notified of both
decisions simultaneously. Concurrently with the execution of the pre-
acquisition Leaseback/Buyback Agreement, the borrower will deliver a
completed Form FmHA or its successor agency under Public Law 103-354
1955-1 to FmHA or its successor agency under Public Law 103-354. The
Leaseback/Buyback Agreement is subject to the provisions of subpart A of
[[Page 165]]
part 1955 of this chapter. If FmHA or its successor agency under Public
Law 103-354 acquires title to the leaseback/buyback property during the
processing of a preacquisition leaseback/buyback agreement, processing
of the agreement will be terminated and the owner will be given
leaseback/buyback rights pursuant to paragraph (a)(1)(ii) of this
section.
(A) If the owner has requested leaseback, the County Supervisor will
determine if the owner can fulfill the terms and conditions of the
lease. If the County Supervisor determines that the owner cannot fulfill
the terms and conditions of the lease and/or the owner fails to submit
the information requested on exhibit K of this subpart within 30 days of
the date which appears on exhibit K, leaseback will be denied, and
appeal rights will be given in accordance with subpart B of part 1900 of
this chapter. If the County Supervisor determines that the owner can
fulfill the terms and conditions of the lease, the County Supervisor and
the owner will enter into a Leaseback/Buyback Agreement (exhibit N of
this subpart) to lease the property to the owner if and when FmHA or its
successor agency under Public Law 103-354 acquires title. The lease will
contain an option to purchase the property. A copy of Form FmHA or its
successor agency under Public Law 103-354 1955-20, ``Lease of Real
Property,'' will be attached to the agreement as an exhibit. The
agreement will provide that FmHA or its successor agency under Public
Law 103-354's obligation to enter into a lease/sale of the property is
contingent on FmHA or its successor agency under Public Law 103-354
acquiring fee title to the property. The agreement will contain a
provision that if the lease/sale does not close within 2 years from the
date of the agreement, the agreement (and FmHA or its successor agency
under Public Law 103-354's obligation to lease/sell) will end.
(B) If the owner has requested buyback of the property as a credit
sale on eligible rates and terms, the County Committee will determine
the owner's eligibility in accordance with subpart A of part 1943 of
this chapter and the County Supervisor will determine the feasibility of
the proposed operation before entering into the Leaseback/Buyback
Agreement. If the County Committee determines that the owner is not
eligible or the County Supervisor determines that the owner's proposed
operation and purchase is not feasible, and/or the owner fails to submit
the information requested on exhibit K of this subpart within 15 days of
the date which appears on exhibit K, and buyback is denied, appeal
rights will be given in accordance with subpart B of part 1900 of this
chapter. If the County Committee determines the owner is eligible for a
credit sale on eligible rates and terms and the County Supervisor
determines that the owner's proposed operation and purchase is feasible,
the County Supervisor will enter into a conditional credit sale with the
owner. The following conditions will be inserted on Form FmHA or its
successor agency under Public Law 103-354 1955-45, ``Standard Sales
Contract--Sale of Real Property by the United States'':
``FmHA or its successor agency under Public Law 103-354's obligation
to close the sale is contingent on its acquiring title to the security
within 2 years from the date of the agreement. FmHA or its successor
agency under Public Law 103-354's obligations are contingent on the
owner meeting FmHA or its successor agency under Public Law 103-354's
credit sale criteria for eligible rates and terms, creditworthiness and
repayment ability at the time the credit sale is ready to close.''
(C) If the owner has requested buyback of the property as a credit
sale on ineligible rates and terms, the County Supervisor will determine
eligibility and feasibility before entering into the Leaseback/Buyback
Agreement. If the County Supervisor determines that the owner is not
eligible, that the purchase is not feasible, and/or the owner fails to
submit the information requested on exhibit K of this subpart, buyback
will be denied, and appeal rights will be given in accordance with
subpart B of part 1900 of this chapter. If the County Supervisor
determines that the owner is eligible for a credit sale on ineligible
rates and terms, when the security is taken into inventory, the County
Supervisor will enter into a conditional credit sale
[[Page 166]]
with the owner. The following conditions will be inserted on Form FmHA
or its successor agency under Public Law 103-354 1955-45:
``FmHA or its successor agency under Public Law 103-354's obligation
to close the sale is contingent on its acquiring title to the security
within 2 years from the date of the agreement. FmHA or its successor
agency under Public Law 103-354's obligations are contingent on the
owner meeting FmHA or its successor agency under Public Law 103-354's
credit sale criteria for creditworthiness and repayment ability at the
time the credit sale is ready to close. The credit sale will close as
soon as possible after FmHA or its successor agency under Public Law
103-354 acquires title to the security and any other contingencies are
satisfied.''
(D) If the owner has requested buyback of the property by paying
cash, the County Supervisor will enter into Form FmHA or its successor
agency under Public Law 103-354 1955-45 with the owner subject to the
following contingency which will be inserted in Form FmHA or its
successor agency under Public Law 103-354 1955-45: ``FmHA or its
successor agency under Public Law 103-354's obligation to close the sale
is contingent on its acquiring title to the property within 2 years from
the date of the agreement.''
(E) In the event FmHA or its successor agency under Public Law 103-
354 is not able to obtain title to the property upon the signing of the
Leaseback/Buyback Agreement, the borrower is unwilling to voluntarily
convey the property and/or FmHA or its successor agency under Public Law
103-354 determines it is unable to accept a voluntary conveyance, FmHA
or its successor agency under Public Law 103-354 will continue with the
acceleration of the indebtedness and foreclosure of the property. The
Leaseback/Buyback Agreement does not obligate FmHA or its successor
agency under Public Law 103-354 to take the property into FmHA or its
successor agency under Public Law 103-354 inventory if it is not in FmHA
or its successor agency under Public Law 103-354's financial interest to
do so.
(ii) If the owner has requested leaseback/buyback of the real
property, FmHA or its successor agency under Public Law 103-354 may, as
a part of an agreement, permit the owner to voluntarily convey the real
property and chattels to FmHA or its successor agency under Public Law
103-354 and immediately lease or credit sale the real property back to
the former owner. FmHA or its successor agency under Public Law 103-354
may sell all the chattel property back to the former owner on credit in
accordance with Sec. 1955.124 of subpart C of part 1955 of this chapter.
These agreements are subject to the following items being concluded
before completing any transaction:
(A) Based on the market value of the property and FmHA or its
successor agency under Public Law 103-354's potential recovery value, it
is determined to be in the Government's best interest to acquire title
to the property. Exhibit G of subpart A of part 1955 of this chapter
will be used to determine if it is in the Government's best financial
interest to accept the voluntary conveyance;
(B) Any remaining debt after conveyance of the chattel and of real
estate property will be debt settled in accordance with subpart B of
part 1956 of this chapter;
(C) The County Committee must determine that the former owner is
eligible for any proposed credit sale on eligible rates and terms;
(D) The County Supervisor must determine that the former owner has
repayment ability and creditworthiness for a credit sale or sufficient
experience, management skills, and financial resources to assure a
reasonable prospect of success in the farming operation for leaseback;
and
(E) If the property contains wetlands, floodplains, and/or highly
erodible land, necessary deed restrictions will be placed on the
property as set forth in exhibit M of subpart G of part 1940 of this
chapter and subparts B and C of part 1955 of this chapter.
(iii) All conveyances of fee title and/or a leasehold interest,
which involves a voluntary conveyance, leaseback/buyback and/or
homestead protection will be executed simultaneously.
(6) Processing leaseback requests. The applicant must furnish the
necessary
[[Page 167]]
financial information as set forth in Sec. 1951.907(f) of this subpart,
to assist the County Supervisor in determining if a feasible plan of
operation can be developed. If the County Supervisor determines the
applicant can meet the terms of the lease and has sufficient experience,
management skills and financial resources to assure a reasonable
prospect of success in the farming operations, the County Supervisor may
approve the lease on Form FmHA or its successor agency under Public Law
103-354 1955-20.
(i) The term of the lease may be from 1 to 5 years. The lessee will
select the term of the lease. Leases may be for cash or crop share. If
the lessee is able to pay the cash lease payment at the time the lease
is executed, a feasible plan is not required.
(ii) All leases under the leaseback/buyback program will contain an
option to purchase. Terms of the option will be set forth as part of the
lease as a special stipulation in accordance with the FMI for Form FmHA
or its successor agency under Public Law 103-354 1955-20. The purchase
price (option price) will be the appraised market value at the time the
option is exercised as set forth in subpart E of part 1922 of this
chapter and supported by a current appraisal on Form FmHA or its
successor agency under Public Law 103-354 1922-1, ``Appraisal Report--
Farm Tract.'' The option to purchase may be exercised any time during
the term of the lease. All options expire when the lease ends.
(iii) Leaseback property will be leased for an amount equal to that
for which similar properties in the area are being leased or rented
(market rent). In no case will inventory property be leased for a token
amount. The County Supervisor will make a survey of lease amounts of
farms in the immediate area with similar soils, capabilities and income.
The amount of the rental will be determined by the County Supervisor.
Prior to entering into a Leaseback/Buyback Agreement, the County
Supervisor will advise the applicant, by letter, of the rent amount. If
the leaseback applicant disagrees with the proposed rental, the
applicant can appeal in accordance with subpart B of part 1900 of this
chapter.
(iv) The lease payments will not be applied toward the purchase
price.
(7) Processing buyback request. The applicant must furnish the
necessary financial information in accordance with Sec. 1951.907(f) of
this subpart to assist the County Supervisor in determining if the
applicant can meet the terms of any purchase agreement. If the applicant
has requested the property to be financed with a credit sale, a
determination will need to be made if the applicant has sufficient
experience, management skills and financial resources to assure a
reasonable prospect of success.
(i) Title clearance and loan closing will be handled in accordance
with subpart B of part 1927 of this chapter and the terms specified in
Form FmHA or its successor agency under Public Law 103-354 1955-49.
(ii) The purchase price will be the appraised market value as set
forth in subpart E of part 1922 of this chapter and supported by a
current appraisal on Form FmHA or its successor agency under Public Law
103-354 1922-1.
(iii) The property will be offered on eligible terms (if the
purchaser is eligible in accordance with subpart A of part 1943 of this
chapter) and a credit sale processed in accordance with subpart C of
part 1955 of this chapter or NP terms in accordance with subpart J of
part 1951 of this chapter. The interest rate will be the current rate
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).
(iv) If the purchaser is an eligible applicant (in accordance with
subpart A of part 1943 of this chapter) and the value of the property is
greater than $200,000, the property may be financed with a $200,000
credit sale on eligible terms and the remainder with the applicant's own
resources and/or with participating credit as set forth in subpart A of
part 1943 of this chapter. If this value of the farm property is greater
than $200,000 and the eligible applicant is NOT able to arrange the
necessary financing for the balance over $200,000, FmHA or its successor
agency under Public Law 103-354 may finance the purchase of the property
[[Page 168]]
with a credit sale on ineligible terms of not less than ten percent
(10%) downpayment with the remaining balance amortized over a period not
to exceed 25 years. A credit sale on eligible terms and the remaining
balance on ineligible terms will NOT be made to the same applicant to
purchase farm property.
(8) Special provisions. The County Supervisor must take into
consideration the following provisions:
(i) The rights afforded an individual or entity under FmHA or its
successor agency under Public Law 103-354's Leaseback/Buyback program
are for the total farm property. Farm property will not be subdivided
for lease or purchase for such persons or entity. If the property is
larger than a family-size farm, and no person or entity exercises
leaseback/buyback rights, the property will then be subdivided and sold
in accordance with subpart C of part 1955 of this chapter.
(ii) If the inventory property selected for leaseback/buyback is
subject to homestead protection rights by someone other than the
selected individual, FmHA or its successor agency under Public Law 103-
354's obligation to enter into the lease or close the sale will be
contingent on FmHA or its successor agency under Public Law 103-354's
prior compliance with all local laws, ordinances and regulations, if
any, governing the subdivision of land. The homestead protection
property must be a separate parcel. The homestead protection property
will be excluded from the leaseback/buyback property. If necessary, FmHA
or its successor agency under Public Law 103-354 will grant and/or
retain for the benefit of adjoining property, reasonable easements for
ingress, egress, utilities, water rights, etc;
(iii) If the property contains lands that are wetlands and/or
floodplains, the prospective lessee or purchaser will be informed by
FmHA or its successor agency under Public Law 103-354 of its presence
and location, along with the USDA restrictions regarding its use, as set
forth in exhibit M of subpart G of part 1940 of this chapter and
subparts B and C of part 1955 of this chapter. The provisions of a
purchase agreement or a lease agreement for farm inventory property that
is ``highly erodible land,'' as determined by the Soil Conservation
Service (SCS), must contain, as requirements of the lease or sale,
conservation practices specified by the SCS and approved by FmHA or its
successor agency under Public Law 103-354 as a condition of the lease or
sale. If the land is under an Agricultural Stabilization and
Conservation Service (ASCS) Conservation Reserve Program (CRP) contract,
the purchaser/lessee shall assume the CRP contract. This requirement
shall be included as a provision in all leases or sale documents entered
into pursuant to the Leaseback/Buyback Program;
(iv) In the event of any conflict between any provisions of the FmHA
or its successor agency under Public Law 103-354 Leaseback/Buyback
Program, as outlined in this section and any provisions of State law
providing a right of first refusal to the owner of farmland or the
operator of a farm before the sale or lease of land to any other person,
such provision of the State law shall prevail. State supplements will be
prepared with the assistance of OGC as necessary, to provide guidance to
FmHA or its successor agency under Public Law 103-354 officials as to
how to comply with the State laws. 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);
(v) Failure to make lease payments as scheduled or to maintain the
property in good condition shall constitute cause for the termination of
all rights of the lessee to possession and occupancy of the farm
property under this section. As soon as a lease payment is delinquent,
the lessee will be notified in writing that if the payment is not
received within 30 days from the date of the notification, the lease and
all rights of the lessee to possession and occupancy of the property,
including the right to exercise the option to purchase, will be
terminated. Likewise, for crop share leases where the lessee fails to
provide accurate records of production, the lessee will be advised in
writing that such records must be provided
[[Page 169]]
to FmHA or its successor agency under Public Law 103-354 within 30 days,
otherwise the lease will be terminated. If the crop production records
are not furnished or the past due lease payment is not received within
the 30 days, the County Supervisor will notify the lessee in writing of
the termination of the lease and option and give the lessee the
opportunity to appeal the decision pursuant to subpart B of part 1900 of
this chapter. The lessee may continue to occupy the property under the
terms of the lease during an appeal of the termination decision. FmHA or
its successor agency under Public Law 103-354 will comply with all
applicable State and local laws governing eviction from the property;
(vi) Denial of applications for or disputes over terms and
conditions of a lease or purchase agreement under the Leaseback/Buyback
Program, are appealable pursuant to subpart B of part 1900 of this
chapter. Disputes over appraisals for leaseback/buyback will be handled
in accordance with Sec. 1951.909 (i)(3) or (i)(4) of this subpart, as
applicable, and Sec. 1900.53(c) of subpart B of part 1900 of this
chapter, as applicable; and
(vii) For additional guidance on the acquisition, management and
sale of inventory farm property (CONACT property), the County Supervisor
should refer to subparts A, B and C of part 1955 of this chapter.
(b) Homestead protection. This paragraph contains the policies and
procedures pertaining to the FP Homestead Protection Program. The
Homestead Protection Program is a ``Preservation Loan Service Program''
as set forth in this subpart. A borrower or former borrower who had or
has an FP loan secured by the real property containing the dwelling
owned by the borrower and used as the borrower's principal residence may
apply for homestead protection before or after FmHA or its successor
agency under Public Law 103-354 acquires the property. Farm real
property that is in FmHA or its successor agency under Public Law 103-
354 inventory as of the effective date of this regulation or is acquired
in the future that secured a FP loan to individuals or entities will be
considered for homestead protection as set forth in this subpart. If
there is a conflict between applicants for leaseback/buyback (see
Sec. 1951.911(a)) and homestead protection, priority will be given to
the application for homestead protection. An applicant can apply for
both homestead protection and leaseback/buyback at the same time. The
applicant can obtain the homestead protection property under the
Homestead Protection Program and the balance of the farm under the
Leaseback/Buyback Program.
(1) Purpose. The purpose of the Homestead Protection Program is to
permit a borrower or former borrower who is eligible for homestead
protection to retain their dwelling through a lease and/or purchase.
Such lease and/or purchase could permit a borrower or former borrower to
have a home which could be a headquarters which could provide an
opportunity to continue to farm and reestablish a feasible farming
operation.
(2) Notification and processing. When a borrower(s) becomes at least
30 days delinquent on an FmHA or its successor agency under Public Law
103-354 loan(s), the borrower(s) will be sent exhibit A with attachments
1 and 2 of this subpart. Sending of this exhibit and attachments will be
the notice to the borrower of the availability of Primary and
Preservation Loan Service. If a feasible plan for restructuring the
borrower's debt cannot be developed using Primary Loan Service Programs,
the borrower will be notified of Preservation Service Programs and other
servicing options by sending attachments 5 and 6, or 5-A and 6-A, of
exhibit A of this subpart, as applicable. If the borrower requests an
appeal and the adverse decision is not overturned, the borrower does not
request an appeal or fails to pay FmHA or its successor agency under
Public Law 103-354 the net recovery value of the property, the borrower
will be advised by the use of exhibit K with attachment 1 of this
subpart, that FmHA or its successor agency under Public Law 103-354 will
continue with the processing of Preservation Service Programs, if
applicable. A borrower who desires to apply will request homestead
protection in accordance with the provisions of Sec. 1951.907 of this
subpart before the property is acquired and paragraph
[[Page 170]]
(b)(2)(iii) of this section after the property is acquired. A borrower
who desires to participate in the program must request homestead
protection by applying in accordance with Sec. 1951.907(f) of this
subpart or paragraph (b)(2)(iii) of this section. A borrower who meets
the eligibility requirements in paragraph (b)(3) of this section will be
permitted to retain possession of the homestead in accordance with
paragraph (b)(2)(ii) of this section before title is acquired or under a
lease with an option to purchase after title to the property is
acquired.
(i) General. (A) The homestead protection property will include the
borrower's principal residence and not more than 10 acres of adjoining
land that is used to maintain the borrower's family and a reasonable
number of farm service buildings located on land adjoining the residence
which are useful to the occupants of the dwelling.
(B) The County Supervisor will review the borrower's proposed
homestead protection property and will make a physical inspection of the
property, if necessary. If the County Supervisor does not agree with the
proposed shape or size of the property, the County Supervisor and
borrower will agree on an alternate size and shape for the property.
(C) If the borrower and the County Supervisor cannot agree on the
proposed shape and size of the property, the County Supervisor will make
the determination. The borrower may appeal pursuant to subpart B of part
1900 of this chapter.
(D) When the size and shape of the property is agreed upon and the
borrower has been found eligible by the County Supervisor, the County
Supervisor will request a licensed surveyor to survey the property, have
a legal description prepared, and mark the property lines with permanent
type markers.
(E) Appraisals will be completed in accordance with paragraphs
(b)(7) and (b)(8)(ii)(B) of this section.
(ii) Processing homestead protection before FmHA or its successor
agency under Public Law 103-354 acquires title. (A) A borrower will be
considered for eligibility for homestead protection when it is
determined that the Primary Loan Service Programs cannot help. Exhibit K
with attachment 1 of this subpart will be sent to the borrower. The
borrower must indicate the buildings and land to be included in the
request for homestead protection in order to continue the processing of
his/her application. If the County Supervisor determines the borrower is
eligible for homestead protection, the County Supervisor and the
borrower will enter into a Homestead Protection Program Agreement
(exhibit L of this subpart) to lease the Homestead Protection property
to the borrower if and when FmHA or its successor agency under Public
Law 103-354 acquires title. A copy of Form FmHA or its successor agency
under Public Law 103-354 1955-20, ``Lease of Real Property,'' will be
attached to the agreement as an exhibit.
(B) Concurrently with the execution of the preacquisition Homestead
Protection Program Agreement, the borrower will deliver a completed Form
FmHA or its successor agency under Public Law 103-354 1955-1 to FmHA or
its successor agency under Public Law 103-354. The Homestead Protection
Program Agreement is subject to the provisions of subpart A of part 1955
of this chapter. If FmHA or its successor agency under Public Law 103-
354 acquires title to the homestead protection property during the
processing of a preacquisition Homestead Protection Agreement,
processing of the agreement will be terminated and the owner will be
given homestead protection rights pursuant to paragraph (b)(2)(iii) of
this section.
(C) FmHA or its successor agency under Public Law 103-354's
obligation to lease the dwelling to the borrower will also be contingent
on FmHA or its successor agency under Public Law 103-354's prior
compliance with all State and local laws, ordinances and regulations
governing the subdivision of land. The Agreement will contain a
provision that if FmHA or its successor agency under Public Law 103-354
cannot satisfy the foregoing conditions within 2 years from the date of
the agreement, the agreement (and FmHA or its successor agency under
Public Law 103-354's obligation to lease with option to purchase) will
terminate. In
[[Page 171]]
the event an agreement has been entered into, but title to the property
has not been conveyed to FmHA or its successor agency under Public Law
103-354 (or FmHA or its successor agency under Public Law 103-354 has
determined it is not in its financial interest to accept title), FmHA or
its successor agency under Public Law 103-354 will continue with the
acceleration and foreclosure of the property. It is not the intent of
the 2-year term of the agreement to limit FmHA or its successor agency
under Public Law 103-354's ability to foreclose on the property provided
all the terms of the agreement have been met except that the title has
not been conveyed to FmHA or its successor agency under Public Law 103-
354.
(iii) Application for homestead protection after FmHA or its
successor agency under Public Law 103-354 acquires title. When FmHA or
its successor agency under Public Law 103-354 acquires title to the farm
property, the borrower will be sent exhibit M of this subpart, by
certified mail, return receipt requested, within 30 days from the
acquisition date. The borrower must request homestead protection by
notifying the County Supervisor in writing not later than 90 days after
FmHA or its successor agency under Public Law 103-354 acquires the
property. The borrower must give the County Supervisor the information
set forth in Sec. 1951.907 (f) of this subpart and indicate the
buildings and land to be included in the request for homestead
protection.
(iv) Lease with option. A lease with an option to purchase will be
entered into with an eligible borrower on Form FmHA or its successor
agency under Public Law 103-354 1955-20 after FmHA or its successor
agency under Public Law 103-354 acquires title to the property. Form
FmHA or its successor agency under Public Law 103-354 1955-20 will be
completed in accordance with Sec. 1951.911(b)(8) and the FMI.
(3) Eligibility. The County Supervisor will make the determination
on eligibility. In order to qualify for homestead protection the
borrower must meet the following eligibility requirements:
(i) An applicant for Homestead Protection must be an individual
borrower who was personally liable for the Farmer Program loan that was
secured in part by the Homestead Protection property, or in the case
where a non-borrower owner of the homestead protection property pledged
the property to secure the FP loan, the owner of the property. The
applicant must also be or have been the owner of the Homestead
Protection property. The Farmer Program loan could have been made to an
individual or to an entity, as long as the applicant for homestead
protection was a member of the entity and was personally liable for the
Farmer Program loan. A member of an entity who is or was personally
liable for a Farmer Program loan that is or was secured by the homestead
protection property is considered an owner for homestead protection
purposes so long as either the member of the entity or the entity itself
held fee title to the homestead protection property;
(ii) When more than one member of an entity was personally liable
for a Farmer Program loan, each such member who possessed and occupied a
separate dwelling as his or her principal residence, on property that is
or was security for a Farmer Program loan, may apply separately for
homestead protection of their individual dwellings;
(iii) The applicant and any spouse must have received from the
farming or ranching operations gross farm income reasonably commensurate
with the size and location of the farm and reasonably commensurate with
local agricultural conditions (including natural and economic
conditions) in at least 2 calendar years during the 6-year period
preceding the calendar year in which the application is made. Farms used
for comparison purposes must be farms of similar size, type of operation
and locality. For the purpose of this subparagraph and subparagraph (iv)
below, income from farming or ranching operations will include rent paid
to the borrower by a lessee of agricultural land during any period in
which the borrower, due to circumstances beyond his or her control, such
as economic, natural disaster or health problems, was unable to actively
farm that property. In determining whether or not the gross farm income
was reasonably
[[Page 172]]
commensurate with the farm size and location and local agricultural
conditions, the borrower's records will be analyzed. When the borrower
applies for homestead protection the borrower will give the County
Supervisor at least 2 calendar years of records of planned and actual
gross farm income for the 6-year period preceding the calendar year in
which the application is made. If such records do not exist, they may be
developed by the applicant and County Supervisor from information
relating to yields, expenses and prices found in the borrower's County
Office case file, ASCS records or other reliable sources;
(iv) The applicant and any spouse must have received from the
farming or ranching operations at least 60 percent of the gross annual
income of the borrower and any spouse of the borrower in at least 2 of
the 6 calendar years preceding the calendar year in which the
application for homestead protection is made;
(v) The applicant must have continuously occupied the homestead
protection property during the 6-year period preceding the calendar year
in which the application is made, unless the applicant had to leave the
property for a period of time not to exceed 12 months during the 6-year
period due to circumstances beyond the borrower's control, such as
illness, employment or conditions that made the dwelling uninhabitable;
and
(vi) The applicant must have sufficient income to make rental
payments for the term of the lease and the ability to maintain the
property in good condition. The applicant must also agree to all the
terms and conditions set forth in paragraph (b)(8) of this section and
in Form FmHA or its successor agency under Public Law 103-354 1955-20.
(4) Transfer of homestead protection rights. The applicant's rights
to homestead protection and rights under the Agreement or lease entered
into pursuant to this section are not transferable or assignable by the
applicant or by operation of law, except that in the case of death or
incompetency of the applicant, such rights and agreements shall be
transferable to the spouse of the applicant if the spouse agrees to
comply with the terms and conditions of the lease by executing a new
lease on the same terms and conditions.
(5) Appeal rights. If the County Supervisor determines that the
applicant is not eligible for homestead protection or the lease is
terminated because the lessee fails to make lease payments as scheduled
or to maintain the property in good condition, the County Supervisor
will notify the applicant or lessee in writing of the decision and give
the opportunity to appeal in accordance with subpart B of part 1900 of
this chapter. The property will not be leased or sold until the appeal
is concluded. If more than one applicant is found eligible for homestead
protection, but the County Supervisor grants homestead protection to
only one applicant, the successful applicant will be notified that he or
she will be required to participate in any appeal hearing arising out of
the County Supervisor's decision or lose the right to seek review if the
hearing officer reverses the County Supervisor's decision selecting the
applicant for homestead protection.
(6) Property requirements. (i) The proposed homestead protection
property tract must meet all requirements for the division of the
homestead protection property into a separate legal lot as required by
State and local laws. All environmental considerations required under
the provisions of subpart G of part 1940 of this chapter will be
complied with.
(ii) Costs for a survey, legal description or other service needed
to establish, appraise, define or describe the homestead protection
property as a separate tract, will be paid for by FmHA or its successor
agency under Public Law 103-354. Such costs 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). No repairs or improvements will be paid for
by FmHA or its successor agency under Public Law 103-354 except as
provided for in Sec. 1955.64(a) of subpart B of part 1955 of this
chapter.
(iii) If necessary, FmHA or its successor agency under Public Law
103-354 will grant and/or retain for the benefit
[[Page 173]]
of adjoining property reasonable easement(s) for ingress, egress and
utilities, water rights, etc.
(7) Appraisal. The current market value of the homestead protection
property shall be determined by an independent appraisal made within 6
months from the date of the borrower's application for homestead
protection. The applicant will select an independent real estate
appraiser from a list of appraisers approved by the County Supervisor.
(i) The County Supervisor will develop and maintain, in the County
Office operational file, a list of independent appraisers. See
Sec. 1951.909(i) (3) and (4) of this subpart.
(ii) The cost of such an appraisal will be handled in accordance
with paragraph (b)(6)(ii) of this section.
(iii) Independent appraisals are appealable.
(8) Terms of the lease and exercising the option. (i) All leases
will have an option to purchase. Any reference to a lease for homestead
protection purposes will mean a lease with an option to purchase. The
lease will be offered with an option to purchase on Form FmHA or its
successor agency under Public Law 103-354 1955-20 and will be for a
period of not more than 5 years as requested by the applicant. A lease
of less than 5 years may be extended, but not beyond 5 years from the
date of the beginning of the term of the original lease.
(A) The amount of the rent will be based upon equivalent rents
charged for similar residential properties in the area in which the
dwelling is located. The County Supervisor will document in the case
file a sufficient number of equivalent rents charged in the area for
such properties to support the lease amount.
(B) Lease payments will be retained by the Government and remitted
in accordance with 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).
(C) Failure to make lease payments as scheduled or to maintain the
property in good condition shall constitute cause for the termination of
all rights of the lessee to possession and occupancy of the dwelling
retention property under this section. As soon as a lease payment is
delinquent, the lessee will be notified in writing that if the payment
is not received within 30 days from the date of the notification, the
lease and all rights of the lessee to possession and occupancy of the
property including the right to exercise the option to purchase will be
terminated. The County Supervisor will notify the lessee in writing of
the termination of the lease and option and give the lessee the
opportunity to appeal the decision pursuant to subpart B of part 1900 of
this chapter. The lessee will continue to occupy the dwelling under the
terms of the lease during an appeal of the termination decision. FmHA or
its successor agency under Public Law 103-354 will comply with all
applicable State and local laws governing eviction from residential
property.
(D) Any interference by the lessee with the Government's efforts to
lease or sell the remainder of farm inventory property shall constitute
cause for the termination of all rights of the lessee to possession and
occupancy of the dwelling and property including the right to exercise
the option to purchase. This stipulation will be added to the lease. The
act of an applicant exercising his or her rights under the Leaseback/
Buyback Program is not considered as interfering with the Government's
efforts to lease or sell the property.
(ii) Exercising the option to purchase. (A) The lessee may exercise
the option in writing at any time prior to the expiration of the lease
by delivering to the FmHA or its successor agency under Public Law 103-
354 County Supervisor a signed, written statement notifying FmHA or its
successor agency under Public Law 103-354 that the lessee is exercising
the option to purchase the property. Failure to exercise the option
within the lease period will end the lessee's rights under the option to
purchase.
(B) When the lessee exercises the option in the lease to purchase
the property, the purchase price will be the current market value of the
homestead protection property. The current market value will be
determined by an appraisal in accordance with paragraph
[[Page 174]]
(b)(7) of this section providing the appraisal is not more than 1 year
old. If the appraisal is more than 1 year old, the current market value
will be determined by a new appraisal requested in accordance with
paragraph (b)(7) of this section.
(C) The homestead protection property may be sold for cash or
financed with a credit sale. At the time the lessee exercises the option
the lessee must notify the County Supervisor if he or she wants to
purchase the property for cash or finance it through a credit sale from
FmHA or its successor agency under Public Law 103-354.
(D) If a credit sale is involved, the applicant must furnish the
County Supervisor the information set forth in Sec. 1951.907(f) of this
subpart to assist in determining whether or not the applicant has
adequate repayment ability.
(9) Rates and terms for a credit sale. Terms for a credit sale of
homestead protection property when the lessee is exercising the option
to purchase will be in accordance with subpart J of part 1951 of this
chapter.
(10) Closing. A credit sale will be closed in accordance with
subpart J of part 1951 of this chapter.
(11) Conflict with State law. In the event of a conflict between a
borrower's homestead protection rights and any provisions of the law of
any State relating to the right of a borrower to designate for separate
sale or redeem part or all of the property securing a loan foreclosed on
by a lender, such provision of State law shall prevail. A State
supplement will be prepared as necessary to supplement paragraph (b) of
this section.
(12) State supplements. State supplements will be prepared with the
assistance of OGC, as necessary, to comply with State laws 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).
(c) Servicing homestead protection loans. Homestead protection loans
will be serviced as set forth in subpart J of part 1951 of this chapter.
[57 FR 18626, Apr. 30, 1992, as amended at 57 FR 36591, Aug. 14, 1992;
57 FR 47257, Oct. 15, 1992; 58 FR 44752, 44753, Aug. 25, 1993; 58 FR
52651, Oct. 12, 1993; 58 FR 64455, Dec. 8, 1993]
Sec. 1951.912 Mediation.
(a) States with a USDA certified mediation program. The FmHA or its
successor agency under Public Law 103-354 is required to participate in
USDA Certified State Mediation Programs. The purpose of mediation is to
participate with farm borrowers, and their creditors, in an effort to
resolve issues necessary to overcome the borrower's financial
difficulties. Any negotiation of an FmHA or its successor agency under
Public Law 103-354 appraisal pursuant to Sec. 1951.909(i) of this
subpart will be completed prior to mediation.
(1) FmHA or its successor agency under Public Law 103-354 shall
participate in a USDA Certified Mediation Program under the same terms
and conditions as other creditors. Decisions will not be binding on FmHA
or its successor agency under Public Law 103-354 unless approved by the
representative assigned by FmHA or its successor agency under Public Law
103-354 in accordance with paragraph (a)(4) of this section.
(2) FmHA or its successor agency under Public Law 103-354 will pay
the same mediation fees to the USDA Certified State Mediation Board that
are charged to all creditors that participate in mediation. The
Contracting Officer (CO) will complete Form AD-838, ``Purchase Order,''
to establish a mediation contract and submit Form FmHA or its successor
agency under Public Law 103-354 838-B, ``Invoice-Receipt
Certification,'' for payment upon receipt of an invoice from the
Mediator or the Contracting Officer's Representative (COR) recommending
payment.
(3) Failure of creditors and/or borrowers to participate in
mediation will not preclude FmHA or its successor agency under Public
Law 103-354 from granting Primary Loan Service Programs to assist
borrowers.
(4) The FmHA or its successor agency under Public Law 103-354 State
Director will designate a representative to
[[Page 175]]
represent FmHA or its successor agency under Public Law 103-354 in the
mediation process. Authorities of the representatives can vary from
complete authority to act for FmHA or its successor agency under Public
Law 103-354, to a requirement for review and concurrence by the State
Director or designee prior to approving a mediation agreement. The State
Director will set forth in writing the specific authority delegated to
the designated representative.
(5) The FmHA or its successor agency under Public Law 103-354 State
Director will arrange for adequate training for representatives
designated to represent FmHA or its successor agency under Public Law
103-354 in mediation.
(6) When mediation is not successful in resolving the borrower's
financial difficulty, the County Supervisor will send the borrower
attachments 5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as
applicable.
(7) The FmHA or its successor agency under Public Law 103-354 State
Director will develop a State supplement that describes how FmHA or its
successor agency under Public Law 103-354 will participate in the State
Mediation Program. In developing the State supplement the State Director
should confer with the State Attorney General's Office, farm
organizations that are interested in the development of the State's
Certified Agricultural Loan Meditation Program, and Departments of State
Governments to ensure that all interested parties have input on the
content of the State supplement. The State Director will consult with
the Regional OGC as necessary to develop the State supplement. State
supplements will be submitted to the National Office for post approval
in accordance with FmHA or its successor agency under Public Law 103-354
Instruction 2006-B (available in any FmHA or its successor agency under
Public Law 103-354 office).
(b) States without a Certified Mediation Program. To service those
borrowers in States where there is no USDA Certified Mediation Program
established, the State Director will provide the means of conducting a
voluntary meeting of creditors, either with a mediator or a designated
FmHA or its successor agency under Public Law 103-354 representative.
``Creditors,'' for purposes of this paragraph, means all the borrower's
undersecured creditors holding a substantial part of the borrower's debt
in accordance with Sec. 1951.909(h)(3)(i) of this subpart. State
Directors are encouraged to contract for qualified mediators within
their jurisdictional areas to conduct the voluntary meeting of creditors
in an effort to help farmers resolve their financial difficulty. The
National Office will provide the State a list of qualified mediators for
contracting purposes. Any negotiation of an FmHA or its successor agency
under Public Law 103-354 appraisal pursuant to Sec. 1951.909(i) of this
subpart will be completed prior to meeting with other creditors.
(1) When a mediator is available, the County Supervisor will assist
the meditator in scheduling a meeting with the borrower and all of the
borrower's creditors and will encourage them to participate in such a
meeting. The mediator will be responsible for conducting the meeting in
accordance with accepted mediation practices and to develop an Agreement
to assist the farmer in resolving their financial difficulties.
(2) When a mediator is not available, the State Director will
designate an FmHA or its successor agency under Public Law 103-354
representative to conduct a meeting of creditors and attempt to develop
a plan with borrowers and their creditors that will assist the borrowers
to resolve their financial difficulty. The State Director will designate
a representative not previously involved in servicing the borrower's
account. State Directors will designate a representative, or FmHA or its
successor agency under Public Law 103-354 employees who have
demonstrated good human relations skills and ability to resolve problems
and settle disputes.
(3) The designated FmHA or its successor agency under Public Law
103-354 representative for conducting a meeting of creditors will do the
following:
(i) Schedule a meeting between the borrower and the borrower's
creditors and encourage them to participate in such a meeting;
[[Page 176]]
(ii) State that the parties understand that the representative is
neutral and does not represent any of the parties;
(iii) Inform the borrower and creditors concerning FmHA or its
successor agency under Public Law 103-354 programs available to assist
the borrowers;
(iv) Encourage the parties to utilize all available means to assist
the borrower to overcome the financial difficulty;
(v) Advise, counsel, and facilitate the development of a debt
restructure agreement between the borrower and creditors which will
permit the borrower to remain in farming;
(vi) Review with the parties any proposed solution to determine if
it can be effectively implemented and to help the parties understand the
consequences of the proposed solution;
(vii) Review the obligations of the participants, including but not
limited to the maintenance of confidentiality and the promotion of good
faith discussions in an effort to reach agreement; and
(viii) Develop a written document that specifies the agreements
reached in the meeting. The agreement will be signed by all parties with
authority to approve the agreement for the participating creditors. When
signed, copies will be distributed to the borrower and participating
creditors. A copy will be filed in the borrower's County Office case
file.
(4) If agreements are reached which will permit the development of a
feasible plan of operation, the County Supervisor will proceed with
processing and approval of the borrower's request for primary loan
servicing.
(5) When the FmHA or its successor agency under Public Law 103-354
representative has exhausted all efforts to develop an agreement between
the borrower and creditors and an agreement cannot be reached, the FmHA
or its successor agency under Public Law 103-354 representative will
report the results of this meeting to the State Director by memorandum.
Copies of the memorandum will be sent to the borrower and all creditors
participating in the meeting. When the County Supervisor receives a copy
of this memorandum indicating that an agreement cannot be reached,
attachments 5 and 6, or 5-A and 6-A, of exhibit A of this subpart, as
applicable, will be sent to the borrower.
(6) State Directors will provide the necessary training to ensure
that the FmHA or its successor agency under Public Law 103-354
representative has the necessary skills to effectively conduct a
voluntary meeting between a borrower and creditors which may result in
reaching an agreement.
(7) Failure of creditors to participate in a voluntary meeting of
creditors will not preclude FmHA or its successor agency under Public
Law 103-354 from using debt writedown if it would result in a greater
net recovery to FmHA or its successor agency under Public Law 103-354
than liquidation. Whenever the net recovery to FmHA or its successor
agency under Public Law 103-354 will be greater using the writedown than
to go through foreclosure, FmHA or its successor agency under Public Law
103-354 will use the writedown, regardless of the actions of the other
creditors. Voluntary meetings of creditors cannot delay consideration of
a borrower for Primary Loan Service Programs, except with the consent of
the borrower.
(8) If the borrower does not participate in the voluntary meeting of
creditors without good cause and a feasible plan of operation cannot be
developed, the County Supervisor will send the borrower attachments 5
and 6, or 5-A and 6-A, of exhibit A of this subpart, as applicable.
Sec. 1951.913 Servicing Net Recovery Buyout Recapture Agreements.
(a) Death or retirement. If upon the death or retirement of a
borrower who submitted a ``new application,'' as defined in
Sec. 1951.906 of this subpart, the borrower executed exhibit C-1 of this
subpart and transferred title of the borrower's real estate security to
a spouse or child who is actively engaged in farming on the property,
then the transaction will not be treated as a ``sale'' or ``conveyance''
under the recapture agreement. The borrower's spouse or child, however,
must assume the full liability of the borrower under the provisions of
the borrower's Net Recovery Buyout Recapture Agreement and real estate
lien instrument in
[[Page 177]]
accordance with instructions from OGC.
(b) Record of net recovery buyout. The Finance Office will credit
the borrower's account with the net recovery value (NRV) amount paid by
the borrower. An equity record will be established in accordance with
the provisions of the ADPS manual.
(1) For borrowers who applied for Loan Servicing and Preservation
Service Programs before November 28, 1990, and executed exhibit C of
this subpart, a recapture equity record will be established in an amount
equal to the difference between the NRV and the market value of the real
estate security as of the date the net recovery buyout agreement was
signed by the borrower.
(2) For borrowers who submit ``new applications,'' as defined in
Sec. 1951.906 of this subpart, and execute exhibit C-1 of this subpart,
an equity record will be established in an amount equal to the amount of
debt secured by real estate that was written off as of the date the net
recovery buyout agreement was signed by the borrower. This is the
maximum amount that can be recaptured.
(c) Review by County Supervisor. The County Supervisor will
establish a follow-up to review the County real estate records every 24
months starting from the date of the Net Recovery Buyout Recapture
Agreement to determine if the borrower has sold or conveyed the real
estate property covered by the agreement. Scheduled reviews to be
conducted must be posted on the borrower's Form FmHA or its successor
agency under Public Law 103-354 1905-1, ``Management System Card--
Individual,'' for follow-up purposes. The results of the review will be
recorded in the borrower's County Office case file. These reviews will
end at the expiration of the agreement. If there is no recapture due,
then the County Supervisor will proceed in accordance with paragraph (g)
of this section.
(d) Notification of recapture due. If the County Supervisor
determines that the borrower has sold the real estate, the borrower will
be notified in writing, certified mail, return receipt requested, of the
following:
(1) The amount of recapture due in accordance with exhibits C or C-1
of this subpart, as applicable. The County Supervisor will establish an
equity receivable account in accordance with the provisions of the ADPS
manual;
(2) The date the recapture is due (not to exceed 30 days from the
date the Notice of Recapture Letter is received by the borrower);
(3) Appeal rights as set forth in subpart B of part 1900 of this
chapter; and
(4) If the borrower fails to pay any amount due to FmHA or its
successor agency under Public Law 103-354 as the result of a sale of the
property, the account will be accelerated as set forth in Sec. 1955.15
of subpart A of part 1955 of this chapter after all appeal rights have
been exhausted.
(e) Processing payments. The County Supervisor will issue Form FmHA
or its successor agency under Public Law 103-354 451-2, ``Schedule of
Remittance,'' for all the payments received under the Recapture
Agreement. The following should be recorded in the body of the form:
``Equity Receivable Payment.''
(f) Release of liability. When the total amount due under the
agreement has been paid and credited to the borrower's account, the
borrower will be released from personal liability. The recapture
agreement will be marked ``Recapture Agreement Satisfied'' and returned
to the debtor or to the debtor's legal representative. In such cases,
the security instrument(s) will be released of record in accordance with
subpart A of part 1965 of this chapter.
(g) No recapture due. If the County Supervisor determines there is
no recapture due, the County Supervisor will close the borrower's equity
record in accordance with the provisions of the ADPS manual. Exhibit C
or C-1 of this subpart, as applicable, will be terminated and security
instruments will be processed as set forth in paragraph (f) of this
section.
Sec. 1951.914 Servicing of accounts restructured under Primary Loan Service Programs.
(a) Servicing Shared Appreciation Agreements. (1) The County Office
will input, via the FmHA or its successor agency under Public Law 103-
354 field office terminal system, an equity record. The County Office
will process
[[Page 178]]
this transaction in accordance with the provisions in the ADPS manual
and the information in exhibit D of this subpart, ``Shared Appreciation
Agreement.''
(2) The borrower's account will be credited with the amount of debt
written down.
(3) Six months prior to the end of the Shared Appreciation
Agreement, not to exceed 10 years, the Finance Office will notify the
County Supervisor of the expected final date of the recapture.
(4) The County Supervisor will establish a follow-up on Form FmHA or
its successor agency under Public Law 103-354 1905-1, ``Management
System Card--Individual,'' to review the County real estate records
every 24 months starting from the date of the Shared Appreciation
Agreement to determine if the borrower has sold the real estate property
covered by the agreement or transferred title to such property. The
results of the review will be recorded in the borrower's County office
case file.
(5) If the County Supervisor determines that the borrower has sold
the real estate or transferred title, an appraisal of the real estate
will be completed. If the appraisal indicates that there is a positive
value between the current market value at the time the Shared
Appreciation Agreement was signed and the current market value at the
time the borrower conveyed the real estate or transferred title, the
borrower will be notified in writing, certified mail, return receipt
requested, of the following:
(i) The amount of recapture due;
(ii) The date the recapture is due (not to exceed 30 days from the
date the Notice of Recapture Letter is received by the borrower);
(iii) Appeal rights as set forth in subpart B of part 1900 of this
chapter;
(iv) If the borrower disagrees with the FmHA or its successor agency
under Public Law 103-354 appraisal, the borrower may appeal the
appraisal. If the borrower appeals the current market appraisal, he/she
may request an independent appraisal. If the difference between the FmHA
or its successor agency under Public Law 103-354 appraisal and
independent appraisal is not more than five percent, the borrower must
choose the appraisal to be used to process the request. The borrower
will select an appraiser from the list of FmHA or its successor agency
under Public Law 103-354 approved appraisers. The selection of the
appraiser must be made by the borrower within 15 days of the receipt of
the recapture due letter;
(v) Any appeal under this section will be concluded prior to any
further action by FmHA or its successor agency under Public Law 103-354;
and
(vi) If the borrower does not appeal within 30 days or does not pay
the amount, FmHA or its successor agency under Public Law 103-354 will
proceed as set forth in Sec. 1951.907(e) of this subpart.
(b) Recapture under Shared Appreciation Agreements. Recapture of any
appreciation will take place at the end of the term of the agreement, or
sooner, if the following occurs:
(1) On the conveyance of the real estate security by the borrower;
however, transfer of title to the spouse of the borrower on the death of
such borrower, will not be treated by FmHA or its successor agency under
Public Law 103-354 as a conveyance. Recapture will take place if the
surviving spouse conveys the subject property, or at the end of the term
of the recapture agreement, whichever comes first;
(2) On the repayment of the loans;
(3) If the borrower/spouse ceases farming operations; or
(4) Five months prior to the end of the term of the Shared
Appreciation Agreement. The County Supervisor will inform the borrower
by letter of the following:
(i) The date the recapture is due;
(ii) The borrower must select an FmHA or its successor agency under
Public Law 103-354 approved appraiser from the list provided to
establish the current market value of the property subject to recapture;
(iii) The cost of such appraisal is to be shared equally by FmHA or
its successor agency under Public Law 103-354 and the borrower; and
(iv) The borrower must inform FmHA or its successor agency under
Public Law 103-354 of the appraiser selected within 15 days from the
date of the letter indicated in paragraph (a)(5)(iv) of this section.
[[Page 179]]
(c) Procedures for recapture at the end of Shared Appreciation
Agreement: (1) The borrower will be notified by certified mail, return
receipt requested, of the recapture amount due and payable. This
notification letter will also include the recapture calculations and
appeal rights. If the borrower cannot obtain satisfactory financing to
pay the recapture, the amount to be recaptured will be identified on a
new promissory note as a non-program loan at ineligible rates and terms.
If the borrower is financially capable of paying the recapture, as
determined by the FmHA or its successor agency under Public Law 103-354
County Committee and the payment is not made by the borrower within 180
days from the date due, the borrower's account will be treated as
delinquent and FmHA or its successor agency under Public Law 103-354
will send attachments 1 and 2 of exhibit A of this subpart. The FmHA or
its successor agency under Public Law 103-354 field office will input
via the field office terminal system the information to establish a
recapture receivable account in the Finance Office.
(2) The County Supervisor will issue Form FmHA or its successor
agency under Public Law 103-354 451.2. ``Schedule of Remittance,'' for
all the payments received under the recapture agreement. The following
should be recorded in the body of the form: ``Equity Receivable
Payment.''
(3) When the full amount of the shared appreciation and the
remaining FmHA or its successor agency under Public Law 103-354
indebtedness have been paid and credited to the borrower's account, the
borrower will be released from personal liability. Notes evidencing
debts and shared appreciation agreements will be marked ``Paid in Full''
and returned to the debtor or to the debtor's legal representative. In
such cases, the security instrument(s) will be released of record in the
usual manner.
(4) If the County Supervisor determines there is no recapture due,
the County Supervisor will close the borrower's equity record in
accordance with the provisions of the ADPS manual.
Sec. 1951.915 [Reserved]
Sec. 1951.916 Exception authority.
(a) Administrator. The Administrator or delegate may, in individual
cases, make an exception to any requirement or provision of this subpart
or address any omission of this subpart which is not inconsistent with
the authorizing statute or other applicable law if the Administrator
determines that the Government's interest would be adversely affected.
The Administrator will exercise this authority upon request of the State
Director with recommendation of the appropriate Program Assistant
Administrator, or upon request initiated by the appropriate Program
Assistant Administrator. In certain situations such as a natural
disaster, the Administrator may delegate this authority to specific
State Director positions in certain states. In such cases, the State
Director will exercise the delegation of authority upon the request of
the County Supervisor with the recommendation of the District Director,
rather than the appropriate Program Assistant Administrator. Requests
for exceptions must be made in writing and supported with documentation
to explain the adverse effect, propose alternative courses of action,
and show how the adverse effect will be eliminated or minimized if the
exception is granted.
(b) State Director. The State Director may, in individual cases of
extraordinary circumstances, make an exception to the requirement that
attachments 2 or 4 of exhibit A of this subpart, as appropriate, must be
completed and returned to the FmHA or its successor agency under Public
Law 103-354 County Office with the appropriate forms and documents for a
complete application within 60 days after receiving attachments 1 and 2
or 3 and 4 of exhibit A of this subpart. If the borrower requests
additional time to submit a complete application or submits a complete
application after the deadline, the County Supervisor must ask the
borrower why the additional time is or was needed. The County Supervisor
must ask the borrower whether there are extraordinary circumstances like
serious medical illness, severe adverse weather, or a family emergency,
[[Page 180]]
and explain that only the State Director can authorize an extension of
time for extraordinary circumstances. In such cases, the County
Supervisor must document the situation in the case file and immediately
submit the request with his or her recommendation on whether the State
Director should grant an exception for an extension of time. The request
should describe the circumstances in accordance with the examples of
extraordinary circumstances mentioned above and recommend an estimate of
the additional time needed. Normally, such an extension of time should
not exceed 30 days.
[58 FR 4066, Jan. 13, 1993, as amended at 58 FR 15418, Mar. 23, 1993]
Sec. 1951.917 FmHA or its successor agency under Public Law 103-354 Debt Restructuring Support Teams (DRST).
(a) State Office DRST. Each State Director shall form DRSTs to be
deployed when unusually large numbers of Primary and Preservation
Servicing applications are received. DRSTs shall assist in expediting
the processing of both Primary and Preservation Loan Service Program
applications.
(1) State Directors shall use the DRSTs formed in their State(s) and
all other FmHA or its successor agency under Public Law 103-354
personnel within their State(s) in processing Primary and Preservation
Loan Service applications. If additional help is needed beyond that
available in the State, including the use of overtime, temporary
personnel, and/or private contractors, the State Director shall advise
the National Office of these needs and request assistance.
(2) Upon request of a State Director, the Administrator will
consider detailing DRSTs from other States to assist in processing
Primary and Preservation Loan Service applications.
(3) State DRSTs will consist of a team leader and team members,
selected by the State Director.
(4) State DRSTs will be trained as follows:
(i) The National Office will participate in training meetings or
workshops for DRST leaders as requested; and
(ii) States will be responsible for training and keeping the State
team currently informed on all phases of processing applications for
Primary and Preservation Programs.
(5) Each State Director will issue a State supplement establishing a
DRST for the State(s) under his/her jurisdiction. This supplement will
name the team leader and all members. A copy of this supplement will be
sent to the National Office, Attention: Assistant Administrator, Farmer
Programs.
(b) National Office DRST Leaders. The National Office will establish
a cadre of DRST team leaders.
(1) National Office team leaders will be used as follows:
(i) Assisting State Directors in training of FmHA or its successor
agency under Public Law 103-354 field personnel, other USDA personnel,
and temporary personnel in the processing of Primary and Preservation
Loan Service Program applications;
(ii) Assisting State Directors in the organizing and expediting of
assistance to eligible applicants; and
(iii) Leading DRSTs in areas with an unusually large volume of
Primary and Preservation Loan Service Program applications.
(2) Upon request from a State Director, the Assistant Administrator,
Farmer Programs, will consider detailing one or more National Office
team leaders to assist in the training of personnel and organizing of
the processing of Primary and Preservation Loan Service Program
applications.
Sec. 1951.918 FmHA or its successor agency under Public Law 103-354 Debt Restructuring Assessment Teams (DRAT).
The State Director will deploy DRATS on a continuing basis to
monitor debt restructuring processing activities in order to minimize
processing errors, especially in calculating net recovery and writedown
calculations and eligibility determinations. Such teams will be composed
of State Office Farmer Programs staff members, District Directors or
Assistant District Directors, Office Management Assistants/Program
Review Assistants, and Auditors from the Office of Inspector General, if
they desire to participate. The
[[Page 181]]
team leader will keep the State Director informed by telephone and by
submission of weekly written reports, setting forth the problems
discovered and the corrective actions taken or to be taken. The State
Director will keep all County and District Offices in the designated
area of the State informed of the common problems found by the team and
require appropriate corrective action to be taken by the County Offices.
Such actions will be monitored by the District Director and reported to
the State Director when corrective measures have been completed. State
Directors will monitor the handling of this quality control measure. The
Assistant Administrator, Farmer Programs, will monitor States quality
control procedures.
Secs. 1951.919--1951.949 [Reserved]
Sec. 1951.950 OMB control number.
The reporting and recordkeeping requirements contained in this
regulation have been approved by the Office of Management and Budget and
have been assigned OMB control number 0575.0133. Public reporting burden
for this collection of information is estimated to average five minutes
per response including time for reviewing instructions, searching
existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments
regarding this burden estimate or any other aspect of this collection of
information, including suggestions for reducing this burden, to
Department of Agriculture, Clearance Officer, OIRM, room 404-W,
Washington, DC 20250; and to the Office of Management and Budget,
Paperwork Reduction Project (OMB 0575-0133), Washington, DC 20503.
Exhibits to Subpart S
Exhibit A--Notice of the Availability of Loan Service and Debt
Settlement Programs for Delinquent Farm Borrowers
Note to County Supervisor: This exhibit will be sent to all
borrowers who are 30 days behind schedule on their farmer program
payments and to all such borrowers who become 180 days behind schedule
and do not respond to the 30-day notice.
Dear (Borrower's Name): This notice is to inform you that you are
behind with your loan payments and to inform you of your options.
Farmers who are more than 30 days late in making payments have several
options.
I. Loan Service Programs Available
Primary loan service programs are intended to adjust the debt so
that you can continue farming and the FmHA or its successor agency under
Public Law 103-354 will receive a better recovery on the money it loaned
you.
Preservation loan service programs are intended to help farmers who
may lose their land to FmHA or its successor agency under Public Law
103-354 get their farmland and/or their home back through a lease with
an option to buy.
II. Application Information
Time Limits
You must notify FmHA or its successor agency under Public Law 103-
354 within 60 days of getting this notice if you want these programs.
If you are less than 180 days delinquent when you receive this
notice and do not respond, you will be renotified when you become 180
days delinquent. However, if you timely respond, you will not be
renotified when you become 180 days delinquent.
How to Apply
To apply, you must complete and return the required forms you get
with this notice, including your signed Acknowledgement Of Notice Of
Program Availability within the 60-day time limit.
How Soon Will You Know if You Qualify
FmHA or its successor agency under Public Law 103-354 has 90 days to
process your completed forms and let you know if you qualify.
Included With This Notice You Will Find:
(1) A summary of primary loan service programs options
(2) A summary of preservation loan service programs
(3) A summary of debt settlement programs
(4) The forms you need to apply for services
(5) Information on how to get copies of FmHA or its successor agency
under Public Law 103-354 regulations
(6) A description of the FmHA or its successor agency under Public
Law 103-354 appeals process.
[[Page 182]]
III. Foreclosure and Liquidation
What Happens if You Do Not Apply Within 60 Days?
FmHA or its successor agency under Public Law 103-354 will take
steps to begin the acceleration of your loan if you are more than 180
days delinquent. Acceleration of your loan is very severe. This means
FmHA or its successor agency under Public Law 103-354 will take legal
action to collect all the money you owe them.
After acceleration, FmHA or its successor agency under Public Law
103-354 will start foreclosure proceedings. They will repossess or take
legal action to take any real estate, personal property, crops,
livestock, equipment, or any other assets in which FmHA or its successor
agency under Public Law 103-354 has a security interest. FmHA or its
successor agency under Public Law 103-354 will also stop allowing you to
use your crop, livestock, and milk checks to pay living and operating
expenses. FmHA or its successor agency under Public Law 103-354 may also
take by administrative offset money which other federal agencies owe
you.
Sincerely,
County Supervisor,
Farmers Home Administration or its successor agency under Public Law
103-354, United States Department of Agriculture.
Attachment 1--Primary and Preservation Loan Service and Debt Settlement
Programs Purpose
Note to County Supervisor:
This attachment will be provided to every borrower who requests
Primary and/or Preservation Loan Servicing Programs and to every
borrower FmHA or its successor agency under Public Law 103-354 contacts
in regard to monetary, non-monetary default or in financial distress.
Purpose
These FmHA or its successor agency under Public Law 103-354 programs
are to help you repay the loan and keep your farm property and settle
your debt to FmHA or its successor agency under Public Law 103-354. This
notice tells you:
(1) How to get more information
(2) How to apply
(3) Your appeal rights if you apply and are turned down
How to Get More Information
Ask at any FmHA or its successor agency under Public Law 103-354
County Office for copies of the FmHA or its successor agency under
Public Law 103-354 rules describing these programs. These rules must be
given to you within 10 days.
Who Can Apply?
All ``farmer program borrowers'' who have one of the following
loans:
Operating (OL)
Farm Ownership (FO)
Emergency (EM)
Economic Emergency (EE)
Soil and Water (SW)
Recreation (RL)
Rural Housing Loans made for farm service buildings (RHF)
Economic Opportunity (EO)
Borrowers that are current on their scheduled payments but are
financially distressed through no fault of their own may be eligible for
some assistance to restructure their debt.
You May Need Help in Applying
The legal requirements for these programs are very complicated. You
may need help to understand them. You may want to ask an attorney to
help you. If you cannot get an attorney, there are organizations that
give free or low-cost advice to farmers. Ask your State Department of
Agriculture or the USDA Extension Service what services are available to
your state.
Note: FmHA or its successor agency under Public Law 103-354 County
Supervisors cannot recommend a particular attorney or organization.
I. Primary Loan Service Programs
(1) Loan Consolidation
Two or more of the same type of loans can be combined into one
larger loan. For example, operating loans can only be joined with
operating loans and farm ownership loans with farm ownership loans.
(2) Loan Rescheduling
The payment schedule can be altered to give you longer to repay
loans secured by equipment, livestock, or crops. For example, the time
for repayment of an operating-type loan can be extended up to 15 years.
When a loan is rescheduled, the interest rate may be reduced.
(3) Loan Reamortization
The payment schedule can be changed to give you longer to repay
loans secured by real estate. For example, a Farm Ownership loan payback
period may be extended to 40 years from the date the original loan was
signed. When a loan is reamortized, the interest rate may be reduced.
(4) Interest Rate Reduction
Regular Interest Rate
FmHA or its successor agency under Public Law 103-354 has specific
interest rates for each type of loan. These interest rates change quite
often. They depend on what it
[[Page 183]]
costs the Government to borrow money. Each type of loan will have a
regular rate.
Limited Resource Interest Rate
If you have an Operating Loan (OL), Soil and Water (SW) loan or a
Farm Ownership (FO) loan, it may be possible for you to get a ``limited
resource interest rate.'' The limited resource interest rate can be as
low as 5 percent. It changes quite often and depends on what it cost the
Government to borrow money.
Interest Rate for Loan Servicing
When loans are consolidated, rescheduled, or reamortized, the
interest rate on the new loan will be either the interest rate on the
original loan or the current regular rate of interest for that type of
loan, whichever is less The borrower may be able to get the limited
resource interest rate on OL, SW, or FO loans.
For information about current interest rates, contact the FmHA or
its successor agency under Public Law 103-354 County Office.
(5) Loan Deferral
Payments of principal and interest can be temporarily delayed for up
to 5 years. You must show that you cannot pay essential living expenses
or maintain your property and pay your debts. You must also show you
will be able to pay at the end of the deferral period.
The interest rate on a deferred loan will be either the current rate
of interest for loans of the same type or the original rate on the loan,
whichever one is lower.
The interest that builds up during the deferral period will be added
to the principal of the loan. You must pay this interest in yearly
payments for the rest of the loan term.
Note: You can only get a loan deferral if the FmHA or its successor
agency under Public Law 103-354 determines options 1-4 will not work for
you.
Note: FmHA or its successor agency under Public Law 103-354 Softwood
Timber Programs. Marginal land including highly erodible land and
pasture can be planted in softwood timber. If you qualify, a debt of up
to $1,000 an acre can be deferred up to 45 years. Interest will be
charged during the deferral period. The debt must be paid when the
timber is sold.
Note: Conservation Easements. Use of highly erodible land, wetlands,
or wildlife habitat can be signed over to the Secretary of Agriculture
for a reduction in your debt. The amount of land left after the
conservation easement must be enough to continue your farming operation.
(6) Debt Writedown
This is not available to borrowers who are current in their loan
payments.
Debt writedown means the FmHA or its successor agency under Public
Law 103-354 debt you owe is reduced. FmHA or its successor agency under
Public Law 103-354 can reduce both the principal and interest of your
debt. Your debt can be reduced to the recovery value.
Recovery value. The recovery value is the fair market value of the
collateral pledged as security for FmHA or its successor agency under
Public Law 103-354 loans minus all of the expenses such as sale costs,
attorneys' fees, management costs, taxes and payment of prior liens on
the collateral that FmHA or its successor agency under Public Law 103-
354 would have to pay if it foreclosed on and sold the collateral. The
fair market value of any collateral that is not in your possession and
has not been released for sale by FmHA or its successor agency under
Public Law 103-354 in writing will also be used in determining recovery
value. Also considered will be the fair market value of any other assets
that you may own that are not essential for family living or for farm
operation, and are not exempt from your judgment creditors or in a
bankruptcy action, minus the value of any creditors' prior security
interests and your selling costs. The value of the collateral and any
other assets must be decided by a qualified appraiser.
In order to get debt writedown, you must show that you will have
enough money to pay all of your family living and farming operating
expenses and up to 105 percent but not less than 100 percent of your
scheduled debt payments. FmHA or its successor agency under Public Law
103-354 will not deny your request if you cannot make the full 105
percent of your scheduled debt payments including making payments on
your FmHA or its successor agency under Public Law 103-354 debt once
part of the loan is written down. This means you must have a feasible
plan of operation. FmHA or its successor agency under Public Law 103-354
will never write down more of the debt than is necessary for you to show
a feasible plan.
The writedown is used only when the loan servicing programs listed
in programs 1-5 above alone will not be enough for you to have a
feasible plan. If you get writedown, some of the principal and interest
on your loan(s) will be written down in addition to changing the payback
period, and possibly the interest rate, using programs 1-5 above.
If all of your outstanding loans have original promissory notes
dated after January 6, 1988, you can receive only one writedown or one
buyout. If you have any outstanding loans with original promissory notes
dated on or before January 6, 1988, and have never received a deferral,
writedown, or buyout on
[[Page 184]]
any loan after that date, you can receive two writedowns or buyouts, or
one of each. If you have any outstanding loans with original promissory
notes dated on or before January 6, 1988, and have received deferral or
writedown after that date, or if you previously bought out loans dated
on or before January 6, 1988, at the net recovery value, you can receive
one additional writedown or buyout. In addition, you have a total
lifetime limit of $300,000 for writedown and/or writeoff (with buyout),
regardless of the number of writedowns and/or buyouts you may qualify
for. Any writedown or buyout received on an application submitted before
November 28, 1990, will not be counted toward the one writedown or
buyout limit or the $300,000 limit.
II. Who Can Qualify for Primary Loan Service Programs
To qualify you must prove that:
(1) You cannot repay your FmHA or its successor agency under Public
Law 103-354 debt due to circumstances beyond your control. If you have
certain nonessential assets with a value high enough to bring your
account current, then you are not eligible for Primary Loan Service
Programs. These assets are only those that are not essential for
necessary family living or for your farm operation. FmHA or its
successor agency under Public Law 103-354 cannot reduce or write off any
of your debt that you could pay by selling any of these assets or
borrowing against your equity in such assets.
You must have had less income than expected due to such things as:
(a) A natural disaster, weather, or insect problems,
(b) Family illness or injury,
(c) Loss or reduction of off-farm income,
(d) Disease in your livestock,
(e) Low commodity prices and high operating expenses in your local
area, or
(f) Other circumstances beyond your control; and
(2) You have acted in ``good faith'' to keep your agreements with
FmHA or its successor agency under Public Law 103-354 in that you have
kept all written agreements with FmHA or its successor agency under
Public Law 103-354 including those for the use of proceeds and release
of property used to secure the loan, and your file shows no fraud,
waste, or conversion.
(3) You must agree to give FmHA or its successor agency under Public
Law 103-354 a lien on certain other assets for additional security for
the FmHA or its successor agency under Public Law 103-354 debt. If you
are offered restructuring and accept the offer, you must provide this
lien at closing.
Who Will Decide if You Qualify?
The FmHA or its successor agency under Public Law 103-354 County
Supervisor will decide if you qualify. The County Supervisor will decide
whether you can pay as much or more on the loan as FmHA or its successor
agency under Public Law 103-354 would get if they foreclosed and sold
the collateral for the loan plus the value of any nonessential assets.
To do this, the County Supervisor must decide whether the total payments
of principal and interest on your adjusted debt will be at least as much
as the ``recovery value'' explained under part I(6) above.
How Soon Will You Know?
Within 90 days from the day you apply you will get a copy of the
County Supervisor's analysis and decision.
Can You Get Your Debts Written Down?
Only if FmHA or its successor agency under Public Law 103-354 will
get as much or more by writing down part of your debt than through
foreclosure or sale of the collateral for the loan and any nonessential
assets. You also must be delinquent on your FmHA or its successor agency
under Public Law 103-354 debt payments.
Conditions of the New Agreement if You Qualify
You must sign a shared appreciation agreement. Under the terms of
the agreement:
You must repay a part of the sum written down.
The amount you must repay depends on how much your real
estate collateral increases in value.
The shared appreciation agreement will not last longer than
10 years.
During this 10 years, FmHA or its successor agency under Public Law
103-354 will ask you to repay part of the debt written down if you do
any of the following things:
(1) Sell or convey the real estate
(2) Stop farming
(3) Pay off the entire debt
If you do not do any of these things during the 10 years, FmHA or
its successor agency under Public Law 103-354 will ask you to repay part
of the debt written down at the end of the 10 years.
FmHA or its successor agency under Public Law 103-354 can only ask
you to repay if the value of your real estate collateral goes up.
In the first four years of the agreement, FmHA or its successor
agency under Public Law 103-354 will ask you to pay 75 percent of the
increase in value of the real estate. In the last 6 years, you will be
asked to pay only 50 percent of the increase in value. However, FmHA or
its successor agency under Public Law 103-354 can never ask you to pay
[[Page 185]]
more than the amount of the debt written down.
Date to Begin Restructured Agreement
If you are found eligible, you will be informed of the date for an
appointment so your debt can be restructured. You must notify FmHA or
its successor agency under Public Law 103-354 that you accept its offer
to restructure your debt within 45 days of when you receive the offer.
(4) You must agree to meet, at your own cost, FmHA or its successor
agency under Public Law 103-354's training requirements in production
and financial management. The cost will be included in your farm plan as
an operating expense. The training must be completed within 2 years from
the date of restructuring. The County Committee may waive this
requirement if you are able to demonstrate that you have adequate
training in this area. To request a waiver of this training requirement,
complete Form FmHA or its successor agency under Public Law 103-354
1924-27, ``Request for Waiver of Borrower Training Requirements,'' and
submit with your request for FmHA or its successor agency under Public
Law 103-354 servicing. This training requirement is not applicable if
you have previously received a waiver or you have successfully completed
the required FmHA or its successor agency under Public Law 103-354
Borrower Training program.
III. Preservation Loan Service Programs
Purpose
These programs apply when the primary loan service programs cannot
help you.
Programs Available
(1) Homestead Protection. (Keeping your farm home.) You may lease
your farm home and outbuildings plus a limited amount of land. The limit
on the land you can retain is up to 10 acres. The lease time will be for
up to 5 years. The lease will include an option to buy back the property
you lease.
(2) Farmland Leaseback/Buyback. You can either lease or buy back
your farm and ranch real property. This includes any on farm residence,
and any off farm principal residence of the farm operator which is
pledged as security for your FmHA or its successor agency under Public
Law 103-354 loan from FmHA or its successor agency under Public Law 103-
354. (The lease will contain an option to buy.)
IV. Who Can Qualify for Homestead Protection?
(1) Your gross annual income from your farm and/or ranch must have
been similar to other comparable operations in your area. This must be
true for at least 2 years of the last 6 years.
(2) Sixty percent (60%) of your gross annual income in at least 2 of
the last 6 years must have come from the farming operation.
(3) You must have lived in your homestead property for 6 years
immediately before your application. If you had to leave for less than
12 months during the 6-year period and you had no control over the
circumstances, you still may qualify.
(4) If FmHA or its successor agency under Public Law 103-354 has
already taken your property, you must apply within 90 days of the date
FmHA or its successor agency under Public Law 103-354 took your
property. (FmHA or its successor agency under Public Law 103-354 must
notify you within 30 days of taking your property.)
(5) You must be the owner or former owner of the property.
How to Lease Your Dwelling
(1) You may lease your home and up to 10 acres if you pay FmHA or
its successor agency under Public Law 103-354 reasonable rent. The rent
prices FmHA or its successor agency under Public Law 103-354 charges you
will be similar to comparable property in your area.
(2) You must maintain the property in good condition during the term
of the lease.
(3) You may lease for up to 5 years.
(4) You cannot sublease your property.
(5) If you do not keep up your rental payments to FmHA or its
successor agency under Public Law 103-354, FmHA or its successor agency
under Public Law 103-354 will evict you and force you to leave. Before
FmHA or its successor agency under Public Law 103-354 forces you to
leave, they must let you appeal. FmHA or its successor agency under
Public Law 103-354 must also follow the laws of your state.
Note: You can buy back your property at current market value at any
time during the lease. FmHA or its successor agency under Public Law
103-354 may place an easement on your property to protect and restore
any wetlands or converted wetlands. Current market value will be decided
by an independent appraiser. The appraisal will be made within 6 months
of your application for homestead protection. The appraised value of
your property will reflect the value of the land due to any placement of
a wetland conservation easement.
V. How to Lease Back or Buy Back Farmland Property
Under certain conditions you may lease or buy back your farm and
ranch real property. If you applied for primary loan servicing, and do
not qualify (see part VIII below), you will automatically be considered
for leaseback/buyback. You can enter into a preacquisition agreement for
leaseback/buyback of your farm prior to FmHA or its
[[Page 186]]
successor agency under Public Law 103-354 acquiring title to the
property. To do this, you must convey your property to FmHA or its
successor agency under Public Law 103-354. FmHA or its successor agency
under Public Law 103-354 will only accept the property if it is in the
Government's financial interest. You can also apply if FmHA or its
successor agency under Public Law 103-354 takes title to your farmland.
If FmHA or its successor agency under Public Law 103-354 does not get
title to your land because someone else buys it, you will not get
leaseback/buyback.
You will have the opportunity to buy the farm during the period of
the lease. You can buy the farm for cash or you may apply for FmHA or
its successor agency under Public Law 103-354 financing of the purchase.
How Long Do I Have to Decide?
If FmHA or its successor agency under Public Law 103-354 takes your
farmland, you will have 180 days after FmHA or its successor agency
under Public Law 103-354 takes it to apply to purchase or lease your
property. (Some states give you a longer time period.)
Who Can Apply to Buy or Lease Back?
(See next page for the order of these rights.)
(1) Buyback or leaseback rights apply to you, your spouse, and any
one of your children if they also have been actively involved in
farming.
(2) Members of family-held corporations if the corporation had the
loan from FmHA or its successor agency under Public Law 103-354 and if
the family member is actively engaged in farming.
(3) Members of family partnerships or joint operations who were
responsible to pay the FmHA or its successor agency under Public Law
103-354 loan and if the family member is actively engaged in farming.
(4) A tenant operator (lessee) who operated the farm.
Note: You must notify your family of their right to lease or buy
back. If you are an entity i.e., partnership, corporation, etc., you
must notify the entity members of this right. If you rented out the
property when FmHA or its successor agency under Public Law 103-354 took
it into inventory, please tell FmHA or its successor agency under Public
Law 103-354 the name and address of the lessee. FmHA or its successor
agency under Public Law 103-354 will then notify the lessee.
Your spouse and your children's rights, and the rights of entity
members, exist only if FmHA or its successor agency under Public Law
103-354 takes the property into inventory.
You should be aware that any real property, located in special areas
or having special characteristics, which comes into FmHA or its
successor agency under Public Law 103-354's inventory, may have
restrictions and/or easements placed on the property which prevent your
use of all or a portion of the property, should you choose to lease or
buy your former farm and/or dwelling. These restrictions and
encumbrances will be placed in leases and in deeds on farms containing
wetlands, floodplains, endangered species, wild and scenic rivers,
historic and cultural properties, coastal barriers, and highly erodible
soils.
Order of Rights to Buy or Lease Back
(1) The former owner has first right. His/her right to be considered
will last for 180 days from the time FmHA or its successor agency under
Public Law 103-354 gets title to the land.
(2) The former owner's spouse or children (if the former owner was
an individual) has the second right. However, if the former owner was an
entity, then the entity members of a corporation, partnership, joint
operation or cooperative have the second right to buy or lease back.
Their right to be considered will last for 190 days (i.e., 10 days more
than owner's 180 days).
(3) The operator, if he/she is not owner of the property and was
operating the property when FmHA or its successor agency under Public
Law 103-354 took it into inventory, has the third right. The operator
has 30 days after receipt of a notice about leaseback/buyback to notify
FmHA or its successor agency under Public Law 103-354If the land is on
an Indian reservation and was owned by a tribe member, FmHA or its
successor agency under Public Law 103-354 will make special offers to
tribal members. FmHA or its successor agency under Public Law 103-354
will do this after the time period for owner/family leaseback/buyback
has passed.
Who Can Qualify for Buybacks Financed by FmHA or its successor agency
under Public Law 103-354 or Leasebacks?
(1) You must have enough financial and management skills to show you
will be successful in the farming operation.
Note: If you get financing from someone other than FmHA or its
successor agency under Public Law 103-354, you will need to meet the
requirement of the lender for financial and management skills.
(2) You must give FmHA or its successor agency under Public Law 103-
354 a farm plan that shows you have a reasonable chance of being
successful.
(3) The rental price must be based on reasonable rent for the same
type of property in your area.
(4) The purchase price will be the property's appraised market
value.
[[Page 187]]
(5) You must have acted in ``good faith'' to keep your agreements
with FmHA or its successor agency under Public Law 103-354 in that you
have kept all written agreements with FmHA or its successor agency under
Public Law 103-354 including those agreements for the use of proceeds
and release of property used to secure the loan and your file shows no
fraud, waste, or conversion.
VI. Debt Settlement Programs.
Purpose
These programs apply after it has been determined that primary loan
service programs cannot help you. You may be eligible for both debt
settlement and preservation loan service programs. If you do not have
FmHA or its successor agency under Public Law 103-354 collateral you
will need to apply for debt settlement only. Under these programs, the
debt you owe FmHA or its successor agency under Public Law 103-354 may
be settled for less than the amount you owe. You may apply for debt
settlement at any time by submitting an application for debt settlement
on Form FmHA or its successor agency under Public Law 103-354 1956-1.
Programs Available
(1) Compromise offer: A lump-sum payment of less than the total FmHA
or its successor agency under Public Law 103-354 debt owed.
(2) Adjustment offer: One or more payments of less than the total
amount owed to FmHA or its successor agency under Public Law 103-354.
Your payments can be spread out over a maximum of five years if FmHA or
its successor agency under Public Law 103-354 decides you will be able
to make the payments as they become due.
(3) Cancellation: The final settlement of a debt without any
payment. FmHA or its successor agency under Public Law 103-354 must
determine there is no FmHA or its successor agency under Public Law 103-
354 security or other assets from which FmHA or its successor agency
under Public Law 103-354 can collect. You must be unable to pay any part
of the debt now or in the future.
(4) Chargeoff: FmHA or its successor agency under Public Law 103-354
may use this option to write off debt and terminate collection activity
without release of your personal liability for the FmHA or its successor
agency under Public Law 103-354 debt. The same conditions for
cancellation apply here.
Approval Requirements
If you sell your collateral, you must apply the proceeds from the
sale to your FmHA or its successor agency under Public Law 103-354
account before you can be considered for debt settlement. In the case of
compromise and adjustment, however, you may keep your collateral if you
are unable to pay your total FmHA or its successor agency under Public
Law 103-354 debt and pay FmHA or its successor agency under Public Law
103-354 the present fair market value of your collateral along with any
additional amount you are able to pay as determined by FmHA or its
successor agency under Public Law 103-354. You will be allowed to retain
a reasonable equity in essential nonsecurity property to continue your
normal operations and meet minimum family living expenses. FmHA or its
successor agency under Public Law 103-354 will not finance a compromise
or adjustment offer.
All debt settlements of farmer program loans must be recommended by
the FmHA or its successor agency under Public Law 103-354 County
Committee with a finding that the statements on your application are
true. The committee must certify that you do not have assets or income
in addition to what you stated in your application. If you qualify, your
application must also be approved by the FmHA or its successor agency
under Public Law 103-354 State Director or the FmHA or its successor
agency under Public Law 103-354 Administrator depending on the amount of
the debt to be settled.
VII. How To Apply for Primary and Preservation Loan Servicing Programs
Application Forms
These forms should be included with this notice. If they are not,
you can obtain them from the FmHA or its successor agency under Public
Law 103-354 County Office or as directed below. The forms required are
listed below.
Form number Title
(1) 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. (The financial statement on this form must include information
no more than 90 days old. The financial statement must be for all
individuals, corporations, or partnerships personally liable for the
FmHA or its successor agency under Public Law 103-354 debt.)
(2) FmHA or its successor agency under Public Law 103-354 410-8
Application Reference Letters.
(3) FmHA or its successor agency under Public Law 103-354 410-9
Statement Regarding Privacy Act.
(4) FmHA or its successor agency under Public Law 103-354 431-2
Farm and Home Plan. You may request the County Supervisor to assist you
in completing your plans.
(5) FmHA or its successor agency under Public Law 103-354 440-32
Request for Statement of Debts and Collateral.
[[Page 188]]
(6) FmHA or its successor agency under Public Law 103-354 1910-5
Request for Verification of Employment.
(7) FmHA or its successor agency under Public Law 103-354 1924-1
Development Plan (if you are planning to make major changes in your
farming operation). The County Supervisor can assist and advise you on
any additional information that may be needed.
(8) FmHA or its successor agency under Public Law 103-354 1956-1
Application for Settlement of Indebtedness. (Complete this form only if
you wish to apply for debt settlement.)
(9) SCS-CPA-026 Highly Erodible Land and Wetland Conservation
Determination. (This form must be obtained from and completed in the
Soil Conservation Service office.)
(10) AD-1026 Highly Erodible Land Conservation (HELC) and Wetland
Conservation (WC) Certification. (This form must be obtained from and
completed in the Agricultural Stabilization and Conservation Service
office.)
Note:
For Conservation Easement only, obtain the Agricultural
Stabilization and Conservation Service or Soil Conservation Service
photo of your farm. Show approximate number of acres you wish to use for
a conservation easement.
Time To Apply for Primary and Preservation Loan Servicing Programs
To apply, you must complete the appropriate forms and return them to
the FmHA or its successor agency under Public Law 103-354 County office
within 60 days from the date you received this notice. If you are less
than 180 days delinquent and do not choose to return the forms, you will
receive a second notice when you are 180 days delinquent.
If you are less than 180 days delinquent and you return the forms
within the required time, you will not be renotified when you are 180
days delinquent.
VIII. What Happens When You Are Not Eligible for Primary Loan Service
Programs?
If the County Supervisor decides you are not eligible, you may
request a meeting with the County Supervisor so he/she can explain the
decision. If you think the County Supervisor's decision is wrong, you
can tell him/her why. If you can make the necessary realistic changes to
your Farm and Home Plan to show a feasible plan, you should show these
changes to the County Supervisor.
Negotiation of the Appraisal
A negotiation of the appraisal is a process whereby the borrower
objects to the FmHA or its successor agency under Public Law 103-354
appraisal, obtains an independent appraisal at their own costs, pays
one-half of the cost for a third appraisal, and the average of the two
appraisals closest in value is taken as the final appraised value to be
used in considering restructuring. In all cases of primary and
preservation loan servicing where the borrower presents an independent
appraisal which is conducted by a qualified appraiser and is within 5
percent of the value of the FmHA or its successor agency under Public
Law 103-354 appraisal, the borrower must choose one of these two
appraisals for the County Supervisor to use to continue processing the
request. Borrowers who request to negotiate the appraisal do not have
rights to an FmHA or its successor agency under Public Law 103-354
appeal of the final appraisal.
You May Request Mediation of Other Loans
If you cannot show a feasible farm plan because you owe too much to
other creditors and suppliers, FmHA or its successor agency under Public
Law 103-354 will help you try to get your other creditors to adjust your
debts. This will be done by FmHA or its successor agency under Public
Law 103-354 asking for mediation if your State has a mediation program
approved by the United States Department of Agriculture. If there is no
State mediation program, FmHA or its successor agency under Public Law
103-354 will try to set up a meeting with your other creditors and
suppliers if it can be shown that a reduction in these debts can provide
a feasible farm plan. If you object to the FmHA or its successor agency
under Public Law 103-354 appraisal, you may ask FmHA or its successor
agency under Public Law 103-354 to negotiate the appraisal prior to
mediation.
You Have the Right to Appeal
(1) Appeal Hearing. If you do not convince the County Supervisor
that you should get primary loan servicing or were unable to resolve the
problem through mediation, you have a right to appeal the decision. The
County Supervisor must send you a letter after the meeting that explains
his/her decision. The letter must also say you have 30 days to ask for
an appeal hearing. You can present witnesses and documents and ask FmHA
or its successor agency under Public Law 103-354 questions at the
hearing. The appeal hearing is recorded, and you can get a copy of the
transcript of the hearing if you pay for the copying costs.
(2) Review. If you do not win at the appeal hearing, FmHA or its
successor agency under Public Law 103-354 must tell you why and let you
ask for a review of that decision. The transcript and the documents used
at the hearing will be reviewed when you ask for a review of the appeal
hearing decision.
[[Page 189]]
You May Buyout (Pay Off) Your Loan at the ``Recovery Value''
(1) Recovery Value. If the analysis of your debt shows that you
cannot ``cash flow'' even if your debt to FmHA or its successor agency
under Public Law 103-354 is reduced to the recovery value of the
collateral, the County Supervisor will send you a letter saying you can
buyout the loan by paying the ``recovery value.'' The recovery value is
described in more detail in section I(6) of this notice.
(2) Limits. If all of your outstanding loans have original
promissory notes dated after January 6, 1988, you can receive only one
writedown or one buyout. If you have any outstanding loans with original
promissory notes dated on or before January 6, 1988, and have never
received a deferral, writedown, or buyout on any loan after that date,
you can receive two writedowns or buyouts, or one of each. If you have
any outstanding loans with original promissory notes dated on or before
January 6, 1988, and have received deferral, writedown, or buyout after
that date, you can receive one (additional) writedown or buyout. In
addition, you have a total lifetime limit of $300,000 for writedown and/
or writeoff (with buyout), regardless of the number of writedowns and/or
buyouts you may qualify for. Any writedown or buyout received on an
application submitted before November 28, 1990, will not be counted
toward the one writedown or buyout limit or the $300,000 limit.
(3) Eligibility. To qualify you must prove that:
You cannot repay your FmHA or its successor agency under Public Law
103-354 delinquent debt which was due to circumstances beyond your
control,
You have acted in good faith, and
The value of your restructured loan is less than the recovery value.
(4) Time Limit. If you want to pay off the loan at ``recovery
value,'' you must pay FmHA or its successor agency under Public Law 103-
354 within 90 days of the date you receive the offer. If you appeal the
County Supervisor's decision not to give you primary loan servicing,
this 90 days will not start until all appeal hearings and appeal reviews
end.
(5) Cash. If you pay off the loan at net recovery value, you must
pay in cash. FmHA or its successor agency under Public Law 103-354 will
not make or guarantee a loan for this purpose.
(6) You Must Sign a Net Recovery Buy Out Recapture Agreement. The
agreement asks you to repay all or part of the amount of your debt FmHA
or its successor agency under Public Law 103-354 writes off if you sell
or otherwise convey your real estate collateral. The amount you repay
depends upon the market value of your real estate collateral on the date
you sell or otherwise convey it.
The agreement will not last longer than 10 years.
Consideration for Preservation Loan Service Programs
You will be considered for preservation loan service programs if:
(1) You applied for primary loan servicing as required and did not
qualify.
(2) You do not appeal your primary loan servicing denial, or do not
win your appeal.
(3) You do not pay off the loan at recovery value.
FmHA or its successor agency under Public Law 103-354 will consider
you for preservation loan service programs after the 90-day time period
you have to pay off the loan at recovery value.
Consideration for Homestead Protection and/or Farmland Leaseback/Buyback
Agreement
You will be considered for preservation loan service programs if
you:
(1) Meet the conditions described above, and
(2) Agree to give FmHA or its successor agency under Public Law 103-
354 title to your land at the time FmHA or its successor agency under
Public Law 103-354 signs the written homestead protection and/or
farmland leaseback/buyback agreement with you. FmHA or its successor
agency under Public Law 103-354 will not accept title and will deny your
preservation request if it is not in FmHA or its successor agency under
Public Law 103-354's best financial interest to accept title. FmHA or
its successor agency under Public Law 103-354 will figure the costs of
taking title including the cost of paying other creditors who have
outstanding liens on the property. FmHA or its successor agency under
Public Law 103-354 will take title only if it can obtain a recovery on
its cost. Any written agreement for preservation loan servicing will
include the amount you must pay for rent, the number of years you can
rent, and an option to buy.
FmHA or its successor agency under Public Law 103-354 may consider
you for homestead protection and farmland leaseback/buyback on your real
estate and, at the same time, consider you for buyback of your equipment
and any other non-real estate collateral at market value.
Consideration for Debt Settlement Programs
If you wish to be considered for debt settlement, you will need to
request and return a completed Form FmHA or its successor agency under
Public Law 103-354 1956-1. You may request debt settlement at any time.
[[Page 190]]
Usually, the most appropriate time for making this request is when FmHA
or its successor agency under Public Law 103-354 has determined that
Primary Servicing options will not provide the best net recovery to the
Government and you are requesting preservation loan servicing. If you no
longer have any security remaining for the outstanding FmHA or its
successor agency under Public Law 103-354 loans, you may want to request
debt settlement instead of primary and preservation loan servicing
IX. What Happens When You Are Turned Down for Preservation Loan Service
Programs and/or Debt Settlement Programs?
You Can Appeal
If FmHA or its successor agency under Public Law 103-354 decides
that you cannot get homestead protection and/or farmland leaseback/
buyback and/or debt settlement you can ask for:
(1) A meeting with FmHA or its successor agency under Public Law
103-354 to discuss the decision, and
(2) An appeal hearing.
The Right to a Meeting
The County Supervisor will send you a letter telling you why FmHA or
its successor agency under Public Law 103-354 decided not to give you
homestead protection or farmland leaseback/buyback and/or debt
settlement. That letter will give you 15 days to ask for a meeting with
FmHA or its successor agency under Public Law 103-354.
The Right to an Appeal Hearing
If you do not convince FmHA or its successor agency under Public Law
103-354 at the meeting to change their decision. FmHA or its successor
agency under Public Law 103-354 will send you another letter giving you
30 days to request an appeal hearing.
At the appeal hearing, you can contest FmHA or its successor agency
under Public Law 103-354's rental price and its decision not to give you
homestead protection and/or farmland leaseback/buyback. You can also
contest FmHA or its successor agency under Public Law 103-354's decision
to reject your debt settlement application.
The Right to a Review
If you do not win the appeal hearing. FmHA or its successor agency
under Public Law 103-354 must let you ask for a further review. The
recorded transcript of the hearing will be reviewed at this stage. You
can get a copy of the transcript by paying the copying costs.
X. What Happens if You Do Not Win the Appeal for Preservation Loan
Service Programs and/or Debt Settlement Programs?
FmHA or its successor agency under Public Law 103-354 will
accelerate your loan account and call in the whole debt. FmHA or its
successor agency under Public Law 103-354 will stop allowing you to use
any of your crop, livestock, and milk checks, on which they have a
claim, to pay for living and operating expenses. FmHA or its successor
agency under Public Law 103-354 will also repossess the collateral or
start legal foreclosure or liquidation proceedings to take and sell the
collateral, including your equipment, livestock, crops, and land. After
acceleration, FmHA or its successor agency under Public Law 103-354 may
also take by administrative offset money which other Federal Government
agencies owe you.
FmHA or its successor agency under Public Law 103-354 will take
these actions unless you do one of the following things with FmHA or its
successor agency under Public Law 103-354's approval:
(1) Sell all the collateral for the loan at market value.
(2) Convey (legally transfer) the collateral to FmHA or its
successor agency under Public Law 103-354.
(3) Apply to transfer the collateral to someone else and have that
person assume all or part of the FmHA or its successor agency under
Public Law 103-354 debt. (This is called transfer and assumption.)
If any of these options result in payment of less than you owe, you
may apply or reapply for debt settlement. You may apply or re-apply for
homestead protection and farmland leaseback/buyback if FmHA or its
successor agency under Public Law 103-354 gets title to your land or
home through a foreclosure action or conveyance. You may re-apply for
these programs even if you applied before and did not get one of these
programs and were not successful on appeal. However, applications for
leaseback/buyback or debt settlement filed after the 60-day time period
provided in this notice will not delay acceleration and foreclosure.
Attachment 2--Acknowledgement of Notice of Program Availability
Note to County Supervisor
This attachment will be provided to every borrower who requests
Primary and/or Preservation Loan Servicing Programs, and to every
borrower FmHA or its successor agency under Public Law 103-354 contacts
in regard to monetary default or financial distress.
I/We have been given a notice explaining the primary and
preservation loan service and debt settlement programs.
The date on the notice was ________.
[[Page 191]]
This notice explained that FmHA or its successor agency under Public
Law 103-354 programs are available to help me keep my property and/or
settle my debt with FmHA or its successor agency under Public Law 103-
354.
I/We ask FmHA or its successor agency under Public Law 103-354 to
consider me/us for all of these programs.
I understand that I will be notified of my rights to appeal after
FmHA or its successor agency under Public Law 103-354 decides on my
request.
_______________________________________________________________________
Signature
_______________________________________________________________________
Date
Attachment 3--Notice to Borrowers With Non-Monetary Defaults, Non-
Monetary Defaults and Delinquency, or That a Prior Lienholder or Junior
Lienholder is Foreclosing
Note to County Supervisor
This attachment will be used to notify borrowers with non-monetary
defaults, borrowers with both non-monetary and monetary defaults, and
borrowers where a prior or junior lienholder is foreclosing.
Dear ________________:
FmHA or its successor agency under Public Law 103-354 has reviewed
your loan account. Our record shows:
{time} You are now $________ behind on your payments. This is a
violation of your loan agreement.
{time} You have disposed of some of your property used to secure
your loan. You did not get written approval for this. This property is
________
_______________________________________________________________________
(Describe property.)
{time} You have stopped farming or ranching. This is a violation of
your loan agreement.
{time} A foreclosure action has been filed against you by ________.
This is a violation of your loan agreement.
{time} You have ________________
_______________________________________________________________________
(Insert reasons for proposed action.)
FmHA or its successor agency under Public Law 103-354 Will Accelerate
Your Loans
This means FmHA or its successor agency under Public Law 103-354
will take legal action to collect the money you owe. They will foreclose
on real estate and repossess equipment and other property used to secure
your loans. They will also stop the release of money from the sale of
crops or other property. They may take by administrative offset money
you are owed by other Federal agencies.
Steps You Can Take Before FmHA or its successor agency under Public Law
103-354 Accelerates Your Loans
You can apply for the programs described in attachment 1. These are
called Primary and Preservation Loan Service and Debt Settlement
Programs. You can also ask for a meeting. At this meeting you can
explain why you think FmHA or its successor agency under Public Law 103-
354's records, as indicated on this Notice, are wrong. You can also
suggest things you can do to correct these problems, so as to void
acceleration and foreclosure. You can request loan servicing, debt
settlement and a meeting at the same time. For example, if this Notice
states that you are delinquent, and also have disposed of property
without FmHA or its successor agency under Public Law 103-354's written
consent, you can request servicing to deal with the delinquency problem
and request a meeting on the question of unauthorized disposition of
property. Please read the section on debt settlement programs for
guidance in requesting and receiving consideration of a request for debt
settlement.
Forms Attached to This Notice
You will find:
(1) A summary of all primary loan service programs;
(2) A summary of preservation loan service programs;
(3) A summary of all debt settlement programs;
(4) Copies of the forms needed to apply;
(5) Advice on how to get copies of FmHA or its successor agency
under Public Law 103-354 regulations; and
(6) A short description of the FmHA or its successor agency under
Public Law 103-354 appeal process.
Purpose of Primary Service Programs
These loan service programs are to help you repay the loan and keep
your farm property.
Purpose of Preservation Loan Service Programs
These programs are intended to help farmers who may lose their land
to FmHA or its successor agency under Public Law 103-354 to get their
farmland and their home back through a lease with an option to buy.
Purpose of Debt Settlement Programs
These programs apply after it has been determined that primary loan
service programs cannot help you. You may be eligible for both debt
settlement and preservation loan service programs. If you do not have
FmHA or its successor agency under Public Law 103-354 collateral you
will need to apply for debt settlement only. Under these programs,
[[Page 192]]
the debt you owe FmHA or its successor agency under Public Law 103-354
may be settled for less than the amount you owe. You may apply for debt
settlement at any time by requesting and submitting an application for
debt settlement on Form FmHA or its successor agency under Public Law
103-354 1956-1.
How to Apply for Loan Servicing
Complete attachment 4 and the appropriate forms included with this
notice.
You must return these within 60 days of getting this notice.
Right to a Meeting
You have the right to meet with your FmHA or its successor agency
under Public Law 103-354 County Official before they decide to
accelerate your loan. You must check the box on attachment 4 saying you
want a meeting. (Attachment 4 is the ``Response to Notice of Intent to
Accelerate and Notice of Borrower Rights.'')
How to Ask for a Meeting
You must check the box on attachment 4 asking for a meeting within
15 days from the date of this notice. Return it to your County Office.
Do this as soon as possible. It is wise to call also to set up the
meeting.
Note: If you ask for loan servicing, the meeting will be delayed
until a decision on your loan servicing request is made.
The Right to Appeal
You can ask for an administrative appeal even if the
meeting does not resolve your problems.
You can ask for an appeal even if you do not have a
meeting.
You have the right to appeal even if you do not want to
apply for loan servicing programs and/or debt settlement.
How to Ask for an Appeal
Check the box on attachment 4 and mail it to your County Office
within 30 days of getting this notice.
Note: If you do not check the box on the attachment 4 to ask for
primary and preservation loan service programs, you will not be
considered.
If you do not ask for a meeting you will not get one.
You may still appeal by asking for an administrative appeal on the
attached form.
The Right Not To Be Discriminated Against
Federal law does not allow discrimination of any kind. You cannot be
denied a loan because of your race, color, religion, national origin,
sex, marital status, handicap, or age (if you can legally sign a
contract).
You cannot be denied a loan because all or part of your income is
from a public assistance program.
You cannot be denied a loan because you exercised your rights under
the Consumer Credit Protection Act. You must have exercised these rights
in good faith. The Federal Agency responsible for seeing this law is
obeyed is the Federal Trade Commission, Equal Credit Opportunity,
Washington, DC 20580.
Sincerely,
County Supervisor, Farmers Home Administration or its successor agency
under Public Law 103-354, United States Department of Agriculture
Date:___________________________________________________________________
Attachment 4--Response to Notice Informing Me of FmHA or its successor
agency under Public Law 103-354's Intent To Accelerate My Loan
Note to County Supervisor
This attachment will be included with attachment 3, when contacting
a borrower about non-monetary default, non-monetary default and
delinquency, and when a prior or junior lienholder is foreclosing.
Notice of My Rights
To: County Supervisor, Farmers Home Administration or its successor
agency under Public Law 103-354
From:___________________________________________________________________
(Please print your name and address.)
I have read the notice informing me of FmHA or its successor agency
under Public Law 103-354's intent to accelerate my loan which I received
with this form.
I want to: (Check one or more of the following boxes)
{time} 1. Request a meeting with the FmHA or its successor agency under
Public Law 103-354 County Office.
My phone number is ________________.
I must return this form in 15 days.
I understand I do not lose my right to appeal by asking for a
meeting.
{time} 2. Be considered for all primary and preservation loan service
and debt settlement programs. I must return this form along
with all applicable forms in 60 days.
{time} 3. Have an administrative appeal hearing. I understand that I
will be contacted by FmHA or its successor agency under Public
Law 103-354's National Appeals Staff to set up the appeal
hearing date and give me more information. I must return this
form in 30 days.
Date:___________________________________________________________________
Signature:______________________________________________________________
(Sign here.)
Date
[[Page 193]]
Attachment 5
Note to County Supervisor:
This attachment is used when notifying borrower who returned
attachment 2 of Exhibit A, that FmHA or its successor agency under
Public Law 103-354 cannot provide the assistance requested with the
Primary Services Programs.
See Sec. 1951.909(h)(3)(i) and (ii).
Notice of Intent to Accelerate or to Continue Acceleration and Notice of
Borrowers' Rights
Name and Address
(Dear (Borrower's Name): You are not eligible for debt
restructuring.
I. {time} FmHA or its successor agency under Public Law 103-354 has
reviewed your application for primary loan servicing (debt
restructuring).
You cannot get primary loan servicing because your Farm and Home
Plan does not show you can pay all your family living expenses, farm
operating expenses, and scheduled debt repayments even with FmHA or its
successor agency under Public Law 103-354 help.
To get primary loan servicing, your Farm and Home Plan must show you
can pay FmHA or its successor agency under Public Law 103-354 at least
$____ per year.
Note: The attached computer printout which summarizes FmHA or its
successor agency under Public Law 103-354's calculations based on your
application.
II. {time} FmHA or its successor agency under Public Law 103-354 has
reviewed your application and your case file. You have broken
your agreement with FmHA or its successor agency under Public
Law 103-354. Your Farm and Home Plan shows you can pay all of
your family living expenses, farm operating expenses, and
scheduled debt payments if FmHA or its successor agency under
Public Law 103-354 uses primary loan servicing, softwood
timber, and conservation easement programs to restructure your
loans.
But you have broken your loan agreements with FmHA or its successor
agency under Public Law 103-354.
You have broken loan agreements with FmHA or its successor agency
under Public Law 103-354 in the following way:
{time} You are $__________ behind in your scheduled loan payments.
{time} You have sold or gotten rid of property you used to secure
the FmHA or its successor agency under Public Law 103-354 loan without
proper approval from FmHA or its successor agency under Public Law 103-
354. This property is __________
_______________________________________________________________________
(Describe property.)
{time} You have stopped farming or ranching.
{time} You have ________________
_______________________________________________________________________
III. FmHA or its successor agency under Public Law 103-354 Intends to
Foreclose
FmHA or its successor agency under Public Law 103-354 will
accelerate your loan because you are not eligible for primary loan
servicing.
FmHA or its successor agency under Public Law 103-354 will take
legal action to collect the money you owe.
FmHA or its successor agency under Public Law 103-354 may:
(1) Repossess and sell your equipment, crops, livestock, livestock
products, and other personal property used to secure your FmHA or its
successor agency under Public Law 103-354 loan;
(2) Foreclose and sell your real estate mortgaged to FmHA or its
successor agency under Public Law 103-354; this could include your
dwelling even if your housing account is current, if it was used to
secure your farm loan(s);
(3) Stop any release of money from the sale of crops, livestock,
livestock products, or other property you need to live and operate your
farm;
(4) Take by administrative offset any money you are owed by Federal
agencies;
(5) File lawsuits to collect money you owe to FmHA or its successor
agency under Public Law 103-354.
IV. What You Can Do To Stop Foreclosure
Before FmHA or its successor agency under Public Law 103-354 can
take action against you, you can;
(1) Request a meeting with the FmHA or its successor agency under
Public Law 103-354 county official.
If you disagree with FmHA or its successor agency under Public Law
103-354's decision that you broke your loan agreement or the decision
not to give you debt restructuring, you should request a meeting with
the county FmHA or its successor agency under Public Law 103-354
official. The county official can explain the FmHA or its successor
agency under Public Law 103-354 decision. You can also present changes
in your Farm and Home Plan which may show that you can make the amount
of payment listed above in Section 1.
To ask for this meeting, check the box 1 on the ``Response Form:
(Attachment 6).
Time Limit: You must return the ``Response Form'' to the county FmHA
or its successor agency under Public Law 103-354 office within 15 days
from the date you get this letter. You should also call the county
office to set up the meeting.
(2) Request an Appeal Hearing.
[[Page 194]]
You may also request an appeal hearing to contest FmHA or its
successor agency under Public Law 103-354's decision. At the hearing you
may challenge the ways FmHA or its successor agency under Public Law
103-354 says you broke your loan agreements. You may also challenge FmHA
or its successor agency under Public Law 103-354's decision that you
cannot present a feasible Farm and Home Plan for primary loan servicing
if your notice states FmHA or its successor agency under Public Law 103-
354 believes you cannot present a feasible plan.
You can appear at the appeal hearing and present witnesses and
documents to support your position.
You may also ask for an independent appraisal of your property used
to secure the FmHA or its successor agency under Public Law 103-354
load. This independent appraisal may be important if you think FmHA or
its successor agency under Public Law 103-354 has put too high or too
low a value on your property when it considered you for primary loan
servicing. You will have to pay for this appraisal. FmHA or its
successor agency under Public Law 103-354 will give you three names of
appraisers to choose from. Check box 3 on the ``Response Form'' if you
want the independent appraisal.
If you request a meeting with the FmHA or its successor agency under
Public Law 103-354 county official, you will be given a chance to appeal
after this meeting.
If you do not want to request the meeting but do want to appeal, you
must say so on the enclosed ``Response Form.''
You may request both the meeting and the appeal hearing on the
``Response Form.'' Check box 2 on the ``Response Form'' to request an
appeal hearing. If you ask for just the appeal hearing, you must return
the ``Response Form'' to FmHA or its successor agency under Public Law
103-354 within 30 days of the date you received the letter.
(3) Buy Out the Loan at Recovery Value.
You have this option only if the recovery value is greater than the
value of the restructed loan.
You [may] or [may not] buy out your FmHA or its successor agency
under Public Law 103-354 loan(s) at the ``recovery value'' of the
property securing the loan. The recovery value is $________. The
restructed loan(s) value is $________.
Note: The attached computer printout which summarizes FmHA or its
successor agency under Public Law 103-354's calculations.
If you are eligible and pay the recovery value, FmHA or its
successor agency under Public Law 103-354 will write off the rest of
your debt. If you are elgible to pay the recovery value, FmHA or its
successor agency under Public Law 103-354 will require you to sign a
recapture agreement. This agreement would allow FmHA or its successor
agency under Public Law 103-354 to require you to pay the difference
between the recovery value and the current market value of your real
estate securing the loan if you sell it within 2 years of the agreement.
FmHA or its successor agency under Public Law 103-354 can never
recapture more than it wrote off.
Time limit. If you are eligible and want to buy out your loan(s) at
the recovery value, you must pay FmHA or its successor agency under
Public Law 103-354 within 45 days from the date you received this
letter. You must pay FmHA or its successor agency under Public Law 103-
354 in cash, money order, or certified check.
If you appeal FmHA or its successor agency under Public Law 103-
354's decision, the 45-day period to buy out at recovery value will not
start until all of the appeals are completed. Check box 4 on the
``Response Form'' if you want to buy out at recovery value.
(4) Consider for Homestead Protection and Farmland Leaseback/
Buyback.
If you do not appeal, or if you do not win your appeal and you do
not buy out the loan at recovery value, FmHA or its successor agency
under Public Law 103-354 will automatically consider you for Homestead
protection and farmland leaseback/buyback. [You applied for these
programs when you applied for primary loan servicing (debt
restructing).] FmHA or its successor agency under Public Law 103-354
will notify you that it will be considering you for these programs and
will request some additional information when the time comes to consider
you.
_______________________________________________________________________
Note to County Supervisor.
\1\ Circle appropriate entry.
V. What Happens If You Do Not Respond?
If you do not respond to this letter by completing and returning the
enclosed Attachment 6, ``Response to Notice of Intent to Accelerate or
Continue with Acceleration and Notice of Borrowers' Rights,'' FmHA or
its successor agency under Public Law 103-354 will accelerate or
continue with acceleration of your FmHA or its successor agency under
Public Law 103-354 debts. This is very severe action FmHA or its
successor agency under Public Law 103-354 will take any of the actions
listed in Section III above to collect on your debt.
The Right Not to Be Discriminated Against
Federal law does not allow discrimination of any kind. You cannot be
denied a loan because of your race, color, religion, national origin,
sex, marital status, handicap, or age (if you can legally sign a
contract).
You cannot be denied a loan because all or part of your income is
from a public assistance program.
[[Page 195]]
You cannot be denied a loan because you exercised your rights under
the Consumer Credit Protection Act. You must have exercised these rights
in good faith. The Federal Agency responsible for seeing this law is
obeyed is the Federal Trade Commission, Equal Credit Opportunity,
Washington, DC 20580.
Sincerely,
County Supervisor,
Farmers Home Administration or its successor agency under Public Law
103-354, United States Department of Agriculture.
Attachment 5-A--Notice of Intent To Accelerate or To Continue
Acceleration and Notice of Borrowers' Rights
Note to County Supervisor
This attachment is used when notifying a borrower who returned
attachment 2 or 4 of exhibit A, that FmHA or its successor agency under
Public Law 103-354 cannot provide the assistance requested with the
Primary Loan Services Programs.
(To Be Used for Applications Submitted on or After November 28, 1990)
Name and Address
Dear (Borrower's Name):
You are not eligible for debt restructuring.
I. {time} FmHA or its successor agency under Public Law 103-354 Has
Reviewed Your Application for Primary Loan Servicing (Debt
Restructuring)
You cannot get primary loan servicing because your Farm and Home
Plan does not show you can pay all your family living expenses, farm
operating expenses, and scheduled debt repayments even with FmHA or its
successor agency under Public Law 103-354 help.
To get primary loan servicing, your Farm and Home Plan must show you
can pay FmHA or its successor agency under Public Law 103-354 at least
$____________ per year.
Note: The attached computer printout summarizes FmHA or its
successor agency under Public Law 103-354's calculations based on your
application.
II. {time} FmHA or its successor agency under Public Law 103-354 Has
Reviewed Your Application and Your Case File
Your Farm and Home Plans shows you can pay all of your family living
expenses, farm operating expenses, and scheduled debt repayments if FmHA
or its successor agency under Public Law 103-354 uses primary loan
servicing, softwood timber, and conservation easement programs to
restructure your loans.
But you have not acted in good faith.
You have broken your loan agreements with FmHA or its successor
agency under Public Law 103-354.
You have broken loan agreements with FmHA or its successor agency
under Public Law 103-354 in the following way:
{time} You are $__________ behind in your scheduled loan payments.
{time} You have sold or gotten rid of property you used to secure the
FmHA or its successor agency under Public Law 103-354 loan
without proper approval from FmHA or its successor agency
under Public Law 103-354. You have not acted in good faith.
This property is ________________
_______________________________________________________________________
(Describe property.)
{time} You have stopped farming or ranching.
{time} You have________________________________________________________
_______________________________________________________________________
III. {time} FmHA or its successor agency under Public Law 103-354 Has
Reviewed Your Application and Case File
You have sufficient nonessential assets to bring your FmHA or its
successor agency under Public Law 103-354 account current. The net
recovery value of FmHA or its successor agency under Public Law 103-
354's collateral is $________. The net recovery value (NRV) of the
nonessential assets is $________. Your nonessential assets and their
NRVs are as follows:
Nonessential Assets
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
NRVs
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
The NRV is the current appraised market value minus any prior liens
and any costs of sale such as taxes due, commissions and advertising
costs.
The amount needed to bring your FmHA or its successor agency under
Public Law 103-354 account current is $________.
If you intend to sell the nonessential assets or borrow against
their value to obtain the money to pay FmHA or its successor agency
under Public Law 103-354 current, you must do so immediately so that you
can pay FmHA or its successor agency under Public Law 103-354 current
within 90 days from the date you receive this letter.
If you do not pay FmHA or its successor agency under Public Law 103-
354 current within 90 days or appeal the adverse decision (see part VI
of this notice), FmHA or its successor agency under Public Law 103-354
will accelerate your account (see part V). If you appeal the decision,
the 90-day period to pay FmHA or its successor agency under Public
[[Page 196]]
Law 103-354 current will not start until all the appeals are completed.
You must check the appropriate block on the response form and return it
to FmHA or its successor agency under Public Law 103-354 within the
specified time limit. Since FmHA or its successor agency under Public
Law 103-354 believes you have sufficient nonessential assets to bring
your FmHA or its successor agency under Public Law 103-354 account
current, you are not now eligible for net recovery buyout (option 5 on
attachment 6-A). If you disagree, see part VI for an explanation of your
rights.
IV. [ ] You have already received your lifetime limit for the number
of writedowns and/or buyouts for which you are entitled.
[ ] Your writedown and/or writeoff of debt exceeded your lifetime
limit of $300,000.
V. FmHA or its successor agency under Public Law 103-354 Intends to
Foreclose
FmHA or its successor agency under Public Law 103-354 will
accelerate your loan because you are not eligible for primary loan
servicing.
FmHA or its successor agency under Public Law 103-354 will take
legal action to collect the money you owe.
FmHA or its successor agency under Public Law 103-354 may:
(1) Repossess and sell your equipment, crops, livestock, livestock
products, and other personal property used to secure your FmHA or its
successor agency under Public Law 103-354 loan;
(2) Foreclose and sell your real estate mortgaged to FmHA or its
successor agency under Public Law 103-354. This could include your
dwelling even if your housing account is current, if it was used to
secure your farm loan(s);
(3) Stop any release of money from the sale of crops, livestock,
livestock products, or other property you need to live and operate your
farm;
(4) Take by administrative offset any money you are owed by Federal
agencies;
(5) File lawsuits to collect money you owe to FmHA or its successor
agency under Public Law 103-354.
VI. What You Can Do to Stop Foreclosure
Before FmHA or its successor agency under Public Law 103-354 can
take action against you, you can:
(1) Pay your FmHA or its successor agency under Public Law 103-354
account current.
(2) Request a meeting with the FmHA or its successor agency under
Public Law 103-354 county official.
If you disagree with FmHA or its successor agency under Public Law
103-354's decision that you broke your loan agreement or the decision
not to give you debt restructuring, you should request a meeting with
the county FmHA or its successor agency under Public Law 103-354
official. The county official can explain the FmHA or its successor
agency under Public Law 103-354 decision. You can also present changes
in your Farm and Home Plan which may show that you can make the amount
of payment listed above in Section I.
To ask for this meeting, check the box 1 on the Response Form:
(attachment 6-A).
Time limit: You must return the ``Response Form'' to the county FmHA
or its successor agency under Public Law 103-354 office within 15 days
from the date you get this letter. You should also call the county
office to set up the meeting.
(3) Request an appeal hearing.
You may also request an appeal hearing to contest FmHA or its
successor agency under Public Law 103-354's decision. At the hearing you
may challenge the ways FmHA or its successor agency under Public Law
103-354 says you broke your loan agreements. You may also challenge FmHA
or its successor agency under Public Law 103-354's decision that you
cannot present a feasible Farm and Home Plan for primary loan servicing
if your notice states FmHA or its successor agency under Public Law 103-
354 believes you cannot present a feasible plan. You may also challenge
FmHA or its successor agency under Public Law 103-354's decision that
you are ineligible for debt restructuring because you have already
received a writedown or buyout.
You can appear at the appeal hearing and present witnesses and
documents to support your position.
If you did not previously negotiate your appraisal, you may ask for
an independent appraisal of your property including any nonessential
assets that FmHA or its successor agency under Public Law 103-354 says
you own. This independent appraisal may be important if you think FmHA
or its successor agency under Public Law 103-354 has put too high or too
low a value on your property. You will have to pay for this appraisal.
The FmHA or its successor agency under Public Law 103-354 County
Supervisor will give you a list of three appraisers to choose from.
Check box #3 on the ``Response Form'' if you want the independent
appraisal. If the FmHA or its successor agency under Public Law 103-354
appraisal contains mathematical or property description errors, you and
the County Supervisor can make the necessary corrections if you both
agree to such changes.
If you submit an independent appraisal and it is within five percent
of the value of the FmHA or its successor agency under Public Law 103-
354 appraisal, you must select which of the two appraisals you want FmHA
or its successor agency under Public Law 103-354 to use for your
request. This will be the final appraisal. It cannot be appealed.
[[Page 197]]
If you request a meeting with the FmHA or its successor agency under
Public Law 103-354 county official, you will be given a chance to appeal
after that meeting.
If you do not want to request the meeting but do want to appeal, you
must say so on the enclosed ``Response Form.''
You may request both the meeting and the appeal hearing on the
``Response Form.'' Check box 2 on the ``Response Form'' to request an
appeal hearing. If you ask for just the appeal hearing, you must return
the ``Response Form'' to FmHA or its successor agency under Public Law
103-354 within 30 days of the date you received the letter. If you are
appealing the appraisal, you should, if possible, submit a copy of your
independent appraisal to the hearing officer and the County Supervisor
prior to the appeal hearing.
(4) Buy out the loan at recovery value.
You have this option only if the recovery value is greater than the
value of the restructured loan(s), you cannot repay your FmHA or its
successor agency under Public Law 103-354 debt due to circumstances
beyond your control, and you have acted in good faith and tried to keep
your loan agreement with FmHA or its successor agency under Public Law
103-354. In addition, buyout is subject to certain lifetime limitations
regarding the maximum amount and number of benefits that can be
received. A further explanation of these limits can be found in the
Primary and Preservation Loan Service and Debt Settlement Programs
Purpose notice which was sent to you earlier.
You [may] or [may not] buy out your FmHA or its successor agency
under Public Law 103-354 loan(s) at the recovery value of the property
securing the loan and any nonessential assets. The recovery value is
$________. The restructured loan(s) value is $________.
_______________________________________________________________________
Note to County Supervisor
Circle the appropriate entry.
Note: The attached computer printout summarizes FmHA or its
successor agency under Public Law 103-354's calculations.
If you are eligible and pay the recovery value, FmHA or its
successor agency under Public Law 103-354 will write off the rest of
your debt up to $300,000. If you are eligible to pay the recovery value,
FmHA or its successor agency under Public Law 103-354 will require you
to sign a recapture agreement. This agreement would allow FmHA or its
successor agency under Public Law 103-354 to require you to pay the
difference between the recovery value and the current market value of
your real estate securing the loan if you sell it within 10 years of the
agreement. FmHA or its successor agency under Public Law 103-354 can
never recapture more than it wrote off.
Time Limit. If you are eligible and want to buy out your loan(s) at
the recovery value, you must pay FmHA or its successor agency under
Public Law 103-354 within 90 days from the date you received this
letter. You must pay FmHA or its successor agency under Public Law 103-
354 in cash, money order, or certified check.
If you appeal FmHA or its successor agency under Public Law 103-
354's adverse decision, the 90-day period to buy out at recovery value
will not start until all of the appeals are completed. Check box 3 on
the ``Response Form'' if you want to buy out at recovery value.
(5) Consideration for Homestead Protection, Farmland Leaseback/
Buyback and Debt Settlement.
If you do not appeal, or if you do not win your appeal and you do
not buy out the loan at recovery value, FmHA or its successor agency
under Public Law 103-354 will automatically consider you for Homestead
protection and farmland leaseback/buyback. [You applied for these
programs when you applied for primary loan servicing (debt
restructuring).] FmHA or its successor agency under Public Law 103-354
will notify you that it will be considering you for these programs and
will request some additional information when the time comes to consider
you. If you applied for Debt Settlement by returning Form FmHA or its
successor agency under Public Law 103-354 1956-1, FmHA or its successor
agency under Public Law 103-354 will also consider you for this option
now. If you did not apply for Debt Settlement before, you can apply now.
Copies of Form FmHA or its successor agency under Public Law 103-354
1956-1 are available at your FmHA or its successor agency under Public
Law 103-354 County Office.
VII. What Happens if You Do Not Respond
If you do not respond to this letter by completing and returning the
enclosed attachment 6-A, ``Response to Notice of Intent to Accelerate or
Continue with Acceleration and Notice of Borrowers' Rights,'' FmHA or
its successor agency under Public Law 103-354 will accelerate or
continue with acceleration of your FmHA or its successor agency under
Public Law 103-354 debts. This is a very severe action. FmHA or its
successor agency under Public Law 103-354 will take any of the actions
listed in Section V above to collect on your debt.
The Right Not To Be Discriminated Against
Federal law does not allow discrimination of any kind. You cannot be
denied a loan because of your race, color, religion, national origin,
sex, marital status, handicap, or age (if you can legally sign a
contract).
[[Page 198]]
You cannot be denied a loan because all or part of your income is
from a public assistance program.
You cannot be denied a loan because you exercised your rights under
the Consumer Credit Protection Act. You must have exercised these rights
in good faith. The Federal Agency responsible for seeing this law is
obeyed is the Federal Trade Commission, Equal Credit Opportunity,
Washington, DC 20580.
Sincerely,
County Supervisor, Farmers Home Administration or its successor agency
under Public Law 103-354, United States Department of Agriculture
Attachment 6
Note to County Supervisor:
This attachment will always be sent with Attachment 5.
See Sec. 1951.909(h)(3)(i) and (ii).
Response to Notice Informing Me of FmHA or its successor agency under
Public Law 103-354's Intent To Accelerate or Continue With Acceleration
and Notice of My Rights
TO: County Supervisor, Farmers Home Administration or its successor
agency under Public Law 103-354
FROM:___________________________________________________________________
(Please print your name and address.)
I have read the notice informing me of FmHA or its successor agency
under Public Law 103-354's intent to accelerate or continue with
acceleration my loan which I received with this response form.
I want to:
[Check appropriate box or boxes.]
{time} (1) Request a meeting with the FmHA or its successor agency
under Public Law 103-354 county oficial.
My current telephone number is ________.
I understand that I do not lose my appeal rights by asking for this
meeting.
{time} (2) Request an appeal hearing.
I understand that I will be contacted by FmHA or its successor
agency under Public Law 103-354's National Appeals Staff to set up the
appeal hearing date and to give me more information.
{time} (3) Request that an independent appraisal of my property that
secures the FmHA or its successor agency under Public Law 103-
354 loan(s).
I understand that I must pay for this appraisal. I understand that
the appeal hearing officer will give me the names of three appraisers,
from which I must choose one.
{time} (4) Buy out my loan(s) at the recovery value.
I understand that I must pay FmHA or its successor agency under
Public Law 103-354 $__________ in cash, certified check, or money order.
I understand that I must pay this to FmHA or its successor agency under
Public Law 103-354 within 45 days of the date I received this letter or,
if I appeal. I must pay within 45 days from the end of the appeal. I
understand that if I pay this amount FmHA or its successor agency under
Public Law 103-354 will write off the rest of my debt.
_______________________________________________________________________
Borrower's signature
_______________________________________________________________________
Date
Attachment 6-A--Response to Notice Informing Me of FmHA or its successor
agency under Public Law 103-354's Intent To Accelerate or Continue With
Acceleration and Notice of My Rights
Note to County Supervisor
This attachment will always be sent with attachment 5-A.
(To be used for application submitted on or after November 28, 1990).
To: County Supervisor, Farmers Home Administration or its successor
agency under Public Law 103-354
From:___________________________________________________________________
(Please print your name and address.)
I have read the notice informing me of FmHA or its successor agency
under Public Law 103-354's intent to accelerate or continue with
acceleration of my loan which I received with this response form.
I want to:
[Check appropriate box or boxes.]
{time} (1) Request a meeting with an FmHA or its successor agency under
Public Law 103-354 county official.
I must return this ``Response Form'' within 15 days to request a
meeting.
My current telephone number is ______.
I understand that I do not lose my appeal rights by asking for this
meeting.
{time} (2) Request an appeal hearing.
I must return this ``Response Form'' within 30 days to request a
hearing.
I understand that I will be contacted by FmHA or its successor
agency under Public Law 103-354's National Appeals Staff to set up the
appeal hearing date and to give more information.
If possible, I should provide the County Supervisor and the hearing
officer a copy of my independent appraisal prior to the appeal hearing
if I am requesting an appeal of the appraisal.
{time} (3) Request an independent appraisal of my property including
any nonessential assets.
I must return this ``Response Form'' within 30 days to request an
independent appraisal.
I understand that I must pay for this appraisal. I understand that
the FmHA or its
[[Page 199]]
successor agency under Public Law 103-354 County Supervisor will give me
names of three appraisers, from which I must choose one if I am also
requesting an appeal.
{time} (4) Buy out my loan(s) at the recovery value.
I understand that I must pay FmHA or its successor agency under
Public Law 103-354 $____________in cash, certified check, or money
order. I understand that I must pay this to FmHA or its successor agency
under Public Law 103-354 within 90 days of the date I received this
letter, or if I appeal the FmHA or its successor agency under Public Law
103-354 decision, I must pay within 90 days from the end of the appeal
of the FmHA or its successor agency under Public Law 103-354 decision.
{time} (5) Pay my FmHA or its successor agency under Public Law 103-354
account current.
I understand that I must pay FmHA or its successor agency under
Public Law 103-354 $____________ to pay my account current. I will pay
this amount to FmHA or its successor agency under Public Law 103-354
within 90 days of the date I received this letter, or if I appeal the
FmHA or its successor agency under Public Law 103-354 decision, I will
pay within 90 days from the end of the appeal of the FmHA or its
successor agency under Public Law 103-354 decision. I understand that
when I pay this amount FmHA or its successor agency under Public Law
103-354 will continue with my account.
_______________________________________________________________________
Borrower's signature
_______________________________________________________________________
Date
Attachment 7
Note to County Supervisor:
This attachment will be used to advise borrowers whose accounts have
been accelerated but who DID NOT return attachment 2 of exhibit A, that
FmHA or its successor agency under Public Law 103-354 intends to
continue acceleration of their accounts.
See Sec. 1951.907 (a) and (b).
Notification of Continued Acceleration of Loans and Notice of Borrowers'
Rights
FmHA or its successor agency under Public Law 103-354 will continue to
accelerate your loan.
You can:
(1) Ask to sign over to FmHA or its successor agency under Public
Law 103-354 all the property you used to secure your loan. FmHA or its
successor agency under Public Law 103-354 will release you from
liability when the debt is settled.
(2) Ask for a leaseback or buyback of your farm real estate once
FmHA or its successor agency under Public Law 103-354 has taken it by
you signing it over or foreclosure.
(3) Ask to keep your home after FmHA or its successor agency under
Public Law 103-354 has taken it.
(4) Ask to pay in full within 30 days.
Dear (Borrower's Name):
FmHA or its successor agency under Public Law 103-354 intends to
continue to accelerate your loan.
Dear (Borrower's Name):
FmHA or its successor agency under Public Law 103-354 intends to
continue to accelerate your loan.
FmHA or its successor agency under Public Law 103-354 will take
legal action to: foreclose on real estate; this could include your
dwelling even if your housing account is current, if it was used to
secure your farm loan(s).
How to Avoid Foreclosure
You can avoid foreclosure by:
Voluntarily signing over property you used to secure your loans to
FmHA or its successor agency under Public Law 103-354. FmHA or its
successor agency under Public Law 103-354 will decide if it is to the
government's financial advantage to let you do this. You must ask for a
meeting with County Office staff in 15 days to discuss if your debt can
be settled this way.
Note: Voluntarily signing over, or foreclosure means you lose the
title to your land. But you can still apply for preservation loan
service programs to keep possession of your house or farm. [See Exhibit
A Attachment 1 sent to you on ________. If you did not get these forms,
contact your County Office within 15 days of this notice.]
What Happens If You Do Not Respond to This Notice
If you do not respond to this notice by asking for a meeting in 15
days, FmHA or its successor agency under Public Law 103-354 will take
the legal action described above to foreclosure, or repossess your
property.
Amount Owed:
You owe:
$_______________________________________________________________________
unpaid principal
$_______________________________________________________________________
unpaid interest
plus
$_______________________________________________________________________
per day interest for each day after
_______________________________________________________________________
(Date)
plus
$_______________________________________________________________________
advance made by the U.S. Government.
[[Page 200]]
Time Limit:
You must pay all of your debt within 30 days of the date on this
notice. This can be avoided if you sign over your property.
How to Pay
Cashiers' check, certified check, or postal money orders made
payable to:
Farmers Home Administration or its successor agency under Public Law
103-354 at
_______________________________________________________________________
Street address or P.O. box
_______________________________________________________________________
City
_______________________________________________________________________
State
_______________________________________________________________________
Zip
Part payment will not be enough to stop FmHA or its successor agency
under Public Law 103-354 taking legal action. FmHA or its successor
agency under Public Law 103-354 still has full legal rights to continue
the legal action just as if no payment had been made.
{time} The FmHA or its successor agency under Public Law 103-354 plans
to go ahead with foreclosure on your property without court action.
Public sale will be after
_______________________________________________________________________
(Date)
{time} The FmHA or its successor agency under Public Law 103-354 plans
to go ahead with foreclosure on your property after court action.
Sincerely,
_______________________________________________________________________
County Supervisor
Farmers Home Administration or its successor agency under Public Law
103-354
United States Department of Agriculture
Your Right Not to Be Discriminated Against
Federal law does not allow discrimination of any kind. You cannot be
denied a loan because of your race, color, religion, national original,
sex, marital status, handicap, or age (if you can legally sign a
contract).
You cannot be denied a loan because you exercised your rights under
the Consumer Credit Protection Act. You must have exercised these rights
in good faith.
The Federal Agency responsible for seeing this law is obeyed is the
Federal Trade Commission, Equal Credit Opportunity, Washington, DC
20580.
Attachment 8
Note to County Supervisor:
This attachment will always be sent with Attachment 7.
See Sec. 1951.907 (a) and (b).
Response to Notice Informing Me of FmHA or its successor agency under
Public Law 103-354's Intent to Continue to Accelerate My Loan
Notice of My Rights
TO: County Supervisor, Farmers Home Administration or its successor
agency under Public Law 103-354
From:___________________________________________________________________
Please print your name and address.
I have read and considered the notice informing me of FmHA or its
successor agency under Public Law 103-354's intent to continue to
accelerate my loan.
I want to:
(check one or more of the following boxes)
{time} (1) Request a meeting with the FmHA or its successor agency
under Public Law 103-354 County Official to discuss signing over my
property used to secure my loan to FmHA or its successor agency under
Public Law 103-354 to settle my debt.
My phone number is______________________________________________________
I must return this form in 15 days.
{time} (2) Be considered for preservation loan programs.
Signature:______________________________________________________________
Date:___________________________________________________________________
Attachment 9
Note to County Supervisor:
This attachment will be sent to borrowers who are 180 days
delinquent, whose accounts have not been accelerated. WHO DID NOT return
attachment 2 of Exhibit A.
See Sec. 1951.907(h)(2).
Notification of Intent to Accelerate or Continue Acceleration of Loans
and Notice of Your Rights
FmHA or its successor agency under Public Law 103-354 will
accelerate your loan because you have not asked for primary loan service
programs or debt restructuring.
You can:
(1) Ask for a meeting with your County Official.
(2) Appeal FmHA or its successor agency under Public Law 103-354's
decision.
(3) Ask to voluntarily sign over to FmHA or its successor agency
under Public Law 103-354 the property used to secure your loan and ask
to be released from your debt.
(4) Apply to a leaseback or buyback of your farm real estate once
FmHA or its successor agency under Public Law 103-354 has taken it.
(5) Ask to keep your home after the FmHA or its successor agency
under Public Law 103-354 has taken it.
Dear (Borrower's Name):
[[Page 201]]
You are behind with your payments to FmHA or its successor agency
under Public Law 103-354, and a review of your account shows:
{time} You are $________ behind in your FmHA or its successor agency
under Public Law 103-354 loan payments.
This is a violation of your loan agreement.
{time} You have sold or gotten rid of property used to secure your FmHA
or its successor agency under Public Law 103-354 loan. Your did not get
written approval for this.
The property is_________________________________________________________
_______________________________________________________________________
(Describe property.)
{time} You You have stopped farming or ranching.
This is a violation of your loan agreement.
{time} You have________________________________________________________
_______________________________________________________________________
(Insert reason for proposed action.)
FmHA or its successor agency under Public Law 103-354 Will Accelerate
Your Loans.
This means FmHA or its successor agency under Public Law 103-354
will take legal action to collect the money you owe. They will foreclose
on real estate and other property used to secure your loans. This could
include your dwelling even if your housing account is current, if it was
used to secure your farm loan(s). They may also stop release of money
from the sale of crops or other property. They may take, by
administrative offset, any money you are owed by other Federal agencies.
Steps You Can Take Before FmHA or its successor agency under Public Law
103-354 Accelerates or Continues Aceleration of Your Loans.
(1) Right to a meeting. You have the right to meet with your FmHA or
its successor agency under Public Law 103-354 County Official before
they decide to accelerate or continue acceleration of your loan. You
must check the box on Attachment 10 saying you want a meeting.
[Attachment 10 is the ``Response to Notice of Intent to Accelerate or
Continue Acceleration of My Loan.'']
How Soon Must I Ask for a Meeting? You must ask for a meeting within
15 days from the date of this notice. Check the box on Attachment 10.
Return it to your County Office. Do this as soon as possible.
(2) The Right to Appeal. You can ask for an administrative appeal
before a hearing officer. Your can contest FmHA or its successor agency
under Public Law 103-354's decision to accelerate or continue
acceleration of your loan. You can ask for a independent appraisal of
the value of your land. You will have to pay for this appraisal. FmHA or
its successor agency under Public Law 103-354 will give you three names
of approved appraisers to choose from. Check box 4 if you want an
independent appraisal. You can ask for an administrative appeal, even if
you have asked for a meeting and your problems were not resolved at that
meeting. You can ask for an appeal if you do not have a meeting.
How to Ask for an Appeal. Check the box on Attachment 10 and mail it
to your County Office within 30 days of getting this notice.
What Happens If You Do Not Respond?
If you do not respond to this notice by filing out Attachment 10,
FmHA or its successor agency under Public Law 103-354 will accelerate or
continue acceleration of any loans. This means they will take legal
action to collect the unpaid loan including foreclosure as described
above.
Note: Foreclosure means you lose the title to your land. But you can
still apply for preservation loan service programs to keep possession of
your house or farm. [See Exhibit A Attachment 1 sent to you on ________
. If you did not get these forms, contact your County Office within 15
days of this notice.]
The Right Not to Be Discriminated Against
Federal law does not allow discrimination of any kind. You cannot be
denied a loan because of your race, color, religion, national origin,
sex, marital status, handicap, or age (if you can legally sign a
contract).
You cannot be denied a loan because you exercised your rights under
the Consumer Credit Protection Act. You must have exercised these rights
in good faith.
The Federal Agency responsible for seeing this law is obeyed is the
Federal Trade Commission, Equal Credit Opportunity, Washington, DC
20580.
Sincerely,
_______________________________________________________________________
County Supervisor,
Farmers Home Administration or its successor agency under Public Law
103-354,
U.S. Department of Agriculture
Dated:__________________________________________________________________
Attachment 9-A--Notification of Intent to Accelerate or Continue
Acceleration of Loans and Notice of Your Rights
Note to County Supervisor
This attachment will be sent to borrowers who are 180 days
delinquent, whose accounts have not been accelerated, WHO DID NOT return
attachment 2 of exhibit A sent on or after November 28, 1990, or
attachment 2 of exhibit F.
(To be used for borrowers receiving notices on or after November 28,
1990)
FmHA or its successor agency under Public Law 103-354 will
accelerate your loan because you have not asked or have not accepted the
offer for primary loan service programs.
You can:
[[Page 202]]
(1) Ask for meeting with your FmHA or its successor agency under
Public Law 103-354 County official.
(2) Appeal FmHA or its successor agency under Public Law 103-354's
decision.
(3) Ask to voluntarily sign over to FmHA or its successor agency
under Public Law 103-354 the property used to secure your loan and ask
to be released from your debt.
(4) Apply for a leaseback or buyback of your farm real estate once
FmHA or its successor agency under Public Law 103-354 has taken it.
(5) Ask to keep your home after FmHA or its successor agency under
Public Law 103-354 has taken it.
Dear (Borrower's Name):
You are behind with your payments to FmHA or its successor agency
under Public Law 103-354, and a review of your account shows:
{time} You are $________ behind in your FmHA or its successor agency
under Public Law 103-354 loan payments.
This is a violation of your loan agreement.
{time} You have sold or gotten rid of property used to secure your FmHA
or its successor agency under Public Law 103-354 loan. You did
not get written approval for this.
The property is_________________________________________________________
_______________________________________________________________________
(Describe property.)
{time} You have stopped farming or ranching.
This is a violation of your loan agreement.
{time} You have________________________________________________________
_______________________________________________________________________
(Insert reason for proposed action.)
FmHA or its successor agency under Public Law 103-354 Will Accelerate
Your Loans
This means FmHA or its successor agency under Public Law 103-354
will take legal action to collect the money you owe. They will foreclose
on real estate and other property used to secure your loans. This could
include your dwelling even if your housing account is current, if it was
used to secure your farm loan(s). They may also stop the release of
money from the sale of crops or other property. They may take by
administrative offset any money you are owed by other Federal agencies.
Steps You Can Take Before FmHA or its successor agency under Public Law
103-354 Accelerates or Continues Acceleration of Your Loans
(1) Right to a meeting. You have the right to meet with an FmHA or
its successor agency under Public Law 103-354 County official before
they decide to accelerate or continue acceleration of your loan. You
must check the box on Attachment 10-A saying you want a meeting.
[Attachment 10-A is the ``Response to Notice of Intent to Accelerate or
Continue Acceleration of My Loan.'']
How Soon Must I Ask for a Meeting? You must ask for a meeting within
15 days from the date of this notice. Check the box on attachment 10-A.
Return it to your County office. Do this as soon as possible.
(2) The Right to Appeal. You can ask for an administrative appeal
before a hearing officer. You can contest FmHA or its successor agency
under Public Law 103-354's decision to accelerate or continue
acceleration of your loan. You can ask for an administrative appeal,
even if you have asked for a meeting and your problems were not resolved
at that meeting. However, you can only appeal an issue once. For
example, if you previously appealed a favorable debt restructuring offer
and were not successful on appeal, you cannot appeal this offer again.
You can ask for an appeal even if you do not have a meeting.
How to Ask for an Appeal. Check the box on attachment 10-A and mail
it to your County Office within 30 days of getting this notice.
What Happens if You Do Not Respond? If you do not respond to this
notice by filling out attachment 10-A, FmHA or its successor agency
under Public Law 103-354 will accelerate or continue acceleration of any
loans. This means they will take legal action to collect the unpaid
loan, including foreclosure as described above.
Note: Foreclosure means you lose the title to your land. But you can
still apply for preservation loan service programs to keep possession of
your house or farm if FmHA or its successor agency under Public Law 103-
354 buys the property at the foreclosure sale. [See exhibit A,
attachment 1 sent to you on ________. If you did not get these forms,
contact your County Office within 15 days of this notice.]
The Right Not To Be Discriminated Against
Federal law does not allow discrimination of any kind. You cannot be
denied a loan because of your race, color, religion, national origin,
sex, marital status, handicap, or age (if you can legally sign a
contract).
You cannot be denied a loan because you exercised your rights under
the Consumer Credit Protection Act. You must have exercised these rights
in good faith.
The Federal Agency responsible for seeing this law is obeyed is the
Federal Trade Commission, Equal Credit Opportunity, Washington, DC
20580.
Sincerely,
_______________________________________________________________________
County Supervisor
Farmers Home Administration or its successor agency under Public Law
103-354
U.S. Department of Agriculture
Date:___________________________________________________________________
[[Page 203]]
Attachment 10
Note to County Supervisor:
This attachment will always be sent with Attachment 9.
See Sec. 1951.907(h)(2).
Response to Notice Informing Me of FmHA or its successor agency
under Public Law 103-354's Intent to Accelerate or Continue to
Accelerate My Loan
Notice of My Rights
TO: County Supervisor, Farmers Home Administration or its successor
agency under Public Law 103-354
FROM:___________________________________________________________________
(Please print your name and address.)
I want to:
(check one or more of the following boxes)
{time} 1) Request a meeting with the FmHA or its successor agency under
Public Law 103-354 County Official. My telephone number is ________ . I
understand I do not lose my right to appeal if I ask for a meeting.
{time} 2) Voluntarily sign over to FmHA or its successor agency under
Public Law 103-354 all the property used to secure my loan and settle my
debt.
{time} 3) Request an administrative appeal. I understand that I will be
contacted by an official of FmHA or its successor agency under Public
Law 103-354's National Appeals Staff to set up an appeal hearing and
give me more information.
{time} 4) Request an independent appraisal of property securing my
loan(s). I understand I must pay for this appraisal. I understand that
the hearing officer from the National Appeals Staff will give me names
of three appraisers.
{time} 5) Preservation loan service programs.
Signed__________________________________________________________________
Date____________________________________________________________________
Attachment 10-A--Response to Notice Informing Me of FmHA or its
successor agency under Public Law 103-354's Intent To Accelerate or
Continue to Accelerate My Loan
Note to County Supervisor
This attachment will always be sent with attachment 9-A.
(To be used for borrowers receiving notices on or after November 28,
1990).
Notice of My Rights
To: County Supervisor, Farmers Home Administration or its successor
agency under Public Law 103-354
From:___________________________________________________________________
(Please print your name and address.)
I want to: (Check one or more of the foIIowing boxes)
{time} (1) Request a meeting with the FmHA or its successor agency
under Public Law 103-354 County Official.
My telephone number is ________.
I must return this form within 15 days.
I understand I do not lose my right to appeal if I ask for a
meeting.
{time} (2) Voluntarily sign over to FmHA or its successor agency under
Public Law 103-354 all the property used to secure my loan and
settle my debt.
{time} (3) Request an administrative appeal.
I understand that I will be contacted by an official of FmHA or its
successor agency under Public Law 103-354's National Appeals Staff to
set up an appeal hearing and give me more information. I understand I
must request an appeal within 30 days of receiving this notice. I have
not previously appealed this issue.
{time} (4) Preservation loan service programs.
Signed__________________________________________________________________
Date____________________________________________________________________
[53 FR 35718, Sept. 14, 1988; 53 FR 45755, Nov. 14, 1988, as amended at
56 FR 6952, Feb. 21, 1991; 57 FR 18650, Apr. 30, 1992; 58 FR 30105, May
26, 1993; 58 FR 69200, Dec. 30, 1993]
Exhibit B--Notification of Offer to Restructure Debt for Financially
Distressed Borrowers Current on Their Loan Payments
(Borrower's Name and Address)
(Date)
Dear (Borrower's Name):
We have determined that the Farmers Home Administration or its
successor agency under Public Law 103-354 (FmHA or its successor agency
under Public Law 103-354) can approve your request for primary loan
servicing programs.
Our calculations indicate that you will be able to make the
necessary annual payment on your FmHA or its successor agency under
Public Law 103-354 loan if your loan is restructured through the use of
primary loan servicing programs. Therefore, we are offering to
restructure your FmHA or its successor agency under Public Law 103-354
debt in the following fashion:
_______________________________________________________________________
_______________________________________________________________________
(The County Supervisor will fill in the blank by describing exactly what
would be done with the borrower's account. For example, if the borrower
has a farm ownership loan, the County Supervisor will fill in the blank
by saying that ($ Amount) of principal and interest on that loan would
be reamortized for 40 years from the original date of the loan, or up
until (date) at the limited resource interest rate, which is ________
percent.)
The attached computer printout indicates the primary loan servicing
program that will help you overcome your financial difficulty
[[Page 204]]
and provide the greatest net recovery to the Government.
(If production and/or financial management training is to be
required, insert the following paragraphs and attach a list of the
courses the borrower is required to complete and a list of approved
vendors in the borrower's area for these courses:)
As a condition of this restructuring, you must agree to meet, at
your own cost, FmHA or its successor agency under Public Law 103-354's
training requirements which provide instruction in production and
financial management within 2 years of the date your loans are
restructured. The cost will be included in your farm plan as an
operating expense. Upon completion of the training course(s), the
instructor will assign a score according to the following criteria:
Score
1 The borrower attended classroom sessions as agreed,
satisfactorily completed all assignments, and demonstrated an
understanding of the course material.
2 The borrower attended classroom sessions as agreed and attempted
to complete all assignments; however, the borrower does not demonstrate
an understanding of the course material.
3 The borrower did not attend classroom sessions as agreed and/or
did not attempt to complete assignments. In general, the borrower did
not make a good faith effort to complete the training.
Attached is a list of courses you will be required to complete to
fulfill the training requirement. A list of approved vendors in your
area for these courses is also attached. Any denial of a request for a
waiver of the training requirement is not appealable. If you fail to
complete the training as agreed, you will be ineligible for future FmHA
or its successor agency under Public Law 103-354 benefits including
future Farmer Programs direct and guaranteed loans, Primary Loan
Servicing, Interest Assistance renewals, and restructuring of guaranteed
loans.
(If production and/or financial management training is being waived,
insert the following sentence:)
The County Committee has waived the training requirement for the
restructuring offered in this notice.
If you want FmHA or its successor agency under Public Law 103-354 to
use the primary servicing program identified on the computer printout,
you must accept this offer in writing. Your acceptance must be received
by FmHA or its successor agency under Public Law 103-354 not later than
45 days from your receipt of this letter. You may accept this offer in
writing by signing and returning the attached form titled ``Acceptance
of Offer to Restructure my Debt.''
If you do not accept this offer within 45 days, and your account
becomes delinquent, FmHA or its successor agency under Public Law 103-
354 will renotify you of all servicing options available at that time.
Sincerely,
County Supervisor
Attachment 1--Acceptance of Offer to Restructure my Debt
(Date)__________________________________________________________________
To:_____________________________________________________________________
From: (Please print your name and address)
Dear County Supervisor:
I have received your offer to restructure my FmHA or its successor
agency under Public Law 103-354 debt. I would like to accept that offer.
Sincerely,
(Borrower's signature)__________________________________________________
_______________________________________________________________________
(Date)
[57 FR 18658, Apr. 30, 1992, as amended at 58 FR 69200, Dec. 30, 1993]
Exhibit C--Net Recovery Buyout Recapture Agreement
In consideration of the Farmers Home Administration or its successor
agency under Public Law 103-354 (FmHA or its successor agency under
Public Law 103-354) allowing me/us to purchase the real estate property
securing my/our FmHA or its successor agency under Public Law 103-354
Farmer Program loan obligations at the net recovery value of $________
in accordance with FmHA or its successor agency under Public Law 103-354
Instruction 1951-S, I/we agree to pay to difference between the net
recovery value of the security of $________ and the fair market value of
the real estate property of $________ as of the date of this agreement,
if/we sell or otherwise convey the security within 2 years of this
agreement for an amount which exceeds the net recovery value. This
amount is $________. I further agree to give FmHA or its successor
agency under Public Law 103-354 a mortgage or deed of trust to secure
this amount for the best lien obtainable which will be subordinate to
any purchase money security instrument which does not exceed the fair
market value of the property to enable the borrower to purchase the
property from FmHA or its successor agency under Public Law 103-354 at
the net recovery value. This mortgage or deed of trust will be released
2 years from the date of this agreement if I/we do not sell or convey
the property during the two year period.
I/We understand that the difference between the net recovery value
of the real estate securing the FmHA or its successor agency under
Public Law 103-354 loan obligations and the fair market value of the
real estate security specified above will all be due and payable on the
day of sale or conveyance
[[Page 205]]
if I/we sell or otherwise convey the real estate property within two (2)
years from the date of this agreement, if I/we realize a gain in this
transaction.
Loan Balance $________.
Amount of Buyout $________.
_______________________________________________________________________
Date of Agreement
_______________________________________________________________________
Borrower
[53 FR 35718, Sept. 14, 1988]
Exhibit C-1--Net Recovery Buyout Recapture Agreement
(For applications filed for restructuring on or after November 28,
1990.)
Purpose
This agreement with FmHA or its successor agency under Public Law
103-354 will allow you to buy out your loan(s) at the net recovery
value.
1. I/we ________ understand and agree to the following conditions.
2. I/We will give FmHA or its successor agency under Public Law 103-
354 a lien (mortgage or deed of trust) on the FmHA or its successor
agency under Public Law 103-354 real estate security property I/we own
to secure this agreement.
The lien is to secure the maximum recapture amount listed in item
6.c. of this agreement. This lien is secondary to the following lien(s),
including any lien used to obtain the net recovery buyout amount up to
the net recovery value.
_______________________________________________________________________
(name, address, and unpaid balance of lien(s))
3. I/We agree that if I/we do not sell or convey any portion of the
real estate used as security for 10 years, the agreement and any
liability you have under it will be satisfied at the end of 10 years,
and then FmHA or its successor agency under Public Law 103-354 will
release its lien.
Note: Convey includes, but is not limited to, any form of transfer
in all or any portion of the real estate property, including sale, gift,
Contract Sale/Purchase Agreement, foreclosure, and below-fair-market
sale, but does not include a mortgage or deed of trust. Transfer of
title to property to a spouse or child who is actively engaged in
farming the property upon the death or retirement of a borrower, will
not be treated as a conveyance. In such a transaction, FmHA or its
successor agency under Public Law 103-354 will not release its lien, and
the transferee will assume liability under the agreement.
4. I/We agree that as of the date of this agreement, the net
recovery value of the real estate is $________.
5. I/We agree that as of the date of this agreement, the total
amount of the FmHA or its successor agency under Public Law 103-354 debt
secured by real estate including principal and interest before buyout is
$________.
6. If I/we do sell or convey any part or all of this real estate
within 10 years of this agreement, I/we must pay FmHA or its successor
agency under Public Law 103-354 the recapture amount for that part sold
or conveyed which is the smaller of a., b., or c.
a. The Fair Market Value of the real estate parcel at the time of
the sale or conveyance, as determined by an FmHA or its successor agency
under Public Law 103-354 appraisal, minus that portion of the recovery
value of the real estate represented in item 4, or
b. The Fair Market Value of the real estate parcel at the time of
the sale or conveyance, as determined by an FmHA or its successor agency
under Public Law 103-354 appraisal, minus the unpaid balance of prior
liens at the time of the sale or conveyance, minus the net recovery
value of the real estate in item 4 if this amount has not been accounted
for as a prior lien, or
c. The total amount of the FmHA or its successor agency under Public
Law 103-354 debt written off for loans secured by real estate. I/We
agree that this amount is the outstanding balance of principal and
interest owed on the FmHA or its successor agency under Public Law 103-
354 Farmer Programs loan(s) as of the date of this agreement in item 5,
minus the net recovery value of the real estate in item 4. This amount
is $________ and is the maximum amount that can be recaptured.
7. When I/we pay the recapture amount due, FmHA or its successor
agency under Public Law 103-354 will release its lien on the property
sold or conveyed. The agreement and any liability I/we have under it
will be satisfied at the end of 10 years if I/we have made all the
required payments under the recapture agreement. The agreement and any
liability I/we have under it will be satisfied before this time only if
I sell or convey all of the real estate securing this agreement and make
all the required payments under the agreement.
8. This agreement is subject to FmHA or its successor agency under
Public Law 103-354 regulations in 7 CFR part 1951, subpart S, and any
future regulations which are consistent with this agreement.
9. The date of this agreement is the latest date of the dates below.
Signed__________________________________________________________________
(borrower or obligor)
Date____________________________________________________________________
Signed__________________________________________________________________
(borrower or obligor)
Date____________________________________________________________________
[[Page 206]]
_______________________________________________________________________
(FmHA or its successor agency under Public Law 103-354)
Date____________________________________________________________________
[57 FR 18658, Apr. 30, 1992, as amended at 57 FR 47257, Oct. 15, 1992]
Exhibit D--Shared Appreciation Agreement
This Agreement is entered into between (FmHA or its successor agency
under Public Law 103-354) and (Borrower's name) (called ``Borrower'') on
(Date) and expires on (Date) (maximum term of ten (10) years).
Borrower is indebted to FmHA or its successor agency under Public
Law 103-354 for loan(s) as evidenced by the note(s) described below:
Date____________________________________________________________________
Principal Amount________________________________________________________
Interest Rate___________________________________________________________
Due Date________________________________________________________________
This Agreement is attached to the note(s) described above. As of the
date of this Agreement, before write-down, the unpaid principal balance
on this note was $________ and the unpaid interest balance was
$________. These note(s) were modified by the following note(s) which
are attached to note(s) described above.
Date____________________________________________________________________
Principal Amount________________________________________________________
Interest Rate___________________________________________________________
Due Date________________________________________________________________
The note(s) described above are secured by the following real estate
security instruments:
Grantor_________________________________________________________________
Date of Security Instrument_____________________________________________
Records of County/State_________________________________________________
Book or Reel____________________________________________________________
Page____________________________________________________________________
As a condition to, and in consideration of, FmHA or its successor
agency under Public Law 103-354 writing down the above amounts and
restructuring the loan, Borrower agrees to pay FmHA or its successor
agency under Public Law 103-354 an amount according to one of the
following payment schedules:
1. Seventy-five (75) percent of any positive appreciation in the
market value of the property securing the loan as described in the above
security instrument(s) between the date of this Agreement and either the
expiration date of this Agreement or the date the Borrower pays the loan
in full, ceases farming or transfers title of the security, if such
event occurs four (4) years or less from the date of this Agreement.
2. Fifty (50) percent of any positive appreciation in the market
value of the property securing the loan above as described in the
security instruments between the date of this Agreement and either the
expiration date of this Agreement or the date Borrower pays the loan in
full, ceases farming or transfers title of the security, if such event
occurs after four (4) years but before the expiration date of this
Agreement.
The amount of recapture by FmHA or its successor agency under Public
Law 103-354 will be based on the difference between the value of the
security at the time of disposal or cessation by Borrower of farming and
the value of the security at the time this Agreement is entered into. If
the borrower violates the term of this agreement, FmHA or its successor
agency under Public Law 103-354 will liquidate after the borrower has
been notified of the right to appeal.
Market value of the property securing loan(s) $.________________________
Net recovery value of property securing loan(s) $.______________________
Amount of write-down $._________________________________________________
Amount of Account Equity $._____________________________________________
_______________________________________________________________________
(Borrower's signature)
_______________________________________________________________________
(Farmers Home Administration or its successor agency under Public
Law 103-354)
[53 FR 35718, Sept. 14, 1988]
Exhibit E--Notification of Request for Mediation or Meeting of Creditors
and/or Other Options
(To be used by FmHA or its successor agency under Public Law 103-354 to
inform borrowers that FmHA or its successor agency under Public Law 103-
354 is requesting mediation or a voluntary meeting of the borrower's
creditors and/or to offer borrowers who submitted applications on or
after November 28, 1990, the opportunity to negotiate the FmHA or its
successor agency under Public Law 103-354 appraisal and/or pay FmHA or
its successor agency under Public Law 103-354 the net recovery value of
any nonessential assets)
(Borrower's Name and Address)
Dear (Borrower's Name):
The Farmers Home Administration or its successor agency under Public
Law 103-354 (FmHA or its successor agency under Public Law 103-354) has
carefully considered your request for primary loan servicing programs.
Due to your debt with lenders other than FmHA or its successor agency
under Public Law 103-354, you are unable to develop a feasible plan.
Your Farm and Home Plan must show that you have enough income after
payment of your essential living and operating expenses and other non-
FmHA or its successor agency under Public Law 103-354 debts to make an
annual payment to FmHA or its successor agency under Public Law 103-354
of at least $______. Your Farm and Home Plan shows that you have only
$________ to make
[[Page 207]]
this annual payment. Attached are the calculations on which our decision
is based.
If you did not previously request a Conservation Set-Aside Easement,
you may request this servicing action by submitting an ASCS photo
indicating that portion of the farm and the appropriate acres to be
considered. You must submit this ASCS photo to FmHA or its successor
agency under Public Law 103-354 within 30 days of receiving this notice.
(Use the appropriate following paragraph, if applicable.)
Paragraph I
(To be used when Certified State Mediation is available)
Certified State Mediation
We are requesting mediation under the (Name) State Certified
Mediation Program. We will work with you and your creditors to determine
if your debts can be adjusted sufficiently to permit you to develop a
feasible plan of operation. If, with the adjustment of your debt, you
are able to develop a feasible plan of operation which shows that you
can make an annual payment to FmHA or its successor agency under Public
Law 103-354 of at least $______, FmHA or its successor agency under
Public Law 103-354 will reconsider your application for primary loan
servicing.
Paragraph II
(To be used when Certified State Mediation is not available and
undersecured creditors have a substantial part of the total borrower's
debt)
Meeting of Creditors
We will schedule a meeting with you and your other creditors in an
effort to reach agreements with them to adjust your debts sufficiently
to permit you to develop a feasible plan of operation. The FmHA or its
successor agency under Public Law 103-354 State Director will contract
for a mediator or appoint an FmHA or its successor agency under Public
Law 103-354 representative not previously involved in servicing of your
account upon your written request to participate in the meeting with
creditors. Please sign the attached acknowledgment within 30 days of the
date of this letter. The acknowledgment will be your written request and
consent to FmHA or its successor agency under Public Law 103-354
releasing information concerning your account to other creditors who
participate in the meeting.
Paragraph III
(To be used when Certified State Mediation is not available and
undersecured creditors do not hold a substantial part of the total
borrower's debt)
We will not be scheduling a meeting with you and your other
creditors in an effort to reach agreements with them to adjust your
debts. We have determined that your other creditors do not hold a
sufficient amount of your total debt to permit you to develop a feasible
plan of operation even if their debts are entirely written off. You may
object to our determination not to give you a voluntary meeting of
creditors in any appeal you may have. You will be notified of your
appeal rights in a later notice.
(The following paragraphs will be removed if the application was
submitted Before November 28, 1990, or the borrower does not have any
nonessential assets.)
Nonessential Assets
FmHA or its successor agency under Public Law 103-354 has determined
that you have nonessential assets that do not contribute income to pay
essential family living and farm operating expenses. The net recovery
value (NRV) of the nonessential assets has been added to the NRV of the
FmHA or its successor agency under Public Law 103-354 collateral for the
calculation on the attached printout. The NRV of the nonessential assets
is $________. Your nonessential assets and their NRVs are as follows:
Nonessential Assets
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
NRVs
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
FmHA or its successor agency under Public Law 103-354 encourages you
to sell the nonessential assets or borrow against their value. If you
pay the NRV of the nonessential assets on your FmHA or its successor
agency under Public Law 103-354 debt, that amount will be subtracted
from your debt and FmHA or its successor agency under Public Law 103-354
will reevaluate your servicing request. If you are going to pay FmHA or
its successor agency under Public Law 103-354 the NRV of your
nonessential assets, you must do so within 45 days of the date of
receiving this letter. You must check the appropriate block on the
response form and return it to FmHA or its successor agency under Public
Law 103-354 within 45 days with $________ for payment of the NRV of the
nonessential assets. If you want to reduce the NRV, you must pay FmHA or
its successor agency under Public Law 103-354 before any mediation or
meeting of creditors.
If you wish to dispute FmHA or its successor agency under Public Law
103-354's decision that you own nonessential assets, you
[[Page 208]]
will be given the opportunity to appeal if mediation or the meeting of
creditors is unsuccessful. If mediation or a meeting of creditors is not
held, you will be notified of your appeal rights in a later notice.
Negotiation of the Appraisal
If you object to the FmHA or its successor agency under Public Law
103-354 appraisal of your property, you may ask the FmHA or its
successor agency under Public Law 103-354 by returning the ``Response
Form'' to negotiate the appraisal with you. You must ask to negotiate
the FmHA or its successor agency under Public Law 103-354 appraisal
within 30 days from the date you receive this notice. To do this you
must provide FmHA or its successor agency under Public Law 103-354 with
a copy of your current independent appraisal or you must now obtain, at
your cost, an independent appraisal of your property. The appraisal and
the appraiser must meet certain standards published in FmHA or its
successor agency under Public Law 103-354 regulations.
If you do not have a current independent appraisal and wish FmHA or
its successor agency under Public Law 103-354 to assist you, check
option 2 of the ``Response Form'' and FmHA or its successor agency under
Public Law 103-354 will provide you with a list of such appraisers.
You must provide FmHA or its successor agency under Public Law 103-
354 a copy of your independent appraisal within 30 days of requesting
negotiation.
If your current independent appraisal is within five percent of the
FmHA or its successor agency under Public Law 103-354 appraisal, you
must select which appraisal of the two you want FmHA or its successor
agency under Public Law 103-354 to use in processing your request. The
appraisal you select will be the final appraisal. It cannot be further
negotiated or appealed. If the difference is more than five percent and
you have requested a negotiated appraisal, you and FmHA or its successor
agency under Public Law 103-354 will choose an independent appraiser to
complete a third appraisal. You must pay one-half of the cost of the
third appraisal. FmHA or its successor agency under Public Law 103-354
will pay for the other half of the third appraisal. You, the appraiser
and the County Supervisor must complete and sign an appraisal agreement.
Following the completion of the third appraisal, the average of the two
appraisals that are closest in value, as determined by FmHA or its
successor agency under Public Law 103-354, shall establish the appraised
value to be used. This final negotiated appraisal is not appealable. Do
not select this option of the ``Response Form'' if you and FmHA or its
successor agency under Public Law 103-354 have already negotiated your
appraisal.
If you choose not to negotiate and wish to dispute FmHA or its
successor agency under Public Law 103-354's appraisal, you will be given
the opportunity to appeal in a later notice. If you believe there are
mathematical or property description errors in the appraisals, you
should immediately contact the County Supervisor. If you and the County
Supervisor agree, the corrections will be made and initialed by both you
and the County Supervisor.
If you want information on the requirements of an FmHA or its
successor agency under Public Law 103-354 appraisal, you may request a
copy of the FmHA or its successor agency under Public Law 103-354
appraisal regulations from the County Supervisor.
Sincerely,
County Supervisor
Attachment
Attachment 1--Borrower's Request for Meeting of Creditors and
Acknowledgment
I/We have been given a notice explaining that I/we are not eligible
for primary loan service programs. FmHA or its successor agency under
Public Law 103-354 has told me that due to my/our debt with other
lenders it does not believe that I/we can develop a feasible plan. I/we
request that you schedule a meeting with my undersecured creditors to
assist me/us in developing a feasible plan of operation. I/we consent to
FmHA or its successor agency under Public Law 103-354 releasing
information concerning my/our FmHA or its successor agency under Public
Law 103-354 account(s) to these creditors to assist me in developing a
feasible plan.
_______________________________________________________________________
(Date)
_______________________________________________________________________
(Borrower's signature)
Note to county supervisor: Send attachment 1 to exhibit E to
borrowers who submitted applications before November 28, 1990.
Attachment 2--Borrower's Request for Meeting of Creditors and/or Request
To Negotiate the FmHA or its successor agency under Public Law 103-354
Appraisal and Acknowledgment
I/We have been given a notice explaining that I/we are not eligible
for primary loan service programs.
I/we want to:
[Check the appropriate box or boxes.]
{time} (1) Request an independent appraisal of my property
including any nonessential assets.
I must return this ``Response Form'' within 30 days to request an
independent appraisal.
I understand that I must pay for this appraisal. I understand that
the FmHA or its
[[Page 209]]
successor agency under Public Law 103-354 County Supervisor will give me
a list of appraisers.
If the independent appraisal is within five percent of the FmHA or
its successor agency under Public Law 103-354 appraisal, I must select
which of the two appraisals I want to be used for processing my request.
{time} (2) Request Negotiation of the Appraisal.
I must return this ``Response Form'' within 30 days to request a
negotiation of my appraisal.
I understand that I must provide FmHA or its successor agency under
Public Law 103-354 with a copy of my independent appraisal within 30
days of requesting negotiation. I understand that I must pay for this
appraisal and one-half of a third appraisal. I understand that FmHA or
its successor agency under Public Law 103-354 will not negotiate the
appraisal more than once.
{time} (3) I/We request a copy of the FmHA or its successor agency
under Public Law 103-354 recent appraisal of my property.
{time} (4) I/We am paying FmHA or its successor agency under Public
Law 103-354 the net recovery value of any nonessential assets that FmHA
or its successor agency under Public Law 103-354 has said I/we own. I
will pay this amount within 45 days.
Please recalculate the restructuring of the FmHA or its successor
agency under Public Law 103-354 debt.
Note to County Supervisor: Do not include paragraph 5 if certified
state mediation is available or the undersecured creditors' debts are
not a substantial part of the borrower's total debt.
{time} (5) Request that you schedule a meeting with my undersecured
creditors to assist me/us in trying to develop a feasible plan of
operation. I/we consent to FmHA or its successor agency under Public Law
103-354 releasing information concerning my/our FmHA or its successor
agency under Public Law 103-354 account(s) to these creditors to assist
me in developing a feasible plan. I must return this ``Response Form''
within 30 days if I want a meeting.
_______________________________________________________________________
(Date)
_______________________________________________________________________
(Borrower's signature)
Note to County Supervisor: To be sent to borrowers who submitted
applications on or after November 28, 1990.
[57 FR 18659, Apr. 30, 1992]
Exhibit F--Notification of Offer To Restructure Debt
(To be used by FmHA or its successor agency under Public Law 103-354 to
offer to restructure the borrower's debt, and in the case of
applications submitted on or after November 28, 1990, to inform the
borrower about any nonessential assets and the opportunity to negotiate
the appraisal)
(Borrower's Name and Address)
Dear (Borrower's Name):
We have determined that the Farmers Home Administration or its
successor agency under Public Law 103-354 (FmHA or its successor agency
under Public Law 103-354) can approve your request for primary loan
servicing programs.
Offer
Our calculations indicate that you will be able to make the
necessary annual payment on your FmHA or its successor agency under
Public Law 103-354 loan if your loan is restructured through the use of
primary loan servicing programs. Therefore, we are offering to
restructure your FmHA or its successor agency under Public Law 103-354
debt in the following fashion:
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
(The County Supervisor will fill in the blank by describing exactly what
would be done with the borrower's account.) For example, if the borrower
has a farm ownership loan, the County Supervisor will fill in the blank
by saying that ($Amount) of principal and interest on that loan would be
written off, and the remainder of the loan would be reamortized for 40
years from the original date of the loan, or up until (date) at the
limited resource interest rate, which is ______ percent, in exchange for
the borrower signing a shared appreciation agreement, which is attached
to the notice.)
The attached computer printout indicates the primary loan servicing
program that will keep you on the farm and provide the greatest net
recovery to the Government.
(If production and/or financial management training is to be
required, insert the following paragraphs and attach a list of the
courses the borrower is required to complete and a list of approved
vendors in the borrower's area for these courses:)
As a condition of this restructuring, you must agree to meet, at
your own cost, FmHA or its successor agency under Public Law 103-354's
training requirements which provide instruction in production and
financial
[[Page 210]]
management within 2 years of the date your loans are restructured. The
cost will be included in your farm plan as an operating expense. Upon
completion of the training course(s), the instructor will assign a score
according to the following criteria:
Score
1 The borrower attended classroom sessions as agreed,
satisfactorily completed all assignments, and demonstrated an
understanding of the course material.
2 The borrower attended classroom sessions as agreed and attempted
to complete all assignments; however, the borrower does not demonstrate
an understanding of the course material.
3 The borrower did not attend classroom sessions as agreed and/or
did not attempt to complete assignments. In general, the borrower did
not make a good faith effort to complete the training.
Attached is a list of courses you will be required to complete to
fulfill the training requirement. A list of approved vendors in your
area for these courses is also attached. Any denial of a request for a
waiver of the training requirement is not appealable. If you fail to
complete the training as agreed, you will be ineligible for future FmHA
or its successor agency under Public Law 103-354 benefits including
future Farmer Programs direct and guaranteed loans, Primary Loan
Servicing, Interest Assistance renewals, and restructuring of guaranteed
loans.
(If production and/or financial management training is being waived,
insert the following sentence:)
The County Committee has waived the training requirement for the
restructuring offered in this notice.
If you want FmHA or its successor agency under Public Law 103-354 to
use the primary servicing program identified on the computer printout to
restructure your debt, you must accept this offer in writing. Your
acceptance must be received by FmHA or its successor agency under Public
Law 103-354 no later than 45 days from your receipt of this letter. You
may accept this offer in writing by signing and returning the attached
form titled ``Acceptance of Offer to Restructure my Debt.''
(The following paragraphs (the nonessential assets option) will be
removed if the application was submitted before November 28, 1990, or if
the application was submitted on or after that date and the borrower
does not have any nonessential assets.)
Nonessential Assets
FmHA or its successor agency under Public Law 103-354 has determined
that you have nonessential assets that do not contribute a net income to
pay essential family living expenses or maintain a sound farming
operation. The net recovery value (NRV) of the nonessential assets has
been added to the NRV of the FmHA or its successor agency under Public
Law 103-354 collateral for the calculation on the attached printout. The
NRV of the nonessential assets is $________. Your nonessential assets
and their NRVs are as follows:
Nonessential Assets
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
NRVs
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
FmHA or its successor agency under Public Law 103-354 encourages you
to sell the nonessential assets or borrow against their value. If you
pay the NRV of the nonessential assets, that amount will be subtracted
from your debt and FmHA or its successor agency under Public Law 103-354
will recalculate the amount of your FmHA or its successor agency under
Public Law 103-354 debt. If you are going to pay FmHA or its successor
agency under Public Law 103-354 the NRV of your nonessential assets, you
must do so within 45 days of the date of receiving this letter. You must
check the appropriate block on the response form and return it to FmHA
or its successor agency under Public Law 103-354 within 45 days with
your payment for the NRV of the nonessential assets of $______.
If you wish to dispute FmHA or its successor agency under Public Law
103-354's decision that you own nonessential assets or disagree with the
offer presented, you may request a meeting and/or an appeal.
(The following paragraphs (the negotiation option only) will be removed
if the borrower has already negotiated the appraisal or the application
was submitted before November 28, 1990.)
Negotiation of the Appraisal
If you object to the FmHA or its successor agency under Public Law
103-354 appraisal of your property, you may ask the FmHA or its
successor agency under Public Law 103-354 to negotiate the appraisal
with you by returning the ``Response Form.'' You must ask to negotiate
the FmHA or its successor agency under Public Law 103-354 appraisal
within 30 days from the date you receive this notice. To do this you
must provide FmHA or its successor agency under Public Law 103-354 with
a copy of your current independent appraisal or you must now obtain, at
your cost, an independent appraisal of your property. The appraisal and
the appraiser must meet certain standards published in FmHA or its
successor agency under Public Law 103-354's regulations.
[[Page 211]]
If you do not have a current appraisal and wish FmHA or its
successor agency under Public Law 103-354 to assist you, check option 2
of the ``Response Form'' and FmHA or its successor agency under Public
Law 103-354 will provide you with a list of such appraisers.
You must provide FmHA or its successor agency under Public Law 103-
354 with a copy of your independent appraisal within 30 days of
requesting negotiation.
If your current independent appraisal is within five percent of the
FmHA or its successor agency under Public Law 103-354 appraisal, you
must select which appraisal of the two you want FmHA or its successor
agency under Public Law 103-354 to use in processing your request. The
appraisal you select will be the final appraisal. It cannot be further
negotiated or appealed. If the difference is more than five percent and
you have requested a negotiated appraisal you and FmHA or its successor
agency under Public Law 103-354 will choose an independent appraiser to
complete a third appraisal. You must pay one-half of the cost of the
third appraisal. You, the appraiser and the County Supervisor must
complete and sign an appraisal agreement for this appraisal. FmHA or its
successor agency under Public Law 103-354 will pay for the other half of
the third appraisal. Following the completion of the third appraisal,
the average of the two appraisals that are closest in value, as
determined by FmHA or its successor agency under Public Law 103-354,
shall establish the appraised value to be used. This final negotiated
appraisal is not appealable. Do not select this option on the ``Response
Form'' if you and FmHA or its successor agency under Public Law 103-354
have already negotiated your appraisal.
If you wish to dispute FmHA or its successor agency under Public Law
103-354's appraisals but do want to reach agreement with FmHA or its
successor agency under Public Law 103-354 by negotiating the appraisal,
you may also request a meeting and/or appeal of other items of the
decision that you do not agree with by checking the appropriate box/
boxes on the attached response form. If you believe there are
mathematical or property description errors in the appraisals, you
should immediately contact the County Supervisor. If you and the County
Supervisor agree, the corrections will be made and initialed by both you
and the County Supervisor.
If you want information on the requirements of an FmHA or its
successor agency under Public Law 103-354 appraisal, you may request a
copy of the FmHA or its successor agency under Public Law 103-354
appraisal regulations from the County Supervisor.
What Happens If You Do Not Accept the Offer
If you do not accept the restructuring offer on page 1, FmHA or its
successor agency under Public Law 103-354 will deny your request for
primary loan servicing. You can appeal the offer now by checking the
appropriate block on attachment 2, or you can wait until you receive an
additional notice stating that FmHA or its successor agency under Public
Law 103-354 intends to liquidate your account. The notice will explain
the reasons for this action and give you the opportunity to appeal.
You may have a Federal income tax liability if FmHA or its successor
agency under Public Law 103-354 restructures your FmHA or its successor
agency under Public Law 103-354 indebtedness with a writedown. You
should contact the Internal Revenue Service (IRS) for information on
this matter.
Sincerely,
County Supervisor
Attachment 1--Acceptance of Offer To Restructure My Debt
TO: County Supervisor, Farmers Home Administration or its successor
agency under Public Law 103-354
FROM: (Please print your name and address)
Dear County Supervisor:
I have received your offer to restructure my FmHA or its successor
agency under Public Law 103-354 debt.
I would like to accept that offer.
Sincerely,
(Borrower's signature)
_______________________________________________________________________
(Date)
Attachment 2--Acceptance of Restructuring Offer, Request To Negotiate
Appraisal or Pay FmHA or its successor agency under Public Law 103-354
the NRV of Nonessential Assets
(This attachment will be used instead of attachment 1 for borrowers who
submitted applications on or after November 28, 1990.)
To: County Supervisor, Farmers Home Administration or its successor
agency under Public Law 103-354
From: (Please print your name and address)
Dear County Supervisor:
I have received your offer to restructure my FmHA or its successor
agency under Public Law 103-354 debt.
(Check the appropriate blocks.)
{time} (1) I/We accept FmHA or its successor agency under Public
Law 103-354's offer to restructure my debt. I/We must accept FmHA or its
successor agency under Public Law 103-354's offer within 45 days of
receiving exhibit F.
[[Page 212]]
{time} (2) I/We request an independent appraisal of my property
including any nonessential assets. If the difference between my
independent appraisal and the FmHA or its successor agency under Public
Law 103-354 appraisal is not more than five percent, I understand that I
must select which of the two appraisals I want to be used for
reconsidering my request. In such a case, there will not be an appeal of
the appraisal or any further negotiation of the appraisal.
I must return this ``Response Form'' within 30 days to request an
independent appraisal.
I understand that I must pay for this appraisal. I understand that
the FmHA or its successor agency under Public Law 103-354 County
Supervisor will give me a list of appraisers.
{time} (3) I/We request a copy of the FmHA or its successor agency
under Public Law 103-354 recent appraisal of my property.
{time} (4) Request Negotiation of the Appraisal.
I must return this ``Response Form'' within 30 days to request a
negotiation of my appraisal.
I understand that I must provide FmHA or its successor agency under
Public Law 103-354 with a copy of my independent appraisal within 30
days of requesting negotiation. I understand that I must pay for this
appraisal plus one-half of a third appraisal. I understand that FmHA or
its successor agency under Public Law 103-354 will not negotiate the
appraisal more than once.
{time} (5) Request an appeal hearing.
I/We must return this ``Response Form'' within 30 days to request a
hearing.
I/We understand that I/we will be contacted by FmHA or its successor
agency under Public Law 103-354's National Appeals Staff to set up the
appeal hearing date and to give more information.
If possible, I/we should submit a copy of my/our independent
appraisal to the County Supervisor and the hearing officer prior to the
appeal hearing of the appraisal.
{time} (6) I/We intend to pay FmHA or its successor agency under
Public Law 103-354 the net recovery value of any nonessential assets
that FmHA or its successor agency under Public Law 103-354 has said I/we
own.
I/We must pay the net recovery value of the nonessential assets
within 45 days of receiving exhibit F.
Please recalculate my restructuring of the FmHA or its successor
agency under Public Law 103-354 debt.
Sincerely,
(Borrower's signature)
_______________________________________________________________________
(Date)
Attachment 3--Appraisal Agreement
I. This agreement is with (insert name of appraiser), referred
herewithin as the appraiser, FmHA or its successor agency under Public
Law 103-354, and (insert name of FmHA or its successor agency under
Public Law 103-354 borrower requesting a negotiated appraisal)
herewithin referred to as the borrower.
II. The purpose of this agreement is to set forth the terms and
conditions of the appraisal which will be used in determining an
negotiated appraisal of the borrower's farm property.
III. The appraiser agrees to perform
an appraisal of the borrower's farm
property as described below:____________________________________________
_______________________________________________________________________
______________________________.
IV. The appraiser certifies that he has not conducted either the
FmHA or its successor agency under Public Law 103-354 appraisal or the
borrower's independent appraisal of this farm property.
V. The appraiser certifies that he/she is a qualified independent
appraiser as approved by the FmHA or its successor agency under Public
Law 103-354 County Supervisor. The appraiser also agrees that the
completed appraisal will conform to subpart E of part 1922 of this
chapter for real estate and Form FmHA or its successor agency under
Public Law 103-354 440-21 for chattels.
VI. The cost of the appraisal will be (insert dollar cost). The cost
of the appraisals will be shared equally by FmHA or its successor agency
under Public Law 103-354 and the borrower, each paying one-half of the
cost upon delivery of the completed appraisal to FmHA or its successor
agency under Public Law 103-354 and the borrower. The completed
appraisal must be delivered to FmHA or its successor agency under Public
Law 103-354 and the borrower within 30 days of the date of this
agreement.
_______________________________________________________________________
_______________________________________________________________________
(Borrower)
_______________________________________________________________________
(County Supervisor)
(Appraiser)
Date:___________________________________________________________________
[53 FR 35718, Sept. 14, 1988, as amended at 57 FR 18660, Apr. 30, 1992;
58 FR 44753, Aug. 25, 1993; 58 FR 69200, Dec. 30, 1993]
[[Page 213]]
Exhibit G--Deferral, Reamortization and Reclassification of Distressed
Farmer Program (FP) Loans for Softwood Timber Production (ST) Loans
I. General.
Borrowers with distressed FP loans, as defined in this exhibit, with
50 or more acres of marginal land may request FmHA or its successor
agency under Public Law 103-354 assistance under the provisions of this
section. Such distressed FP loans may be reamortized with the use of
future revenue produced from the planting of softwood timber on marginal
land as set out in this section. The basic objectives of the FmHA or its
successor agency under Public Law 103-354 in reamortizing and deferring
payments of distressed FP loans (ST loans) to financially distressed
farmers are to develop a feasible plan to assist eligible FmHA or its
successor agency under Public Law 103-354 borrowers to improve their
financial condition, to repay their outstanding FmHA or its successor
agency under Public Law 103-354 debts in an orderly manner, to carry on
a feasible farming operation, and to take marginal land, including
highly erodible land, out of the production of agricultural commodities
other than for the production of softwood timber. County Supervisors are
authorized to approve softwood timber (ST) loans subject to the
limitations in paragraph VI of this exhibit.
(A) Management assistance. FmHA or its successor agency under Public
Law 103-354 management assistance will be provided to borrowers to
assist them to achieve loan objectives and protect the Government's
financial interests, in accordance with subpart B of part 1924 of this
chapter.
(B) Definitions.
(1) Distressed FmHA or its successor agency under Public Law 103-354
loan. An FP loan which is delinquent or in financial distress because a
borrower cannot project a feasible plan by using the other loan
modification actions including rescheduling, reamortizing or deferral
for the maximum term.
(2) Marginal land. Land determined suitable for softwood timber
production by the Soil Conservation Service (SCS) that was previously
pasture land or within the last five years used for the production of
agricultural commodities, as defined in Sec. 12.2 of subpart A of part
12 of this chapter and which is Attachment 1 of Exhibit M of subpart
1940 of this chapter. This could include:
(a) Highly erodible land as defined or classified by the SCS under
Sec. 12.2 of subpart A of part 12 of this chapter, or
(b) Marginal lands that predominantly include soils that are in
Class IV, V, VI, VII, or VIII in the SCS's Land Capability
Classification System. However, marginal land shall not include wetlands
as defined in Sec. 12.2 (a)(26) of subpart A of part 12 of this chapter
and which is attachment 1 of exhibit M of subpart G of part 1940 of this
chapter.
(3) Softwood timber. The wood of a coniferous tree having soft wood
that is easy to work or finish and is commonly grown and commercially
sold for pulpwood, chip, and sawtimber.
(c) ST loan eligibility. A borrower must:
(1) Have the debt repayment ability and reliability, managerial
ability and industry to carry out the proposed timber production
operation.
(2) Be willing to place not less than 50 acres of marginal land in
softwood timber production; such land (including timber) may not have
any lien against it other than a lien for ST loans.
(3) Have properly maintained chattel (i.e. movable property) and
real estate security and accurately accounted for the sale of security,
including crops, and livestock production.
(4) Be an FmHA or its successor agency under Public Law 103-354 FP
loan borrower who owns 50 acres or more of marginal land which SCS
determines to be suitable for softwood timber.
(5) Have sufficient training or farming experience to assure
reasonable prospects of success in the proposed timber operation.
(6) Have one or more distressed FmHA or its successor agency under
Public Law 103-354 loans as defined by this exhibit.
(7) Not have a total indebtedness of ST loan(s) that will exceed
$1,000 per acre for the marginal land at closing. Example: If 50 acres
of marginal land is put in softwood timber production, the total ST loan
indebtedness may not exceed $50,000 at closing.
(8) Be able to obtain sufficient money through FmHA or its successor
agency under Public Law 103-354 or other sources including cost-sharing
programs for forestry purposes for the planting, caring, and harvesting
of the softwood timber trees.
II. Reamortization requirements.
(A) A Timber Management Plan must be developed with the assistance
of the Federal Forest Service (FS), State Forest Service or such other
State or Federal agencies or qualified private forestry service. The
plan will outline the necessary site preparation, planting practices,
environmental protection practices, tree varieties, the harvesting
projection, the planned use of the timber, etc.
(B) The following requirements must also be met:
(1) If the borrower is otherwise eligible, the County Supervisor
must determine that a feasible farm plan as defined by subpart B of part
1924 of this chapter on the present farm operation is not possible
without using the provisions of this section. The County Supervisor must
calculate the borrower's plan of
[[Page 214]]
operation, using the maximum terms for the rescheduling, reamortization
and deferral authorities set out in this subpart. If a feasible
projection can be achieved by using any of these authorities, the
borrower's account will be rescheduled, reamortized or deferred, as
applicable. Limited Resource rates must be considered, if the borrower
is eligible, in determining whether a feasible plan can be achieved. The
County Supervisor must document the steps taken to develop these cash
flow projections and must place this documentation in the borrower's
case file. A copy of this documentation must also be given to the
borrower. If a feasible plan is shown, the borrower is not eligible for
a reamortization of a distressed loan(s) as set out in this section. The
borrower will be given an opportunity to appeal the FmHA or its
successor agency under Public Law 103-354 denial, as provided in
Sec. 1951.909(i) of this subpart after the County Supervisor determines
the borrower's eligibility for the other servicing programs in this
subpart.
(2) If a feasible plan cannot be developed on the present farm
operation, the County Supervisor will determine if a feasible plan would
be possible by deferring and reamortizing a portion of one or more
distressed FP loans as ST loans. The ST loan is limited to the loan
amount (rounded up to the nearest $1,000) sufficient to produce a
feasible plan. However, the amount of the loan cannot exceed the $1,000
per acre specified in paragraph I (C)(7) of this exhibit. The borrower,
with assistance from the County Supervisor, must be able to develop a
feasible farm plan for the first full crop year of the deferral.
(3) For applications received before November 28, 1990, when a loan
is reamortized the accrued interest less than 90 days overdue will not
be capitalized. For new applications, as defined in Sec. 1951.906 of
this subpart, the total amount of outstanding accrued interest will be
added to the principal at the time of reamortization. Payments may be
deferred for up to 45 years or until the timber crop produces revenue,
whichever comes first, except as required in paragraph VIII(B) of this
section. If income is available, payments will be required as determined
in paragraph II(B)(4) of this exhibit. Repayment of such a reamortized
loan shall be made not later than 46 years after the date of the
reamortization unless the borrower qualifies for a further
reamortization as authorized in section IX(H) of this exhibit.
(4) If assistance is granted, an annual plan will be developed each
year to determine if there is any balance available to pay interest and/
or principal on ST loans before the deferral period ends. If a balance
is available, the borrower will sign Form FmHA or its successor agency
under Public Law 103-354 440-9, ``Supplementary Payment Agreement.''
(5) Applicable requirements of subpart G of part 1940 of this
chapter must be met.
(C) If a borrower has requested an ST loan that has a portion of the
debt set-aside under this subpart, the set-aside will be cancelled at
the time the reamortization is granted. The borrower may retain the set-
aside on other loans. A borrower who requests a reamortization of a
distressed set-aside loan must agree in writing to the cancellation of
the set-aside. The written agreement must be placed in the borrower's
case file.
(D) If the total amount of the distressed FP loan(s) exceeds $1,000
per acre of the marginal land designated for softwood timber production,
the FP loan must be split. The split portion of the loan may not exceed
$1,000 per acre for the marginal land. A new mortgage will be required
to secure this portion of the loan unless the FmHA or its successor
agency under Public Law 103-354 State supplement allows otherwise. The
mortgage must ensure that FmHA or its successor agency under Public Law
103-354 has a security interest in the timber. The remaining balance of
such a split loan will be secured by the remaining portion of the farm
and such other security previously held as security prior to the split.
Separate promissory notes will be executed for each portion of the split
loan. The remaining portion of the note will be rescheduled, deferred,
or reamortized, as applicable, in accordance with this subpart. The ST
loan will be deferred and reamortized in accordance with this section.
The ST loan(s) will be secured by the marginal land including timber.
(E) The County Supervisor will release all other liens securing FmHA
or its successor agency under Public Law 103-354 loans including NP
loans on such marginal land when the ST loan is closed. Only ST loans
will be secured by such marginal land including timber. Releases will be
processed in accordance with subpart A of part 1965 of this chapter.
Such releases are authorized by this paragraph. If other lenders have
liens on this marginal land, the lenders must release their liens before
or simultaneously with FmHA or its successor agency under Public Law
103-354's release of liens. No additional liens can be placed on the
marginal land and timber after the closing of a ST loan.
III. Interest rate of ST loans.
See Exhibit B of FmHA or its successor agency under Public Law 103-
354 Instruction 440.1 for the applicable interest rate (available in any
FmHA or its successor agency under Public Law 103-354 office). The
interest rate will be the lower of (1) the rate of interest on the
original loan which has been deferred and reamortized as the ST loan or
(2) the Exhibit B rate.
[[Page 215]]
IV. Special requirements.
(A) Size of the timber tract. The minimum parcels of marginal land
selected as a tract for softwood timber production must be contiguous
parcels of land containing at least 50 acres. Small scattered parcels
will be excluded.
(B) Farm or residence situated in different counties. If a farm is
situated in more than one State, county, or parish, the loan will be
processed and serviced in the State, county, or parish in which the
borrower's residence on the farm is located. However, if the residence
is not situated on the farm, the loan will be serviced by the county
office serving the county in which the farm or a major portion of the
farm is located unless otherwise approved by the State Director.
(C) Graduation of ST borrowers. If, at any time, it appears that the
borrower may be able to obtain a refinancing loan from cooperative or
private credit source at reasonable rates and terms, the borrower will,
upon FmHA or its successor agency under Public Law 103-354 request,
apply for and accept such financing.
V. Planning.
A farm plan will be completed as provided in subpart B of part 1924
of this chapter. The State Director will supplement this subpart with a
State supplement to guide the County Supervisor regarding the sources
available to obtain a Timber Management Plan. The required Timber
Management Plan developed with the assistance of the FS, State Forest
Service or such other State or Federal agencies or qualified private
forestry service should provide management recommendations to assist the
borrower in establishing, managing and harvesting softwood timber.
Borrowers are responsible for implementing the Timber Management Plan.
VI. Distressed reamortized loan approval or disapproval.
County Supervisors are authorized to approve or disapprove the
reamortization of distressed FmHA or its successor agency under Public
Law 103-354 loans as described in this section. No more than 50,000
acres nationwide can be placed in the program. Acres for the program
will be allocated to borrowers on a first-come, first-serve basis.
``Administrative Notices'' containing reporting requirements will be
issued to field offices so that the National Office can keep a tally of
the acres placed in the program. The County Supervisor will obtain a
verification from the State Director that the acres can be allocated to
the program prior to approval of the reamortization of the distressed FP
loan(s). Normally, the verification of allocated acres will be obtained
when the loan docket is complete and ready for approval. Loans for the
program will not be approved until a confirmation is received for the
allocation of acres for the loan(s). When a reamortization is approved,
the County Supervisor will notify the borrower by letter of the approval
of the ST loan(s). The FmHA or its successor agency under Public Law
103-354 field office will process the reamortization via the FmHA or its
successor agency under Public Law 103-354 field office terminal system
in accordance with Form FmHA or its successor agency under Public Law
103-354 1940-18.
VII. Reamortizing disapproval.
When a reamortization is disapproved, the County Supervisor will
notify the borrower in writing of the action taken and the reasons for
the action, and include any suggestions that could result in favorable
action. The borrower will be given written notice of the opportunity to
appeal as provided in Sec. 1951.909 (i) of this subpart after the County
Supervisor has determined whether the borrower is eligible for the
remaining servicing programs authorized by this subpart.
VIII. Processing of ST loans.
(A) If the reclassified ST loan is approved, all other FmHA or its
successor agency under Public Law 103-354 loans must be current on or
before the date the reclassified ST notes are signed except for FmHA or
its successor agency under Public Law 103-354-authorized recoverable
cost items that cannot be rescheduled or reamortized. All other
delinquent loans including NP loans will be rescheduled, reamortized,
consolidated, deferred or paid current as applicable to bring the
borrower's account current.
(B) ST loans on the dwelling. If the only liens on the borrower's
dwelling are the reclassified ST loans, the borrower must make payments
on the loan(s):
(1) The total of which will be at least equal to the market value
rent for the dwelling as determined by the County Supervisor, or
(2) The minimum equally amortized installment for the term of the
loan, whichever is less. Such payments cannot be deferred and will be
shown in the promissory note as a regular scheduled payment for the
reclassified ST loan.
(C) Form FmHA or its successor agency under Public Law 103-354 1940-
18, ``Promissory Note for ST Loans,'' will be used for ST loans. Form
FmHA or its successor agency under Public Law 103-354 1940-17,
``Promissory Note,'' will be used for any remaining portion of a split
distressed loan. The forms will be completed, signed and distributed as
provided in the Forms Manual Inset.
(D) For applications for Primary and Preservation Loan Service
Programs received before November 28, 1990, interest payments which are
90 days or more past due will be added to the principal balance to form
a new
[[Page 216]]
principal balance upon which interest will accrue over the Softwood
Timber deferral period; interest less than 90 days past due will not be
capitalized and will be payable at the end of the Softwood Timber
deferral period. For new applications, as defined in Sec. 1951.906 of
this subpart, the total amount of outstanding accrued interest will be
added to the principal balance to form a new principal balance upon
which interest will accrue over the Softwood Timber deferral period. The
FMI for Form FmHA or its successor agency under Public Law 103-354 1940-
17 has examples (IV, V) which explain this procedure. The Finance Office
will apply the payments made on the note in accordance with subpart A of
part 1951 of this chapter.
(E) The following addendum will be typed and signed by the borrower
and attached to the promissory note:
Addendum For Deferred Interest For Softwood Timber Loans
Addendum to promissory note dated ________ in the original amount of
$________ at an annual interest rate of ________ percent. This agreement
amends and attaches to the above note. $________ of each regular payment
on the note will be applied to the interest which will accrue during the
deferral period. The remainder of the regular payment will be applied in
accordance with 7 CFR part 1951, subpart A. I (we) agree to sign a
supplementary payment agreement and make additional payments if during
the deferral period we have a substantial increase in income and
repayment ability.
_______________________________________________________________________
Borrower
(F) New mortgages on farm property or related assets must be filed
unless otherwise excused from being filed by the State supplement. If a
new mortgage or separate security agreement is taken, the new mortgage
and/or security agreement should be filed and perfected in the manner
described by the State supplement. In many cases a survey of the land
securing the ST loan will be required.
(G) The borrower will obtain any required releases for previous
mortgages from other lienholders and the County Supervisor will release
any other FmHA or its successor agency under Public Law 103-354 liens in
accordance with paragraph II (E) of this exhibit.
IX. Servicing.
ST loans will be serviced in accordance with Subpart A of Part 1965
of this chapter with the following exceptions:
(A) ST loans will not be subordinated for any purpose.
(B) Security property for ST loans will not be leased except for
softwood timber production as authorized by the ST loan.
(C) During the life of the ST loan, land designated for softwood
timber production cannot be used for grazing or the production of other
agricultural commodities, as defined in Sec. 12.2(a)(1) of Subpart A of
Part 12 of this chapter and which is in Attachment 1 of Exihibit M of
subpart G of part 1940 of this chapter.
(D) ST loans will only be transferred as NP loans in accordance with
subpart A of part 1965 of this chapter except in the case of the death
of the borrower. Deceased borrower cases involving transfers will be
handled by FmHA or its successor agency under Public Law 103-354 in
accordance with Subpart A of Part 1962 of this chapter.
(E) Land designated for softwood timber production under this
subpart must remain in the production of softwood timber for the life of
the loan. If the trees die or are destroyed or the production of timber
ceases, as recognized by acceptable timber management practices, and the
borrower is unable to develop feasible plans for the reestablishing of
the timber production, the account will be liquidated in accordance with
the provisions of Subpart A of Part 1965 of this chapter. Any appeal to
FmHA or its successor agency under Public Law 103-354 must be concluded
before any adverse action can be taken on the loan.
(F) The Timber Management Plan will be updated and revised, as
needed, every five years or more often if necessary.
(G) Harvesting softwood timber for Christmas trees is prohibited.
(H) An ST loan will only be reamortized if:
(1) The timber is not harvested in the year stated in the initial
promissory note, and
(2) The borrower is unable to pay the note as agreed.
Interest charges more than 90 days overdue will be capitalized at
the time of the reamortization. The term of the reamortized note will
not exceed 50 years from the date of the initial ST note. The total
years of deferred payments will not exceed 45 years, including the
payments deferred in the initial note. The note should be scheduled for
payment when the timber is expected to be harvested, or when income will
be available to pay on the note, whichever comes first. However, partial
payments must be scheduled for those years that exceed the deferral
period.
(3) For applications received before November 28, 1990, the interest
less than 90 days past due will not be capitalized. For new
applications, the total amount of outstanding accrued interest will be
capitalized. The term of the reamortized note will not exceed 50 years
from the date of the initial ST note. The total years of deferred
payments will not exceed 45 years, including the payments deferred in
the initial note. The note should be scheduled for payment when the
timber is expected to be harvested, or when income will be available to
pay on the note, whichever comes first. However, partial payments must
be scheduled for those years that exceed the deferral period.
[[Page 217]]
S. State supplements.
State supplements will be issued immediately and updated as
necessary to implement this section.
Attachment 1--Notice of Availability of Option To Reamortize Certain
Loans Secured by Future Revenue Produced by Planting Softwood Timber
(Used by the County Supervisor to inform borrowers of the availability
of Softwood Timber Loans)
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
(Name and Address)
Dear ______________________:
To implement a provision in the 1985 Farm Bill, the Farmers Home
Administration or its successor agency under Public Law 103-354 (FmHA or
its successor agency under Public Law 103-354) is offering the
additional loan servicing option of reamortizing Farmer Program loans
with repayment secured by and postponed until the harvesting of a
Softwood timber crop. Eligible applicants may request or receive an
operating loan to cover the actual cost of the required planting. If you
are using marginal land for farming or pasture, and desire to use at
least 50 acres of this marginal land to plant and produce softwood
timber, contact this office within 15 days of the receipt of this letter
to apply for this option so that your request can be processed in a
timely manner. Please note the following limitations to this program:
FmHA or its successor agency under Public Law 103-354 must be the sole
lienholder of both the land growing the softwood timber and the revenues
from the timber; the total amount of loans secured by the land and
softwood timber cannot exceed $1,000 per acre; and the program is
limited to 50,000 acres of softwood timber nationwide.
Sincerely,
County Supervisor
[53 FR 35718, Sept. 14, 1988, as amended at 56 FR 3396, Jan. 30, 1991;
57 FR 18661, Apr. 30, 1992]
Exhibit H--Primary Loan Service and Conservation Easement Programs
I. General.
A Conservation Easement (CE) may be exchanged, when requested by a
borrower (current or delinquent), for a cancellation of a portion of
his/her FmHA or its successor agency under Public Law 103-354
indebtedness. The CE may be considered alone, or with the Primary Loan
Servicing Programs as set forth in Sec. 1951.909 of this subpart and the
requirements of this exhibit. These easements can be established for
conservation, recreational, and wildlife purposes on farm property that
is wetland, wildlife habitat, upland or highly erodible land. Such land
must be suitable for the purposes involved and, except in the case of
wetland and wildlife habitat as defined in paragraphs (a) and (d) of
this section, must have been row cropped each year of a three-year
period ending on December 23, 1985. All Farmer Programs loans which are
secured by real estate may be considered for a CE. Non-program loan
debtors are not eligible to receive any benefits under this section.
Conservation easements do not have to result in net recovery to the
government at least equal to the recovery from liquidation. If a
borrower who has applied for Primary Loan Servicing initially declines
an easement, but the debt writedown program fails to establish a
feasible plan, the borrower will be considered for a CE combined with
debt writedown to determine whether these options establish a feasible
plan.
Definitions.
(1) Conservation purposes. These include protecting or conserving
any of the following environmental resources or land uses:
(a) Wetland, except when such term is part of the term ``Converted
wetland,'' is land that Soil Conservation Service (SCS) has determined
has a predominance of hydric soils and that is inundated or saturated by
surface or ground water at a frequency and duration sufficient to
support, and that under normal circumstances does support, a prevalence
of hydrophytic vegetation typically adapted for life in saturated soil
conditions, except that this term does not include lands in Alaska
identified as having a high potential for agricultural development and a
predominance of permafrost soils.
(i) Hydric soils means soils that, in an undrained condition, are
saturated, flooded, or ponded long enough during a growing season to
develop an anaerobic condition that supports the growth and regeneration
of hydrophytic vegetation;
(ii) Hydrophytic vegetation means a plant growing in--
(A) Water; or
(B) A substrate that is at least periodically deficient in oxygen
during a growing season as a result of excessive water content;
(b) Highly erodible land is land that SCS has determined has an
erodibility index of 8 or more.
(c) Upland is a term used in the law to refer to land other than
highly erodible land and wetland. Although upland in its normal use
implies many types of land, it has been more narrowly defined for this
purpose to include land and/or water areas that meet any one of the
following criteria:
(i) One-hundred year floodplain,
(ii) Aquatic life, or wildlife habitat or endangered plant habitat
of local, regional, State or Federal importance,
[[Page 218]]
(iii) Aquifer recharge area of local, regional or State importance,
including lands in the wellhead protection program for public water
supplies authorized by the Safe Drinking Water Act Amendments of 1986,
(iv) Area of high water quality or scenic value,
(v) Area containing historic or cultural property, which is listed
in or eligible for the National Register of Historic Places, as provided
by the National Historic Preservation Act (NHPA),
(vi) Area that provides a buffer zone necessary for the adequate
protection of proposed conservation easement areas,
(vii) Area within or adjacent to a National Park, U.S. Fish and
Wildlife Service administered area, State Fish and Wildlife agency
administered area, a National Forest, a Bureau of Land Management
administered area, a Wilderness Area, a National Trail, a unit of the
Coastal Barrier Resource System, abandoned railroad corridors contained
in local, State or Federal open space, recreation or trail plans,
Federal or State Wild or Scenic River, U.S. Army Corps of Engineers land
designated for flood control or recreation purposes, State and local
recreation, natural or wildlife areas or State Conservation Agency
administered areas.
(viii) Area that SCS determines contains soil(s) that is generally
not suited for cultivation such as soils in land capability classes IV,
V, VI, VII or VIII in the SCS's Land Capability Classification System.
(d) Wildlife habitat is a term used to include the area that
provides direct support for given wildlife species, species life stages,
populations, or communities determined appropriate by the Conservation
Agency within the State as being of State, regional or local importance
or as determined by the Fish and Wildlife Service to be of national
importance. This wildlife habitat area includes all acceptable
environmental features such as air quality, water quality, vegatation,
and soil characteristics.
(2) Enforcement authority. Any agency of the United States, a State,
or a unit of local Government of a State or a person that is designated
by FmHA or its successor agency under Public Law 103-354 and specified
within an easement area to enforce the terms and conditions of that
easement.
(3) Management authority. Any agency of the United States, a State,
or a unit of local Government of a State, a person, or an individual
that is designated in writing by an enforcement authority to carry out
all or a portion of the activities necessary to manage and implement the
terms and conditions of an easement and/or its management plan. The
borrower whose land is subject to the easement may be eligible to be
designated as a management authority.
(4) Person. Any agency of the United States, a State, a unit of
local Government within a State, or a private or public nonprofit
organization.
(5) Recreational purposes. These activities include providing public
use for both consumption (e.g., hunting, fishing) and noncomsumption
(e.g., camping, hiking) recreational activities, a manner that conserves
wildlife and their habitats, ensures public safety, complies with
applicable laws, regulations, and ordinances and permits the operation
of the remaining farm enterprise(s).
(6) Row Cropped. The term refers to growing agricultural products,
including small grains, by the annual tilling of the land (including one
trip planters and sugar cane). This farming approach refers to land that
was in grasses and/or legumes as part of a commonly practiced row crop
rotational system in the local area as well as land that was set aside,
diverted or otherwise not cultivated under a program administered by
USDA to reduce production of an agricultural product or to conserve soil
and water.
(7) Wildlife. The term includes fish and/or wildlife and means any
wild animal, whether alive or dead, including any wild mammal, bird,
reptile, amphibian, fish, mollusk, crustacean, arthropod, coelenterate,
or other invertebrae, whether or not bred, hatched, or born in
captivity, and includes any part, product, egg, or offspring.
(8) Wildlife purposes. These program objectives include establishing
and managing areas that contain fish and wildlife habitats of local,
regional, State or Federal importance.
II. Eligibility.
The following steps must be taken to determine if the borrower is
eligible for a conservation easement. If the borrower is found to be
ineligible, the FmHA or its successor agency under Public Law 103-354
County Supervisor will notify the borrower of the opportunity to appeal
the adverse decision on the eligibility for the easement after a final
decision is made on whether the borrower qualifies for any other
servicing options. The County Supervisor must find that:
(1) All Farmer Program loans which are secured by real estate may be
considered for a CE. A real estate mortgage or deed of trust taken on a
borrower's real estate as additional security for a Farmer Programs loan
qualifies as real estate security.
(2) The proposed easement helps a qualified borrower to repay the
loan in a timely manner.
(3) The proposed easement land except in the cases of wetland and
wildlife habitat was row cropped each year of the three-year period
ending on December 23, 1985; and
[[Page 219]]
(4) If the land being proposed for the easement is within the
Agricultural Stabilization and Conservation Service (ASCS) Conservation
Reserve Program, both the requirements of that program and this section
can be met.
III. Establishing Easement Review Team.
The County Supervisor will establish an easement review team by
notifying the appropriate field offices of the Soil Conservation Service
(SCS), U.S. Fish and Wildlife Service (FWS), State Fish and Wildlife
Agencies, Conservation District, National Park Service, Forest Service
(FS), State Historic Preservation Officer, State Conservation Agencies,
State Environmental Protection Agency, State Natural Resources Agencies,
adjacent public landowner, and any other entity that may have an
interest and qualifies to be an enforcement authority for an easement.
The notified parties may in turn notify other eligible entities. SCS,
for example, may want to notify the appropriate Conservation District.
As part of the notification, the County Supervisor will provide an
approximate location and a general description of the potentially
affected land. All notified parties will be invited to serve on an
easement review team.
IV. Responsibilities of the Easement Review Team.
SCS will lead the easement review team which in every case will be
composed of an SCS and FmHA or its successor agency under Public Law
103-354 representative (and in the case of wetlands, the U.S. FWS), plus
all other parties that accepted the invitation to participate. To the
extent practicable, a site visit will be conducted within fifteen days
from the date the review team members are invited to participate. Any
lien holder(s) and the borrower will be informed of the site visit time/
date and invited to attend. Within thirty days after the site visit, a
report will be developed by the review team and provided to the County
Supervisor. The report will cover the items listed in paragraphs (A)
through (F) of this paragraph. The report will be prepared by an
organization, selected by FmHA or its successor agency under Public Law
103-354, that has indicated its willingness to be the enforcement
authority except in the instance discussed in paragraph (C) below.
Whenever review team members have differing positions on any items to be
addressed in the report, each team member will prepare a separate report
and submit these reports to the organizations responsible for the
report. These differing views will be noted in the report. When no
differences exist within the review team, written summaries of team
members' positions need not be submitted to the preparer of the report
unless either the preparer requested them or an individual team member
desires to submit a report. The items to be addressed in the review team
report are:
(A) The amount of land, if any, which is wetland, wildlife habitat,
upland or highly erodible land and the approximate boundaries of each
type of land. If applicable, easement boundaries may be recommended
which go beyond the wetland, upland, or highly erodible land but are
necessary for either the establishment of identifiable easement
boundaries or are required for the efficient management of the
easement's terms and conditions.
(B) A finding of whether the land is suitable for conservation,
recreation and/or wildlife habitat purposes and a priority ranking of
purposes included, if the land can be so classified and ranked. First,
priority will be given to land easement opportunities to benefit
wildlife species of Federal Trust responsibility (e.g., migratory birds
and endangered species) and their habitats (e.g., wetlands). Special
consideration will be given to opportunities to benefit a combination of
conservation, recreation and wildlife habitat purposes. When there are
other land easements already established or under review within the
local area and the intent of these easements has been established, the
review team will consider these actions as purpose rankings are
developed.
(C) The name of the qualified enforcement authority which is willing
to be assigned enforcement authority for the easement as well as the
name(s) of any entity(s), if known, that the enforcement authority may
use to manage the easement. Whenever more than one qualified entity
desires to be the enforcement authority, the report will be prepared by
SCS and will indicate this fact.
(D) If appropriate, any special terms or conditions that would need
to be placed on the easement plus unique or important features of the
property which would not be adequately addressed by the standard
easement terms and conditions.
(E) A proposed management plan consistent with the purpose or
purposes for which the easement would be established. The management
plan will outline the various management alternatives for the proposed
easement. The enforcement authority's eventual selection of the
alternative(s) to be followed will be based upon future needs, fund
availability, and identification within the management plan. The
management plan will provide guidance as to the conservation practices
to be followed and the costs which may occur in the establishment and
maintenance of the easement. This management plan will specifically
recommend whether or not public recreational use and/or public hunting
should be allowed on the easement and provide supporting reasons for the
recommendation(s) made. Whenever changes
[[Page 220]]
are required in the management plan, the enforcement authority, with the
concurrence of FmHA or its successor agency under Public Law 103-354,
may update the management plan to reflect the changes.
(F) The recommended term length of the easement. See paragraph VI of
this exhibit.
V. FmHA or its successor agency under Public Law 103-354's Review of
Easement Team's Report.
Upon receipt, the County Supervisor will review the easement team's
report. If the report indicates that an easement is not feasible given
the nature of the land, or the failure of a qualified entity to
volunteer to become an enforcement authority, the County Supervisor will
inform the borrower of the reason(s) that the easement has been denied
and that the borrower may appeal the denial of the easement. If the
report is favorable to an easement and more than one qualified entity
has indicated its desire to be an enforcement authority, the County
Supervisor will select a Federal entity over a non-Federal entity since
the easement involves reduction of a Federal debt. If two Federal
agencies each want to be the enforcement authority, the County
Supervisor will select the Federal agency that owns or controls property
adjacent to the easement or the Federal agency whose mission or
expertise best matches the priority use purpose(s) for which the
easement would be established. In selecting between non-Federal
entities, the County Supervisor will select the entity that has the
greatest capability to enforce the terms and conditions of the easement
during the proposed term of the easement.
VI. Terms of Easements.
A conservation easement may be obtained for a period of not less
than 50 years and a borrower cannot crop the easement land during the
term of the easement. A longer period of time or a perpetual easement
shall be established if the easement review team determines that there
is justification for extending the conservation easement past the 50-
year minimum. Justification will exist if the easement would:
(A) Contribute directly to achievement of benefits to species
protected by international treaty (e.g. migratory birds);
(B) Contribute directly to protection of habitat or restoration of
habitat or benefit to threatened, endangered and/or candidate species;
(C) Serve as the site for wildlife habitat improvements which may be
required to offset the unfavorable impact of a permit, license or
project when improvements need to be longer than 50 years;
(D) Serve as the site for substantial investment of public or
private funds in order to achieve stated resource conservation and/or
management purposes;
(E) Be desirable that property be removed from production for a long
period due to the type of land; or
(F) Serve as a significant historical site, ground water recharge
area or other significant eligible easement objective.
VII. Determining the Amount of Farmer Program Debt That Can Be
Cancelled.
(A) Calculate the amount of debt to be cancelled as follows:
(1) Step 1. Determine what percent the number of easement acres is
of the total acres of land that secures the borrower's farmer program
loans by dividing the easement acres that secure the borrower's farmer
program loans by the total acres that secure the borrower's farmer
program loans.
(2) Step 2. Determine the amount of farmer program debt that is
secured by the easement acreage by multiplying the borrower's total
unpaid farmer program loan balance (principal, interest and recoverable
costs already paid by FmHA or its successor agency under Public Law 103-
354) by the percentage calculated in Step 1.
(3) Step 3. Determine the current value of the land in the easement
by multiplying the present market value of the farm that secures the
borrower's farmer program loans by the percent calculated in Step 1.
(4) Step 4. Select the lesser of the values calculated in Steps 2
and 3.
(5) Step 5. Subtract the current value of the easement acres in Step
3 from the farmer program debt that is secured by the easement acres in
Step 2.
(6) Step 6. Select either the value arrived at in Step 4 or 5,
whichever is the greater.
An Example For Determining The Amount That Can Be Cancelled:
Situation
Total Acres, 300
Easement Acres, 60
Amount of unpaid farmer program debt secured by farm, $450,000
Current value of farm, $300,000
Step 1. 60 easement acres; 300 total acres=20 percent
Step 2. $450,000 debt x 20 percent, Step 1=$90,000
Step 3. $300,000 value x 20 percent, Step 1=$60,000
Step 4. Select the lower amount of Step 2 or Step 3 Calculations=$60,000
Step 5. $90,000 in Step 2--$60,000 in Step 3=$30,000, Amount FmHA or its
successor agency under Public Law 103-354 is undersecured on Easement
Land
Step 6. Select the greater of Step 4 or 5=$60,000
$60,000 of the debt would be the maximum amount available for the debt
cancellation.
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In the case of a nondelinquent borrower, the amount cancelled shall not
exceed 33 percent of the indebtedness secured by the real estate.
(B) Feasibility of debt cancellation. The County Supervisor will
determine whether or not the borrower, if provided the amount of debt
cancellation allowed by paragraph (VII) coupled with other servicing
options will be able to develop a feasible plan for farm operations for
the current and coming year. In no instance will the total debt
cancellation exceed the maximum value as calculated in paragraph (VII)
Step 6 of this section. If the borrower would not be able to develop a
feasible plan, the County Supervisor will notify the borrower of the
reason that the easement has been denied and that the borrower may
appeal this adverse decision after the County Supervisor has decided
whether the borrower qualifies for the additional servicing programs in
this subpart.
(C) Updating the title opinion. Title examination will be the same
procedure as provided for in subpart B of part 1927 of this chapter. A
preliminary title opinion will not be required. The final title opinion
will cover the period following the recordation of the initial loan
mortgage. Title opinion costs will be considered nonrecoverable costs
and will be paid in accordance with FmHA or its successor agency under
Public Law 103-354 Instruction 2024-A (Instructions and forms are
available in any FmHA or its successor agency under Public Law 103-354
Office).
(D) Consent of other lienholders. If there are any prior or junior
lienholders, their consent to the terms of the easement must be obtained
in writing by the borrower. The consent will be filed in the borrower's
case file and need not be recorded unless required by State law. No
change in the terms can be proposed by the prior or junior lienholders.
If it is not possible to obtain the lienholders' consent, the easement
will be denied and the borrower so informed. The borrower will have no
appeal rights for an FmHA or its successor agency under Public Law 103-
354 denial on this basis.
(E) Identifying the boundaries of the easement. A professional
survey of the easement's boundaries will be required. FmHA or its
successor agency under Public Law 103-354 will provide this service by
contracting for the survey in accordance with FmHA or its successor
agency under Public Law 103-354 Instruction 2024-A, Exhibit J (available
in any FmHA or its successor agency under Public Law 103-354 office).
(F) Reaching an agreement with the borrower. The borrower will be
informed of the easement's value, the impact on the remaining financial
obligation, and the terms and conditions of the easement. The borrower
also will be provided a copy of the easement review team's report. If
the borrower decides to give the easement, approval will be made by the
County Supervisor, the enforcement authority, and the borrower by
signing Form FmHA or its successor agency under Public Law 103-354 1951-
39, ``Grant of Easement,'' if the enforcement authority is the U.S. Fish
and Wildlife Service, or Form FmHA or its successor agency under Public
Law 103-354 1951-39A, ``Grant of Easement,'' if the enforcement
authority is other than the U.S. Fish and Wildlife Service, or a similar
form approved by the Office of General Counsel (OGC). (These FmHA or its
successor agency under Public Law 103-354 forms are available in any
FmHA or its successor agency under Public Law 103-354 office.) A similar
form may not contain provisions whose purposes conflict with the
purposes of this regulation or with the terms of Forms FmHA or its
successor agency under Public Law 103-354 1951-39 or 1951-39A. If the
borrower requests a modification of the proposed easement, such
modification cannot conflict with the purpose or purposes for which the
easement would be established. The County Supervisor cannot approve a
modification of the proposed easement's terms and conditions without
first obtaining the concurrence of the enforcement authority. If the
modification is substantial, in terms of the easement review team's
recommendations, the members of the easement review team must be
consulted. If an agreement cannot be reached with the borrower on the
easement's terms and conditions, the County Supervisor will notify the
borrower in writing that the easement is denied and that the borrower
may appeal this denial after the County Supervisor determines the
borrower's eligibility for the other servicing options in this subpart.
(G) Recording of noncash credit. Upon approval of the easement, the
County Supervisor will complete Form FmHA or its successor agency under
Public Law 103-354 1951-47, ``Farmer Program Noncash Credit for Purchase
of Easement Rights,'' for entry into the FmHA or its successor agency
under Public Law 103-354 field office terminal system. For applications
received from delinquent borrowers, all of the borrower's Farmer
Programs loans are eligible to be credited. The total credit to the
borrower's account will not exceed the greater of the value of the land
on which the easement is acquired; or the difference between the amount
of the outstanding indebtedness secured by the real estate, and the
value of the real estate. In the case of a non-delinquent borrower, the
amount to be credited will not exceed 33 percent of the amount of the
loan secured by the real estate on which the easement is obtained. In
all cases, the amount credited will be applied on the FmHA or its
successor agency under Public Law 103-354 loan(s) as an extra payment in
order of lien priority on the security. The loan may be reamortized if
needed.
[[Page 222]]
(H) Recording of the easement. The County Supervisor will record
Form FmHA or its successor agency under Public Law 103-354 1951-39 or
Form FmHA or its successor agency under Public Law 103-354 1951-39A (or
other acceptable form that has been approved by OGC) to comply with
State laws. The County Supervisor then will retain a copy of the
easement in the borrower's file and will provide a copy of the easement
to the enforcement authority and to the borrower. Cost of recording the
easement will be considered a nonrecoverable cost and will be paid by
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
(Instructions and forms are available in any FmHA or its successor
agency under Public Law 103-354 Office).
VIII. Violation of Terms and Conditions.
If the borrower violates any of the terms or conditions of the
easement, the account will be liquidated in accordance with
Sec. 1965.26(b) of subpart A of part 1965 of this chapter. The borrower
will also be responsible for all costs incurred by FmHA or its successor
agency under Public Law 103-354 and the enforcement agency in the course
of enforcing such terms and conditions. Enforcement expenses may include
attorney's fees, costs of any litigation, and the cost of repair or
restoration of the easement land to a condition compatible with
conservation, recreational and wildlife purpose(s) for which the
easement was established. Should the borrower wish to convey or sell the
property subject to the easement during the term of the easement, the
borrower must first notify the enforcement authority and the
purchaser(s) will also be responsible for the same type of costs should
the successor(s) violate the terms and conditions.
IX. Responsibilities of the Enforcement Authority.
The enforcement authority will be named in any approved easement and
once named agrees to accept the following responsibilities and duties:
(A) Upon receipt of an FmHA or its successor agency under Public Law
103-354 approved easement, provide FmHA or its successor agency under
Public Law 103-354 with a legally binding document acknowledging its
acceptance of the role as enforcement authority for that easement.
(B) Monitor compliance with the easement's terms and conditions.
(C) Ensure that the easement property is safely maintained to the
extent required by relevant State law and accept all liabilities
associated with implementing and carrying out its management
responsibilities under the easement's terms and conditions and
management plan.
(D) At its discretion, delegate or contract management functions to
one or more management authorities, with all associated cost being the
responsibility of the enforcement authority or the management authority,
as agreed in that contract. Monitoring Compliance with the terms and
conditions of the easement cannot be so delegated or contracted.
(E) For the first five years of the easement's life, report annually
to FmHA or its successor agency under Public Law 103-354 on the status
of compliance with the easement's terms and conditions. Thereafter, this
report must be provided every five years. If circumstances develop which
would result in substantial compliance problems or claims, or litigation
involving the easement property, then the enforcement authority
immediately must notify FmHA or its successor agency under Public Law
103-354 by certified letter.
X. Monitoring compliance.
The enforcement authority is responsible for monitoring compliance
with the easement's terms and conditions and management plan. However,
when under the circumstances stated in the easement's terms and
conditions (Form FmHA or its successor agency under Public Law 103-354
1951-39 and Form FmHA or its successor agency under Public Law 103-354
1951-39A), the grantor needs the Government's written authorization to
proceed with an action, a written request for such authorization must be
provided by the grantor to the County Supervisor. In order to provide
the requested written authorization, the County Supervisor must
determine that the request does not violate the easement's terms and
conditions and must receive the written concurrence of the enforcement
authority. In reaching this determination, the County Supervisor should
consult with the State Director and OGC, as necessary.
[53 FR 35718, Sept. 14, 1988, as amended at 57 FR 18662, Apr. 30, 1992;
57 FR 36591, Aug. 14, 1992]
Exhibit I--Guidelines For Determining Adjustments for Net Recovery Value
of Collateral
This exhibit provides guidance to State Directors and County
Supervisors for determination of the factors to be used in adjusting
current market value.
I. State Director Responsibilities
The State Director's analysis to County Supervisors will specify
costs which are determined to be consistent statewide, and provide
specific guidance on the determination
[[Page 223]]
of costs which are somewhat consistent within the State, but may vary on
a county to county or property to property basis. All studies or surveys
should be conducted so that all necessary information can be distributed
at the same time.
A. Real Estate Costs
The analysis for liquidation and disposition costs should, as a
minimum, address the following items and considerations:
(1) Months Held in Inventory. The average holding period will be the
average number of months that suitable properties, which are not leased,
are held in inventory. The average holding period is derived from report
code 597, ``Farmer Program Inventory,'' for the period ending June 30.
However, in situations where States have no suitable inventory, or have
a very limited number (generally less than 5) of suitable properties for
which the holding period for those properties is not representative
(i.e., one property in inventory held 75 months due to local
litigation), the average of the holding periods of surrounding States
should be used. National Office guidance may be requested in such cases.
(2) Sales Commission Rate. A study will be conducted, at least
annually, to determine the typical method for disposition of FmHA or its
successor agency under Public Law 103-354 inventory farms in the State.
The findings will be used to determine whether commissions should be
included as resale expenses, or whether FmHA or its successor agency
under Public Law 103-354 normally disposes of inventory farms without
the assistance of brokers or auctioneers. However, if a County Office is
covered by an exclusive listing agreement or contract for auctioneering
services, commissions will always be included as resale expenses in that
office. The percentage of commission will be the rate specified on the
listing agreement(s) or contract(s) in effect for the County Office.
(3) Cost Per Advertisement. The County Supervisor will contact at
least one local newspaper to obtain a cost for advertising inventory
farms in accordance with subpart C of part 1955 of this chapter.
(4) Rate of Change in Value. Yearly percentage decrease or increase
in value is the rate of change in value. To provide a fair assessment of
projected trends in farm land values, each State Director will establish
a farm land market advisory committee (FLMAC). The committee will
consist of the FmHA or its successor agency under Public Law 103-354
State Director, the State Executive Director of the Agricultural
Stabilization and Conservation Service (ASCS), the State Conservationist
for the Soil Conservation Service (SCS), and an Extension Specialist
from a Land Grant University (if available) or other Agriculture
Extension Service employee with knowledge of the farm real estate
market.
The FLMAC will meet at least each July, and will consider the
following information:
(a) The actual change in farm land values in the State during the
previous year, as indicated in the most recent ``Agricultural Land
Values and Market Situation Outlook Report'' issued by the USDA Economic
Research Service.
(b) Current conditions in the State and national agricultural
economics.
(c) Availability and cost of credit to purchase farm land.
(d) The amount of repossessed farm land held by FmHA or its
successor agency under Public Law 103-354, the Farm Credit System, and
other private sector lenders.
(e) Any special conditions which would effect farm land values in
the State.
(f) Any studies or research conducted by the State Agricultural
University or similar scholarly source.
The FLMAC should, if possible, determine anticipated value changes
on a regional basis with the State, if the State has agricultural
regions with discernable differences.
The committee's meetings and decisions, including the basis for
those decisions, will be documented, retained in the State Office as
part of the State supplement file and provided to interested parties
upon request.
Prior to providing the FLMAC determinations to FmHA or its successor
agency under Public Law 103-354 field offices, the State Director will
contact the FmHA or its successor agency under Public Law 103-354 State
Directors in surrounding States to determine if the committee's findings
are fairly consistent with those of surrounding States. If there are
significant differences, the State Director may reconvene the committee
to reconsider its findings.
(5) Management charges. In situations where State or district wide
contracts for management of inventory farms are in effect, the State
Director will specify those rates to be used in management cost
calculations. Generally, those costs should be specified on an annual
per-acre basis or annual income percentage basis. If there are no area
wide contract rates for some or all counties, guidance should be given
on how to calculate rates based upon local costs. Such guidance should
include customary management activities and their frequency to promote a
consistent approach.
B. Chattel Costs
(1) Months held in inventory. FmHA or its successor agency under
Public Law 103-354 rarely acquires chattel property because it can be
sold much more quickly and easily than real estate. Therefore, the
average holding period for chattel property will be zero, unless
significant acquisitions occur
[[Page 224]]
and the Administrator determines that chattels do have a holding period.
(2) Sales commission rate. A study will be conducted, at least
annually, to determine typical and reasonable commission rates for sales
of chattel property in the State. The results of the study will be
provided as guidance to field personnel. [The County Supervisor will
conduct a survey of auctioneers to determine the average commission rate
for chattel sales in the area.]
(3) Other sales cost. These are miscellaneous cost typically
incurred when selling acquired chattels. County Offices should be
advised to obtain specific guidance in unusual cases.
(4) Rate of change in value. This is a yearly percentage decrease or
increase in the value. Because FmHA or its successor agency under Public
Law 103-354 rarely acquires chattel property, the average holding period
for chattel property will normally be zero, unless significant
acquisitions occur and the Administrator determines that chattel do have
a holding period. Therefore, there will normally not be a rate of change
in value of chattels.
C. Legal and Administrative Costs
(1) Administrative liquidation cost for each loan type. This is the
FmHA or its successor agency under Public Law 103-354 administrative
cost of liquidation. The FmHA or its successor agency under Public Law
103-354 Resource Management System (RMS) work standards (FmHA or its
successor agency under Public Law 103-354 Instruction 2006-J, exhibit A,
available in any FmHA or its successor agency under Public Law 103-354
Office) for liquidation should be used to determine the administrative
costs associated with liquidation for each loan type. The following
equation will be used for each loan type:
(RMS standard for loan type in minutes divided by 60) x hourly pay
rate for GS-11/1-Administrative cost of liquidation for the loan type.
(2) Real estate costs and chattel only costs. This is the
administrative liquidation cost for Government attorney time. The State
Director will consult with the appropriate Regional OGC to determine the
average amount of government attorney time involved in an individual
involuntary liquidation of both real estate and chattels. The legal
costs associated with liquidation for real estate and chattels will be
arrived at separately by multiplying the attorney time, in hours, by
$75.
(3) Property management cost. This is the administrative cost of
managing an inventory property, while it is in inventory. This cost will
be deducted in those cases involving real property. The costs should
also be derived from the RMS standards. It will be necessary to
determine the average number of property actions per month. This figure
is obtained from the RMS-7 Report, which is issued to the State Offices
quarterly. The following equation is used to compute the total property
management cost:
(average actions per property per month x average holding period) x
(RMS standard for property management for FO loans divided by 60) x (GS-
11/1 hourly pay rate) + (RMS standard for FO property sale actions
divided by 60) x GS-11/1 hourly pay rate-Administrative costs for
inventory period.
II. County Supervisor Responsibilities
The County Supervisor will use the statewide costs and give careful
consideration to the cost and other guidance provided by the State
Director. The County Supervisor will determine certain localized
liquidation costs based upon guidance in the State supplement at least
annually. These figures will be documented and provided to borrowers
upon request.
A. Management Expenses. If the County Office is not covered by State
or district wide property management contracts, the management expense
rates will be based upon local level contract rates.
B. Repairs. Approximate costs for typical essential repairs may be
developed, considering the guidance in the State supplement. Repair
items must be related to physical condition (i.e., roof, windows, doors,
etc.) and not to functional or economic obsolescence.
C. Advertisements. The County Supervisor will contact at least one
local newspaper to obtain a cost for advertising inventory farms in
accordance with subpart C of part 1955 of this chapter.
D. Commissions. A survey of auctioneers will be made to determine
the average commission rate for chattel sales in the area. Real estate
commissions, if any, will follow the State supplement.
E. Legal Expense. A survey of local closing agents will be performed
to determine the cost FmHA or its successor agency under Public Law 103-
354 will incur for closing transactions (title opinions, recorder's fees
and the like).
F. Miscellaneous. Miscellaneous expenses such as land surveys, which
are routinely incurred should be determined by a local survey and
documented.
III. Income
Income will be added to net recovery value only when it is
relatively certain that the income will be realized. Lease income will
not be planned unless a lease is already in effect at the time the
calculations are being made, and it appears that the lease will continue
after FmHA or its successor agency under Public Law 103-354 acquires
title. The amount of mineral or other lease or royalty income will be
based upon the historical
[[Page 225]]
record of such income generated by the property. Chattels will not
generate income unless they have a holding period.
IV. Depreciation
The amount of depreciation anticipated for buildings and other
improvements will be based upon the summation value and estimated
remaining life of the improvement as reflected in the real estate
appraisal. For example, a dwelling with a summation value of $40,000 and
a remaining life of 20 years will depreciate at a rate of $2,000 per
year. The depreciation calculations will be documented in the borrower's
case file and provided to the borrower upon request. Chattels will not
be depreciated unless they have a holding period.
[57 FR 18662, Apr. 30, 1992]
Exhibit J--The Debt and Loan Restructuring System (DALR$)
Farmers Home Administration or its successor agency under Public Law
103-354 (FmHA or its successor agency under Public Law 103-354) primary
loan service programs provide a large number of alternatives for
restructuring an FmHA or its successor agency under Public Law 103-354
loan. The number of loans a borrower has increases the number of
combinations of possible alternatives. It is difficult and extremely
time consuming to manually calculate all the potential combinations of
servicing actions. To assure that the various combinations of programs
are considered, FmHA or its successor agency under Public Law 103-354
has developed the Debt and Loan Restructuring System (DALR$) for
operation of the County Office computer system. FmHA or its successor
agency under Public Law 103-354 personnel will not manually perform the
calculations in this exhibit. This exhibit is provided as a benefit to
those who may want to perform manual calculations, or understand the
procedures DALR$ goes through.
What is DALR$?
DALR$ is a computerized decision support tool. This means that the
computer assists the FmHA or its successor agency under Public Law 103-
354 loan officer in making a decision. For example, FmHA or its
successor agency under Public Law 103-354 regulations specify criteria
for determining the interest rate when loans are restructured. DALR$
will select an interest rate using the criteria in the regulations.
Judgement decisions are made by the FmHA or its successor agency under
Public Law 103-354 loan officer in evaluating the Farm and Home Plan and
other information entered into the DALR$ system.
DALR$ Operating System
DALR$ operates on the AT&T 3B2 computer system in FmHA or its
successor agency under Public Law 103-354 field offices. It runs under
the UNIX (registered tm, AT&T) computer operating system. DALR$ also
utilizes Prelude (registered tm, Venturcom) for data entry and storage
functions. To operate DALR$, UNIX System V, version 2.0.5 and Prelude
version 2.1 are required.
FmHA or its successor agency under Public Law 103-354 developed
DALR$ to run under UNIX and Prelude because those systems have the
capabilities necessary to allow for relatively rapid development, and
are available in all FmHA or its successor agency under Public Law 103-
354 offices. DALR$ will not run under DOS on personal computers. Due to
lack of resources, FmHA or its successor agency under Public Law 103-354
does not plan to develop duplicate computing capabilities on personal
computers. FmHA or its successor agency under Public Law 103-354 will
provide copies of program diskettes and/or source code to interested
parties upon request.
Advantages of DALR$
The DALR$ system provides several benefits to FmHA or its successor
agency under Public Law 103-354 borrowers:
1. Speed of calculation. Calculations which would take hours or days
are reduced to minutes. This not only speeds the processing of servicing
requests, but provides the flexibility to consider several alternative
plans of operation within the same time constraints.
2. Consistency. The use of DALR$ assures that all calculations will
be performed in the same way, and that the feasibility of all requests
will be evaluated on the same calculation methods.
3. Full consideration. DALR$ considers primary loan service programs
and combinations of those programs for every borrower entered into the
system. Thus, borrowers can be assured that they will be considered for
as many of these actions as necessary to develop a feasible plan, if a
feasible plan is possible.
4. Reduction of errors. Use of DALR$ greatly reduces the potential
for errors and inadvertent denial of assistance due to those errors.
DALR$ eliminates errors in the calculations. The only potential errors
related to the calculations are input errors, which are much easier to
detect and correct than calculation errors. It is important to note,
however, that DALR$ results are only as reliable as the input data.
What DALR$ Does
DALR$ performs a series of mathematical calculations based upon
predetermined critera. These same calculations and procedures would be
followed when calculations
[[Page 226]]
are performed manually. DALR$ also generates a printed summary of its
computations for FmHA or its successor agency under Public Law 103-354
and the borrower.
Overview
In arriving at a debt restructuring plan, DALR$ will take advantage
of all primary loan service programs to maximize the borrower's ability
to repay debt and remain on the farm and avoid loss to the government.
Several combinations of primary loan service programs may be
necessary to keep the borrower on the farm and avoid losses to FmHA or
its successor agency under Public Law 103-354. DALR$ will examine each
combination until a feasible plan is reached or it is determined a
feasible plan is not possible with full utilization of primary service
programs.
DALR$ considers each primary serving option in the order described
below until an appropriate solution is found. Each step increases FmHA
or its successor agency under Public Law 103-354's level of assistance
to the Borrower and, when applicable, includes the primary loan service
programs provided by previous steps.
1. Apply payments, including proceeds from the sale of non-essential
assets, which the borrower plans to apply to outstanding FmHA or its
successor agency under Public Law 103-354 debt.
2. Reschedule/reamortize loans at maximum terms with interest rates
at the minimum or original note interest rate or regular loan program
rate. Loans may be considered for consolidation in accordance with
Sec. 1951.909 of this subpart prior to being entered into the DALR$
system.
3. Reschedule/reamortize loans at maximum terms with interest rates
at the minimum of original note interest rate or applicable limited
resource loan program rate.
4. Defer loans at the maximum term and minimum interest rate
permitted by program regulation until a feasible plan is obtained in the
first year. Loans are selected for deferral so as to minimize debt
repayments in the years after the deferral period. If deferral of a loan
will result in an excess cash flow margin in the first year then a
partial deferral of the loan is used to eliminate the excess cash flow
margin. A partial deferral has the added benefit of reducing the payment
amount in the years after the deferral period.
5. Provide Softwood Timber loan deferral, when requested by
borrower, to the maximum limits permitted by program regulations. Loan
deferrals will be recalculated selecting Softwood Timber loans first so
as to:
a. Minimize any decrease in present value caused by conversion to
Softwood Timber loans, and
b. If regular deferrals are still needed to facilitate a feasible
plan in the first year, minimize the increase in payments in the year
after the expiration of deferral period.
A Softwood Timber loan deferral has the same effect on existing FmHA
or its successor agency under Public Law 103-354 debt repayment as a
full write down of the same amount of debt. A Softwood Timber loan
deferral, however, will always have a greater present value. Therefore,
after a loan is selected for Softwood Timber deferral it will not be
considered for write down since this will always reduce present value.
6. Write Down--
Write down loans in the order, at the interest rates, and in
combination with other primary loan service programs to maximize the
ability of the borrower to remain on the farm and avoid FmHA or its
successor agency under Public Law 103-354 loan losses.
a. Conservation Easements
Conservation Easement write-down (when requested by the borrower)
will be considered over debt write-down whenever such FmHA or its
successor agency under Public Law 103-354 Instruction 1951-S
consideration will not prevent development of a debt restructuring plan
which will keep the borrower on the farm.
b. Security Considerations
The FmHA or its successor agency under Public Law 103-354 County
Supervisor will evaluate each loan and determine its write-down priority
considering the degree of collateralization. Loans which are secured but
have no collateral value will generally be selected for write down
before loans which are at least somewhat collateralized. There are three
write-down security/collateral categories.
(1) Low: These loans may be secured or unsecured and have no
collateral value.
(2) Medium: These loans are secured but do not have sufficient
collateral value to fully protect the Government's interest.
(3) High: These loans are secured and fully collateralized; the
Government's interest is fully protected.
c. Methodology
(1) Method 1 (See Section VI B of this exhibit) will be used first
to develop an acceptable restructuring plan which will keep the borrower
on the farm. If a restructuring plan is not found which will keep the
borrower on the farm then Method 2 (See Section VI C of this exhibit for
a full description) will be used to develop a restructuring plan.
(2) For both Method 1 and Method 2 loan terms will be the maximum
permitted by program regulations. Also, write down amounts will be
calculated so that the ``Balance Available'' to repay debt is equal to
or as close as possible to the ``Debt Repayment''.
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(3) Loans selected for regular deferral will remain deferred, but
will be fully or partial written down if needed to obtain positive cash
flow margins. Loans converted to Softwood Timber loans (if requested)
will remain Softwood Timber loans and will not be written down because
writing down Softwood Timber loans decreases present value.
7. If a restructuring plan is not found to keep the borrower on the
farm, the borrower, FmHA or its successor agency under Public Law 103-
354 County Supervisor, and other Lenders may reevaluate/rework the
borrower's farm plan to increase income, reduce other debt, sell non-
essential assets, improve security on FmHA or its successor agency under
Public Law 103-354 debt, and consider Softwood Timber loans and
Conservation Easements (if not originally requested by the Borrower and
is permitted by program regulation).
Each of these measures will increase the computed present value.
DALR$ will use the new/revised information provided by the borrower and
the FmHA or its successor agency under Public Law 103-354 County
Supervisor to assure that the restructuring of existing FmHA or its
successor agency under Public Law 103-354 debt will maximize the
potential for the borrower to repay debt and remain on the farm and
avoid FmHA or its successor agency under Public Law 103-354 loan losses.
Iterative Calculation Process
I. Existing Loan Interest Rates
A. Obtain status information on each loan.
The status information date (accrual date) must be a date after the
last payment or other transaction on the loan.
1. Principal balance.
2. Accrued interest balance.
3. Non-capitalizable interest balance.
B. For each loan compute the interest accrual to the proposed
effective date for servicing actions.
Interest Accrual=P x Iex x N-DAYS.
Where:
1. ``P'' is the outstanding principal balance on the date on which
loan status information was obtained.
2. ``Iex'' is the daily interest accrual (decimal equivalent) based
on the existing interest rate for the loan. Daily interest accrual is
equal to the existing annual interest rate divided by 365.
3. ``NDAYS'' is the number of days between the effective date and
the status information date. If February 29 occurs between these two
days it is not added to the number of days.
C. Determine the amount of Non-capitalizable accrued interest.
1. Deferred loans.
All accrued interest is non-capitalizable interest.
2. Other loans:
Interest less than 90 days past due is non-capitalizable interest.
II. Regular Program Interest Rates
A. Determine balance of funds available for debt repayment in the
next planning year. This is the ``Balance Available in Year 1''. If loan
deferrals are anticipated or are needed, also determine the Balance
Available for debt repayment in the year after the end of the specified
deferral period.
B. Determine total debt repayment in the next planning year. This is
the ``Debt Repayment in year 1.'' If loan deferrals are anticipated or
are needed, also determine the debt repayment in the year after the end
of the specified deferral period. Included in this amount are:
1. New loans:
New loans planned may affect repayment in the first planning year
and/or the year after the end of the specified deferral period,
depending on when the loan will be made and the repayment term. The
equal annual payments on these new loans are included in the debt
repayment calculations. Regular program interest rates (not limited
resource rates) are used for all new loans.
Note: In subsequent steps the regular loan program interest rate is
changed to limited resource rates, if it is determined that it is not
possible to develop a feasible plan at regular program rates.
2. FmHA or its successor agency under Public Law 103-354 Loan for
annual operating expenses.
Repayment of FmHA or its successor agency under Public Law 103-354
loans for annual operating expenses are based on regular loan program
interest rates.
Included in this amount is the annual operating expense loan
principal which is due in the applicable planning year.
Interest accrual on this loan may be estimated by multiplying the
principal to be paid in the applicable planning year by the regular loan
program interest rate (monthly decimal equivalent) and then by the
average number of months the principal will be outstanding. See
Attachment 1, Formulas, for details.
If some of the principal will be carried over to future years then
that portion is either:
a. Included with the new loan payments computed using the
amortization factor over the applicable loan term at regular loan
program interest rates, or
b. If the amount to be carried over is already included in an
existing loan, it is rescheduled with the existing loan over the maximum
term permitted by program regulation.
Note: In subsequent steps the regular loan program interest rate is
changed to limited resource rates, if it is determined that a feasible
plan is not possible with regular program rates.
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3. Existing FmHA or its successor agency under Public Law 103-354
loans:
Also included are all repayments on existing FmHA or its successor
agency under Public Law 103-354 debt as it stands now without servicing
actions. As DALR$ steps through the debt restructuring process this
repayment amount will change.
Some existing loans may include in whole or in part an FmHA or its
successor agency under Public Law 103-354 loan for annual operating
expenses which is expected to be repaid in the current year. Since the
debt repayment on FmHA or its successor agency under Public Law 103-354
annual operating expense loans is estimated in the previous step, the
repayment of this debt should not be included with the repayment of
existing loans. Only the repayment of long term debt should be included.
C. Apply loan payments which are planned to be made on the effective
date of the servicing actions.
1. Payments are first applied to reduce/eliminate delinquent
interest, then non-delinquent interest and then remaining principal
balance.
2. If any loan is paid off in full because of these payments,
recompute the debt repayment in year 1.
3. If the balance available is greater than or equal to the debt
repayment in year 1 and there are no delinquent loans then no further
servicing actions in DALR$ are required.
D. Reschedule/reamortize loans as needed to eliminate any
delinquency.
1. Criteria:
a. Loans will be rescheduled/reamortized over the maximum term
permitted by program regulation.
b. The interest rate will be the minimum of:
(1) The original note the interest rate.
(2) The regular loan program interest rate which will be in effect
on the date the servicing actions are calculated.
c. Interest payments which are 90 days or more past due will be
added to the principal balance to form a new principal balance to be
rescheduled/reamortized.
d. Interest less than 90 days past due will be spread equally over
the new loan term and will be added to the repayment amount of the new
rescheduled/reamortized debt.
e. The transaction records from the last payment date and last due
date may be used to assist in determining the dollar amount of interest
less than 90 days past due.
2. The Process.
a. Identify delinquent loans. All of these loans will be
rescheduled/reamortized.
b. Recompute debt repayment in year 1.
c. If the balance available is greater than or equal to the debt
repayment in year 1 then no further servicing actions are required.
E. Reschedule/reamortize the remaining non-delinquent loans.
1. Criteria.
a. Loans will be rescheduled/reamortized over the maximum term
permitted by program regulation.
b. The interest rate will be the minimum of:
(1) The original note interest rate.
(2) The regular loan program interest rate which will be in effect
on the date the servicing actions are calculated.
c. Interest payments which are 90 days or more past due will be
added to the principal balance to form a new principal balance to be
rescheduled/reamortized.
d. Interest less than 90 days past due will be spread equally over
the new loan term and will be added to the repayment amount of the new
rescheduled/reamortized debt.
NOTE: Interest is not due until the loan installment is due. The
date the servicing action takes place relative to the due date will
effect how much interest can be capitalized. For example:
(i) A borrower is current January 1, 1988. An analysis in December
1988 indicates the borrower cannot pay installments due January 1, 1989.
Based on the 1989 farm plan, the debts can be restructured. The loans
will be restructured on January 10, 1989. None of the accrued interest
is 90 days past due and no interest will be capitalized.
(ii) Same situations (i) , except the restructuring occurs on April
2, 1989. The interest which accrued prior to January 1, 1989, will be
capitalized. Interest which accrued after January 1, 1989, will not be
capitalized.
2. Loan Selection.
a. In selecting the loans for rescheduling/reamortizing, the loans
will be ordered so that the loan having the greatest reduction in
interest rate will be rescheduled/reamortized first.
b. If the change in interest rate is equal for two or more loans
then this subgroup will be ordered so that the loans having the smallest
new principal balance will be rescheduled/reamortized first.
c. If the repayment on any rescheduled/reamortized loan exceeds the
current repayment amount for that loan then that loan will not be
rescheduled/reamortized unless the County Supervisor indicates that
rescheduling should be carried out to eliminate unequal payment
schedules or balloon payments.
3. The Process.
a. After each rescheduling/reamortization recompute debt repayment
in year 1.
b. If the balance available is greater than or equal to the debt
repayment in year 1 then no further servicing actions are required.
III. Limited Resource Interest Rates
A. Recompute debt repayment in year 1.
[[Page 229]]
1. Criteria.
a. New loans will have the maximum term permitted by program
regulation, using the limited resource interest rates (when applicable)
which will be effective on the date of the servicing actions.
b. Interest accrual on the FmHA or its successor agency under Public
Law 103-354 loan(s) for annual operating expenses will be at the limited
resource rate (when applicable).
2. The Process.
a. Recompute debt repayment in year 1.
b. If the balance available is greater than or equal to the debt
repayment in year 1, no further servicing actions are required.
B. Reschedule/Reamortize existing loans eligible for limited
resource rates to obtain a positive cash flow margin in the 1st planning
year.
1. Criteria.
a. Loans will be rescheduled/reamortized over the maximum term
permitted by program regulation.
b. The interest rate will be the minimum of:
(1) The original note interest rate.
(2) The loan program limited resource interest rate in effect on the
date the servicing actions are calculated.
c. Interest payments which are 90 days or more past due will be
added to the principal balance to form a new principal balance to be
rescheduled/reamortized.
d. Interest less than 90 days past due will be spread equally over
the new loan term and will be added to the repayment amount of the new
rescheduled/reamortized debt.
2. Loan Selection.
a. In selecting the loans for rescheduling/reamortizing, the loans
will be ordered so that the loan having the greatest reduction in
interest rate will be rescheduled/reamortized first.
b. If the change in interest rate is equal for two or more loans
then this subgroup will be ordered so that the loans having the smallest
new principal balance will be rescheduled/reamortized first unless it is
deliquent.
c. If the repayment on any rescheduled/reamortized loan exceeds the
current repayment amount for that loan then that loan will not be
rescheduled/reamortized.
3. The Process.
a. After each rescheduling/reamortization recompute debt repayment
in year 1.
b. If the balance available is greater than or equal to Debt
Repayment then no further servicing actions are required.
IV. Deferrals
A. Deferrals Period.
1. Deferral will only be beneficial if the cash flow margin will
improve after the deferral period. This improvement must begin no later
than six years after the current planning year, since the maximum
deferral period is 5 years.
2. To determine the appropriate deferral period the County
Supervisor and borrower will review the farm operation over the next
five years. Loans should be deferred to the year when the improvement
from the first planning year is the greatest and the improvement in the
following years are at least as good.
3. It is not necessary that deferrals provide a positive cash flow
margin after the deferral period because it is still possible to obtain
a positive cash flow margin with a combination of deferrals, debt write
down and the other primary loan service programs. However, to maximize
the potential for the borrower to remain on the farm and avoid losses on
FmHA or its successor agency under Public Law 103-354 loans, a new farm
plan must be prepared by the FmHA or its successor agency under Public
Law 103-354 County Supervisor and borrower for the year after the end of
the selected deferral period.
4. If there is no anticipated improvement in cash flow margin, then
a deferral year plan need not be prepared since other combinations of
primary service programs will maximize the potential for the borrower to
remain on the farm and avoid losses on FmHA or its successor agency
under Public Law 103-354 loans.
B. Deferrals.
1. Criteria.
a. Loans which have been rescheduled/reamortized previously in DALR$
will be rescheduled/reamortized at the same interest and term.
b. Other loans which have not been previously rescheduled/
reamortized in DALR$ will be rescheduled/reamortized as follows:
(1) Loans will be rescheduled/reamortized over the maximum term
permitted by program regulation.
(2) The interest rate will be the minimum of:
(a) The original note interest rate.
(b) The loan program interest rate (limited resource, if applicable)
in effect on the date of the servicing action calculations.
(3) Interest payments which are 90 days or more past due will be
added to the principal balance to form a new principal balance to be
rescheduled/reamortized.
(4) Interest less than 90 days past due will be spread equally over
the new loan term and will be added to the repayment amount of the new
rescheduled/reamortized debt.
2. Loan Selection.
This selection process will assure that after a positive cash flow
margin is achieved in the 1st year, the cash flow margin in the year
after the deferral period will be the greatest.
a. Calculate the payment after the deferral period for each loan
eligible for deferral. This is only a side calculation to determine
[[Page 230]]
the best order of selection. A deferral will decrease the payments in
the 1st planning year and increase the payments in the year after the
deferral expires.
b. For each loan compute the ratio of the increase in ``after
deferral period'' payment to the decrease in 1st year payment.
c. The loan with the smallest ratio is deferred first and so on
until the balance available is greater than or equal to debt repayment
in year 1.
3. The Process.
a. Taking one loan at a time, defer the selected loan, recompute the
debt repayment in year 1. Also compute the debt repayment in the year
after the end of the deferral period.
b. If the balance available is equal to debt repayment in year 1 and
the balance available is greater than or equal to debt repayment in the
year after the end of the deferral period then no further servicing
actions are required.
c. If the balance available is greater than the debt repayment in
year 1, then this implies that the last loan deferred did not require a
full deferral.
(1) Compute amount of deferral of the last loan necessary to achieve
equality between balance available and debt repayment in year 1.
(2) Recompute payments for this loan during the deferral period and
the years after the expiration of the deferral period.
(3) If the balance available in the year after the deferral period
is greater than or equal to the debt repayment then no further servicing
actions are required.
4. Partial Deferrals.
a. Whenever deferral of a loan results in an excess cash flow margin
in the first year, a partial deferral of that loan will result in a
higher present value and will also decrease future payments on that
loan. See Attachment 1 to this exhibit for applicable formulas for
partial deferrals.
b. Examples:
Case 1: Partial Deferral without Write Down.
Situation: A full deferral is more than is needed to achieve a
positive cash flow margin in year 1. A full payment on the loan will
produce a negative cash flow margin in year 1.
The Process.
1. Determine amount of deferral of necessary to achieve a feasible
plan in the first year.
``d'' is the fraction of the loan which must be deferred. This
fraction is applied to both the principal (P) and the non-capitalizable
interest (N).
``r'' is the amount of cash flow margin in the first year with a
full deferral. ``R'' is the debt repayment on the loan in the first year
without deferral.
d--1--(r/R).
2. Calculate Portion of debt to be deferred and portion of non-
deferred debt to meet cash flow margin criteria in the first year.
Non-deferred portion.
P1=(1-d) x P=(r/R) x P.
N1=(1-d) x N=(r/R) x N.
Deferred Portion
P2=P-P1.
N2=N-N1.
Case 2: Partial Deferral with Write Down.
Write down is required for a feasible plan. In this situation the
write down and partial deferral must yield a payment which exactly meets
the borrower's ability to repay debt. This will maximize the ``Present
Value'' and the borrower's ability to remain on the farm.
Situation: The loan is partially deferred to achieve a feasible plan
in the 1st year. The payments in the year after the end of the deferral
period exceed the borrower's ability to pay even with a partial
deferral. Write down is necessary to achieve a feasible plan. The loan
which is partially deferred has been selected as the next loan to write
down based upon write down selection criteria.
Write down sequence:
1. The non-capitalizable interest (of the deferred portion of the
loan) will be written down first until a feasible plan is achieved or
the non-capitalized interest (of the deferred portion of the loan) is
fully written down.
2. The remaining principal (on the deferred portion of the loan) is
then written down until a feasible plan is achieved or the principal is
fully written down.
3. At the point the deferred portion of the loan has been fully
written down, but a feasible plan has not yet been found. The subject
loan is now a non-deferred loan with reduced principal and reduced non-
capitalizable interest. This new loan must now compete for selection for
write down with all remaining loans based on the write down selection
criteria.
V. Softwood Timber
A. Criteria.
1. Loan terms will be the maximum permitted by program regulation.
2. The interest rate will be the minimum of:
a. The original note interest rate, or
b. The Softwood Timber program interest rate which will be in effect
on the date of the servicing action calculations.
3. Interest payments which are 90 days or more past due will be
added to the principal balance to form a new principal balance upon
which interest will accrue over the Softwood Timber deferral period.
4. Interest less than 90 days past due will not be capitalized and
accrue interest, and will be payable at the end of the Softwood Timber
deferral period.
5. The rescheduled/reamortized principal amount plus any non-
capitalized interest of Softwood Timber loans will not exceed the
[[Page 231]]
maximum amount permitted by program regulation or the amount needed to
develop a feasible plan, whichever is less.
B. Loan Selection.
Loans will be selected for the Softwood Timber loan program to
maximize the present value after conversion to Softwood Timber, thus
avoiding loan losses.
1. Cancel all previously calculated deferrals.
2. For each loan compute the present value before and after
conversion to a Softwood Timber loan. Then compute the decrease in
present value (note: for loans in which the present value increases this
will be negative number).
3. For each loan compute the ratio of the decrease in present value
to the decrease in first year repayment after conversion to a Softwood
Timber loan.
4. Select the loan with the smallest (or most negative) ratio first.
5. If loans have equal ratios select the loan having the least
security among these loans first, Softwood Timber loans will have new
security instruments. This will improve the FmHA or its successor agency
under Public Law 103-354 security and could increase present value if
write down is required for other loans.
C. The Process.
1. Starting with the first loan in the list of loans ordered to
minimize decrease in present value convert the loan to Softwood Timber.
2. Continue this process until the maximum limit for Softwood Timber
conversion is reached or a feasible plan is possible in the first year.
3. If a loan is only partially converted then create a new loan
identity for the partially converted loan. The portion not converted
retains the same interest rate and term prior to the conversion to
Softwood Timber.
4. If fully utilizing Softwood Timber loan conversion authorities do
not result in a feasible plan in the first year rework the loan deferral
calculation described in Section IV of this exhibit (if applicable). Do
not include the loans selected for Softwood Timber loans in the
reworking of the deferral calculations.
5. If conversion to a Softwood Timber loan will permit a feasible
plan to be developed (with or without deferrals) no further servicing
actions are required.
VI. Write-Down
Write-down of loans will proceed with Method 1 (contained in VI B)
first. If a debt restructuring plan which will keep the borrower on the
farm cannot be found using Method 1, then write-down will be
recalculated using Method 2.
A. Status.
Debt repayments are at their absolute minimum, a feasible plan is
still not possible in the first year and/or the year after the end of
the deferral period (if applicable).
1. At this point consideration of primary loan service programs has
had the following result:
a. All delinquent loans have been rescheduled/reamortized.
b. If the borrower plans to make payments prior to the servicing
actions, these payments have been applied to loans to reduce
indebtedness.
c. All existing FmHA or its successor agency under Public Law 103-
354 loans have been considered for rescheduling/reamortization.
d. Deferrals have been computed for borrowers when the cash flow
margin in the year after the deferral period was higher than the cash
flow margin in the first year.
e. Loans have been converted to Softwood Timber loans (when
requested by the Borrower) to the maximum extent permitted by program
regulations.
2. FmHA or its successor agency under Public Law 103-354 loans for
annual operating expenses and all proposed new loans have been computed
at limited resource rates (when applicable).
3. All loans are at the lowest interest rate and maximum term
permitted by program regulations.
B. Method 1.
Provide Conservation Easement write down on eligible loans, when
requested by the borrower, to the maximum limits permitted by program
regulations. Conservation Easements will be the first write down
considered in this method. If a feasible plan is not obtained using
conservation easements then the remaining loans will be written down
using debt write-down authority.
1. Criteria.
a. Only loans secured by real estate are eligible for conservation
easement write-down.
b. Interest rates, loan terms, loans selected for deferral (if
applicable) do not change from the status described in Section VI A of
this exhibit. That is, debt repayment is at the absolute minimum.
c. Loans converted to Softwood Timber loans will not be written
down.
2. Loan Selection.
Loans will be selected in the following order for full or partial
write-down as necessary:
a. Place all loans eligible for conservation easements in a single
group. Of these loans order them for selection as follows:
(1) Least collateralized loans first.
(2) For loans with equivalent collateralization, loans with the
largest ``Amortization Factor'' first. (See Amortization Factors in
Attachment 1 to this exhibit.)
b. If a feasible plan is not obtained using conservation easements
or conservation easement write-down had not been requested order the
remaining loans as follows:
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(1) Unsecured and/or least collateralized loans first.
(2) For loans with equivalent security, loans with the largest
``Amortization Factor'' first. (See Amortization Factors in attachment
to this exhibit.)
3. The Process.
Each time a new loan is selected for write-down, deferrals (if
applicable) must be recalculated as described in Section IV of this
exhibit.
a. Conservation Easement write-down.
(1) Starting with the first loan selected for conservation easement
write-down, determine whether a full write-down will permit a feasible
plan in the applicable year. The applicable year is the first planning
year if deferrals have not been considered. If deferrals have been
considered it is the year after the end of the deferral period.
(2) If a full conservation easement write-down will achieve positive
cash flow compute the amount of conservation easement write-down so that
the balance available equals debt repayment. Reschedule/reamortize the
loan for the new principal amount. No further servicing actions are
required.
(3) If a full conservation easement write-down does not achieve a
positive cash flow margin in the applicable year, recompute the debt
repayment in the first planning year and the debt repayment in the year
after the end of the deferral period (if applicable). Deferrals will
have to be recalculated using the methods described in Section IV of
this part.
(4) Continue selecting loans for conservation easement write-down
and repeat this process until an acceptable cash flow margin is obtained
in the applicable year or the maximum conservation easement write-down
permitted by program regulation is obtained.
b. Debt Write-Down.
(1) Conservation easement write-down (if applicable) did not attain
a positive cash flow margin in the applicable planning year. With the
remaining loans, reprioritize their selection without regard to
eligibility for conservation easements using the criteria described in
section VI B 3 of this exhibit.
(2) Using debt write-down authority write down each of these loans
until a positive cash flow margin is obtained in the applicable year.
Compute the amount of write-down for that loan so that the balance
available is equal to the debt repayment.
(3) If the present value of the future payment stream on remaining
debt equals or exceeds the net recovery value of the collateral for FmHA
or its successor agency under Public Law 103-354 loans then no further
servicing actions are required.
C. Method 2.
Use this method only if Method 1 does not find a debt restructuring
plan which will allow FmHA or its successor agency under Public Law 103-
354 to continue with the borrower.
1. Criteria.
a. Loan terms are the maximum permitted by program regulation.
b. All other loans (except Softwood Timber loans), including the
loan selected for write down will be at the minimum of the original note
interest rate or the limited resource interest rate (if applicable).
2. Loan Selection.
Loans will be selected in the following order for full or partial
write-down as required.
a. Unsecured and/or least collateralized loans first.
b. For loans with equivalent security, loans with the smallest
present value factor first. (See Present Value Factor in Attachment 1 of
this exhibit.) Note the Present Value Factor is independent of loan
interest rate.
c. For loans with equal present value factor, loans with highest
interest rate first.
3. The Process
Each time a new loan is selected for write-down all loans whose
interest rates change according to the criteria in Section VI C1b of
this exhibit will be rescheduled/reamortized using the new interest
rate. Deferrals (if applicable) must also be recalculated as described
in Section IV of this part.
a. Starting with the first loan selected for debt write-down,
determine whether a full write-down will result in a positive cash flow
margin in the applicable year. The applicable year is the first planning
year if deferrals have not been used. If deferrals have been used, it is
the year after the deferral period.
b. If a full debt write-down results in a positive cash flow compute
the amount of write-down so that the balance available equals debt
repayment. Reschedule/reamortize the loan for the new principal amount
and test present value with net recovery value.
D. Net Recovery Value Test
1. Conservation Easements have been requested. The Net Recovery
Value test is not applicable and no further servicing actions are
required if all of the following are applicable:
a. The loan is eligible for conservation easement.
b. The write-down amount does not exceed the conservation easement
write-down limit specified by program regulations.
c. All other loans written down were based on conservation easement
authority.
2. If the present value of the repayment on remaining FmHA or its
successor agency under Public Law 103-354 debt equals or exceeds the net
recovery value of collateral a debt restructuring plan has been found
which will keep the borrower on the farm and no further serving actions
are required.
[[Page 233]]
3. If a full write-down of a loan does not achieve a positive cash
flow margin in the applicable year continue selecting loans for write-
down and repeat this process until a positive cash flow margin is
obtained in the applicable year or there are no other loans left to
write-down.
VII. Net Recovery Value
DALR$ computes the net recovery value of collateral to obtain a
value to use for the net recovery value test outlined in section VI C3b
of this exhibit, as required in Sec. 1951.909(f) of this subpart. See
exhibit I, ``Guidelines for Determining Adjustments for Net Recovery
Value of Collateral,'' for guidance in determining the value of specific
items in the net recovery alue calculations outlined have.
Net recovery value is computed for all FmHA or its successor agency
under Public Law 103-354 Farmer Program loan security. If FmHA or its
successor agency under Public Law 103-354's lien position or the amount
of prior liens vary from item to item, separate net recovery values will
be computed for each item which has a different lien structure. Example:
FmHA or its successor agency under Public Law 103-354 has a first lien
on a borrower's equipment, except for two tractors. One tractor was
financed by non-FmHA or its successor agency under Public Law 103-354
credit, and FmHA or its successor agency under Public Law 103-354 has a
junior lien subject to the purchase money financing. In the case of the
second tractor, FmHA or its successor agency under Public Law 103-354
subordinated its lien to another lender to finance repairs, thus, FmHA
or its successor agency under Public Law 103-354 has a junior lien
subject to the amount subordinated. In this example there would be three
net recovery calculations, one for each tractor and one for the
remaining equipment. The sum of the three calculations would be the net
recovery value. The same logic applies to real estate security. Thus,
the sum of all individual calculations will be the total net recovery
value.
The general formula for net recovery value is as follows:
market value of security
minus prior liens
minus property taxes while in inventory
minus depreciation on property
minus management charges
minus repairs necessary for resale
minus legal and administrative fees
minus sales costs
minus advertising cost
Plus/minus increase/decrease in value while in inventory
minus interest cost while in inventory
minus miscellaneous expenses, if any
plus anticipated income while in inventory
equals net recovery value for security property
total of net recovery value for individual property items-net recovery
value of collateral.
The individual items in the net recovery value formula are computed
as follows:
1. Market value of security--the market value of the security based
upon a current appraisal.
2. Prior liens--the total of all liens proceeding FmHA or its
successor agency under Public Law 103-354's security interest, including
past due taxes and assessments and subordinates.
3. Property taxes and assessments while in inventory--(annual tax
and assessments due divided by 12) x average holding period in months.
4. Depreciation on property--Annual amount of depreciation
determined by the County Supervisor, divided by 12) x average holding
period in months.
5. Management charges--based upon methods of management used (acres
under management x annual rate per acre) divided by 12 x average
holding period in months, or (net income on a monthly basis x
percentage fee charged) x average holding period in months, or the
anticipated monthly management and maintenance expense x average
holding period in months, or the total of the appropriate combination of
these.
6. Repairs--as determined necessary by County Supervisor.
7. Legal fees--determined with guidance from the State Director.
8. Sales costs--commission rate x market value of security.
9. Advertising--cost of three-week advertisement 1 time x (average
holding period in months divided by 6, rounded to the nearest whole
number).
10. Value increase/decrease--annual percentage divided by 12 x
average holding period in months x market value.
11. Interest cost during inventory period--(interest rate on 90-day
T-Bills x current market value) divided by 12 x average holding
period, in months.
12. Average holding period for inventory, in months--determined by
the State Director in accordance with FmHA or its successor agency under
Public Law 103-354 Instructions.
13. Miscellaneous--any unusual or other expenses associated with
acquiring, holding, or selling the property which are not covered by
itemized expense items, such as hazardous waste cleanup and surveys.
14. Income--income received every month x average holding period
in months + (total of non-monthly income received for the year divided
by 12) x average holding period in months.
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VIII. Summary
At this point, DALR$ has finished its calculations. DALR$ will
consider service programs to the point where a feasible plan has been
achieved, or all farmer program loans have been written down completely.
DALR$ will provide a report of the results of the calculations
performed, including the present value test.
If DALR$ does not find a solution that will provide a feasible plan,
FmHA or its successor agency under Public Law 103-354 will proceed with
the other actions authorized in this subpart, including mediation, offer
the opportunity to purchase collateral for net recovery value, and
consideration for Preservation Service Programs.
Attachment 1--Formulas Used in DALR$ Calculations
I. Amortization Factors (AF)
There are two amortization factors used to compute equal annual
installment debt repayments: (1) The amortization factor for interest
bearing debt and, (2) The AF for non-interest bearing debt. The first AF
is a function of both loan term and interest. The second AF is a
function of loan term only.
A. Amortization factor for interest bearing debt
1. Notation: [AF](i,t) (AF=amortization factor)
2. [AF](i,t)=[i x (1+i)5]/[(1+i)t-1]
where
a. ``t'' is the loan term (years)
b. ``i'' is the annual interest rate (decimal equivalent)
3. Calculation of the amortization factor for interest bearing debt
example: loan terms are 5% interest, 15 years (i=.05, t=15)
AF=(.05 x (1+.05)15)/((1+.05)15-1)
AF=.09635
B. AF for non-interest bearing debt
1. Notation: [AF](0,t)
The notation is similar to the notation used for the AF of interest
bearing debt except the interest rate is set equal to zero (0).
2. Formula
[AF](0,t)=1/t
Where
``t'' is the term of the loan (Years)
This factor is used to determine annual repayment of Non-capitalized
debt. Accrued interest less than 90 days past due is one type of non-
capitalized debt. Note: The AF formula for interest bearing debt reduces
to this formula when interest is zero.
3. Calculation of the amortization factor non-interest bearing
example: loan term is 15 years
AF =1/15
AF = .06667
II. Present Value Factor (PVF)
Present value is calculated when debt writedown is used. The present
value of restructured loans is the sum of the present values of
individual loans computed using these formulas.
There are two present value factors used to compute the present
value of future payments. (1) The present value factor for single
payments and (2) the present value factor for uniform series payments.
A. PVF for single repayments
1. Notation: [PV1] (id,t) (PV1=Present value 1 payment)
2. Formula
[PV1] (id,t) =1/(1+id)t
where
a. ``t'' is the number of payments (years) from the ``present'' date. In
all calculations, the ``present'' date is the effective date
of proposed servicing actions.
b. ``id'' is the ``discount rate'' (annual decimal equivalent)
example: a payment will be received 45 years from the present date.
The discount rate is 7%
id = .07 t=45
PV1=1/(1+.07) 45 = .047613
if the payment to be received is $50,000
PV= PV1 x 50,000 = 2381
B. PVF for uniform series of payments (equally amortized
installments)
1. Notation: [PVS] (id,t) (PVS=Present value of series of equal
payments)
2. Formula
[PVS] (id,t) = [(1+id)t-1] / [id x (1+id)t]
Where
a. ``t'' is the number of payments (years) from the ``present'' date. In
all calculations, the ``present'' date is the effective date
of proposed servicing actions.
b. ``id'' is the ``discount rate'' (annual decimal equivalent)
example: a series of equal annual installments will be received
annually for 30 years.
The discount rate is 7%
id =.07 t = 30
PVS = [(1+.07)30-1] / [.07 x (1+.07)30] = 7.6031
if the annual installment is $10,000
PV= PVS x 10,000 = 76,031
III. Joint Amortization Factor
This factor is used in the selection of loans for deferral and for
write down. It is the weighted average of the amortization factors for
interest bearing debt and non-interest bearing debt. When this factor is
multiplied by the remaining balance on the loan it yields the equal
annual installments for the loan.
A. Calculations
1. Notation: [JAF] (i,t)
2. Formula
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[JAF] (i,t) = [(P x [AF] (i,t))+(Pnc x [AF](O,t))]/PT
where:
``P'' is the sum of the principal balance plus the past due accrued
interest.
``Pnc'' is the non-capitalizable portion of the accrued interest.
``PT'' is the total debt and equal to P + Pnc
``[AF] (i,t)'', ``[AF] (O,t)'', ``t'' and ``i'' are as defined in
paragraphs I.A. and I.B. in this attachment.
example: P=5,886 Pnc=581 PT=6,467
i=.05(5%) t=15 (years)
[AF] (i,t)=.09635 [AF](0,t)=.06667
JAF=[(5886 x .09635)+(581 x .06667)/6467
JAF=.09369
Annual installment=P